Alternate Investment Fund

Alternative investment fund (AIF) are privately pooled fund, either from Indian or foreign investors in the form of a trust, company, body corporate or limited liability partnership (LLP). AIF’s are private fund it is not compulsory for to be listed.

AIF’s were allowed by SEBI in the year 2012 and as of march, 2019 there are 533 AIF registered with the SEBI. (https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=16)

There are three categories of AIF

Category 1: close ended AIF’s which invest in startups, infrastructure or SMEs which the government and regulators consider are economically and socially viable. Funds included in this category are SME funds, infrastructure funds, venture capital funds etc.

Category 2: close ended AIF’s which do not undertake any leverage or borrowing other than to meet day to day operational requirements. Funds included in this category are private equity funds, real estate funds etc.

Category 3: open ended and close ended AIF’s which employ diverse trading strategies and use leverage through investment in listed or unlisted derivatives. Funds included in this category are hedge funds, PIPE funds etc.

 Alternate investment funds are usually for sophisticated investors and are marketed only to High Net worth Individuals or Ultra High Net Worth Individuals because minimum investment amount Is rupees 1crores. Fund Managers can try new and different strategies in order to generate higher returns for the investors, whereas in Mutual Funds , strategies are bounded by the scheme they invest in.

Lastly let’s see how Alternate Investment Fund differs from traditional investment

·        Alternative Investments have less liquidity of assets.

·        Specialized investment managers are required.

·        Since there is no historical data on return and volatility of data it makes it more concerning.

·        AIF have different legal issues and tax treatments.

Thank You

Regards

Author- Shivang Gupta

Kautilya

IBS Mumbai