Tracking SIF Performance the Right Way: Benchmarks, Rolling Returns and Drawdowns Instead of 1‑Year Star Ratings

Evaluating SIFs needs a different lens from regular mutual funds: focus on benchmarks, rolling returns, hit ratios and drawdowns rather than 1‑year star ratings or NFO buzz.​

Why star ratings mislead for SIFs

Star ratings and 1‑year trailing returns are just point‑to‑point snapshots; they tell you how a fund did between two dates, not how it behaved through different market phases. For SIFs, which use long‑short, hedging and tactical positioning, short windows can be especially misleading because returns depend heavily on when you started measuring.​

Instead of asking “What is the 1‑year return?”, a better question is “How consistently has this SIF created value versus its benchmark, and what did the worst periods look like?”. Factsheets and SIF websites give you the raw material for this via benchmarks, rolling‑return tables and drawdown or worst‑period data.​

Step 1: Check the right benchmark

Every SIF must disclose a benchmark in its documents and distributor material; for equity long‑short SIFs this is typically a broad index like Nifty 500 TRI or a relevant hybrid index. The benchmark choice matters because it defines what “outperformance” means beating a narrow or easy benchmark is not the same as beating a broad, appropriate one.​

When you open a SIF factsheet or ISID:

• Confirm that the stated benchmark reflects the SIF’s net risk profile: a long‑short fund with net equity 30–50% may be better compared to a conservative/hybrid index than a 100% equity index.​
• Check if the factsheet shows scheme vs benchmark performance across multiple periods (1, 3, 5 years or “since inception” if new); this is your base for hit‑ratio and rolling‑return thinking.​

If a SIF’s marketing material touts high returns but the benchmark is not clearly disclosed or looks misaligned with the strategy, treat that as an early red flag.​

Step 2: Use rolling returns, not just trailing returns

Rolling returns measure annualised returns over many overlapping periods say, every 3‑year block starting each day or month; rather than just one start and end date. This smooths out luck and timing, and shows how often the fund beat its benchmark across cycles.​

Many mutual‑fund research sites and calculators already provide rolling‑return vs benchmark charts, and the same logic applies to SIFs once enough history exists. When such data is available (either from the AMC or third‑party tools):​

• Look at rolling 1‑year, 3‑year or strategy‑appropriate periods for the SIF versus its benchmark or category.​
• Observe the spread: is the SIF’s rolling return consistently above the benchmark, only occasionally above, or frequently below?​

This gives you a sense of consistency that no single trailing‑return number can capture. Two funds with the same 3‑year CAGR can have very different rolling‑return profiles, one steady, one erratic.​

Step 3: Read the benchmark hit ratio

The hit ratio is simply the percentage of rolling periods in which the SIF beat its benchmark. Some analytics tools show this explicitly; otherwise you can infer it from rolling‑return comparison charts.​

For example, if an equity long‑short SIF beat its benchmark in 65 out of 100 one‑year rolling periods, its 1‑year hit ratio is 65%. A higher hit ratio indicates more consistent alpha generation, while a fund that outperforms in only a small fraction of periods but occasionally by a lot may be much harder to live with.​

For SIFs, which often position themselves as risk‑managed or downside‑protected, it is especially useful to look at hit ratios during down or volatile markets if such segmented data is provided. That shows whether the hedging and long‑short design are working when they are most needed.​

Step 4: Focus on worst‑period losses and drawdowns

SIFs are sold on the idea of better risk management, so you need to look beyond averages to how bad it got in tough times. Factsheets and risk‑parameter disclosures may show:​

• Maximum drawdown: the largest peak‑to‑trough fall over a chosen period.​
• Worst 1‑year or worst 3‑month return: the most negative rolling period.​

When reading these for SIFs:

• Compare the SIF’s max drawdown with that of its benchmark; a hybrid long‑short SIF that historically fell 12–15% when the market fell 25–30% is behaving like a partial shock absorber, not a shield.​
• Check whether the “worst 1‑year” number is acceptable to you emotionally and financially; if a fund shows ‑18% as worst 1‑year, you have to be comfortable with that possibility.​

A SIF that has similar average returns to another but with shallower drawdowns and milder worst‑period losses may be more suitable for a satellite allocation than one with deep, equity‑like drawdowns.​

Step 5: Combine return and risk metrics, not one alone

Good SIF factsheets (and third‑party pages tracking SIFs) increasingly show risk metrics like standard deviation, Sharpe, Sortino alongside returns. These are common in mutual funds and work the same way here:​

• Standard deviation: overall volatility of returns; lower suggests smoother ride, other things equal.​
• Sharpe ratio: return per unit of total volatility.​
• Sortino ratio: return per unit of downside volatility (penalising only negative swings).​

For a SIF marketed as “low volatility long‑short”, you would expect:

• Standard deviation lower than an equity index or category average, and
• Reasonable Sharpe/Sortino ratios relative to its benchmark and peers, showing you are being compensated for the remaining risk.​

This does not mean chasing the highest Sharpe blindly, but using these numbers to sanity‑check whether the realised risk‑return profile matches the strategy’s promise.

How to read a SIF factsheet in practice

When you open any SIF factsheet or online profile, a simple non‑advisory reading sequence is:

1. Identify the benchmark and category: check that it is broad and appropriate for the fund’s net exposure and style.​
2. Scan multi‑period returns: 1‑year, 3‑year, since inception alongside benchmark and category returns.​
3. Look for rolling‑return or “versus benchmark/category” tables or charts if the AMC or third‑party provides them; note how often the fund is ahead.​
4. Check risk metrics and drawdowns: standard deviation, Sharpe/Sortino, worst‑period return and max drawdown versus benchmark or category.​
5. Match this with the story in the ISID: does the observed behaviour (volatility, drawdowns) align with what the SIF’s strategy and risk section claim?​

This approach does not tell you what to buy, but it helps you avoid over‑reacting to star ratings or single‑period charts and instead evaluate SIFs on consistency, alignment with benchmarks and resilience in bad times. For actual investment decisions, investors should still rely on SEBI‑registered intermediaries who can apply these tools within a personalised plan.