Alternative Investment Fund

Alternative Investment

Are you more experienced and sophisticated investor? Looking out for more focused and calculated risk in your investment? The Alternative Investment Fund (AIF) is a category that you should explore in India. Unlike traditional investments, alternative investments are about investing in opportunities that can potentially generate higher returns but entail higher risk-taking as well. Alternative investments are meant to complement traditional investments for such investors by improving their risk-adjusted returns over the long term.

AIFs are privately pooled investment vehicle that managed by the sponsors, who invest their own money. The fund is pooled from select investors and not from the general public at large. Units of close ended Alternative Investment Fund may be listed on stock exchange subject to a minimum tradable lot of one crore rupees. Listing of Alternative Investment Fund units shall be permitted only after final close of the fund or scheme.

Why Alternative Investment Fund

The regulatory impetus to the AIF industry’s growth has been provided with the introduction of the AIF Regulations by SEBI in 2012. They provide the necessary framework which makes alternative investments marketable, safe and predictable for the participants.

The emergence of the start-up phase brought in several value creators in services and technology enabled business models. With increased focus on clean technologies and renewable, there are immense opportunities for companies to be set up in these spaces. The realty sector thrives in India primarily due to urban migration which drives the demand for more investments in both retail and commercial urban realty.

Types of AIF

In India, AIF are divided into three categories under the SEBI AIF Regulations for the purposes of registration and other operational requirements

Category I AIF – is an AIF that invests 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 and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds, special situation funds

Category II AIF – is an AIF that does not fall in Category I and III and include funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other Regulator.
Category III AIF – is an AIF that which employs diverse or complex trading strategies and may employ leverage through investment in derivatives. Hedge funds or funds which trade with a view to make short term returns comes under this category. These funds are even open ended. There are no specific incentives or concessions given by the government or any other Regulator under this Category.

Who can invest in AIF?

The Alternative Investment Fund may raise funds from any investor whether Indian, foreign or non-resident Indians by way of issue of units. After SEBI allowed non-resident non-institutional investors to tap the Indian market as FPIs, it provided additional class of investors to invest in AIFs with India investment focus

What is the minimum corpus size of AIF?

Each scheme of the Alternative Investment Fund shall have corpus of at least Rs.20 crores. The minimum investment ticket from investor is one crore. The manager or sponsors shall ensure to hold a minimum of Rs.5 crores or two and half percent of the corpus, whichever is lesser.

Where does the corpus gets invested?

The fund is not bound to invest the entire corpus immediately as per the investment objective. There might be delay until the correct opportunities are identified. Until then, the un-invested portion of the investable funds may be invested in liquid mutual funds or bank deposits or other liquid assets of high quality.

Is it a good time to invest in AIF?

With improved ease of doing business and policy facilitation by the government, the scope for alternative assets has only increased over time. The strong growth of the primary capital market with several block buster IPOs increased the scope for favourable private equity exits resulting in further impetus to the private equity industry in particular.