Fireside Chat SIF Decoded: Structure, Regulation & Investor Safeguards

Added: 2026-05-11

[00:00:09]Morning everyone.

[00:00:13]I think Roshi um you are a Rushi. So gan had it not been for uh the ticket size of 10 lakh rupees why have AFS not been able to do what SIFS are willing to do in a longshot fund and why I'm asking this question to you is because you have managed quant strategies uh in your career earlier and I think this event for the SIF is probably to raise the awareness of what SIF means actually. So for you when uh distributors actually rushi hear the term specialized investment funds it still sounds like complex. So is it that due to quant it will become simple or because rishi is managing it'll become simple or how is it if you want to >> uh good morning everyone uh thanks for that question Amit. Uh so interesting question and interesting way you put it.

[00:01:13]uh so specialized investment funds I think to begin with simplistically one should think of it as you know mutual fund plus it's it is on a mutual fund platform and as some of the speakers before me have uh you know touched upon obviously you're getting the uh regulatory structure of a mutual fund tightly regulated by sebi the transparency is there uh so that makes it easy there is operational simplicity also because of the mutual fund And then of course coming to you know why it is needed and then I'll touch upon the AI if aspect also that you mentioned. Um so obviously currently in mutual funds we have equity and we have fixed income right and as we all know there's a lot that can happen in between but we don't have anything uh on that at all in India until the SIFS were announced and uh there as we know you know equity is you know very good it is required in all portfolios but it only does well when markets go up and I think at this point in time uh especially when the last 24 you know 18 months has not been great for Indian markets. It's a very interesting time we're talking about it.

[00:02:23]Uh because if you had strategies and products which could have done well in this period, right? So that is what SIFS bring in because you don't need markets only to go up. Uh these kind of strategies can potentially uh you know do well when markets are going down or sideways. Uh so there are a lot more scenarios that you can cover. And then on the fixed income side if you go then obviously we know there is a taxation uh angle that comes in uh which is not easy. You're making consistent returns but then tax eats away a lot of it and again you can have sort of fixed income plus or arbitrage plus strategies using SIFS uh which still get equity like taxation. So it is sort of solving the need of strategies missing for downward to sideways markets and it is also solving the tax issue. This combination makes it very powerful. Uh, of course in the AIFS you know you could do such sophisticated strategies and longshot and other things which you know I'll try to uh explain in a simple manner also as we go ahead in today's talk. Uh but the issue a big issue was the taxation right uh using derivative strategies you would straight away get taxed at 40%. Uh so however well you do uh your return numbers are going to be much lower which just means that your bar for returns becomes much higher in those strategies and if you start trying to target very high returns then obviously risk will increase and the whole point is that if I can uh target very attractive riskadjusted returns with low risk you know get absolute returns or arbitrage plus returns then that is a very sweet spot uh that the SIFS can target which has been missing completely. completely in India right now.

[00:04:08]>> Okay. If you if you really come to think of it as as a lay man how I would say that uh AIF is like your iPhone 17 Pro Max okay which can be afforded by select few and then is SIF the iPhone 17 light where the same strategies at a 1 cr level now are available at 10 lakhs. Is it how we are going to position it or we are giving hope that uh your normal long only equity funds might not move to cash but because of an option here to go short on the market will probably have a lower standard deviation yet the result will be positive for the investor. Is it not that we are building a hope for investors by saying that SI will do better uh in a flat market or a in a volatile situation compared to a long only equity? What ideal time period one should look at when you're putting money here?

[00:05:05]>> Yeah. So, uh I think uh to answer that question, you'll need to break it down.

[00:05:10]uh as we know there are two types of SIS that have launched so far and obviously Sevi has given many more categories but a lot of them require either more instruments or you know more sophistication so I think those will come down the line uh but to begin with you we have all seen equity uh longshot SIFS and then we've seen hybrid uh SIFS as well so on the equity side I think that is where more confusion lies because uh you know typically when you talk to an HNI client uh then immediately when one thinks about equity longshot the question is oh will I get equity like returns uh or better returns actually with much lower risk now that obviously I think is a false expectation that is not going to happen for sure because you know the simple thought that 25% short that you can go means that you can make money on that 25% short is actually not true because markets over time tend to go up. So there tactically it will help you. Uh but also remember that even if that 25% short makes money, it is taking away from your 100% long, right? So first you're making 75% of the market upside and then the 25% short needs to make up further which is virtually impossible to do across all time periods. So for sure equity longshot will be an equity minus product. Uh yes, it can happen with much lower risk depending on the strategy. So the way I would look at those strategies is the riskreward uh you know if equities is giving you you know in the long term we've seen more like 13%. But it all depends on your expectation and your portfolio construction uh if you think the next 10 years can be slightly higher let's say 15%. Uh you know which is sort of my expectation uh then you know you would say okay this can deliver 13 14 15%. But in equity markets you would see 20 30% decline when markets fall. Here maybe I can control that decline to in single digits. If I can do that for those kind of returns that's still a very great outcome. So I think that is on the equity side. The hybrid uh category I think from an immediate perspective is what has the much larger opportunity uh for me for all of you uh because that is where the earlier gap I was talking about that between equity and fixed income you know things are missing. So if you can be more fixed income like you know have only 1 2 3% max kind of uh draw downs downside uh 2 3 4% kind of annualized volatility uh which becomes like fixed income plus or arbitrage plus and still deliver that arbitrage plus 2 3% kind of returns because of the taxation benefit that you get because it'll be equity taxation I think that becomes an amazing spot and is something that is required I think for all portfolios And therefore it fits into a portfolio allocation approach which is what I think we all need to move towards rather than just having you know product level conversations which is what we typically do in India. Sure.

