Wealth managers turn to hybrid SIFs for higher, tax-efficient returns
Specialised investment funds are changing wealth manager portfolio structures. Hybrid SIF strategies are increasingly included in allocations. These funds offer tax efficiency and differentiated investment approaches. Wealth managers suggest these funds complement core portfolios for investors. SIFs provide flexibility through various investment strategies.
Mumbai: Wealth managers are incorporating hybrid structured investment funds (SIFs) into portfolios previously dominated by debt mutual funds and other fixed income products. Investors with substantial mutual fund holdings are being encouraged to allocate a portion to SIFs due to their tax efficiency and diverse investment approaches. Sandeep Seth, founder and CEO of SIF360.com, suggests that SIFs should complement existing portfolios.
Hybrid SIF strategies include long-short investing, dynamic asset allocation, sector rotation, and hedging. Fund houses have introduced SIFs in various hybrid long-short, equity long-short, and equity ex-Top 100 long-short styles. As of July 31, assets under management in SIFs totaled ₹23,177 crore, with 95,000 investors and an average investment of ₹21 lakh. Hybrid SIFs contributed ₹16,523 crore, or 71%, to the total assets under management.
Wealth managers are initially focusing on hybrid long-short strategies, which appeal to conservative investors seeking tax advantages and modest returns above bank deposits or debt mutual funds over a one-to-three-year horizon. They prefer to observe at least a year of performance before recommending equity-oriented SIFs. Some hybrid SIF strategies have minimal exposure to unhedged equities, investing through arbitrage, special situations, pair trades, covered calls, straddles, strangles, and put-call parity. These strategies could benefit investors seeking tax efficiency in fixed-income allocations.
Low-equity hybrid SIF strategies may yield 1-2% more than deposits or debt funds while maintaining high tax efficiency, according to Juzer Gabajiwala, director of Ventura Securities. Long-term capital gains tax of 12.5% applies to investors who hold hybrid SIFs for over 12 months, compared to variable rates that often exceed 30% for fixed deposits and debt funds.
Fund managers advise investors to consider risks, as some SIFs may have significant unhedged equities or credit risk exposure. Investors should analyze the SIF's return, standard deviation, maximum drawdown, and beta to gauge the associated risk.
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