SIF & PMS
Can a SIF protect you when markets fall? Long-short strategies explained
Long-short SIFs can bet against parts of the market, which can soften a fall. How the "short" works, how much it can cushion, the limits, and who these funds suit.
By Anudeep Nadendla · 2 November 2026 · 4 min read
When markets fall, an ordinary equity fund falls with them. It can only buy shares, so the best it can do is hold some cash. A newer kind of fund in India can do more: long-short Specialised Investment Funds (SIFs) can also bet that some shares or the market will go down. That can soften a fall, but it doesn't make the fund fall-proof.
If you're new to SIFs, start with our article What is a SIF?.
Long and short, simply
- Going long means buying a share because you expect it to rise. This is what every equity fund does.
- Going short means betting a share or index will fall. The fund does this through derivatives, such as futures, and earns when the price drops.
A long-short fund holds mainly long positions, and adds some short positions where the manager expects prices to fall. In SIFs, the "unhedged" short position, a real bet against the market rather than a hedge, is capped at 25% of the fund.
How much can it cushion a fall?
The idea that matters is net exposure: the long positions minus the short ones. A fund 100% long has full exposure to the market. A fund 100% long with 20% short has net exposure of about 80%.
As an illustration only: if the market falls 10%, the fully long fund would fall about 10%, while the fund with 80% net exposure would fall closer to 8%, before the effect of which shares the manager picked. In a rising market it works the other way: the shorts cost money, so the fund may rise less than the market.
So a long-short fund aims to soften falls and smooth the ride, not to avoid losses. If the manager shorts the wrong shares, or the market rises when it was expected to fall, the shorts add losses instead.
The main long-short SIFs
| Strategy | What it holds | Short position |
|---|---|---|
| Equity long-short | At least 80% in equity | Up to 25% unhedged short |
| Equity ex-top 100 long-short | Mainly mid and small companies outside the largest 100 | Up to 25% unhedged short |
| Sector rotation long-short | Moves between a few sectors | Up to 25% unhedged short |
| Hybrid long-short | At least 25% each in equity and debt | Up to 25% short |
Hybrid long-short funds hold a good part in debt as well, so they tend to move less than equity long-short funds, in both directions.
What to check before you invest
- The minimum. SIFs need at least ₹10 lakh per investor across one fund house's SIFs, unless you're an accredited investor.
- When you can redeem. Some SIFs let you redeem every day; others only on set days, such as once or twice a week, sometimes with a notice period. Check the scheme document.
- How the manager uses the short. Some use it a lot, some hardly at all. Ask how the fund behaved in past falls, once it has a record.
- Costs. Strategies that trade more usually cost more. Compare the expense ratio with a plain equity or hybrid fund.
- Tax. It depends on how much the fund holds in Indian equity. Funds with at least 65% in equity are generally taxed like equity funds; others are taxed differently. Check before you invest.
- Track record. SIFs are new in India, so most funds have only a short history.
Who it suits
Long-short SIFs can suit experienced investors with at least ₹10 lakh to invest, who want equity returns with a smoother ride and understand that the short positions can help or hurt. They work best as a part of a portfolio, not all of it. If a market fall would force you to sell, a simpler mix of equity and debt funds may suit you better.
We distribute SIFs and can help you compare strategies. Learn more on our SIF page.
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