Over the past few years, mutual fund investments have risen as more people enter the stock market. But investors looking for more sophisticated products typically only had portfolio management services (PMS), or alternative investment funds (AIFs) as options. High entry barriers – Rs 50 lakh for PMS and Rs 1 lakh for AIFs – meant that it was largely restricted to high-net-worth individuals (HNIs).
Things changed when the Securities and Exchange Board of India (Sebi) introduced Specialized Mutual Funds (SIFs) with effect from April 1, 2025. The idea was to bridge the gap between mutual funds and PMS/AIFs by offering investors greater flexibility in their portfolios.
In less than a year since the launch of the first venture capital fund, the category has seen good traction, with assets under management rising with each passing month, surprising even the most optimistic fund managers.
A SIF is a Sebi-regulated pooled investment product, like a mutual fund, but with more flexibility. Fund managers can offer long and short equity derivative strategies, multi-asset allocation, and commodity derivatives. It can be a good option for experienced investors looking for the regulatory safeguards of mutual funds but the flexibility of PMS and mutual funds at a much lower entry barrier. The main advantage is its flexibility, Mitul Kalawadia, senior fund manager at ICICI Prudential AMC, tells Business Today.
Mutual funds are permitted to invest in financial derivatives, while traditional mutual funds can do so in a limited manner. Derivatives act as a hedge by offsetting potential losses in the asset through an opposite position. This can help mutual funds limit losses, especially during prolonged market downturns. High investor interest
QIC Long & Short Equity Fund was India’s first equity mutual fund, launched in September 2025. As of June 2026, there were 27 equity mutual fund schemes in the market, with the largest number of funds (nine) in two categories – long-short equity and long-short hybrids. The net assets under management (AUM) of the SIF sector stood at Rs 17,858 crore, up 29% from Rs 13,814 crore in May 2026, according to data from the Association of Mutual Funds of India (AMFI).
The response to venture funds reflects the evolution of the Indian investor, who is becoming more aware of asset allocation, risk management and the need for differentiated return streams, says Radhika Gupta, managing director and CEO of Edelweiss Mutual Fund.
SIF is managed by asset manager Altiva, which currently offers two schemes – the Ex-Top 100 Long-Short Fund and the Hybrid Long-Short Fund.
What’s interesting to us about venture funds is that they democratize the ability to access strategies that have historically only been available through more exclusive structures.
-Radhika Gupta,Managing Director and CEO of Edelweiss Mutual Fund
“What interests us about venture funds is that they democratize access to strategies that have historically only been available through more exclusive structures. Investors today are not just chasing returns, they are looking for better portfolio outcomes, diversification and flexibility across market cycles,” Gupta tells BT.
By taking derivative positions, mutual funds seek to protect portfolios from downside risk, especially during bear markets, while retaining some upside potential. As a result, they are expected to be less volatile and deliver more consistent risk-adjusted returns over the course of a market cycle than traditional mutual funds.
Stock markets have been volatile this year amid conflict in West Asia. Mutual funds, with their ability to take derivative positions, have achieved better results than some mutual funds, and this may have helped attract more investors, according to Venkat Chalasani, CEO of the Association of Mutual Funds of India (AMFI). But the same strategies that protect portfolios in declining markets can also lead to higher prices during extended bull periods. “After the launch, market volatility was very high. Taking naked derivative positions has helped these people achieve reasonably better results compared to what we get in the mutual fund space. This is attracting some good flows into the market,” Chalasani tells BT. Early adopters were largely experienced and wealthy investors rather than investors diversifying away from mutual funds.
Sebi has set stringent eligibility criteria for launching SIFs. A mutual fund can launch a SIF only if it has been in operation for at least three years and has maintained average assets under management of at least Rs 10,000 crore over the previous three years. Alternatively, fund houses can qualify by appointing a lead investment manager and an additional fund manager who meet Sebi’s eligibility criteria.
Taking derivative positions helped these people invest more and thus achieve reasonably better results compared to what we get in the mutual fund space.
