Quant MF’s Sandeep Tandon on why SIFs structure could change the game for long-short strategies

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Tax advantages, lower expenses, and operational transparency could make long-short strategies in SIF more sustainable and competitive within the mutual-fund ecosystem compared with their earlier AIF versions, according to Quant Mutual Fund founder and CIO Sandeep Tandon.

Speaking at a panel during Moneycontrol’s Mutual Fund Summit in Bangalore on October 27, Tandon agreed that while long-short strategies under the Alternative Investment Fund (AIF) Category III structure have struggled so far, the upcoming Specialised Investment Fund (SIF) format could offer a more effective framework.

According to Tandon, there were three main reasons why long-short strategies have not worked well. “The first important reason is that the people who are managing, they all came from long-account background, long mindset background and when you manage long-short, a very different perspective is required,” he said.

The second issue was the taxation. At the fund level, SIFs enjoy the same taxation as mutual funds. On the other hand, Category III AIFs are taxed at the fund level, often at the highest marginal rate.

Third issue was the fee structure. Tandon noted that when you have to pay an upfront fee of 2% or 2.5%, it’s not viable. Despite the leverage benefit, as some funds offered up to two times leverage, certain schemes still delivered returns of around 12–13%. “However, because of a couple of other factors, the net returns ended up being lower than those of liquid funds, making them not very effective overall,” he said.

Explaining why he expects better results in the SIF format, Tandon said the mutual-fund structure offers significant tax efficiency, transparency, and a leaner cost structure. “Here we’re talking about tax efficiency and as well as the transparency of a mutual fund plus the cost structure,” he said. “We’re going to run like a normal mutual fund. So when you get a 50-bps sort of thing, then obviously things will be very different.”

What this means is that unlike AIFs, mutual funds offer daily NAV disclosure, tighter cost caps and equity-like taxation, which could allow investors to retain a greater share of returns. At around 50 basis points in annual expenses, compared with the 2–2.5 percent typical of AIFs, the savings alone could materially lift net performance.

Quant has already rolled out its initial SIF offerings and expects to have five funds in place by December.