Hybrid SIFs lure wealthy investors with tax edge and stronger returns

Synopsis

Affluent investors are increasingly turning to newly launched hybrid specialised investment funds (SIFs) for their tax efficiency and better returns than traditional fixed-income options. These funds, blending debt, equity, and derivatives, have attracted significant assets, with hybrid strategies dominating. Their appeal lies in equity taxation benefits and lower volatility, offering attractive post-tax returns for wealthy individuals and family offices.

Mumbai: Tax efficiency and relatively higher returns compared with traditional fixed-income products are drawing affluent investors to hybrid specialised investment funds (SIFs)-the newly-launched investment category positioned between traditional mutual funds and Alternative investment funds.

Data from ValueMetrics Technologies showed SIFs' assets under management reached ₹13,814 crore as of May 2026 since their launch in September 2025, with ₹9,990 crore, or 72%, allocated to hybrid strategies.

The average folio size for hybrid strategies stands at ₹33.9 lakh, compared with ₹14.1 lakh for plain vanilla equity, while the overall SIF average is ₹24.3 lakh.

"We are largely seeing evolved mutual fund investors and HNIs, particularly those with prior experience investing in AIFs, participating in our hybrid strategy," said Radhika Gupta, MD and CEO, Edelweiss Asset Management.

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SIFs use strategy-driven approaches, combining debt, equity and derivatives and typically require a minimum investment of around ₹10 lakh. AIFs offer flexible, high-risk strategies for wealthy investors with a minimum investment of ₹1 crore, while mutual funds are designed for retail investors with significantly lower entry requirements.

Returns have also supported interest, with hybrid SIFs delivering about 5.3% over the past three months. Distributors said high-net-worth individuals and family offices are drawn to these strategies for their tax-efficient returns and relatively low volatility.

All available hybrid SIFs qualify for equity taxation, where investors pay 12.5% long-term capital gains tax after one year. In contrast, income from traditional deposits or pure debt funds is taxed at slab rates, typically 30% for wealthy investors, making SIFs more attractive on a post-tax basis.

"Investors can expect 8-10% return from conservative hybrid SIFs, with equity taxation and low volatility," said Sandeep Seth, CEO and Founder, SIF360.com.

Hybrid strategies typically invest across fixed-income instruments, arbitrage opportunities, covered calls, special situations such as open offers and buybacks, and a smaller allocation to long-short or options-based strategies. "As hybrid SIFs build a track record, more money could come in even from categories like income-plus arbitrage FoF for tax efficiency," said Manuj Jain, Co-Founder, ValueMetrics Technologies. Seth added that some investors may also use these strategies to generate regular income in retirement.

Mutual fund industry officials caution that the category is new, with less than a year's track record, and involves active use of derivatives.