Part 6 of 6 in the Specialised Investment Funds series: Part 1 · Part 2 · Part 3 · Part 4 · Part 5
We have covered a lot of ground. Futures and options. The long-only limitation of regular funds. Four building blocks of a SIF portfolio. Net long vs gross exposure. Hedged vs naked shorts. The money market mystery.
Now let us use all of that to build a practical framework for evaluating any SIF you encounter.
When you look at a SIF portfolio disclosure, five numbers tell you most of what you need to know.
The Five Numbers
1. Net Long Exposure
Net Long = All long positions - All short positions
This is the single most important number. It tells you how much the fund behaves like a traditional long-only equity fund in terms of market direction.
| Net Long | What to expect |
|---|---|
| 90–100% | Behaves very much like a regular equity fund — rises and falls with the market |
| 70–90% | Meaningfully reduced market exposure; moderately cushioned in falls |
| 50–70% | Significantly hedged; much lower correlation to market direction |
| Below 50% | Heavily hedged; returns driven primarily by stock selection, not market direction |
None of these is automatically better or worse. A 100% net long SIF is essentially an equity fund with some extra tools. A 60% net long SIF is a fundamentally different animal — targeting returns from stock-picking on both sides, less dependent on the market going up.
2. Gross Exposure
Gross Exposure = All longs + |All shorts|
This tells you the total activity — how many positions the fund is running, weighted by size. A gross exposure above 100% means the fund is running more total positions than its NAV, layering short-side bets on top of the long book.
Gross exposure above 100% is normal and expected in a long-short fund. It is not leverage in the traditional sense, the fund has not borrowed money to buy more stocks. It has used the short side to add more positions, which are directional bets, not additional capital.
The gap between gross and net tells you about two-way activity:
- Gross = 100%, Net = 100%: No short book at all
- Gross = 130%, Net = 70%: 30% is in opposing directions simultaneously
3. Equity Allocation
The percentage of NAV in actual cash equity positions. Combined with the net long number, this tells you how much of the equity exposure is "synthetic" (from long futures) vs actual stock ownership.
4. Money Market Allocation
As we established in the previous article: this is an active return generator, not idle cash. A higher money market allocation means the fund is running a larger fixed income carry book alongside its equity strategy.
When evaluating two SIFs with similar net long exposures, the one with a higher money market allocation is offering a different return profile: more fixed income carry, less pure equity.
5. Naked Short Percentage
This requires drilling into the portfolio: matching short futures positions against cash equity holdings to identify which shorts have no corresponding long.
This number tells you the fund's appetite for pure directional bets on the short side. Higher naked short percentage means more aggressive stock-specific short-selling.
Applying the Framework: Our Five Funds Rated
Let us score all five funds on these dimensions:
| Fund | Net Long | Gross | Eq % | MM % | Naked Short |
|---|---|---|---|---|---|
| Arudha Equity Long-Short | 100% | 100% | 60% | 40% | 0% |
| DynaSIF Equity Long-Short | 100% | 118% | 66% | 37% | ~9% |
| qSIF Equity Long-Short | 96% | 104% | 68% | 32% | ~4% |
| qSIF Hybrid Long-Short | 77% | 125% | 39% | 44% | ~8% |
| Arudha Hybrid Long-Short | 69% | 131% | 31% | 31% | 0% |
Arudha Equity Long-Short is, right now, simply an equity fund that holds money market for liquidity. No short book deployed. Suitable for someone who wants equity exposure with a manager who intends to hedge in the future.
DynaSIF Equity Long-Short is a high-conviction equity fund with an active short alpha book. The 9% in naked shorts represents six specific stock calls. This is closer to a long-short hedge fund approach — the manager is taking firm directional views on both sides.
qSIF Equity Long-Short is a near-fully-long equity fund with a small hedging book. Almost a regular equity fund with minor short activity.
qSIF Hybrid Long-Short is the most complex structure: meaningful equity, substantial money market carry, hedged positions on existing longs, and three naked short calls. This fund is doing three distinct things simultaneously.
