Lesson 3 of 4 · SIF Strategies — The Rules

Hybrid and Active Asset Allocator Strategies — The Rules

The hybrid group has two SIF strategies: the Hybrid Long-Short Fund, defined by two minimums, and the Active Asset Allocator Long-Short Fund, defined by the asset classes it moves between. This lesson covers both, and how tax follows the actual mix.

Fact-checked 8 October 20263 practice questions in the game

Two designs

A Hybrid Long-Short Fund is defined by two floors: at least 25% in equity and at least 25% in debt. Beyond these two minimums the framework prescribes no fixed split such as 50/50 or 60/40.

An Active Asset Allocator Long-Short Fund is defined by the asset classes it allocates across dynamically: equity, debt, equity and debt derivatives, InvITs and commodity derivatives. Dynamic means the mix may change over time.

Same name, different portfolios

Because only minimums are fixed, two Hybrid Long-Short strategies can look very different. One holding 70% in equity and 30% in debt, and another holding 25% in equity and 75% in debt, both satisfy the floors. The mix at any time is found in a strategy's disclosures, not in its name.

The short side and the common limits

In both strategies, unhedged short exposure is allowed only through derivatives and only up to 25% of net assets. Gross exposure, counting securities and derivatives together, cannot exceed 100% of net assets. A SIF may launch only one strategy under each of the two categories.

Tax follows the mix

A hybrid strategy is not automatically taxed as equity-oriented. Tax follows the portfolio's actual mix under the Income-tax Act, not the strategy's name (rates as of October 2026).

At least 65% in listed domestic equity shares, with derivatives not counted, makes a strategy equity-oriented. More than 65% in debt and money-market instruments means slab-rate tax whatever the holding period. A mix in between is taxed under the rules for other funds.

Diversification is not protection

Spreading money across asset classes does not remove risk: each asset class, and each short position, can lose money. Every SIF carries a warning that investments in a SIF involve relatively higher risk including potential loss of capital, liquidity risk and market volatility.

Rules at a glance

Hybrid Long-Short FundAt least 25% in equity and at least 25% in debtSEBI Master Circular for Mutual Funds, Chapter 21

Active Asset Allocator Long-Short FundDynamic allocation across equity, debt, equity and debt derivatives, InvITs and commodity derivativesChapter 21

Unhedged short exposureOnly through derivatives, up to 25% of net assetsChapter 21

Equity-oriented for taxAt least 65% in listed domestic equity shares; derivatives not countedIncome-tax Act, 2025

Slab-rate treatmentMore than 65% in debt and money-market instrumentsAs of October 2026

Mix in between12.5% if units are held more than 24 months (12 months if listed); otherwise slab rateAs of October 2026

Worked example

Three mixes, three tax buckets

Assumptions for this example: three Hybrid Long-Short strategies, A, B and C, each with the average mix over the year shown below. Rates as of October 2026.
Strategy A: 70% in listed domestic equity shares, 30% in debt. Both 25% floors are met. As 70% is at least 65%, it is equity-oriented: 20% on gains from units held 12 months or less; 12.5% on gains above ₹1.25 lakh a year if held longer.
Strategy B: 30% in listed domestic equity shares, 70% in debt and money-market instruments. Floors met. As 70% is more than 65%, gains are taxed at the investor's slab rate whatever the holding period.
Strategy C: 45% in listed domestic equity shares, 55% in debt. Floors met, but neither tax test is: 45% is below 65%, and 55% is not more than 65%. The rules for other funds apply.

Result. All three carry the same strategy name, yet each falls in a different tax bucket because the actual mix differs. The mixes are assumptions for illustration.

Key points

Hybrid Long-Short Fund: at least 25% in equity and at least 25% in debt; no fixed split is prescribed.
Active Asset Allocator Long-Short Fund: dynamic allocation across equity, debt, equity and debt derivatives, InvITs and commodity derivatives.
Unhedged short exposure is allowed only through derivatives, up to 25% of net assets.
Tax depends on the portfolio's actual asset mix under the Income-tax Act, not on the strategy's name.

Common misunderstandings

'Hybrid' does not mean 50/50 or 60/40: the framework fixes only minimums of 25% in equity and 25% in debt.
A hybrid strategy is not automatically equity-oriented for tax: that needs at least 65% in listed domestic equity shares, and derivatives do not count.
Holding several asset classes does not remove risk: each asset class, and each short position, can lose money.

Questions people ask

Which strategy does the framework describe as allocating across commodity derivatives and InvITs?

The Active Asset Allocator Long-Short Fund, which allocates dynamically across equity, debt, equity and debt derivatives, InvITs and commodity derivatives.

Where do REITs fit?

Units of REITs are treated as equity-related instruments for mutual funds and SIFs from 1 January 2026. InvITs are not: they continue to be classified as hybrid instruments.

Is the 65% equity test for tax checked on a single day?

No. It is measured as the annual average of monthly averages.

What this lesson relies on

SEBI Master Circular for Mutual Funds, 20 March 2026, Chapter 21 (Specialized Investment Funds)
Income-tax Act, 2025 (sections 196 and 198; specified mutual fund), rates as of October 2026

This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.