Exposure and Concentration Limits
Every SIF strategy works within the same exposure and concentration limits: a 100% ceiling on gross exposure, a 25% ceiling on unhedged short exposure through derivatives, and single-issuer limits. This lesson explains each, and what the limits do not do.
What exposure measures
Exposure is the amount of market risk a portfolio carries. A fund that owns shares worth ₹100 has ₹100 of exposure. A derivative creates exposure without the full amount being paid: a futures contract on shares worth ₹100 exposes its holder to the price moves of ₹100 of shares, although only a margin is deposited.
That is how leverage arises: derivative exposure added on top of a fully invested portfolio makes total positions larger than the fund's assets.
The 100% ceiling
For a SIF strategy, cumulative gross exposure, counting securities and derivatives together, cannot exceed 100% of net assets. A SIF therefore cannot use leverage, and descriptions such as '130–170% gross' or 'up to 200%' do not fit the rule.
The 25% ceiling on unhedged shorts
Unhedged short exposure is allowed only through derivatives and only up to 25% of net assets. The limit applies in every SIF strategy and is in addition to derivatives used for hedging and rebalancing. In the debt-oriented strategies the short exposure must be through exchange-traded debt derivatives.
Single-issuer limits
Equity of a single issuer cannot exceed 10% of NAV. Debt of a single issuer is generally capped at 20% of NAV; lower sub-limits apply by credit rating, and government securities and treasury bills are outside the limit.
These are regulatory ceilings. Any tighter internal limit is the AMC's own choice, not a SEBI figure.
What the limits do not do
The limits cap how concentrated and how large a strategy's positions can be. They do not remove market risk: a strategy within every limit can still lose capital, because what it holds can fall in value and its short positions lose if prices rise. Every SIF carries a warning that investments in a SIF involve relatively higher risk including potential loss of capital, liquidity risk and market volatility.
Rules at a glance
Testing a portfolio against the limits
- Assumptions for this example: a strategy has net assets of ₹400 crore and no hedging positions.
- Ceilings: gross exposure ₹400 crore (100%); unhedged short exposure ₹400 crore × 25% = ₹100 crore; equity of one issuer ₹400 crore × 10% = ₹40 crore; debt of one issuer generally ₹400 crore × 20% = ₹80 crore.
- Assume securities of ₹330 crore and unhedged short derivative exposure of ₹60 crore. Gross = ₹330 crore + ₹60 crore = ₹390 crore, or 97.5%. Short = ₹60 crore ÷ ₹400 crore = 15%. Both are within the ceilings.
- Assume the short exposure is to be raised to ₹110 crore. Short = ₹110 crore ÷ ₹400 crore = 27.5%, above 25%. Gross = ₹330 crore + ₹110 crore = ₹440 crore, or 110%, above 100%. The change breaches both ceilings.
- Assume one company's shares in the portfolio are worth ₹44 crore: ₹44 crore ÷ ₹400 crore = 11%, above the 10% limit.
Result. The first portfolio fits within the limits; the larger short position and the ₹44 crore holding do not. All figures are assumptions for arithmetic.
Key points
- Cumulative gross exposure (securities plus derivatives) cannot exceed 100% of net assets, so there is no leverage.
- Unhedged short exposure is allowed only through derivatives, up to 25% of net assets.
- Single issuer: equity up to 10% of NAV; debt generally up to 20% of NAV, less for lower-rated issuers.
- The limits cap concentration; they do not remove the risk of loss.
Common misunderstandings
- A SIF is not a leveraged fund: gross exposure, securities and derivatives together, cannot exceed 100% of net assets.
- The 25% is not a cap on all derivatives: it applies to unhedged short exposure, in addition to derivatives used for hedging and rebalancing.
- Staying within the limits does not limit losses: the limits cap concentration and exposure, not the fall in value of what is held.
Questions people ask
A presentation describes a SIF strategy as '130/30'. Does that fit the rules?
No. 130% long plus 30% short is 160% gross (130 + 30 = 160), above the 100% ceiling, and a 30% unhedged short is above the 25% cap.
Does unhedged short exposure count within the 100%?
Yes. Gross exposure counts securities and derivatives together, so short derivative exposure uses part of the 100%.
Do government securities fall under the 20% issuer limit?
No. Government securities and treasury bills are outside the single-issuer debt limit.
What this lesson relies on
- SEBI Master Circular for Mutual Funds, 20 March 2026, Chapter 21 (Specialized Investment Funds)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.