Why Are Hybrid SIFs Leading India's New Investment Category?

With rising assets under management and growing fund house participation, hybrid specialised investment funds (SIFs) are gaining traction as investors seek tax-efficient, risk-managed returns in volatile markets.

Since their introduction, SIFs have seen most traction in the hybrid category, driven by the demand for risk-managed, tax-efficient returns in a volatile market environment.

Most SIF launches and inflows are currently concentrated in the hybrid segment. According to SBI Mutual Fund's DP Singh, this is because hybrid SIFs showcase the structural flexibility of the framework, particularly the ability to use derivatives to shape risk–reward outcomes.

“Derivatives can both enhance returns and reduce volatility, allowing hybrid SIFs to pursue ‘debt-plus' outcomes in a tax-efficient framework,” he said. This has aligned well with investor demand for strategies that prioritise stability while offering incremental return potential, especially in an environment where risk management has become a key focus.

Radhika Gupta, managing director and chief executive officer of Edelweiss Mutual Fund, echoed this view, noting that hybrid SIFs allow income generation through low-risk derivative strategies combined with fixed income, offering tax efficiency and controlled risk. She adds that such strategies are not available on traditional mutual fund or other platforms, making them a natural first choice for both asset managers and investors.

Singh pointed out that SBI Mutual Fund's Magnum Hybrid Long-Short Fund was developed as an all-season, conservative long-short strategy aimed at delivering low-volatility, tax-efficient returns.

ALSO READ: Why Radhika Gupta Calls SIFs The Sweet Spot Between MFs And AIFs

Industry data shows that around 13 mutual fund houses have received approval to launch SIF platforms, with several more in the pipeline. The category's AUM has also seen a sharp rise, crossing Rs 4,800 crore by December 2025, up from under Rs 3,000 crore the previous month, highlighting strong early traction among investors.

So far, launched SIF schemes include Quant Mutual Fund's QSIF Equity Long-Short, QSIF Hybrid Long-Short and QSIF Equity Ex-Top 100 Long-Short Funds; SBI Mutual Fund's Magnum Hybrid Long-Short Fund; Edelweiss Mutual Fund's Altiva Hybrid Long-Short Fund; ITI Mutual Fund's Diviniti Equity Long-Short Fund; and Tata Mutual Fund's Titanium Hybrid Long-Short Fund, with additional launches expected from Bandhan MF, 360 ONE, ICICI Prudential MF, HDFC MF and others.

Equity-focused SIFs, however, have remained limited so far. Singh explained that while SIFs offer significant flexibility in using derivatives, this also makes equity-oriented strategies inherently a higher risk, whereas hybrid and debt-oriented structures are naturally more conservative. Given that each SIF requires a minimum investment of Rs 10 lakh, launching aggressive strategies first would force investors to allocate the entire amount into a single high-risk product. By introducing conservative options initially and rolling out aggressive ones later, investors can distribute their capital across multiple strategies as the category matures, he says.

Gupta added that while some AMCs have already filed for equity-focused SIFs, elevated volatility and uncertain market direction may be prompting many to wait for more stable conditions before launching differentiated equity strategies.

Pure debt SIFs have also not gained traction so far. Singh pointed to recent monetary policy trends, including the RBI's dovish rate cut and expectations of further easing, which have reduced the scope for high-return debt strategies. Compared to equity and hybrid SIFs, debt strategies currently offer limited upside. He also noted that the tax advantages associated with equity and hybrid strategies place debt SIFs at a relative disadvantage, making them less attractive for investors at present.

Gupta similarly observed that lower bond yields and changes in fixed-income taxation have reduced the immediate appeal of pure debt strategies, though debt SIFs, especially in credit and structured strategies, could emerge as market conditions evolve.

Hybrid SIFs are designed to deliver “debt-plus” returns in a tax-efficient and risk-controlled manner. Singh said they combine structural flexibility with a regulated, pass-through tax framework, allowing diversification across asset classes and the strategic use of options to enhance downside protection and reduce return volatility. A key strength of SIFs is their taxation model, where gains are taxed directly in the hands of investors based on the underlying asset classification, with no tax incidence at the fund level. This clarity and efficiency differentiate SIFs from several other pooled vehicles. Gupta added that hybrid SIFs fill the gap between fixed income, arbitrage funds and equity-oriented hybrid mutual funds, aiming to deliver relatively better returns than arbitrage or traditional debt, with lower risk and greater tax efficiency than PMS or AIF structures.

Both experts stress that return and risk expectations depend entirely on the underlying strategy. Hybrid SIFs are built to be conservative, while equity-oriented SIFs such as sector rotation or long-short thematic strategies carry higher risk and return potential. Short positions can generate alpha and help manage volatility, while options may be used for either risk reduction or return enhancement. Since SIFs cannot use leverage, overall risk remains within defined limits. Investors are advised to evaluate each SIF's strategy, risk–return profile and design rather than relying solely on past performance.

Looking ahead, Singh expects the evolution of SIFs across a wider range of strategies, including equity and multi-asset offerings aimed at long-term wealth creation. Gupta believes SIFs will continue to grow as investors seek better risk-adjusted outcomes. As conditions stabilise, more equity and debt SIF launches are likely, with performance reflecting disciplined asset allocation rather than pure alpha generation.

Watch LIVE TV, Get Stock Market Updates, Top Business, IPO and Latest News on NDTV Profit.