Alternate Investment Funds (AIFs) in India have emerged as an attractive investment option in recent years. These funds offer high returns to investors by investing in alternative assets such as real estate, private equity, hedge funds, venture capital, and infrastructure. In this blog, we will take a closer look at Alternative Investment Funds categories and top Alternate Investment Funds in India.
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Alternative Investment Funds: Meaning
Alternative Investment Funds (AIFs) are privately pooled investment vehicles that invest in assets such as private equity, real estate, infrastructure, and hedge funds. AIFs are designed for high net worth individuals (HNIs) including residents, NRIs and Foreign Nationals who seek higher returns than traditional investments such as stocks and bonds.
The SEBI’s mutual funds regulations do not govern AIFs. However, AIFs are regulated by SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012.
Alternate Investment Funds Categories
In India, Alternate Investment Funds (AIFs) are classified into three categories based on their investment strategy and risk-return profile, as per the Alternative Investment Funds SEBI Regulations, 2012. The categories of AIFs in India are as follows:
- Category I AIF
- Category II AIF
- Category III AIF
Alternate Investment Funds Categories: In Detail
Let’s take a closer look at the categories of Alternate Investment Funds (AIFs) in India and understand their investment objectives:
- Category I AIF
These funds are designed to provide funding to start-ups, early-stage ventures, social ventures, SMEs, and infrastructure projects. Following are the subcategories under Category I AIF:
- Venture Capital Funds
These funds invest in start-ups and early-stage ventures that have high growth potential. They provide equity financing, management expertise, and business support to these companies.
- Angel Funds
Angel fund is a money pool created by high-net-worth individuals or companies (generally called angel investors), for investing in start-up businesses. It is a subcategory of Venture Capital Fund under Category I.
- SME (Small and Medium Enterprises) Funds
SME funds invest in micro, small and medium enterprises that are listed or unlisted. These companies raise debt through NBFC (Non-Banking Financial Companies).
- Social Venture Capital Funds
These funds invest in social enterprises that aim to create social impact along with reasonable returns to investors.
- Infrastructure Funds
Infrastructure funds primarily invest in firms that develop infrastructure projects and raise capital from private investors. The infrastructure projects include railways, roads, water, municipal solid waste, and renewable energy.
- Category II AIF
These funds invest in a variety of asset classes such as private equity, real estate, debt, and fund of funds. Category II AIFs are further classified into these sub-categories:
- Private Equity Funds
These funds invest in privately-held companies that require capital for expansion or acquisition. They may also provide operational and strategic support to these companies.
- Debt Funds
Debt fund is an AIF (Alternative Investment Fund) which invests primarily in debt or debt securities. These investments are made in listed or unlisted investee companies as per the objectives of the fund.
- Fund of Funds
A fund of funds (FoF) is an investment strategy that involves pooling capital from multiple investors to invest in a portfolio of other investment funds, rather than investing directly in individual stocks, bonds, or other securities.
- Category III AIF
This category allows investment in hedge funds and other assets which focus on short-term gains. Following are the subcategories of category III AIF:
- Hedge Funds
Hedge funds are a type of investment fund that pools capital from private investors with the aim of generating high returns. Unlike traditional investment funds, hedge funds often use more complex investment strategies and have greater flexibility to invest in a variety of assets.
- Private Investment in Public Equity
In this, the fund managers buy shares of publicly traded companies at a discounted price. This helps businesses to infuse capital into the business.
Top Alternate Investment Funds in India
Given below are the top alternate investment funds in India:
- Accuracap Tech
- Abakkus Asset Manager
- Alchemy Capital
- Carnelian Asset Management
- Girik Advisors
- Proalpha Capital
- Roha Asset Managers
- Vishuddha Capital
Eligibility for Investing in AIF
Resident Indians, Non-Resident Indians (NRIs) and foreign nationals can invest in alternative investment funds.
Features of AIF
Given below are some of the features of Alternative Investment Funds:
- The minimum investment amount required to invest in Alternative Investment Funds (AIFs) is Rs. 1 crore.
- A corpus of Rs. 10 crore is required for Category-I Angel Funds. A minimum of Rs. 20 crore is required for the rest of AIFs.
- The maximum number of investors should not exceed 1,000. In case of an angel fund, no scheme shall have more than 49 angel investors.
- There is no minimum tenure for Category III funds. For Category 1 and 2 AIFs, the minimum and maximum tenure is 3 years and 5 years respectively.
- Category 1 and 2 are exempt from tax obligations. Category III AIFs have not been given the Pass through status, which means that income from such funds will be taxed at the investment fund level.
Benefits of Investing in AIF
Here are some benefits of investing in alternative investment funds:
- AIFs offer investors the opportunity to diversify their portfolios by investing in non-traditional assets that have a low correlation to traditional stocks and bonds. This can help to reduce overall portfolio risk and potentially improve returns.
- They may offer higher potential returns than traditional investments due to their exposure to non-traditional assets that may have higher growth potential.
- Alternative Investment Funds often provide access to exclusive investment opportunities that may not be available to individual investors, such as private equity and venture capital deals.
- AIFs are typically managed by experienced investment professionals who have specialized expertise in alternative asset classes. This can help to mitigate risk and improve investment outcomes.
- AIFs do not have a direct correlation with the stock markets and tend to exhibit lower volatility compared to conventional equity investments. This makes them a potentially suitable option for risk-averse investors who prioritize stability.
Investing in Alternative Investment Funds (AIFs) requires extensive knowledge and expertise. At SBNRI, there are investment experts for macros, equities, debt, reality structures products, etc., to advise clients how to diversify their portfolios effectively and reduce their risk in the process. For any queries related to AIF, contact us using the button below.
If you are an individual investor, you need to have a minimum investment corpus of Rs.1 crore to start investing in AIFs. You also need to provide income proof, PAN and ID proof.
In the Alternative Investment Funds model, there is pooling of funds. On the other hand, there is no pooling of funds in the PMS model. Every client has its own separate portfolio along with their Demat accounts.
Corpus of the AIF means the total amount of funds committed by investors to the AIF by way of a written contract as on a particular date.
No, Category I and category II AIFs are required to be close ended. However, Category III AIFs can be both open and close ended.