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SIF – Specialised Investment Fund, A Novel Tool to Navigate Volatile Markets

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We all know markets are always volatile. Often they move backward or remain in a range for quite good period but in the long run they go up and generate decent returns. At times we do feel strongly about markets going down. But if we are caught on the wrong foot, then we loose opportunity to earn better returns because we move our investments from equity to debt for such assessments that go wrong.

On the other hand, if one keep investments in equity and markets fall then they experience fall in values though temporary but for sure disturbs our peace of mind. In case an investor has strong feeling about market going down but do not want to make any change in equity portfolio, the investor can save his or her portfolio from going down through hedging by using future and options.

For mutual fund investments however strong view the fund manager or the team may have about markets going down but is not allowed by SEBI to take short positions and hedge the portfolio. Cat III Alternative Investment Funds or AIF can use future and options and manage this downside risk very well. But the minimum investment required for the same is Rs. One crore.

SEBI recently introduced a new category of SIF or Specialized Investment Fund which operates on the same principals like Cat III AIFs where an investor can start investment with just Rs. Ten lakhs. In an SIF fund manager can use future and options to protect the downside and participate in the upside. Typically, in SIF or Cat III AIF, the fund manager do not invest all money in stocks but keep good portion of AUM for use in derivatives.

For example, if the fund manager & the investment team form a view that markets will go down, s/he will buy put option of current or higher strike price or sell futures or call options of a much lower strike price to benefit when markets actually go down. And if the fund manager is of the view that markets are in bull run, they will buy futures or call options or sell put options to benefit when markets actually go up.

The picture above shows the actual performance of ITI Long Short Cat II AIF since April 18. It has protected its values whenever the markets (Nifty) went down and generated returns better than Nifty over this period. But please remember past performance is used only for illustration purpose to show how these funds work. And do not guarantee future performance or constitute any recommendation from our side.

These SIFs are a good option if you feel markets are volatile and may go down or remain within a range to limit the downside. And for those investors whose risk appetite is very low or worry about short ter volatility. They may consider it as substitute for largecap or hybrid funds.

Please contact your InvestmentMitra or investment advisor or call us to know more and invest in SIF. You may write to info@investmentmitra.com or whatsapp/call Ajay @9958447700 or Naveen@9254673750.

Happy investing!

Team InvestmentMitra

**All investments are subject to market of other type of risk. Please read the offer documents carefully. Views expressed here are general in nature and no specific recommendation. Please contact your advisor for specific suggestions / recommendations on your portfolio.

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