Alternate Investment funds
Alternative Investment Funds (AIFs) present a powerful way to diversify beyond traditional investments,
tapping into unique opportunities that go beyond conventional asset classes.
Labelled as 'alternatives,' AIFs offer choices that extend past familiar options like equities and
bonds. These funds venture into varied investment strategies, asset types, and market segments, all with
a goal to achieve compelling risk-adjusted returns. The term 'alternative' emphasizes the distinctive,
non-traditional nature of these investments.
Alternative Investment Fund or AIF means any fund established or incorporated in India which is a
privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or
foreign, for investing it in accordance with a defined investment policy for the benefit of its
investors.
What are the types of Alternate Investment Fund?
Category I AIFs
AIFs which invest in start-up or early-stage ventures or social ventures or SMEs or infrastructure or
other sectors or areas which the government or regulators consider as socially or economically desirable
and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds and such
other Alternative Investment Funds as may be specified.
Category II AIFs
AIFs which do not fall in Category I and III and which do not undertake leverage or borrowing other than
to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds)
Regulations, 2012. Various types of funds such as real estate funds, private equity funds (PE funds),
funds for distressed assets, etc. are registered as Category II AIFs.
Category III AIFs
These funds use a variety of sophisticated trading strategies and may utilize leverage, including
investments in listed or unlisted derivatives. In India, popular strategies include long-short funds and
long-only funds.
Who can invest in Alternative Investment Funds?
AIFs are designed for sophisticated investors, such as Ultra/High-Net-Worth individuals, institutional
investors, and qualified institutional buyers. SEBI sets eligibility criteria for investing in AIFs,
typically considering factors like minimum net worth, financial expertise, and risk tolerance. For
example, in Category III AIFs, the minimum investment amount is ₹1 crore. These criteria ensure that
AIFs are accessible to knowledgeable investors who are able to bear the associated risks.
