Sundaram Mutual’s new SIF explained: How its long-short equity strategy works

Sundaram Mutual’s new Select Equity Ex-Top 100 Long-Short Fund will invest predominantly in companies outside the top 100 by market capitalisation, with the flexibility to take short positions through equity derivatives.

The strategy combines stock selection with the option to benefit from, or hedge against, certain share-price movements.

The new fund offer (NFO) opened on October 21 and will close on November 4, 2026.

The minimum application amount is ₹10 lakh for regular investors and ₹1 lakh for accredited investors during the NFO, according to the fund house.

The fund aims to generate long-term capital appreciation and will be benchmarked against the Nifty MidSmallcap 400 Total Return Index (TRI).

Here is how the strategy works and what investors should know.

What does ‘ex-top 100’ mean?

The fund will focus on companies ranked 101st to 750th by market capitalisation, according to Sundaram Mutual. The classification of large-cap companies will follow the list published by the Association of Mutual Funds in India (AMFI).

The fund manager plans to build a portfolio of 25 to 40 stocks using a bottom-up approach, which involves evaluating individual companies. The investment strategy will look for businesses that may benefit from trends such as manufacturing growth, technology platforms and premiumisation.

How does the long-short strategy work?

A long position involves buying a stock with the expectation that its price will rise. A short position seeks to benefit from a stock-price decline, in this case through equity derivatives.

For example, if the fund manager expects a stock to fall, the fund may take a short position through an eligible derivative. If the stock declines, the position may generate a gain; if it rises, the position may incur a loss.

Short positions can also be used to hedge risks in the portfolio. However, hedging does not guarantee protection against losses, as the short position may not move in line with the investments it is intended to offset.

Sundaram Mutual’s strategy permits unhedged short exposure of up to 25% through equity and equity-related derivatives. The fund manager may use these positions for hedging or to seek additional returns; the fund is not required to maintain short positions at the maximum permitted level.

How will the fund invest?

Under normal circumstances, the strategy will allocate 65% to 100% of its assets to equity and equity-related securities, including REITs, of companies outside the top 100 by market capitalisation. This category can include unhedged short exposure of up to 25%, subject to the scheme’s terms.

The fund can also allocate up to 35% to other equity and equity-related securities, up to 35% to debt and money market instruments, and up to 10% to units of infrastructure investment trusts (InvITs).

Madanagopal Ramu will manage the equity portfolio, while Sandeep Agarwal will handle fixed income and Shalav Saket will manage overseas investments, according to the fund house.

What are SIFs?

Specialised investment funds (SIFs) are a regulated category that allows eligible mutual fund houses to offer investment strategies with greater flexibility, including certain long-short approaches, subject to SEBI’s framework.

Unlike conventional mutual fund schemes, SIFs can use specified strategies involving short positions and other permitted investment techniques. The regulatory framework generally requires a minimum aggregate investment of ₹10 lakh per investor across an asset management company’s SIF strategies, subject to applicable exemptions and conditions for accredited investors.

SIFs are subject to the applicable regulatory framework and scheme-specific conditions. Investors should not assume that the greater flexibility necessarily translates into higher returns.

What risks should investors consider?

The strategy carries risks associated with equity-market volatility, stock selection and derivatives. Mid-cap and small-cap stocks can experience sharp price movements and may be less liquid than large-cap shares.

Short positions can also generate losses if prices rise instead of fall. Derivatives may involve leverage, liquidity constraints and valuation risks, while a hedge may not fully offset losses elsewhere in the portfolio.

The scheme has an exit load of 1% if units are redeemed or switched out on or before one year from allotment. No exit load is specified for redemptions after one year, according to the fund synopsis.

Investors should review the scheme’s investment strategy document, costs, redemption terms and risk disclosures before investing. The fund’s stated objective of long-term capital appreciation does not assure returns or protection of capital.