As India progresses, so do its people. Until recently, investment was solely limited to conventional instruments such as stocks, bonds, fixed deposits, mutual funds and real estate. But as the number of high net-worth individuals (HNIs) increases in the country, there is a new, more lucrative investment vehicle coming to the fore.
And that is Alternative Investment Funds (AIF). These funds are specially designed to cater to the investment needs of HNIs, offering a wider array of investment strategies and assets compared to traditional alternatives. AIFs are private investment funds that can be in the form of a company, Limited Liability Partnership (LLP), trust, body corporate, etc.
Here, we discuss what AIF includes and why you should consider them as your next investment.
Types of AIF
AIFs are regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. As per this, AIFs are categorised as below.
Category 1
AIFs that invest in start-ups, SMEs and other such lucrative businesses promising high growth fall under this category. These include,
1. Venture Capital Funds (VCFs): These are funds that invest in entrepreneurial businesses requiring a large capital. An example of this is a start-up with strong growth prospects.
2. Infrastructure funds: These are funds that invest exclusively in companies working on infrastructure projects such as the construction of airports, railways, roads, power plants, etc.
3. Angel funds: These funds invest in businesses that do not make the cut for VCFs. The minimum investment required is 25 Lakhs.
4. Social venture funds: These invest in socially responsible businesses and those engaged in philanthropic endeavours.
Category 2
Funds that don’t fall under Category 1 and 3 are covered here. These funds do not enjoy any concessions or benefits from the government. These include,
1. Debt funds: These funds invest in debt securities belonging to unlisted companies that follow good governance and indicate a strong growth potential.
2. Private equity funds: These funds invest in private businesses that aren’t listed on the stock exchange. The aim of these investments is usually to help the company grow and expand operations.
3. Funds of funds: These funds invest in other AIFs and do not have an investment portfolio.
Category 3
These AIFs leverage strategies such as derivative trading, margin trading and arbitrage to invest in listed and unlisted companies. These aren’t strictly regulated or required to publish information often.
1. Hedge funds: These pool funds from private investors to invest in domestic and international markets. Hedge funds usually have a high degree of risk and require significant investment.
2. Private Investment in Public Equity (PIPE): These funds buy shares of a publicly traded company at a discounted rate. These are usually preferred by the company to which the share belongs to as well since it entails less paperwork and administration as compared to opting for a secondary issue.
3. Commodity funds: These invest in tangible commodities such as oil, gold, silver, etc.
Who Can Invest in an AIF?
Here’s who can invest in an alternate investment fund:
1. Individuals from India, Non-Resident Indians, and foreign nationals can participate in AIFs.
2. Groups of investors can pool their resources to invest together in AIFs.
3. Investors with substantial wealth seeking diversified and specialised investment opportunities.
4. Qualified Institutional Buyers (QIBs) and large-scale investors that meet specific criteria set by regulatory bodies.
5. Entities like pension funds, insurance companies, and family offices interested in alternative investments.
Why Invest in AIFs?
Investing in an alternate investment fund is a smart choice due to the following benefits it offers:
1. Potential for Higher Returns: You can achieve higher returns with AIFs compared to traditional investments like mutual funds or fixed deposits. AIFs invest in specialised sectors, offering opportunities for significant growth.
2. Less Volatile: AIFs tend to be less volatile. They provide a more stable investment experience even when the market fluctuates. This stability helps you manage risks better and maintain peace of mind.
3. Diversification: AIFs help you diversify your portfolio across various asset classes such as real estate, private equity, and hedge funds. This spread reduces overall risk and enhances your investment strategy.
4. Professional Management: AIFs are managed by experienced fund managers who bring expertise and strategic insight. Their professional management ensures your investments are handled efficiently and aligned with your financial goals.
Benefits of AIF
Here is why you should consider AIFs for your investments.
1. Yields high returns
AIFs usually have a higher return as compared to other investment vehicles. This is because the large amount of funds allows fund managers to accommodate flexible investment strategies to maximise returns.
2. Offers greater stability
AIFs aren’t directly linked to the stock market. As a result, these have lower volatility when compared to equity investments. This makes AIFs a stable investment and well-suited to investors with a low-risk appetite.
3. Opens doors to specialised investments
AIFs allow you to invest in specialised investment opportunities that are not offered to other investors. These include startups engaged in a growing trend or those building disruptive technologies.
4. Facilitates a diverse portfolio
A diverse portfolio helps keep you safe from dynamic industry trends. AIFs allow investors to spread their portfolios across various industries and act as a buffer against any market changes.
Final thoughts
There is no denying that AIFs are a profitable investment option for those looking to grow their funds. However, as is the case with all investments, your first priority must be to partner with a trustworthy and reliable financial institution. And for this, you can turn to Tata Capital Wealth.
Tata Capital Wealth brings to you a gamut of bespoke investment and financial services that help you safeguard your and your family’s financial future. All from the comfort of your home. Our digital platform allows you to manage your hard-earned money with a click of a button, while our wealth assist feature helps you build a portfolio that meets your financial objectives effectively.
To know more, visit the Tata Capital Wealth website today!
FAQs
AIFs can potentially offer higher returns and greater diversification compared to mutual funds. However, they come with higher risks and are generally suitable for more sophisticated investors who understand alternative investment strategies.
Examples of AIFs in India include private equity funds, hedge funds, real estate funds, infrastructure funds, and venture capital funds. These funds invest in various sectors outside traditional equity and debt markets.
The minimum investment size for an AIF in India typically starts at ₹1 crore. This amount can vary depending on the specific category of the AIF and the regulations set by SEBI.
AIFs in India are regulated by the Securities and Exchange Board of India (SEBI). SEBI sets the guidelines and ensures that AIFs operate within the legal framework to protect investors' interests.
15 November 2024
5 mins read
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