What is an Alternative Investment Fund (AIF)?
A group of pooled & combined investment funds that invest in venture capital, private equity, hedge funds, managed futures, and other sorts of investments is referred to as an “alternative investment fund.” An AIF is a type of investment which differs from standard investment options such as stocks, bonds, and other financial securities in a number of ways.
An Alternative Investment Fund is defined by the Securities and Exchange Board of India’s Regulation Act, 2012. (SEBI). AIFs might take the form of a company, a trust, or a Limited Liability Partnership (LLP) (LLP).
Alternative Investment Funds are typically used by high-net-worth individuals and organizations since, unlike mutual funds, they require a hefty initial contribution of Rs. 1 crore.
SEBI Norms and Fund Categorization of Alternative Investment Fund (AIF)
As per norms of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 the Alternative Investment Funds shall seek registration in one of the following three categories
Category I: Mainly invests in start- ups, SME’s or any other sector which Govt. considers economically and socially viable.
Category II: Funds such as private equity funds(PE) or debt funds for which there are no specific incentives given by the government or any other Regulator.
Category III: Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open ended and for which no specific incentives or concessions are given by the government or any other Regulator.
Category 1:
- Venture Capital Fund (VCF)
Venture Capital Funds invest in high-growth start-ups that are experiencing finance constraints in the early stages of their business and require funding to create or expand their operations. Because it is difficult for new enterprises and entrepreneurs to raise funds through the financial markets, Venture Capital Funds have become the most popular option for them.
VCFs aggregate money from investors who want to invest in enterprises as equity partners. They invest in a variety of firms based on their business profiles, asset size, and product development stage. Venture capital funds, being different mutual funds as well as hedge funds, focus on early-stage investments. The investor receives a proportional share of the business that the VCF has invested in, based on their investment.
VCFs are preferred by High Net Worth Investors (HNIs) looking for high-risk, high-return investments. Following the inclusion of VCFs in AIFs, HNIs from outside can now invest in VCFs and contribute to the economy’s growth.
- Infrastructure Investment Fund (IF)
The fund invests in public assets such as road and rail infrastructure, airports, and communication assets, among other things. Investors that are bullish on future infrastructure growth can participate in the fund because the infrastructure sector has very high entry barriers and little to no competition.
Infrastructure Fund investors may expect a combination of capital growth and dividend income as a result of their investment. When an Infrastructure Fund focuses on initiatives that are socially desirable and viable, the government may offer tax benefits.
- Angel Investment Fund
This is a type of Venture Capital fund in which fund managers club money from a number of “angel” investors to invest in early-stage companies. Investors receive dividends when new enterprises become eventually profitable. Because of the uncertainty of their growth, these investors usually invest in companies that aren’t sponsored by traditional venture capital funds.
- Fund for Social Entrepreneurship
Socially responsible investing has spawned the Social Venture Fund (SVF), which invests in companies with a strong social consciousness and a desire to make a positive impact on society.
These businesses are concentrated on producing money while simultaneously addressing environmental and social issues. Despite the fact that investment is a philanthropic in nature, one can expect a return because the companies will still make money.
The Social Venture Fund usually invests in projects that are headquartered in underdeveloped nations because they offer a lot of room for growth and social change. Such investments also bring the greatest management methods, technology, and a wealth of expertise to the table, making it a win-win situation for all parties involved, including investors, businesses, and employees.
Category 2:
- PE (Private Equity) Fund
PE funds invest in private companies that aren’t publicly traded and take a stake in the firm. Because unlisted private companies are unable to raise funds through the issuing of equity or debt based instruments, they turn to PE funds for help.
Furthermore, these organizations offer their clients a diverse portfolio of equities, reducing the investor’s risk. The company expects to be able to exit the investment with a decent profit after seven years.
- Debt Management Fund
This fund primarily invests in debt instruments issued by both publicly traded and privately held corporations.
Companies with a poor credit rating are more likely to issue high-yield debt products that come with a high risk. So, for debt fund investors, companies with significant development potential and solid corporate practices but experiencing capital constraints can be a desirable investment option.