[00:08:12]Among the SF strategies I think um uh you guys in 9 months of launch of your asset management company decided to come into this uh category of uh specialized investments. Uh was it because of you?

[00:08:28]You pushed the envelope because you have managed quant strategies. Was it because you felt that this is one where we can actually use our proprietary software and make good use of that and probably deliver better or we probably felt that you need to be on the right side of the distributor now. So you need to be on the SF side. Okay, >> great question. Um, so obviously it is a full platform approach that we follow.

[00:08:55]>> Nobody's paying me to ask this please.

[00:08:57]So uh uh so not at all on the on the third question but uh overall it's a you know it starts with the objective of the joint venture so if I take a step back uh one of the key objectives of the geo blackrock joint venture is to have financial inclusion across the length and breadth of the country right and uh you know I and Sid both have said this in earlier conversations earlier events that uh we've gone therefore launching products very thoughtfully right from liquid fund, money market fund to uh index fund. So it's almost like a new investor you know what journey he should ideally have and how he should build his portfolio and uh that sort of relates to what I said just before this that this was the missing piece right something which can fit in between still have the tax advantage and and deliver those arbitrage plus kind of returns. Uh so when we looked at that since our initial building blocks have been launched then this was sort of a natural progression in that um especially for the 10 lakh plus kind of category and obviously a lot of investors uh apart from distributors direct investors as well have been asking for that. Uh now when we looked at that space then that is where we said okay do we have the right platform do we have the right people do we have the right strategies because one thing is that yes I need that in my product launch sequence second is do I have the right skill sets and the right uh tools to be able to manage it luckily and interestingly we did have sid mentioned about black rockck having done these kind of strategies for a very long time alladin being unable to manage such strategies manage the risk etc uh so So that was the first piece which came in.

[00:10:41]Second was the team. So yes there of course the fact that I have done longshot strategies in the past not only me there are some other people in the team also who have done that um you know that helped and then to keep the risks low uh very importantly you know for the hybrid uh strategy uh you need to have multiple strategies. So I think that is another place where uh all of us uh you know need to fully understand that not no single strategy will always do well and however tightly you manage the risk no single strategy is going to give you the risk return uh that we are talking of even in the hybrid space. So then you need multiple strategies and what that means is that you know in in sort of the hybrid SIF we are planning we want to have callers we want to have merger arbitrage we want to have reads and invits also >> a special situation come reads init come >> yeah so there I'm not an expert in RITs and invits for example right but there are people in the team who are so even that helped so when we looked at that that we have a multitude of strategies and these are actually non-correlated so therefore they are each you know bringing risk down of the overall uh portfolio of the overall strategy then that is where we started getting excited that okay now we have the platform we have the tools we have the people we have the multistrategy approach and therefore there is a very high probability you know I'm a co so I will never say certainty there will there's always a chance there will there will be a variation uh no back test is perfect you know I myself have been saying for a long long time any back test even if black rockck is doing it which is obviously doing it in the most sophicic igated manner globally even then many of you I've met in the room know that I discount all back tests all simulations by 10 15 20% depending on uh the kind of strategy we are forming uh so despite doing all that we saw that you know we have a very interesting strategy and going forward I think risk management becomes the most key because when I'm telling you absolute returns you know with consistent alpha uh then I better stick to absolute returns meaning that I need to manage the tail risk so for example And why I called one of the strategies callers and not covered calls which is what I think all of you are used to hearing is because we are fully tail risk protected. So right so which globally is called collars because there I don't want to tell take the tail risk hedge what if in the recent war you know it had ended up becoming world war II and suddenly you know you heard news of Russia and China and suddenly you saw 10 or 20% gap down happening then even in a covered call strategy without the downside put hedge you would lose a lot and I am telling you that I will manage the risk I will do absolute return so then you know I better be protected for that scenario uh so I think all these things will be required obviously that is where sophistication comes in and that is where more learning, more awareness, more education needs to come in and uh you know all of us all of you obviously need to be more aware do more due diligence also on all these strategies because otherwise you know different funds doing headline sid are going to be the same for everybody right so really understanding which fund will focus on what type of strategies and where the risk management comes from is I think the most important and from geobl Black Rockck obviously we have a clear focus on uh you know investor education training uh having the right content out there. So very happy to help all of you you know with doing a deep dive and understanding some of these strategies and the risks that arise in more detail.

