Treat these novel strategies as diversifiers, not as core holdings
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar pointed out that long-short strategies can lose on both sides, that aggressive ones carry more unhedged short exposure, and that many allow only periodic withdrawals. He suggested limiting them to about 10 to 15 per cent of a portfolio.
What Abhishek Kumar said
How can a long-short fund lose money on both sides?
In my view, the extra risk in a long-short strategy is that it can lose on both legs at once. If the stocks the fund holds fall while the stocks it has shorted rise, the investor takes a hit from each side. So the outcome depends not only on picking the right stocks but also on getting the timing of those calls right, which adds another layer of risk.
Are all SIF strategies equally risky?
No. I see long-short funds that lean towards debt, and hybrid active asset allocators, as relatively lower-risk options, because their focus is on hedging and protecting capital. At the other end, aggressive strategies can keep as much as 25 per cent in short positions that are not hedged, and if the manager's tactical market calls go wrong, the losses can be large.
How easily can I withdraw my money from an SIF?
Before investing, I suggest checking the fund's liquidity structure. Many SIFs do not offer daily redemption; they let investors withdraw only at set intervals, such as every week, every month or every quarter. If you may need the money at short notice, that restriction matters and should be weighed against your own cash needs.
How much of my portfolio should go into SIFs?
I would treat SIFs as tactical supplements to a portfolio rather than as its core. My suggestion is to keep the allocation to roughly 10 to 15 per cent of everything you have invested. These are complex products with long-short exposure, so a limited share lets you add them as a satellite holding without making them the centre of your investments.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
The article looks at specialised investment funds, a new category between mutual funds and PMS or AIFs, which has crossed ₹10,000 crore in assets. It covers the ₹10 lakh minimum, short positions of up to 25 per cent, liquidity and execution risks, how risk varies by strategy and checks to run before investing.
Publisher source
Treat these novel strategies as diversifiers, not as core holdings