What Is a Long-Short Fund (SIF)?
A Long-Short Fund is a special type of hybrid or alternative investment fund (SIF) that uses both buying and short-selling strategies. In simple words, the fund manager buys stocks expected to rise (these are long positions) and sells borrowed stocks expected to fall (these are short positions).
For example, imagine an investor who believes Infosys will rise and HCL Tech will fall. They buy Infosys shares (long) and sell HCL Tech shares (short). If Infosys rises and HCL falls, they make profits from both sides.
This strategy helps the fund perform even when the market moves sideways or down.
How Long-Short Funds Work
These funds aim to reduce volatility and generate returns in all market conditions. Instead of relying only on a market rally, they profit by balancing exposure across different market directions
Typically, they:
- Go long (buy) on undervalued stocks expected to rise.
- Go short (sell borrowed) on overvalued stocks expected to decline.
- Use derivatives like futures and options for hedging.
The idea is simple – earn from the difference in performance between strong and weak companies, regardless of whether the market index is up or down.
Example: Simple Illustration
Suppose a fund manager:
- Buys ₹10 lakh worth of Reliance shares (long position).
- Shorts ₹10 lakh worth of Tata Steel shares (short position).
If Reliance rises 10% and Tata Steel falls 5%, the fund earns ₹1 lakh from Reliance and ₹50,000 from the short position – a total gain of ₹1.5 lakh.
This shows how the fund can make money even in mixed market conditions.
Top Long-Short Funds in India (2025)
Here are some popular Long-Short and Hybrid SIF funds available in India in 2025 :
| Fund Name | Fund Type | Key Feature |
|---|---|---|
| Edelweiss Altiva Hybrid Long-Short SIF | Hybrid SIF | India’s first hybrid long-short fund launched in 2025 |
| Quant Equity Long-Short Fund | Mutual Fund (SIF) | Uses quantitative models to balance risk |
| Quant Hybrid Long-Short Fund | Hybrid MF | Dynamic allocation between long and short calls |
| ICICI Prudential Long Short Fund – I | Category III AIF | Aims for absolute returns using equity futures |
| ASK Absolute Return Fund | AIF | Uses market-neutral long-short strategy |
| Helios India Long Short Fund | AIF | High-risk tactical fund |
| Alpha Alternatives Multi Strategy Fund | AIF | Focuses on volatility protection |
| Altacura AI Absolute Return Fund | AIF | Uses AI-driven long-short strategy |
Pros of Long-Short Funds
- Diversified Returns: Can generate profits in both bull and bear markets [1].
- Hedging Against Market Volatility: Reduces downside risk through short positions.
- Professional Management: Run by experienced managers using research-based models.
- Better Risk-Adjusted Returns: Often outperform pure equity funds during volatile periods.
Cons of Long-Short Funds
- Complex Strategy: Not easy for new investors to understand.
- Performance Depends on Skill: Wrong hedging calls can limit profits.
- Higher Expense Ratios: Costlier due to active trading and derivatives.
- Tax Implications: Often taxed like debt funds or AIFs, not eligible for standard mutual fund tax benefits.
- Limited Liquidity: Many Category III AIFs have lock-in periods.
Who Should Invest in Long-Short Funds?
These funds are best suited for investors with moderate to high risk tolerance who understand capital market dynamics and want steady returns with moderate volatility.
Ideal Investors:
- Seasoned investors seeking diversification beyond traditional funds.
- Portfolio managers or high-net-worth individuals wanting to hedge equity exposure.
- Those expecting uncertain or sideways markets.
Who Should Avoid These Funds
Avoid Long-Short Funds if you:
- Prefer simple and transparent products like index or debt funds.
- Have a short-term goal (under 1 year).
- Dislike fluctuating returns or complex strategies.
- Have low-to-moderate risk tolerance.
Final Thoughts
Long-Short Funds represent a unique and flexible approach to investing. They provide a balanced mix of growth and protection—helping investors make money in both rising and falling markets. However, investors must understand the product’s complexity, assess fund managers’ track records, and align it with their financial goals before investing.
In short, long-short strategies are not for everyone, but for those who can handle market dynamics, these funds can deliver consistent and smarter returns even when the markets are unpredictable.
