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AIF Funds:How to Go About Investing in AIF?

What does AIF mean?

AIF funds investment simply means an alternative investment fund that differentiated from the conventional avenues of investment. It consists of investments made into venture capital, hedge funds, etc, that carry the potential to pool. AlF funds generally, encounter investments from individuals having high net worth as it necessitates huge investment. And it followed by risk.

It understood to a vehicle that pools the investment from private investors that deemed too sophisticated. It outlined under regulation 2 (1)(b) of the Regulation Act, 2012 under the Securities and Exchange Board of India.

AIFs are open to all Indian people, along with NRIs, OCIs, and PIOs. They do, nevertheless, have to fulfill the eligibility requirements.

AIF can legally take the form of a body corporate, trust or LLP, etc. The majority of SEBI-registered AIFs are in the category of Trust.

Alternative investment fund: Types

AIF divided into three groups, as per SEBI:

1) Category 1: Under this category, those funds are included that are associated with making an investment into businesses that carry the potential to grow exponentially and also SMEs and startups. Considering the fact that funds under this category fuel the economy. And also lead to job creation, therefore the government takes a keen interest in incentivizing these funds. These funds aid in quenching the capital requirements of many startups. Enumerated funds jotted below form part of category 1

  1. Venture capital funds: such funds utilized mainly for the purpose of fulfilling the capital needs of ventures that looking forward to expanding businesses.
  2. Infrastructure funds: These funds entail investment majorly for the purpose of developing public assets like communication systems and road infrastructure. The brownie point of investing in these funds is that the return is an amalgamation of growth in capital and income from dividends. Further, the government doesn’t shy away from providing benefits related to tax when such investments are raised.
  3. Angel fund: under such funds, money pooled from investors who called Angel investors. The pooled money then utilized by startups to seek expansion. As these startups witness a rise, so does the dividend income.
  4. Social venture fund: As the name suggests, such funds entails investment in ventures that backed up with a vision to bring a change in society together with profit generation.

2) Category 2: Under this category, those funds included invest in debt and equity securities. These funds do not enjoy the incentives by the government. As specified by SEBI, the funds that do not form a part of either category 1 and 2, falls under it.

Enumerated funds jotted below form part of category 2.

  1. Private Equity Fund: The major fund of these funds to invest in private companies that not listed and also gets hold of share related to ownership.
  2. Debt Fund: These funds typically make an investment in both listed and unlisted companies concerning their debt instruments.
  3. Fund of funds: This fund is interesting in itself since it entails a combining effect of different alternative investment funds. This fund has such investment strategy that reckons on investing in other AIF’s portfolio rather than opting for having own portfolio.

3) Category 3: So if one is looking forward to the idea of short-term returns, these funds can provide an answer to them. Unfortunately, these funds do not enjoy concessions by the government.

Enumerated funds jotted below form part of category 3.

  1. Hedge funds: These funds promise to secure high returns since the pooled capital invested into domestic as well as international markets.
  2. Private investment in public equity fund: It involves the process of buying shares at a discounted rate in relation to stocks that publically traded.

AIF: Registration procedure

The applicant must first submit a request in Form A, as prescribed by the SEBI (Alternative Investment Funds) Regulations, 2012, together with all required legal documents. Together with the submission of the application to SEBI, a payment of Rs. 1, 00,000/- must be provided.

Investing in AIF: Here is what you should know

A person who wishes to try a hand at making an investment must meet the enumerated requirements:

  1. Firstly it is imperative to know that in Angel fund-related case,
  2. it must entail a corpus of Rs ten Crore on a minimum basis,
  3. and on the other hand, in relation to any particular scheme, it should be Rs twenty crore.
  4. In the case of the manager or director of AIF, the investment must be Rs twenty-five lakh on the minimum basis,
  5. And on the other hand in an individual’s case,
  6. It should be Rs one crore.
  7. The maximum cap is set at a thousand in relation to investors pertaining to each scheme
  8. and on the other hand, where Angel fund is concerned it is set to forty-nine.
  9. The investor in individual capacity must submit the income proof, PAN, and identity proof.

Conclusion

In a nutshell, it can be concluded that an Alternative investment fund can simply understand to mean an investment vehicle that is privately pooled.

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