Alternative Investment Funds [AIF]

By : Neha Dhyani

Updated : May 10, 2022, 9:59

The Alternative Investment Fund, or AIF, is a privately managed investment fund constituted in India that collects assets from specific investors, both domestic and international, for investing following a defined investment policy for the profit of its investors.

An AIF fund is a private fund that is not customarily subject to the jurisdiction of any regulatory body in India.

Key Facts about Alternative Investment Funds

  • As defined by the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, AIFs are any privately pooled investment fund (whether from Indian or international sources) in the form of a trust, an enterprise or a body corporate, or an LLP.
  • As a result, the term includes hedge funds, venture capital funds, private equity funds, debt funds, commodity funds, infrastructure funds, and other AIFs.
  • AIF fund doesn't include the funds governed by the Mutual Funds of SEBI Laws, 1996, the Collective Investment Schemes of the SEBI Regulations, 1999, or any other Board regulations governing fund management operations.
  • AIF does not contain any funds that are bound by the laws of the SEBI. AIFs do not include family trusts, employee welfare trusts, or gratuity trusts.

Categories of Alternative Investment Funds

According to the SEBI (AIF) Regulations, 2012, AIFs must acquire accreditation in one of three categories:

  • Category I- Invests mostly in start-ups, SMEs, and any other industry deemed economically and socially viable by the government.
  • Category II- These are inclusive of private equity or debt funds, for which the government or any other regulator provides no explicit subsidies or concessions.
  • Category III- It consists of AIFs such as hedge funds, funds that trade with the intention of making short-term profits, or other open-ended funds for which no explicit benefits and exemptions are provided by the government or any other regulator.

Benefits of Alternative Investment Funds

  • AIFs could assist in reducing the volatility associated with traditional investment instruments significantly, as their performance is not dependent on the highs and lows of the stock market.
  • Alternative investments could potentially bring significant tax advantages.
  • AIF fund aids in the diversification of market strategies and investment forms.
  • Because of the investment in AIFs, the investor obtains direct ownership.
  • AIFs can be considered passive investments because they do not always necessitate active management and can be managed by teams.

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Drawbacks of Alternative Investment Funds

  • Investors in AIFs must be accredited, i.e. a high net worth individual.
  • AIFs necessitate a significant upfront investment. Therefore small-scale investors cannot afford AIFs.
  • Alternative investment funds are sophisticated, and it is critical to conduct your research before investing in them.
  • Another impediment for investors interested in AIFs is a lack of liquidity. There is a significant period, usually 3-10 years before the initial profit can be taken out.
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Every investment goes through several market upsides and downsides. While Alternative Investment Funds are a lucrative venture, there is a great learning experience associated with comprehending them, according to experts in the field.

Consequently, investors need to participate in an AIF fund through transparent channels that can help them make educated selections.

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FAQs on Alternative Investment Funds

Q.1. What is the AIF's full form?

AIF Full Form is Alternative Investment Funds.

Q.2. What is an Alternative Investment Funds Corpus?

"Corpus" refers to the entire amount of funds contributed to the Alternative Investment Funds by investors through a signed contract or another such document of a specific date.

Q.3. What is the minimum amount needed to invest in Alternative Investment Funds?

Except for angel funds, all forms of Alternative Investment Funds in India demand a minimum investment of Rs. 1 crore.

Q.4. Is there a cap on the number of investors who can participate in an Alternative Investment Funds scheme?

Alternative Investment Funds in all categories, excluding angel funds, can have a maximum of thousand investors.