Because an Alternative Investment Fund is a privately pooled investment entity, the money deposited in it cannot be used to give loans, according to SEBI laws.
- Fund of funds
The Fund of Funds is a collection of funds that pool their resources. This fund is a mix of Alternative Investment Funds, as the name suggests. Instead of creating its own portfolio or determining which specific industry to invest in, the fund’s investment strategy is to invest in a portfolio of other AIFs. It should be noted, however, that unlike Mutual Funds, Fund of Funds under AIFs are unable to issue publicly traded units of the fund.
Category 3:
- Hedge Funds
Hedge Funds are a type of funds that invests funds of institutional and accredited investors and usually invests in both domestic and international markets. They also have a high level of leverage and handle their investment portfolio aggressively. When opposed to their rivals, such as mutual funds and other investment vehicles, hedge funds are less regulated.
They are, nevertheless, more expensive than other financial investment tools. Hedge funds typically charge a 2% asset management fee and retain 20% of earnings gained as a fee.
- Public Equity Fund from the Private Sector (PIPE)
It’s a privately managed pool of assets raised from private sources and set aside for public equity investments. Buying shares of publicly listed stock at a discount is referred to as private investment in public equity. This allows the investor to purchase an interest in the company while the company selling the stake benefits from the capital infusion.
Some of the popular Alternative Investment Funds (AIF) in India
- Abakkus Asset Manager
Mr. Sunil Singhania was the one who started this business. The firm was founded on the premise of the Abacus, a simple ancient computing tool.
It was founded in 2018, and since then, this Alpha-focused asset management company in India has worked hard to establish itself as one of the best performing asset managers. The Abbakkus approach is classified as Long only Category 3 AIF. The creator made it a point to build a reputation based on his more than two decades of experience in fund management. When it comes to the concepts that make up this fund, the essentials, a focus on the fundamentals, and numbers sum up this uncomplicated strategy.
- Roha Asset Managers
The year that this asset management firm was founded is 2018. Since then, the firm has been granted permission to provide category 3 alternative investment products that use a fundamental approach to equities investing. The fund’s strategy is centered on post-market correction investments in select small and mid-cap firms with the goal of generating alpha or higher returns.
- Girik Advisors
Girik Advisors was founded in 2009. Mr.Charandeep Singh and Mr.Varun Daga are the AIF’s authorised fund managers. Both supervisors have a significant amount of experience, totaling more than 20 years. In keeping with the ethos of the fund, this fund employs a very disciplined approach, as exemplified by the revolutionary ‘CANSLIM’ investment technique. The goal is to find “Early Leaders or Winners” before they reach their peak earnings growth curve. The in-house staff takes a research-first approach, followed by thorough due diligence. As a result, a portfolio of high conviction is formed.
- Vishuddha Capital
Aditya Sood is the founder of this AMC, which was founded in November of 2018. The creator has 15 years of experience in fund management, stock research, and equity sales. Aside from the fundamentals, he has a track record of managing market equities in London. The fund focuses on 25 equities with the goal of achieving long-term capital growth by investing in companies with a wide range of market capitalization. Auto and auto-ancillary, financials, consumers, healthcare, technology, and manufacturing are the sectors to watch.
- Ampersand Capital
This firm represents the combined efforts of a group of seasoned and well regarded stock research analysts. They banded together to better serve their investors and increase their wealth by investing in Indian equities. Under the hood, the team has a combined experience of more than 45 years. The fund’s evolving concept is to build a portfolio of 20-25 stocks with a market capitalization agnostic strategy. Sectors on the mediums of multi-year up cycles, driven by macro themes such improving quality of life, jobs, and consumption, are recognised by the business. The importance of focusing on organisations that are improving their competitive edge is significant. The statistics are carefully monitored and filtered according to a verified track record.
We hope this articles gave you a fair idea about Alternative Investment Fund (AIF), its SEBI norms & popular AIF’s in India. If you need any assistance on Investments, Insurance or How To Invest In Mutual Funds Feel free to contact Wealth Baba. We will try to help you out in the best possible way.
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