If SIFs aren’t built for aggressive returns, what should investors expect instead? Chinmay Sathe explains

As Specialised Investment Funds (SIFs) continue to gain traction in India’s investment ecosystem, many investors are approaching the category with a familiar question: can these products outperform markets and deliver higher returns? According to Chinmay Sathe, Business Head & CIO–SIF at The Wealth Company Mutual Fund, that may not be the right way to evaluate them.

Instead of chasing aggressive market-beating returns, SIFs are designed with a different objective — delivering better risk-adjusted returns through greater flexibility in portfolio construction and risk management.

The category, positioned between traditional mutual funds and Portfolio Management Services (PMS), has generated growing interest among both investors and distributors. But experts suggest that understanding the category's design philosophy is essential before setting return expectations.

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“SIFs sit between traditional mutual funds and PMS in terms of flexibility, sophistication, and portfolio construction,” Sathe said. “Traditional mutual funds are largely long-only and benchmark-oriented, while PMS strategies can be highly concentrated and customised.”

According to Sathe, the difference lies not just in structure but in investment objectives.

“From a risk-return perspective, the objective is not just absolute return generation, but delivering superior risk-adjusted outcomes across market cycles,” he said.

What should investors expect?

If not aggressive returns, investors should expect greater adaptability and more active risk management.

Unlike traditional mutual funds that generally remain invested on the long side of the market, SIFs have broader flexibility. Portfolio managers can dynamically use tools such as long-short positioning, tactical hedging, sector rotation, active cash management and tactical allocation shifts depending on market conditions.

That flexibility, according to Sathe, becomes especially useful during uncertain or uneven markets.

“Long-short and hybrid SIF strategies are particularly well suited for volatile, range-bound, or highly dispersed markets where stock selection matters more than broad index direction,” Sathe said.

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He noted that these strategies can selectively participate in high-conviction opportunities while hedging weaker pockets of the market, potentially leading to more consistent outcomes over time.

This is particularly relevant during periods where preserving capital becomes as important as participating in market upside.

Short-term performance

Some SIF strategies, particularly equity long-short offerings, have seen early performance remain below issue price, leading to questions around effectiveness. However, Sathe cautioned against judging these products using short-term return metrics.

“These are not products designed for short-term momentum chasing,” he said. “Their real value emerges over a full market cycle where downside management, volatility control, and compounding become visible.”

He added that short-term fluctuations are common, especially during periods of sharp market rotations and elevated mid- and small-cap volatility.

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Sathe also highlighted a frequently overlooked challenge: investor behaviour.

“One of the biggest risks investor underestimates is behavioral risk,” he said, noting that investors often expect smooth, linear returns from sophisticated strategies.

Going forward, he believes investors should assess SIFs using metrics beyond headline returns. Measures such as Sharpe ratio, downside capture, drawdown control, volatility consistency and performance across different market environments may offer a more meaningful indication of whether these products are delivering on their promise.

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For investors, the message appears clear: SIFs are less about chasing maximum returns and more about creating a smoother journey through market cycles.