SIFs are not for everyone: Why affluent investors need to get their core portfolio right first

As Specialised Investment Funds (SIFs) begin carving out space in India’s evolving investment landscape, wealth advisors are increasingly urging affluent investors to approach the category with clarity rather than excitement. Positioned between traditional mutual funds and high-ticket alternative investment products, SIFs promise greater flexibility, tactical allocation strategies, and potentially superior risk-adjusted returns. According to Aditya Agarwal, Co-founder of Wealthy.in, investors should first ask a more fundamental question. Is their core portfolio already in place? 

Agarwal says SIFs should only come into consideration after an investor has established a strong long-term financial foundation through disciplined investing. “SIFs make sense once the core is set and the investor has additional corpus. The priority is to get the financial core right through goal-linked long-term SIPs,” Agarwal tells Fortune India. 

That distinction is important because the arrival of SIFs has generated curiosity among affluent investors looking for more sophisticated ways to navigate uncertain markets. Yet, unlike conventional mutual funds, SIFs are not designed to be the centrepiece of an investor’s portfolio. Instead, they are intended to act as a supplementary allocation layer that can help diversify risks, improve portfolio efficiency and create more balanced return outcomes across market cycles. 

Why some investors may prefer hybrid SIFs over traditional equity funds 

According to Agarwal, one of the biggest advantages of certain SIF strategies, especially hybrid long-short structures, lies in their ability to offer a middle path between fixed income and pure equity exposure. “For example, if someone has a two-year horizon, an equity mutual fund may not be suitable. But a hybrid long-short SIF can deliver debt-like volatility with better tax efficiency and returns higher than fixed income,” he says. 

In volatile or sideways markets, investors often move money into fixed deposits because they become uncertain about equity market returns. Agarwal says hybrid long-short SIFs can emerge as a useful alternative in such situations by generating moderate, tax-efficient returns without exposing investors to excessive market risk. 

He also sees SIFs as a way to restore discipline in asset allocation — an area where many investors struggle during periods of uncertainty. In strong bull markets, portfolios often become excessively equity-heavy, while market corrections push investors towards overly conservative instruments. SIFs, he argues, can help create balance when used thoughtfully within a broader allocation strategy. 

Still, Agarwal is careful to stress that SIFs are not a replacement for core investments. 

“For any financial product, investors should ensure it fits their portfolio and time horizon. SIFs are not meant to replace core investments. They add balance by bringing diversification and risk management if used thoughtfully,” he says. 

Why the mutual fund label can create confusion around SIFs 

However, one of the more significant risks surrounding SIFs may not be product risk alone, but what Agarwal calls “category confusion”. Because SIFs operate within the mutual fund framework and enjoy taxation similar to mutual funds, investors may assume they function like ordinary equity or hybrid schemes. In reality, the category allows fund managers to deploy far more sophisticated investment techniques. 

“SIFs come within the mutual fund framework and have mutual fund-like taxation, but they allow strategies that go beyond conventional mutual funds,” Agarwal explains. 

These strategies can include long-short equity, structured credit, derivative overlays, thematic positioning and multi-asset diversification. The additional flexibility allows fund managers to reshape the portfolio’s risk-return profile in ways traditional long-only mutual funds cannot. 

But that flexibility also introduces complexity. “Investors considering SIFs should be mindful that the specialised strategies employed by SIFs, including the use of derivatives, inherently carry higher complexity and risks compared to traditional mutual funds,” Agarwal says. 

Why investors should pay attention to liquidity and lock-in structures 

Depending on the structure, certain SIFs may also have lower liquidity or lock-in features compared to open-ended mutual fund products. Moreover, since the category is still relatively new, there is limited historical performance data available for investors to evaluate how these strategies perform across full market cycles. 

For Agarwal, this makes due diligence especially critical. He says investors should focus on two key filters before allocating money to SIFs: the experience and risk-management capabilities of the fund house, and the clarity of the product’s objective. 

“Investors should choose funds from AMCs with a proven process and risk discipline,” he says, adding that investors must clearly understand whether the product is designed to reduce risk, improve risk-adjusted returns or aggressively chase alpha. That nuance becomes even more important because many investors may incorrectly view SIFs simply as mutual funds with a higher entry ticket. 

Agarwal argues that the ₹10 lakh minimum investment threshold is not the defining characteristic of the category. The more meaningful difference lies in the investment philosophy and strategy framework. 

Traditional mutual funds largely operate through long-only equity, debt or hybrid mandates. SIFs, on the other hand, have the flexibility to use hedging strategies, derivatives and tactical asset allocation to manage downside risks while participating in market upside. “This allows SIFs to reshape the risk-return trade-off, cushion downside while enabling meaningful participation in upside, and offer a middle path between debt and full equity risk,” Agarwal says. 

But he also cautions that investors should not make decisions based solely on eligibility criteria. “So, the decision should not be based only on whether the investor can meet the ₹10 lakh minimum investment requirement. Investors should understand what the SIF is trying to do in the portfolio,” he notes. 

How SIFs differ from mutual funds, PMS, and AIFs 

From a broader wealth-management perspective, SIFs are increasingly being positioned as a bridge category between traditional mutual funds and more sophisticated products such as Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs). 

The distinction is visible not only in strategy flexibility but also in ticket size. While mutual funds can be accessed with relatively small investments, SIFs require ₹10 lakh, PMS products ₹50 lakh and AIFs ₹1 crore. Unlike mutual funds, which are largely restricted to long-only, pre-defined mandates, SIFs can adopt long-short, thematic, hedged and under-hedged derivative strategies. PMS structures offer even greater flexibility through discretionary portfolio management, while AIFs can invest across private equity, venture capital, structured credit, real estate, and more complex hedging strategies. 

In that sense, SIFs occupy a unique middle ground. They combine the regulatory structure and taxation advantages of mutual funds with some of the strategic flexibility typically associated with PMS and AIF products.  

For affluent investors, the message from wealth advisors is increasingly clear: SIFs may eventually become an important tool for diversification and risk management, but they are not products to buy simply because they are new. Their role is strategic, not foundational — and only investors with a well-structured core portfolio, clear investment objectives and an understanding of the risks involved are likely to benefit from them over the long term.