[00:14:12]>> Yeah somebody was mentioning to me that the number of trainers on SF are more than the actual registered distributors on SF. So yeah so training is important.

[00:14:21]>> The the training of the trainers needs to be checked.

[00:14:24]Absolutely right. Uh do you think that uh the current unhedged position of 25% of AUM which is being allowed uh that limit should go up or will it go up over time and will that really add to uh covering the risk or enhancing the return uh how should one look at it and have you guys actually managed such kind of strategies abroad? What has been the experience there?

[00:14:50]>> Yeah. So I think u we are all aware that initially when the discussion paper on SIFS had come the first time you know sebi had talked about a 50% short exposure limit in the beginning finally when the final rules came it was 25%.

[00:15:04]And I think the indication from SEBI was that because it's very new regulation, very new strategy, you know, even for 10 lakh plus like you know that kind of segment also. So therefore they would take a measured approach which I think is very very fair from a regulatory standpoint from an investor education standpoint that is the right approach.

[00:15:21]Uh over time uh I think if things go well then you know the regulator would be open to improving it from our perspective. you know we would go uh through that journey in a measured manner as well because like I said we also need to educate the market and make sure that the initial results are actually coming in line uh with what you know we and you are expecting uh so for that I think 25% is good enough for all this combination of strategies that I spoke of these combined can deliver uh the arbitrage plus 2 3% returns with that really really tight risk controls that I was referring to earlier and therefore it is good if we get the 50% or you know more than 25% kind of short exposure limits in the future then yes there are a couple of more strategies or more dynamism that we can bring into the portfolio so from a long-term perspective I would be very open to it but it is not as if it would change the uh overall dynamics too much it is just that maybe I can add a few more strategies be a bit more diversified >> will it change the output though in terms of returns >> uh again so equity longshot side it may help a little bit I think hybrid the current thing is good enough.

[00:16:31]uh I mean as MFDs uh there are a lot of uh dos and don'ts which AMI keeps on sending us on SIF what are the dos and don'ts you think that a MFD should actually look at because lost in translation uh what the fund manager says uh through Chinese whispers up to the client many of us probably will not carry the same message uh what you want to actually convey so any quick don'ts for the MFDs when they are looking at SIS for their customers? So don't clearly I mean uh when clients think these can give you equity equity plus return then clearly please explain to them that it is not possible as I said earlier and even from your perspective you know uh even if it's equity longshot I don't think it will fit into the equity kind of bucket uh so definitely don't uh make that mistake secondly the risk management part of it as I sort of alluded to earlier I think uh do a deep dive do a full due diligence of you know uh every manager the kind of different strategies they're talking of you know how is the risk controlled how is the risk managed if it is protected strategies then it better be you know largely fully protected if it is equity long shot where different stocks one is going long and short you know then what is that the risk that both sides can go wrong I think we are all scared about that >> if it is same sector uh you know there's less chances of that happening you know there are factor neutral strategies if one gets more sophisticated there's less chances of that happening but there the approach matters so really going at doing a deep dive there I think will matter a lot. Uh so obviously don't take things at face value. I think doing a deeper dive means a lot more work but I think as some of the earlier speakers said it's a potentially a very large category and we are in early days so I think all that hard work will definitely pay off in the long run.

[00:18:19]>> Yeah and u as a distributor should I be really be aware of how to trade in future and options to understand SIS?

[00:18:28]No, obviously this is not trading. Uh but broadly what the uh payoffs can uh be and you know we are very happy to explain it in a very very simple manner as well. Uh because when people say covered calls and I mentioned callers because I'm fully hedged with buying downside put protection. I think on on behalf of MFD's a training on what covered calls are or what are the strategies I think we all can uh really get help from you guys in understanding more than happy to >> any of us might not be stock brokers so we might not know what an FNO is so this might really help yeah so yeah offline post the post this session very happy to uh you know explain that to whoever wants to do it and even have a deeper dive session into it for all of you.

[00:19:16]Yeah, I think thank you very much for uh giving this out and uh people will definitely look at it from a different lens. Now what you have said key message for me is clearly this is not a replacement to long only equities. uh it is a uh lower standard deviation arbitrage plus kind of uh return and you should probably look at it deep dive take it uh not at face value but look at the manager look at its credentials understand the product and then probably suggest it uh >> and u I think last message was u you know move ahead from product conversations and think of it as a portfolio allocation tool uh lot of research out there globally and again very happy to dumb it down and and explain in a simple le manner offline as to how 5 10 20% addition of this can make you much more efficient on the efficient frontier and therefore lead to much more robust portfolios. Yeah, I would sum it up saying that when you enter into a car don't just look at the accelerator which most of the MFDs do by allocating 100% to equity. There is also a break which probably might be SIF which can control uh the volatility in your portfolio. Thank you very much Rishi and thank you all for this.