Why long short mutual strategy is the way to go for the future
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What does long short means? A fund strategy, which is used by the top asset management companies in India, that involves holding long positions when the market conditions are favourable and shorting or selling securities that are borrowed and investing them in long positions to ensure maximum profits, are called long short funds.
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What are 130/30 funds? 130/30 funds are the same as long short funds. They are called 130/30 because the strategy invests the 30% you earn by selling poorly performing shorts that you have borrowed into the 100% long position you’ve been expecting to perform well in the market. Investing 130% in the securities that perform well cushions any loss you might have made by shorting borrowed securities.
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Who is it for? Long short funds are suitable for investors who have a huge investment budget and do not mind the risks associated with the loss. These investors usually expect lower returns in the short-term and do not mind riding the lows of the market by holding long position until the best suitable time for selling a security.
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What are the expenses associated? Since these funds are substantially more expensive than your usual mutual funds, only the top asset management companies in India deal in these type of funds. This is because they have a secure client base, who are more affluent than the regular investors, looking for opportunities to make higher profits. They also have the expertise in handling these clients’ expectations and the resources required to provide right insights at the right time.
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Is it risky? Like all other mutual funds and financial instruments, these funds are also exposed to the risks of huge market drawdowns. Although top asset management companies in India assure that when the market goes down, it has to go up, there is no guarantee that the market will follow this trend and the strategy might fail.
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