Equity Long-Short Fund
Also written Equity long-short strategy
An investment strategy under a Specialized Investment Fund: at least 80% in equity, with unhedged short exposure through derivatives capped at 25%. Minimum investment Rs 10 lakh across an AMC's SIF strategies.
In plain language
An ordinary equity mutual fund can only buy shares. It makes money when its stocks go up.
An equity long-short fund can also bet against some stocks, using derivatives, so it can profit from a stock it expects to fall. That lets the manager express a negative view and cushion a falling market.
The extra freedom comes with extra risk and a higher entry ticket. It is offered only under SEBI's new Specialized Investment Fund (SIF) product line, which sits between mutual funds and portfolio management services, and needs at least Rs 10 lakh.
How it works
Why SIFs exist (Chapter 2): regulation becomes progressively more flexible from mutual funds to PMS to AIFs. A gap had emerged between MFs and PMS; SEBI introduced the SIF under the MF Regulations to fill it.
Entry: minimum Rs 10 lakh from the investor across all investment strategies of the same AMC.
The Equity Long-Short Fund strategy:
- Minimum 80% in equity and equity related instruments.
- Maximum short exposure through unhedged derivative positions: 25%.
- Open-ended or interval structure, investing in listed equity and equity related instruments.
- The AMC may allow redemptions daily or at any lesser frequency.
Its two equity siblings:
| Strategy | Minimum long | Unhedged short cap | Special feature |
|---|---|---|---|
| Equity Long-Short | 80% in equity | 25% | Stock level |
| Equity Ex-Top 100 Long-Short | 65% of NAV outside the top 100 stocks | 25% of NAV (non-large-cap) | Excludes large caps |
| Sector Rotation Long-Short | 80% in equity | 25% of NAV | Sector level, max 4 sectors; shorting a sector means shorting all its stocks |
Only one strategy may be launched under each category.
SIF disclosures and access: portfolio disclosed as on the last day of every alternate month (May, July, September, November, January, March), uploaded within 10 days; the Investment Strategy Information Document (ISID) must include scenario analysis of expected loss from market movements. Close-ended or interval SIF strategies must be listed. Existing MF distributors may offer SIFs subject to additional eligibility criteria.
A worked example
Fund size and prices are illustrative; limits are the workbook's.
An Equity Long-Short Fund has net assets of Rs 400 crore.
Minimum equity (80%) = Rs 320 crore
Maximum unhedged short (25%) = Rs 100 crore
The manager holds Rs 340 crore of equities and takes unhedged short futures positions worth Rs 60 crore in two stocks she expects to fall. Both limits are met.
A falling month: the long book falls 6% and the shorted stocks fall 10%.
Long book: 340 × −6% = −Rs 20.4 crore
Short book: 60 × +10% = +Rs 6.0 crore
Net = −Rs 14.4 crore (−3.6% of Rs 400 crore)
A long-only fund with the same Rs 340 crore of equity and the rest in cash would have lost Rs 20.4 crore (−5.1%). The short book softened the fall.
Entry check: Sanjay wants to invest Rs 6 lakh in this strategy and Rs 5 lakh in the same AMC's Hybrid Long-Short strategy. His total with the AMC's SIF strategies is Rs 11 lakh, meeting the Rs 10 lakh across all strategies of the same AMC threshold.
Why NISM asks about it
Chapter 2 (Concept and Role of a Mutual Fund) introduces the Specialized Investment Fund, its Rs 10 lakh minimum and all its equity, debt and hybrid long-short strategies; Chapter 5 covers SIF portfolio disclosure and the ISID; Chapter 6 notes distributor eligibility for SIFs. Expect: 80% minimum equity, 25% unhedged short cap, Rs 10 lakh across strategies of the same AMC, and the differences between the three equity strategies.
Common exam traps
- Rs 10 lakh is across all SIF strategies of the same AMC, not per strategy.
- 80% long minimum; 25% unhedged short maximum. The Ex-Top 100 variant uses 65% outside the top 100 stocks.
- Sector Rotation Long-Short shorts whole sectors and is limited to 4 sectors.
- Equity strategies may be open-ended or interval; the debt and hybrid long-short strategies are interval schemes.
- SIF portfolio disclosure is every alternate month, not monthly.
- One strategy per category per AMC.
- A SIF is under the MF Regulations, not a PMS or AIF.
Check yourself
1.What is the minimum investment in a Specialized Investment Fund, and what short exposure limit applies to its strategies?
- a)₹1 lakh per strategy, with no cap on short exposure
- b)₹10 lakh across all investment strategies of the same AMC, with short exposure through unhedged derivative positions capped at 25 per cent
- c)₹50 lakh per strategy, with short exposure capped at 50 per cent
- d)₹10 lakh per strategy, with short exposure capped at 80 per cent
Show the answer
Answer: (b) ₹10 lakh across all investment strategies of the same AMC, with short exposure through unhedged derivative positions capped at 25 per cent
"The minimum required investment amount is RS. 10 LAKHS from the investors ACROSS ALL INVESTMENT STRATEGIES OF THE SAME AMC." The aggregation is the examinable detail — ₹10 lakh across the AMC's strategies, not per strategy, which disposes of option (d). And the 25% cap recurs in every one of the seven permitted strategies: the Equity Long-Short Fund's "maximum short exposure through unhedged derivative positions in equity and equity related instruments would be 25%", and the same limit in the Equity Ex-Top 100, Sector Rotation, Sectoral Debt, Active Asset Allocator and Hybrid Long-Short strategies. The SIF exists because "a GAP HAS EMERGED BETWEEN MFs AND PMS in terms of PORTFOLIO FLEXIBILITY", regulation becoming "progressively more flexible from mutual funds (MFs) to portfolio management services (PMS) to alternative investment funds (AIFs)." And as with mutual fund categories, "ONLY ONE INVESTMENT STRATEGY shall be permitted to be launched under EACH" category.
Where this is taught
Free preparation for NISM Series V-DRelated terms
- Specialized Investment FundA mutual fund product line introduced by SEBI in 2024 for sophisticated strategies, with a minimum investment of Rs 10 lakh across all of an AMC's strategies — sitting between mutual funds and PMS.
- DerivativeA contract whose value is derived from the value of something else — the underlying — rather than from anything the contract itself owns or produces.
- Fund factsheetThe monthly scheme summary an AMC publishes voluntarily — portfolio, performance, risk measures and investment details in one document. It is an AMFI best practice, not a statutory requirement.
- Focused FundAn open-ended equity scheme holding at most 30 stocks, with at least 80% in equity, that must state where it focuses (multi, large, mid or small cap). Riskier than a diversified fund, less than a sector fund.
- Sector fundAn open-ended equity scheme investing at least 80% in one sector, such as banking or pharma. The riskiest step on the diversification ladder; best used tactically as a satellite holding.
- Short-bias StrategyA directional strategy in which the manager holds both long and short positions but keeps a net short exposure to the broad market, so the fund benefits when the market falls.