What is Alternative Investment Funds?
Any fund established or incorporated in India is a privately pooled investment vehicle that collects funds from sophisticated large investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.
AIF combines the operational ease of a mutual fund and the flexibility of a PMS making it a perfect blend geared for generating optimum performance for a stipulated investment objective. To enhance risk-adjusted performance, these products can use complex strategies like unlisted equity investments, long-short hedging style of investments, etc.
Few pointers: –
- Alternative funds are described under the Securities and Exchange Board of India (SEBI) Regulations 2(1)(b) of the Regulation Act, 2012. AIF can be in the form of a company or trust or corporate body or a Limited Liability Partnership (LLP).
- Investment in VC / PE funds, hedge funds, art, antiques, real estate, etc.
- A smart way to gain non-traditional investment options. However, it is wise to conduct extensive research before investing in an alternative fund. It is essential to understand if the fund fits perfectly with one’s investment objective and goal.
Typically carry higher risk because the investment is in unlisted securities, more high-risk categories, with fewer regulations from SEBI
Lets look at Categories of AIF
As per the SEBI AIF Regulations 2012, there are three categories of AIFs: Category I, II, and III
- Category I AIFs fund with strategies to invest in start-up or early-stage ventures or social ventures or SMEs or infrastructure or other sectors or areas, which the government or regulators consider as socially or economically desirable.
- Under the AIF Regulations, the following funds are designated as sub-categories of Category I AIFs –
- Venture capital funds, SME funds, social venture funds, infrastructure funds, and such other AIFs as may be specified.
Category II AIFs: funds, which cannot be categorized as Category I AIFs or Category III AIFs.
- AIFs such as private equity funds or debt funds for which no specific incentives or concessions are given by the Government of India or any other regulator is included in the Category II AIF classification.
- Typical examples of Category II AIFs: PE Funds, Debt Funds, Fund of Funds
Category III AIFs: funds, which employ complex or diverse trading strategies and may employ leverage including through investment in listed or unlisted derivatives.
- AIFs such as hedge funds or equity funds which trade with a view to making short-term returns or such other funds that are open-ended and for which no specific incentives or concessions are given by the
- Typical examples of Category III AIFs: Hedge Funds, PIPE Funds & Equity funds
Lets look at the Benefits of AIF
- Customizable-Structure of AIF can be designed for a particular investment strategy either in terms of exposure in a specific sector or investment in diverse asset classes.
- Flexibility to raise resources-AIF may raise money from any investor whether
- Indian, foreign, or of Non-Resident Indian (NRI).
- Have a large corpus-Since AIF work like mutual funds, by pooling capital, a larger corpus is pooled together. The accumulated corpus is useful in achieving set investment objectives.
- Disclaimer – https://aifpms.com/disclaimer/
Also Read – Aif vs Pms: What is the Difference?
Also Read – Benefits Of Investing In AIF And PMS