What is a Long-Short investment strategy?
A long-short fund simultaneously buys assets it expects to rise and shorts assets it expects to fall, aiming to profit from the gap between them rather than pure market direction.
A traditional equity fund can only do one thing when it dislikes a stock: not own it. A long-short fund has a second lever: it can take a short position, profiting if that stock falls.
In practice, this usually means holding a "long book" of stocks the fund manager expects to outperform, and a "short book" — typically built using derivatives such as index or stock futures, within regulatory limits — of positions expected to underperform. The strategy aims to profit from the relative performance between the two books, which can, in theory, generate returns even in a flat or falling market, and can also cushion drawdowns during sharp corrections since the short book gains when markets fall.
This flexibility is exactly why SEBI built the SIF framework: long-short strategies were previously mostly available only through PMS or AIFs, at much higher entry points.