Gaurav Mehta on how SIFs aim to bridge India’s biggest portfolio gap

Gaurav Mehta, Head – SIF (Equity), SBI Mutual Fund explains that Structured Investment Funds (SIFs) represent a clear departure from conventional mutual fund structures, which are largely driven by market beta. In traditional mutual funds, returns are closely linked to how the underlying asset class performs, with alpha playing a relatively smaller role.

“SIFs are different,” speaking at the Moneycontrol Dezerv Wealth Summit, Mehta says, noting that they allow shorting and the creation of risk–reward propositions that are not directly dependent on market direction. “You can benefit from a market decline as well,” he explains, adding that this flexibility helps address gaps that long-only products have historically been unable to fill.

According to Mehta, one of the biggest gaps has emerged over the past two-and-a-half years following changes in debt fund taxation. Generating relatively low-risk, tax-efficient returns has become increasingly difficult. This has led to a surge in flows into arbitrage funds, despite their modest returns, driven by their perceived stability and tax efficiency.

At the other end of the spectrum, Mehta points to hybrid funds such as balanced advantage and multi-asset funds, which reduce equity exposure but do not eliminate it. Moving from arbitrage funds to these hybrid strategies, he says, has proven to be a significant leap for many investors due to the presence of unhedged equity risk.

“This gap was becoming very evident,” Mehta says. “So our idea was to bridge this gap first, and that’s why we started with hybrid long–short as a category.”

The objective, he explains, was to offer a return profile that adds some variability to arbitrage returns—but not as much volatility as conventional hybrid funds. “If you can create a respectable few percentage points higher return than arbitrage, you are essentially addressing a demand that has existed for the last two-and-a-half years,” Mehta notes.

He adds that the proposition aims to deliver debt-plus returns with equity taxation, while keeping stock-level variability contained. This is achieved by maintaining a minimum 65% equity exposure for tax purposes, while using derivatives more actively than traditional mutual funds. “The ability to use derivatives is significantly enhanced here,” he says. “You can use option strategies to manage variability and risk, even while carrying equity exposure.”