Multi-Asset Investing and Long-Short Bets Integrated in SIF Strategy

Multi-Asset Funds Offer Resilience in Volatile Markets

Globally, asset prices are experiencing heightened volatility due to weak economic growth, rising geopolitical tensions, and policy uncertainty. In contrast, the domestic economic environment is characterized by strong growth, a stable government, and a pro-growth policy framework in a low-interest regime. This dichotomy has led to strong equity markets, albeit at relatively high valuations, driven by low interest rates and rising investor interest.

Investors holding multi-asset portfolios have fared better, with multi-asset funds averaging 5.72 percent returns in one year ended September 30, 2025, while most equity fund categories reported losses. Hybrid funds, which offer a mix of equity exposure and downside risk protection, have been particularly effective for investors with a moderate risk profile.

The Specialised Investment Fund (SIF) offers an interesting option in this context, with the Active Asset Allocator Long Short Fund (AAALSF) being a notable example. This fund provides maximum flexibility to the fund manager, who can invest in a mix of stocks, bonds, real estate investment trusts, infrastructure investment trusts, commodities, and derivative instruments.

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The fund manager has the discretion to pick individual stocks, bonds, or derivative instruments, and can adjust the allocation to each asset class based on market conditions. In good times, the manager can invest in high-growth mid- and small-cap companies, while in bad times, they can curtail equity allocation and focus on high-quality large-cap stocks.

The AAALSF also allows the fund manager to go short on bonds and stocks using up to 25 percent of the money, providing a long-short strategy that can help optimize returns. This approach involves buying securities whose prices are expected to rise and short-selling securities whose prices are expected to fall.

The long-short strategy and diversified exposure across asset classes are expected to help the fund manager achieve healthy risk-adjusted returns over the long term. However, investors should be aware of a few limitations, including the potential for muted returns in a raging bull market and the need for dynamic asset allocation that aligns with changing market conditions.

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Investors should also pay attention to the underlying asset allocation of these schemes, as those allocating more than 65 percent to equities are treated like equity funds and subject to a 12.5 percent tax rate on gains booked after one year of acquisition. The scheme also stipulates a minimum investment threshold of Rs 10 lakh, making it accessible to most mass-affluent investors.

Investors with a moderate risk-taking ability who want to generate healthy risk-adjusted returns with equity exposure should consider this scheme with a minimum holding time frame of five to seven years.