In today’s market in India there are several ways of investment by way of mutual funds, stocks etc. and the unconventional options like Alternative Investment funds.
If you are looking for the best way to invest then AIFs are a very good option to invest if you are ready to take additional risk.
In order to avail good profits out of AIFs, you need to be well read about these funds. These funds have a bright future in India especially with the high net worth individual clients.
So in this blog we will delve deeper to understand different ways to invest in AIF and its benefits thereof.
What is an Alternative Investment Fund?
Alternative Investment fund is a fund which is privately pooled from the Indian or foreign investor for investing in accordance with a defined investment policy for the benefits of its investors.
AIFs in India are established either as a company, Trust or LLPs or a corporate body. This asset class includes venture capital funds, private equity, angel funds and hedge funds.
If an investor is meeting all the investment criteria then AIFs are the best option for them to choose.
These Funds do not come under the purview of Securities and Exchange Board of India (SEBI) mutual fund regulations.
However, AIFs product comes under the purview of regulation 2(1) (b) of the regulation Act, 2012 of SEBI.
SEBI classifies AIFs into 3 broad categories as in Category I, Category II and Category III.
Classification of Alternative Investment Funds
SEBI has classified the AIFs into three broad groups as-
Category I
Category I usually invests in startups or in small or medium enterprises for ventures in their early stages or infrastructure or social venture etc.
These sectors are considered as socially desirable or economical by the government of India as well as for the regulatory bodies.
Sub-Categories of Category I of AIF
- Venture Capital Funds- these ventures invest in the start ups and emerging businesses which have a long term growth curve. These ventures take part in day to day operations of the businesses.
- Angel Funds- These funds comply with the regulations of Chapter III-A of the SEBI AIF regulation for making investments.
- Small and Medium Enterprises Funds- In this investments are done in small and medium enterprises. The minimum investments for these funds are capped at INR 1 crore, with a minimum tenure of lockin period of three years.
Category II
Category II AIF do not take any sort of leverage or borrowing except meeting day to day operations of the company. The minimum corpus for this scheme is INR 20 Crore, with a tenure for lockin period for 3 years.
There is no incentive or concession from the government side on these funds.
Sub-categories of Category II
- Private Equity Funds- These funds take complete ownership of the company as they cannot raise funds by equity and investments, with a lock-in period ranging between four to seven years.
- Debt Funds- These funds generally invest in the debt securities. Investments in these funds are either done in listed or unlisted companies according to the fnd objectives.
- Funds to Funds- These funds follow a strategy of investment to invest in other Alternative Investment Funds.
Category III
These funds apply in various trading strategies like future and margin trading, arbitrage and derivative trading while investing in listed or unlisted derivatives.
They are two types of funds as close ended and open ended funds and are way less regulated than the traditional funds.
Sub-Categories
- Hedge Funds- These Funds pool investments from private investors to invest in international as well as domestic markets using several trading as well as investment strategies. These funds include a hefty fee of about 2% of the investment and about 20% share of the profits.
- Private Investment in Public Equity- These fund managers in this strategy often buy stocks of publicly traded companies, but at a discounted price.
How to invest in any AIF
If you are ready to take risk then investments in AIF is the best option. You have to be eligible to invest in AIFs usually it is the resident Indians, NRIs i.e. who have settled abroad and foreigners. If you are a general investor, your permissible limit will be INR 1 crore whereas the minimum investment limit is INR 25 Lakh for the angel investors.
And investors who are willing to make an investment in unlisted companies, then you should be prepared to undertake the associated underlying list. An AIF cannot openly invite the public to subscribe to its units, rather they can only raise funds from the esteemed investors through a private placement.
After payment of the registration fees, once the certification is done by SEBI that the AIF has been registered, the AIF contacts the stock exchanges for the listing of the funds by submitting an investment management agreement or a placement memorandum, in accordance with Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. You have to submit your income proof, ID proof and the PAN card to invest in an AIF.
Contact BIAT Consultant for your AIF registration needs at info@biatconsultant.com.