The growing participation of retail investors in futures and options (F&O) has changed the way many individuals engage with the capital markets. For some investors, derivatives are used as part of a broader investment or hedging approach. For others, frequent options trading has become a way of pursuing short-term returns.
SEBI’s latest studies on individual participation in the equity derivatives segment provide an important look at this behaviour. Released in August 2026, the studies examine both the trading behaviour and profitability of individual traders during FY25 and FY26.
The findings also raise a broader question: when investors want access to sophisticated investment strategies, should they always be implementing those strategies themselves? This is where professionally managed structures such as Specialised Investment Funds (SIFs) and Alternative Investment Funds (AIFs) become relevant.
Understanding SEBI’s Findings on F&O Trading
The study highlights several important patterns in the behaviour of individual F&O traders:
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Options buying dominated individual trading: Nearly 97% of individual traders predominantly followed options-buying strategies, while around 90% of traders in the “only options buyers” category incurred losses during FY26.
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Higher trading intensity among younger investors: Younger traders were found to participate more actively in F&O trading.
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Higher activity among lower-income groups: Investors from lower-income groups displayed relatively higher trading activity compared with their available financial resources.
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Smaller equity portfolios: Individuals with relatively smaller equity portfolios also showed higher levels of trading activity.
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Capital and risk management matter: Participation in F&O is not simply about having access to a trading platform. The amount of capital deployed, frequency of trading and an investor’s ability to manage risk can influence their experience in derivatives.
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Experience does not guarantee profitability: Losses remained significant across different levels of trading experience. Simply spending more time in the derivatives market did not necessarily translate into better outcomes.
Why Do These Findings Matter for Investors?F&O products can serve legitimate purposes in financial markets. They can be used for hedging, portfolio management and implementing specific market views. However, they can also involve considerable complexity and risk, particularly when used for frequent short-term trading.
For an individual investor, it can sometimes be difficult to separate a calculated investment decision from a series of short-term trading decisions. Transaction costs, repeated trades and losses can gradually affect the overall portfolio, even when individual trades appear relatively small.
This makes it important for investors to look beyond individual winning or losing trades and evaluate the bigger picture.
How much capital is being used for trading? How does the trading activity compare with the investor’s overall portfolio? What are the results after transaction costs? And is the strategy aligned with the investor’s financial objectives?
These are important questions whether an investor is new to F&O or has been participating in the segment for several years.
Where Do SIFs Fit Into the Picture?
The growing interest in sophisticated investment strategies also helps explain the relevance of Specialised Investment Funds (SIFs).
SIFs provide a regulated mutual fund structure through which fund managers can implement more specialised investment approaches. Depending on the strategy, these may include equity long-short, sector rotation, hybrid long-short and dynamic asset allocation approaches.
The key distinction is how the strategy is implemented.
In direct F&O trading, the investor makes the trading decisions, determines the positions to take and is responsible for managing the associated risks.
With an SIF, the investment strategy is implemented by a professional fund manager within the framework and mandate of the scheme.
This does not mean that SIFs eliminate investment risk or guarantee better returns. Rather, they provide a professionally managed route for investors seeking exposure to more specialised strategies.
It is also important not to interpret SEBI’s F&O findings as a recommendation to replace direct derivatives trading with SIFs. SEBI’s study highlights patterns in individual trading behaviour; it does not state that SIFs are substitutes for F&O products.
How Do AIFs Differ?Alternative Investment Funds (AIFs) represent another part of the investment landscape for investors looking beyond conventional investment products.
Depending on their category and mandate, AIFs can invest across areas such as private equity, venture capital, private credit, special situations, structured opportunities, secondaries and real assets.
Some AIF strategies may also use derivatives for hedging or portfolio management, subject to their applicable framework and investment mandate.
Therefore, the distinction between direct F&O trading and professionally managed alternatives is not simply whether derivatives are involved. It is also about who is implementing the strategy, under what framework, and for what investment objective.
SIFs and AIFs also come with their own risk, suitability and investment considerations. They should therefore not be viewed as automatic solutions for investors who have experienced losses in derivatives.
Direct F&O Trading vs Professionally Managed Strategies
The difference can be understood through a simple comparison.
With direct F&O trading, an investor independently decides when to enter or exit a position, how much capital to deploy and how to manage the associated risks.
With a professionally managed investment product, the investor delegates the implementation of the strategy to a fund manager, subject to the product’s defined mandate and regulatory framework.
This distinction can be particularly relevant when investors want exposure to sophisticated strategies but may not have the time, expertise or resources to manage them independently.
However, professional management does not remove market risk. The objective is not to make complex investing risk-free, but to have the strategy implemented within a defined professional and regulatory framework.
What Does This Mean for Mutual Fund Distributors?
For Mutual Fund Distributors (MFDs), the findings present an opportunity to expand the conversation with investors.
The role of an MFD can go beyond discussing individual products. It can include helping clients understand how their trading behaviour fits into their broader financial plan.
For example, an MFD can encourage investors to distinguish between money meant for long-term goals and money allocated for short-term trading. They can also help clients review their actual trading performance after costs rather than focusing only on occasional profitable trades.
Another useful conversation is around portfolio construction. If a client has experienced repeated losses through derivatives, the discussion can move towards understanding the impact those losses have had on the overall portfolio and long-term goals.
Where appropriate and subject to suitability, MFDs can also help investors understand professionally managed investment products such as SIFs and other relevant investment solutions.
The important point is that product selection should follow investor needs, not the other way around.
From Unmanaged Complexity to Managed ComplexityOne of the broader lessons from SEBI’s findings is the need to distinguish between having access to a sophisticated financial instrument and knowing how to use it effectively.
Technology has made it easier than ever for individual investors to participate in complex markets. But ease of access does not necessarily mean ease of understanding.
Professionally managed products offer another approach: instead of the investor implementing a sophisticated strategy independently, a professional manager executes the strategy within a defined investment framework.
This can be described as moving from unmanaged complexity to managed complexity.
However, managed complexity is still complexity. SIFs and AIFs have their own risks, objectives, structures and suitability considerations. An investor who may not be suitable for direct derivatives trading does not automatically become suitable for an SIF or AIF.
Conclusion
SEBI’s latest study provides useful insight into how individual investors are participating in the equity derivatives market. The high concentration of options buying, significant loss rates and higher trading intensity among certain investor groups highlight the importance of understanding risk and investment behaviour.
For investors, the larger lesson is to look beyond individual trades and consider how trading activity fits into their overall financial plan.
For Mutual Fund Distributors, it creates an opportunity to have more meaningful conversations around investor behaviour, portfolio construction and professionally managed investment strategies.
SIFs and AIFs may form part of that conversation for suitable investors, but they should not be positioned as automatic replacements for F&O trading. The larger role of an MFD is to help investors understand their choices, assess the associated risks and align their investments with their financial objectives.
