Ensuring consistent returns in the midst of volatility in the market.

People across the world are interested in using their income to make healthy returns. It is when these returns become volatile and increase their exposure to a loss that people start getting scared. Financial institutions, globally, have started utilising asset and liability management techniques to come up with ways to ensure consistent returns with low risks. One of the ways they do that is by encouraging investments in long-only funds. Also known as absolute return funds, they take only long positions and try to seek undervalued securities during a bearish market and stay invested throughout the ups and downs of the market. These funds use options, futures and other derivatives to limit their exposure to risk. Unlike traditional funds, these funds only pursue strategies that will produce positive returns, despite the position of the benchmark index.

Unlike traditional asset and liability management companies which are governed by regulatory bodies such as SEBI, it is usually the hedge funds who depend on long-only funds to ensure steady returns with lower risks.  Hedge funds do not fall under the regulations stipulated by SEBI since they are unregistered private partnerships and can trade in various different markets using different strategies to diversify their exposure to risk. Although, they do operate in ways similar to other investment companies by pooling investments from independent investors who are willing to believe in their strategy.

With long-only funds, the investors are willing to ride the highs and lows of a market in the hopes of making heavy returns in a distant future. Over the last few years, these funds have generated healthy returns over a consistent period of time, which has encouraged several other investors to include the long only strategy in their portfolio. Owing to this success, several fund managers who have clients that are willing to preserve their capital over a longer period of time are using this technique to perform better asset and liability management and produce actual returns.