SIF vs Mutual Funds: 7 key differences in strategy, risk, and returns explained

SIF vs Mutual Funds: Specialised Investment Funds (SIFs) have recently become a major talking point in India’s investment landscape as investors debate whether they offer an alternative to traditional lump sum mutual fund investing. However, experts say it is too early to conclude any structural shift or replacement.

Speaking on Zee Business, Harshvardhan Roongta, CEO, Roongta Securities, and Kirrtan Shah, Founder and CEO, Truvanta Wealth, explained how SIFs differ from mutual funds, who should invest in them, and why investors should avoid making decisions based solely on short-term market conditions.

Roongta said SIF was introduced by SEBI in April 2025 to fill the gap between traditional mutual funds and Portfolio Management Services (PMS).

Below are 7 key differences in strategy, risk, and returns that experts explained:

Roongta explained that investors can start investing in mutual funds with a small amount, while PMS requires a minimum investment of Rs 50 lakh and Alternative Investment Funds (AIFs) require Rs 1 crore.

SIF, meanwhile, has a minimum investment requirement of around Rs 10 lakh, making it an intermediate product for investors seeking more advanced investment strategies.

“SIF was introduced to bridge the gap between mutual funds and PMS. Investors who wanted more sophisticated strategies but could not access PMS or AIF now have another option,” Roongta said.

Roongta said the biggest structural difference lies in investment strategy.

Traditional mutual funds are “long-only” products. Fund managers invest in stocks they expect to appreciate over time, but cannot profit from falling markets through short-selling.

SIFs, however, are allowed to short-sell up to 25 per cent of their portfolio and use derivatives for hedging.

“If fund managers believe markets could decline, SIFs can use derivatives and short positions to manage downside risk. Mutual funds don’t have that flexibility,” he explained.

Because SIFs employ relatively complex investment techniques, Roongta said the product is intended for more informed investors.

According to him, SEBI believes investors committing at least ₹10 lakh are more likely to understand derivative strategies, hedging and portfolio risk management.

“This is a different product compared with traditional mutual funds. Investors should understand these strategies before investing,” he said.

One reason behind the growing interest in SIFs is the perception that they may generate better risk-adjusted returns during volatile markets.

However, Shah cautioned against drawing conclusions too early. “There is very little historical data available,” he said.

According to Shah, around 25 SIF schemes have been launched so far, with nearly 20 concentrated in just three equity categories, while no debt-category SIFs have been launched yet.

“So far, we simply don’t have enough data to conclude performance superiority or investor preference shifts.”

He added that, theoretically, SIFs should perform better in volatile markets because fund managers can hedge portfolios or take derivative positions that may generate gains even when markets fall.

“But theory and actual performance are different. We need several years of performance before making that judgement,” Shah said.

Shah pointed out that most currently available SIF strategies are not aggressively betting on falling markets.

Instead, many fund managers are using derivative strategies to generate returns slightly higher than debt investments.

“The objective for many of these strategies is not necessarily to significantly outperform equities over long periods, but to generate returns slightly above debt while retaining equity taxation benefits,” Shah explained.

He added that investors should not assume SIFs are designed to consistently deliver higher equity returns.

Asked whether an investor with Rs 20–30 lakh already invested in mutual funds should move that money into SIFs, Shah’s answer was unequivocal. “I wouldn’t recommend doing that.”

He explained that long-term wealth creation has historically come from staying invested in equity markets.

“When you invest in mutual funds, markets may fluctuate in the short term, but over long periods they generally move higher.”

Shah warned that executing successful short-selling strategies is far more difficult than it appears.

“You can be wrong on both sides—you may short the market before it rises or stay long before it falls.”

Roongta said it is still far too early to evaluate SIF performance because the product has existed for barely a year.

“I would advise most investors to stay away from SIF for now.”

According to him, investors should wait at least 5–8 years to evaluate how SIF fund managers perform across different market cycles.

“We need to see how these strategies perform in bull markets, bear markets and volatile phases before reaching conclusions.”

He stressed that SIF should be viewed as a volatility management tool, not a replacement for mutual funds.

“If your goal is long-term wealth creation, continue investing through mutual funds. Whether you invest via SIP or lump sum depends on your risk profile.”

Shah warned investors against abandoning long-term investment plans simply because markets have been volatile.

He cited studies suggesting that investors often earn lower returns than funds because they enter and exit at the wrong time.

“Markets cannot be timed consistently. Wealth is created by staying invested, not by trying to predict every market movement.”