A common investment opportunity that has been brewing a discussion among the HNIs is about the AIFs (Alternate Investment Funds).

In the ever-evolving landscape of investment opportunities, Alternate Investment Funds (AIFs) have gained prominence in India as a unique avenue for investors seeking diversification beyond traditional options. As the investment landscape continues to evolve, AIFs provide a dynamic and sophisticated option for investors looking beyond traditional avenues.

This guide provides a comprehensive overview of AIFs in India, shedding light on their structure, regulations, and potential benefits.

Understanding Alternate Investment Funds

An Alternative Investment Fund differs from a conventional investment instrument in that it is a special type of investment. The fund is privately pooled. Since AIFs require substantial investments, institutions and HNIs normally invest in them. Although it invests in both listed and unlisted asset classes, its primary focus is on investing in securities other than debt and equities. The minimum investment that it carries is Rs. 1 crore! 

What is the typical structure of an AIFs and who are the parties involved?

The different parties to an AIF include:

• Sponsor: An individual who establishes an AIF.
• Manager: The person or entity that is appointed by AIF to manage the fund's investments and may also be its sponsor.

There must be at least one key investment team member with not less than five years of experience in managing or advising capital pools on the manager's key investment team.

• Trustee: When the AIF is formed as a trust, a trustee is appointed under a trust deed that must be registered.

Now let’s understand the key features of AIFs:

• Regulatory Framework:

Securities and Exchange Board of India (SEBI) regulates AIFs in India. Transparency, investor protection, and compliance with guidelines are ensured by the regulatory framework.

• Fund Structure:

There are three types of AIFs: trusts, companies, and limited liability partnerships (LLPs). Depending on the fund's objectives, fund managers can tailor their approach based on the advantages and considerations of each structure.

• Investor Eligibility:

AIFs are typically targeted at qualified institutional investors (QIBs), high-net-worth individuals (HNIs), and family offices. As a result, the fund's structure is aligned with the risk appetite and investment objectives of sophisticated investors.

• Liquidity Risk:

Some AIFs may have lock-in periods, limiting investors' ability to redeem their investments on short notice.

• Market and Operational Risks:

The performance of AIFs is influenced by market conditions and the fund manager's skills. Operational risks, such as regulatory changes, also need consideration.

Disclaimer: The above information should not be relied upon for personal or financial decisions, and you should consult an appropriate financial professional for specific advice. The information presented under our newsletter and blogs is solely for informational purpose.