Alternative Investment Funds (AIF): AIFs are privately pooled investment funds that invest in assets such as private equity, real estate, hedge funds, or commodities, offering alternative investment opportunities beyond traditional stocks and bonds.
Frequently Asked Questions (FAQ) for Alternative Investment Funds (AIF)
Alternative Investment Funds (AIFs) are privately pooled investment funds that invest in assets such as private equity, real estate, hedge funds, commodities, infrastructure, or distressed assets, offering alternative investment opportunities beyond traditional stocks and bonds.
AIFs raise capital from high-net-worth individuals (HNIs), institutional investors, or sophisticated investors and invest in a diversified portfolio of alternative assets managed by professional fund managers or investment teams. The performance of AIFs depends on the performance of their underlying assets.
Only an accredited investor can invest in AIF.
The following entities shall be eligible to be considered as Accredited Investors:
Individuals, HUFs, Family Trusts and sole proprietorships, which meet the criteria as under:
- Annual Income >= INR 2 Crore.
- Net Worth >= INR 7.5 Crore, out of which at least INR 3.75 Crore is in the form of financial assets.
- Annual Income >= INR 1 Crore+ Net Worth >= INR 5 Crore, out of which at least INR 2.5 Crore is in the form of financial assets;
Partnership Firms set up under the Indian Partnership Act, 1932 in which each partner independently meets the Accredited Investor criteria for individuals.
Trusts (other than family trusts) Assets under Management greater than or equal to INR 50 Crore.
Body Corporates with net worth greater than or equal to INR 50 Crore.
Joint Accounts held by individuals to be considered as Accredited Investor accounts, if:
- The Joint holders are parent(s) & child(ren), and at least one member is independently fulfilling the eligibility criteria for Accredited Investor,
- The Joint holders are spouses, and their combined income/ net worth meets eligibility criteria.
Central and State Governments, Developmental Agencies set up under the aegis of Government(s) (e.g. SIDBI, NABARD, etc.), Funds set up by government(s), Qualified Institutional Buyers as defined under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Category I Foreign Portfolio Investors, Sovereign Wealth Funds, Multilateral Agencies (e.g. Asian Development Bank, New Development Bank, International Monetary Fund, World Bank, International Finance Corporation, etc.) etc. shall be deemed Accredited Investors. The eligibility of foreign investors to be accredited shall be determined on the basis of the rupee equivalent of their income and/ or net worth and/ or AUM as evidenced by their documentary proof of income/ net worth/ AUM.
Please check with your distributor/advisor on the latest regulatory requirements for accreditation.
AIFs offer diversification, access to non-traditional asset classes, potential for higher returns, and professional management expertise. They provide investors with exposure to alternative investments that may have low correlation with traditional stocks and bonds, offering potential risk mitigation benefits.
AIFs can be classified into three categories:
- Category I - funds investing in startups, SMEs, infrastructure, or social ventures;
- Category II - funds investing in private equity, debt, or real estate;
- Category III - funds employing diverse trading strategies such as hedge funds or funds with a focus on derivatives trading.
Alternative Investment Funds (AIFs) are regulated by the Securities and Exchange Board of India (SEBI) in India. SEBI sets regulations and guidelines to govern AIFs, ensuring investor protection, transparency, and integrity in the AIF industry.
AIFs carry certain risks, including market risk, liquidity risk, credit risk, operational risk, and manager risk. Investors should carefully evaluate the risks associated with AIFs, consider their risk tolerance, and conduct thorough due diligence before investing.
Investors can invest in AIFs through a registered AIF manager or sponsor by subscribing to the units or shares of the fund. AIF managers typically offer investment opportunities through private placements, and investors may need to meet minimum investment requirements.
AIFs may charge management fees, performance fees, and other expenses, which are typically borne by the investors. Management fees are charged as a percentage of assets under management (AUM), while performance fees are based on the fund's performance relative to a predefined benchmark or hurdle rate.
AIFs are suitable for sophisticated investors who understand the risks associated with alternative investments and have the financial capability to withstand potential losses. Investors should carefully evaluate their investment objectives, risk tolerance, and financial situation before investing in AIFs and seek professional support if needed.