An Alternative Investment Fund, or AIF, is a confidentially pooled investment vehicle developed or incorporated in India that collects assets from expert investors, whether Indian or global, for investing in line with a defined investment policy for the welfare of its investors. AIFs can be formed or incorporated as a corporation, trust, or other legal entity (including limited liability partnerships). The SEBI (Mutual Funds) Laws of 1996, the SEBI (Collective Investment Schemes) Laws of 1999, or any other Board regulations governing fund management do not apply to AIF.
Everything to Know about Alternative Investment Fund (AIF)
The term “alternative investment fund”, refers to the collection of pooled investment funds that infuse in venture capital, private equity, hedge funds, managed futures, and other types of investments. We can also say that an AIF is a type of investment distinct from traditional investment options such as stocks, bonds, and other debt securities.
The Securities and Exchange Board of India’s Regulation Act, 2012 defines an Alternative Investment Fund (SEBI). AIFs can form as a corporation, a trust, or a Limited Liability Partnership (LLP).
Generally, high-net-worth people and organizations engage in Alternative Commitment Funds since, unlike Mutual Funds, they need a large initial investment.
Types of Alternative Investment Fund (AIF)
This category includes funds that invest in start-ups, small and medium-sized firms (SMEs), and new businesses with strong growth potential and is socially and economically viable. Because these ideas have various effects on the economy. With the terms of job and growth generation, the government encourages the plan of investment. These funds have proved a lifeline for already-successful firms in need of funding. Take a look at the many kinds of AIFs.
- Venture Capital Fund (VCF)
Venture Capital Funds invest in high-growth start-ups that are experiencing cash constraints in the early stages of their business and require capital to develop or expand their operations. Because it is difficult for new firms and entrepreneurs to get funds through the financial markets, Venture Capital Funds have become the most popular option for their funding needs.
They invest in a variety of businesses based on their company characteristics, asset size, and product development stage. Venture capital funds, unlike mutual funds and hedge funds, concentrate on early-stage investments. Each investor receives a proportional share in the firm that the VCF has invested in, based on their investment.
- Infrastructure Fund (IF)
The fund invests in public assets like road and rail infrastructure, airports, and communication assets, among other things. Investors that are positive about future infrastructure growth can participate in the fund since the infrastructure industry has high entry barriers and little competition.
Infrastructure Fund investors might expect a mix of capital growth and dividend income as a result of their investment. When an Infrastructure Fund invests in initiatives that are socially acceptable and practical, the government may offer tax incentives.
- Angel Fund
This is a sort of Venture Capital fund in which fund managers combine money from a number of “angel” investors to invest in early-stage firms. Investors receive dividends when new enterprises become profitable.
Units are distributed to angel investors in the case of Angel Funds. An “angel investor” is a person who wishes to invest in an angel fund and adds business management knowledge to the table, therefore assisting the company in its growth. Because of their growing uncertainties, these investors usually invest in companies that aren’t sponsored by conventional venture capital funds.
- Social Venture Fund
Socially responsible investment has spawned the Social Venture Fund (SVF), which invests in firms with a strong social consciousness and a desire to have a positive impact on society. These businesses are focused on producing money while also addressing environmental and social challenges. Despite the fact that it is a philanthropic investment, one may expect a return because the companies will still generate money.
- Private Equity (PE) Fund
PE funds invest in private firms that aren’t publicly traded with stakeholders. Because the unlisted and unauthorized private enterprises are unable to raise cash with PE funds for help.
Categories of AIF
Category I
AIFs that invest in start-ups or social enterprise funds, infrastructure funds, SME funds, and so on are classified as Category I AIF. For the government or regulators, they are frequently deemed socially or economically viable.
Category II
Funds that do not use leverage or borrow for any reason other than to cover operational needs that do not fall under Categories I or III. This is where Private Equity Funds usually fall.
Category III
Funds that engage in a variety of or complex trading techniques, such as investing in listed or unlisted derivatives, fall into Category III. Hedge funds are typically included in this category. Open-ended funds are classified as Category III AIFs whereas closed-ended funds are classified as Category I and II AIFs.
