Why hybrid SIFs deserve 5-15% allocation in your portfolio

Why Hybrid SIFs better than arbitrage funds

Most investors want one simple thing: returns that beat the bank account but without the kind of stomach-churning volatility that makes you regret opening your portfolio app. The catch is that money rarely works in such straight lines.

Markets have a habit of humbling even seasoned investors, reminding us that certainty is usually an illusion.

Within the hybrid funds while arbitrage funds feel safe but their returns barely move the needle. Other equity oriented hybrid funds with moderate equity, have historically given the average returns over 3 years in a range that is more acceptable to investors, but the ups and downs are still sharp. So where do you turn if you want something in between?

Think of this in terms of identifying leadership in a fast-moving world. A good leader does not chase every opportunity with reckless speed, nor do they freeze in indecision. The real strength lies in balance — knowing when to push forward boldly, when to hold back and how to keep the team moving steadily.

Why hybrid SIF?

That is exactly what a hybrid specialised investment fund (SIF) is designed to do. It blends caution with ambition, structure with flexibility. The intent is not to thrill in bull markets or despair in corrections, but to travel a more even path. The aim is to give average returns that are acceptable to investors while lowering the up and down (volatility) in the fund.

The newly launched Altiva Hybrid Long-Short Fund from Edelweiss AMC unlike a hybrid mutual fund, which mixes equity and debt in fixed ways, sits within the new SIF framework created by SEBI. That framework allows professional managers more room to use strategies that were once the domain of institutions and AIFs, things like equity arbitrage, special situation trades around IPOs or buybacks, and derivative positions.

This flexibility gives the fund a chance to adapt faster to changing market cycles, an advantage retail investors rarely access directly. Add in a layer of high-quality fixed income, and you have a fund that seeks to deliver absolute returns: not linked to the direction of the market but to the smartness of the strategy.

Back-tested numbers of such strategy tell an encouraging story. Over three to five years, the strategy has shown annualised returns in the 10–11 percent range, compared with 6–7 percent from arbitrage funds. Volatility has stayed far below hybrid mutual funds.

The recipe is fairly balanced: about half in fixed income, one-fifth in arbitrage, another third in carefully chosen derivative trades, and a small slice, around five to ten percent, in special opportunities like IPOs, mergers or index inclusions/ exclusions. Each element is designed to play a role, just as every dish in a thali balances the others.

It is a Diwali lamp

For investors, the appeal is clear. If you have at least Rs 10 lakh to allocate, this can be that middle seat in your portfolio: less exciting than an aggressive hybrid mutual fund but far more rewarding than parking everything in short-term debt.

A simple rule of thumb works well, think of allocating 5 to 15 percent of your investable wealth here, provided you are willing to hold for at least two to three years. The returns are unlikely to beat a roaring bull market but they should be better than fixed income while keeping the ride steady and balance.

The real strength of a hybrid SIF lies in habit, not hype. It is about taking a long-term view, diversifying sensibly and trusting a process that has been designed to do better than the plain vanilla while avoiding the anxiety of pure risk-taking.

In that sense, it is like the lamp you light during Diwali; it may not dazzle like fireworks, but it shines steadily, night after night, giving comfort and balance.

The choice, as always, is yours. If you have the capital and the patience, consider letting a hybrid SIF quietly complement the rest of your investments. Build your core, add a little sophistication, and then step back. Money is best enjoyed when it allows you to focus on life: holidays with family, hobbies on weekends and peace of mind on ordinary days.

(Disclaimer: Bhavesh Jain, Co-Head – Factor Investing at Edelweiss Asset Management Limited (EAML) and the views expressed above are his own.)

Investments in Specialized Investment Fund involves relatively higher risk including potential loss of capital, liquidity risk and market volatility. Please read all investment strategy related documents carefully before making the investment decision.