Alternative Investment Funds

What are Alternative Investment Funds?

Alternative Investment Funds is a relatively new concept in India, the regulations for which was described by SEBI in 2012. SEBI currently recognizes AIF as ‘ “private investment fund” which do not come under jurisdiction or purview of any regulatory body in India. These investments are recognized in the form of LLP (Limited Liability Partnership), corporate body, company or trust.

Since these funds are private in nature they are not available via IPO or public issue. The minimum investment amount for AIF is 20 Crores. AIF invites investors from home or abroad to invest in their privately pooled investment vehicle. Hedge Funds and Venture Capital are examples of AIFs.

The investment horizon ranges from 3 to 10 years.

What are the types of Alternative Investment Funds available to investors?

There are three types of AIFs available for investors:-

1.    Category I: It includes the Start-up funds and those funds which are beneficial for the economy. Some of the Category I funds are:

a.    SME Funds

b.    Social Venture funds

c.    Infrastructure funds

d.    Other AIFs specified under SEBI regulations

2.    Category II: This category includes funds which resort to lending or borrowing for operational activities. Some of them are as follows:-

Real Estate Funds

b.    Private equity Funds

c.    Funds for Distressed Assets

3.    Category III: These fund practice strategies like Arbitrage, Margin Trading, Futures, and Derivative Trading. An example of Category III Fund is a Hedge Fund.

What are some rules and regulations associated with Alternative Investments?
  1.  All Indian Citizens, NRIs, PIOs, and OCIs can invest in AIF Funds.
  2.  Minimum Investment Corpus is 20 Crores while if it is through Angel Investors the minimum amount is 10 Crores.
  3.  Maximum number of Investors in a scheme cannot be more than 1000.
  4.  The Sponsor or the Manager of the fund should put at least 5 Crores or 2.5 % of the initial corpus in the Fund.
  5.  Family trusts, Employee welfare Trusts, ESOP trust, Holding Companies, SPV, Reconstruction Company / Reconstruction Securitization Company funds do not come under the purview of AIFs.
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