Magnum SIF (offered by SBI MF) has launched its maiden specialized investment fund – Magnum Hybrid Long Short Fund.
With the regulator allowing SIFs active use of derivatives (within guardrails and limits), expect a whole range of solutions across the risk-return spectrum, much more than what mutual funds with their long-only mandates can offer.
Magnum Hybrid Long Short Fund aims to deliver inflation-beating returns over 3 year timeframes and above with much less volatility than say Balanced Advantage Funds – the current go-to MF solution for investors with these outcome expectations.
The SIF will invest in equity, debt and InVits/REITs with a minimum regulatory limit of 25% each in equity and debt. Being an equity oriented product, the SIF will maintain gross equity exposure of 65% at all times.
While long-only hybrid MFs are fully exposed to directional moves either way in equity markets, this SIF will use smart hedging strategies like collars besides covered calls and puts to limit the downside in sharp drawdowns. The flip side though is that upside also gets capped during sharp surges in markets.
What investors can get is some upside participation, very little downside participation and therefore over time, a lot smoother experience from these hedged equity strategies even as the debt component delivers accrual income.
Investors who have been seeking FD+ returns but have been disappointed by volatility in hybrid MFs can look forward to potentially smoother journeys – albeit with a lower range of return expectations on the upside and downside.
This SIF marks a big step forward towards absolute return strategies that international hedge funds are famous for – but is not quite there due to the regulatory guardrails on the product structure. What Gaurav expects is for this SIF to deliver inflation beating returns on timeframes of 3 years and above.
Classification as an interval fund means open ended investing on any day, redemptions twice a week, daily NAVs and exit loads that are broadly comparable with MFs.