SIF Returns vs Benchmarks: How to Compare SIF Performance

A fund has delivered a return of 15%. Another has delivered 3%. It is tempting to put the first one at the top of the list and move on. With Specialized Investment Funds (SIFs), ranking by SIF returns may be the easiest way to compare funds, but it is not necessarily the most useful one.

The SIF category is very recent. Many schemes have only a few months of live performance. Their portfolios can also be very different, even when they sit under the same broad strategy label.

A return number tells only part of the story of how a strategy works. It does not, by itself, tell us how the fund got there or what risks it took and whether and how effectively derivatives were used along the way.

This is why comparing SIF performance properly matters more than simply ranking funds by returns.

A return needs a time period

The first thing to check is the period being compared. A fund that has had a strong three months may have experienced a very different journey from one that has been live for a year. Since very few funds have completed more than a year, CAGR figures offer limited insight. That is why checking the fund’s trendline since launch is important.

Since-inception returns need particular care when SIF schemes have different launch dates at different points in a volatile market. A newer fund may have entered the market during a favourable phase, while another may have had to navigate a correction. Neither return can be understood properly without knowing the period over which it was earned.

The same category does not mean the same portfolio

This is one of the more important things to understand about SIFs. Two funds can carry the same category name and the same risk band, but use very different approaches to portfolio construction.

Within Hybrid Long-Short, for example, one manager may keep a substantial allocation to high-quality debt and use options against selected equity holdings. Another may run a much more equity-oriented portfolio. Both may be operating within the same broad category, but their sources of return and the quantum of return can be very different.

Active Asset Allocator Long-Short makes this difference even more visible because the mandate permits a wider choice of asset allocation, subject to the scheme documents. A portfolio with significant exposure to bonds and listed infrastructure assets will not behave like a concentrated equity portfolio simply because both are called Active Asset Allocator.

The benchmark matters more than many investors realize

Hybrid SIFs do not have a fixed, standard benchmark, and the benchmark mix varies widely across schemes. A fund can appear to outperform or underperform depending on the benchmark used, so the composition of that benchmark matters.

That is why these questions matter:

• —Does the benchmark reasonably represent the strategy the fund is following?
• —Do I want to invest in the fund following a particular benchmark?
• —How closely is the portfolio aligned with the benchmark?

On SIFedge, investors can compare performance over common periods and look at quantitative measures such as return, alpha and maximum drawdown. The value of this exercise is not to find one number that settles the decision. It is to see where funds differ and then understand why.

A sensible comparison should cover at least five things: the period of performance, the benchmark, the risk profile, the portfolio strategy and the fund's live track record. AUM and the fund house can add useful context, but neither is a substitute for understanding the investment approach.

So, which SIF has the best returns?

Returns are a reasonable starting point, but not a complete way to choose a fund, and no single return figure can tell you which are the best SIF funds in India.

There is another practical reason to compare periods consistently: investors often enter at different points in the market cycle. A return figure does not show whether the scheme started just before a rally, after a correction or during a period of unusually low volatility. When funds have different launch dates, a simple league table can mix unlike experiences. Where the live history is short, it is more useful to treat the data as an initial reading and keep tracking it than to force a conclusion too early. That is particularly relevant in a category where strategies can differ in their exposure to equity, debt and derivatives.

Want help shortlisting a SIF that fits your portfolio? Book a call with the SIFedge team.

Source: SIFedge.com fund performance and comparison pages. This article is for educational content and is not investment advice.