-Venkat Chalasani, CEO, Mutual Fund Association of India
Advantages
SIFs have many things going for them. They follow the same expense structure as mutual funds. The tax structure is also similar, so investors are only taxed when they redeem their units. If redeemed after one year, long-term capital gains are taxed at 12.5%. This is an advantage compared to a PMS, where investors are taxed whenever the fund manager executes a trade. PMS and AIFs often charge performance fees.
“On the one hand, investors were looking for different strategies. On the other hand, we had a year and a half of markets not going up. There was volatility. So, that creates a good environment for a strategy like SIF. The fact that it has been structured to be offered to investors within the shell of mutual funds, which is really well understood, there is transparency, there is governance around it, there is tax efficiency, I think that is a win-win,” Syed says. Swaminathan, MD & CEO, Jio BlackRock Asset Management.
Swaminathan believes India has similar potential as investor preferences evolve. In the United States, similar strategies to mutual funds are offered through alternative mutual funds or liquid alternatives, which bring hedge fund-like investment methods to individual investors. Like SIF, they can take long and short positions. According to Deloitte’s Center for Financial Services, alternative funds, including those targeting retail investors, could manage $4.1 trillion in assets by the end of this decade.
Mutual funds are an interesting category, and the rapid rise in assets under management indicates strong demand among the investor segment for which they are designed, says Arun Patel, founder and partner at Arunaset Investment Services. However, investors should not confuse rapid asset accumulation with a proven track record.
While some funds are shifting away from PMSs and VCs, experienced mutual fund investors who have built large portfolios are also among the early adopters of VCs, experts say.
“As it stands, SIFs don’t have a one-year live track record,” Patel says. “I would prefer to wait a little longer to see how asset managers use this additional flexibility across different market conditions before committing meaningful funds.”
However, there is a trade-off. In a market that is rising sharply, the same hedging can limit the upside. “So, mutual funds should be judged on risk-adjusted returns over a full cycle, rather than short-term performance,” he says.
A category like the Active Asset Allocation Long-Short Fund, which invests in equities, debt and commodity derivatives as well as REITs, can suit investors looking for steady, stable returns over time, says Anant Laddha, founder of investment platform Invest Aaj for Kal.
“In particular, if you’re a defensive investor who would be very happy with, say, 10% to 11% returns, and that’s very consistent, then an active asset allocation category can be beneficial to you. Also, when multi-asset funds underperform, as they have done due to the gold and silver rally in the recent past, these funds can even outperform equity returns.”
Distribution challenges
One challenge that may act as a speed bump in the rapid growth of venture funds in the near term is distribution. Mutual fund distributors who also wish to sell SIFs must pass a rigorous certification process. It is estimated that there are currently about 7,000 SIF distributors, compared to about two distributors in the mutual fund industry.
The current dealer network is sufficient for the current size of the market, and the number is increasing every month, says Chalasani. He agrees that the network needs to expand further and says discussions are ongoing with Sebi on this front.
While distributor availability is currently considered the biggest impediment to growth of this category, industry participants believe investor awareness will improve as more fund houses launch venture capital funds. “We are trying to see if there is a way we could focus on the National Institute of Securities Markets (NISM) exam and have the curriculum relate to only certain strategies rather than covering all the other products,” Chalasani says. “The exam includes, for example, foreign exchange derivatives.” We have asked to remove things that are not necessary to become a SIF distributor.”Sebi and NISM are working together to roll out a joint distributor certification exam for mutual funds and SIFs, which will serve as a single certification for distributors who intend to distribute both mutual funds and SIF products, Amarjit Singh, standing member, Sebi, said at an industry conference earlier this month.
The SIF industry is still a small fraction of the size of the mutual fund industry. The net assets under management of the mutual fund industry stood at Rs 81,58 lakh crore as of May 31, 2026, with equity funds alone recording inflows of Rs 22,908 lakh crore in May. While these inflows have been largely driven by retail investors through SIPs and aggregate investments, industry participants expect SIFs to attract a mix of funds shifting from PMSs and AIFs, as well as allocations from experienced mutual fund investors looking for more sophisticated investment strategies.
“If you look at developed investment markets globally, investors have access to a much wider range of portfolio solutions,” says Gupta of Edelweiss MF. “India is moving in this direction as investors become more sophisticated and financial assets continue to grow.”
@TheNachiket
