Wealthy individuals are being offered long-short equity funds by a group of investment managers.
Long-short equity funds, a popular hedge fund strategy, are set to make their debut in India following applications from several asset management firms for mutual fund licenses, a prerequisite for launching Specialised Investment Funds (SIFs).
These funds, which allow fund managers to take both long- and short-positions, could potentially revolutionise the Indian derivatives market. By using derivatives like futures, options, and swaps, long-short strategies often result in increased trading volume, benefiting exchanges and brokers. Moreover, the introduction of these funds could enhance market efficiency, potentially reducing volatility in the derivatives market.
Institutional investors, such as pension funds and sovereign wealth funds, might find the diversification benefits offered by long-short strategies appealing, leading to increased institutional participation in the Indian equity market. Furthermore, long-short funds can provide a hedging mechanism for institutional investors, aiding risk management during market downturns.
However, the Indian mutual fund industry has experienced a slowdown in new launches due to market volatility and geopolitical challenges. Despite this, there is a growing interest in thematic and sector-specific funds. As of now, there is no specific information available about the launch of long-short equity funds by Indian or foreign asset managers.
Notably, several prominent Indian asset managers have received approval to launch long-short equity funds, including ICICI Prudential Mutual Fund, Quant Mutual Fund, SBI Mutual fund, and ITI Mutual Fund. Others, such as the CEOs of Edelweiss Mutual Fund, Mirae Asset Investment Managers, and Nippon India mutual fund, are awaiting approval.
The introduction of long-short equity funds is part of a broader regulatory initiative to widen the investor base and reduce speculation in the derivatives market. As the regulatory approvals roll in, it is expected that these funds will contribute significantly to increased institutional participation in the derivatives market.
Despite numerous attempts, no response has been received from the funds regarding the specific details of their long-short equity fund launches. As we await more information, it is clear that the Indian derivatives market is on the cusp of a significant shift, with the potential for increased activity, efficiency, and institutional participation.
Technology-driven advancements in the Indian derivatives market could accelerate with the arrival of long-short equity funds. As these funds leverage technology for complex trading tactics like futures, options, and swaps, they could potentially boost trading volumes, foster innovation, and enhance market efficiency.
Investment from institutional players, such as pension and sovereign wealth funds, may escalate due to the diversification benefits offered by these long-short funds, thereby boosting their involvement in the Indian equity market, and technology-driven transformation within it.