Arudha Hybrid Long-Short is a systematic partial-hedge fund. Every equity position is partially hedged. No naked shorts. The fund is not making directional bets on the short side — it is choosing to run a structurally reduced equity beta while holding high-yield bonds alongside.
The Questions to Ask Before Investing
Question 1: Do I understand what the net long tells me about drawdown risk?
A 100% net long SIF will fall with the market just like an equity fund. If markets fall 20%, expect this fund to fall roughly 15–20% too. A 70% net long fund might fall 12–15% in the same scenario, but might also capture less of a 20% market rally.
Question 2: Are the naked shorts adding alpha or adding noise?
Naked shorts are the most skill-dependent element of any SIF. If the fund manager has genuine research insight on specific stocks and a track record of being right, the naked shorts add value. Without that edge, they just add volatility. Look for consistency in the short book — funds that churn their shorts often are searching for conviction they do not have.
Question 3: What is the money market yield contributing?
In the current rate environment (mid-2026), money market instruments yield approximately 6.5–7.5%. A fund holding 40% in these instruments earns roughly 2.6–3% per year from that book alone. This is a meaningful, predictable return contributor — factor it into your return expectations.
Question 4: Is the fund in ramp-up?
Several SIFs launched in 2025–2026 and are still building their portfolios. A fund with 0% short exposure may be planning to deploy shorts after growing its AUM. Evaluate what the fund intends to be versus what it currently looks like. A short book that has not been deployed yet is a promise, not a track record.
Question 5: Does the strategy make intuitive sense?
A fund running systematic partial hedges on all positions (like Arudha Hybrid) has a coherent, explainable strategy. A fund running 40 long positions and 2 naked shorts has a slightly inconsistent story — why those 2 stocks specifically? Prefer funds where the short book follows from the investment thesis, not where it looks bolted on.
What SIFs Cannot Do
It is worth being clear about what SIFs are not.
SIFs cannot be net short. SEBI requires net long to remain positive. These are not bear funds — they cannot be structured to profit in a falling market at the aggregate level.
SIFs cannot use unlimited leverage. Short positions consume margin, and total short exposure is capped by the scheme document.
SIFs are not hedged against all market risk. Even a 69% net long fund carries significant equity market exposure. A 30% market crash will hurt, though less than a fully long fund.
SIFs are not for every investor. The ₹10 lakh minimum exists for a reason. These portfolios require the investor to understand derivatives, to read portfolio disclosures actively, and to evaluate strategy implementation over time, not just past returns.
The Bigger Picture
SIFs represent a genuine expansion of what is available within the Indian mutual fund framework. For the first time, regulated, disclosed, daily-NAV funds in India can run long-short strategies that were previously only available through offshore hedge funds or through unregulated pooled vehicles.
That is a meaningful step forward. The question is not whether SIFs are good or bad — it is whether the specific SIF you are evaluating is doing what it says it is doing, doing it competently, and doing it in a way that aligns with your own investment goals.
The framework in this article gives you the tools to answer that question yourself, from a portfolio disclosure that every SIF is required to publish every month.
You no longer need to take the fund's marketing materials at face value. The numbers are in the disclosure. Now you know how to read them.
This concludes the six-part series on Specialised Investment Funds:
- Part 1: What Are Futures and Options
- Part 2: How Regular Mutual Funds Work, and What They Cannot Do
- Part 3: Inside a Specialised Investment Fund
- Part 4: Hedged Shorts vs Naked Shorts
- Part 5: The Cash in SIFs
- Part 6: How to Evaluate a SIF: this article
Data: March 2026 AMFI portfolio disclosures. Full research methodology →
Investments in mutual funds are subject to market risks. Past performance is not an indicator of future returns. This analysis is for informational purposes only and does not constitute investment advice.
Apply the Framework: Live Fund Data
Use the evaluation framework from this article on these monthly-updated SIF portfolio analyses: