Alternative Investment Funds (AIFs)

AIFs represent a distinct investment category separate from conventional instruments, typically attracting institutions and High Net Worth Individuals (HNIs) due to substantial investment requirements.

Regulatory Framework: Governed by the SEBI (Alternative Investment Funds) Regulations, 2012, AIFs can be structured as companies, Limited Liability Partnerships (LLPs), trusts, etc.

Categories of AIFs:

Category 1:

• Venture Capital Fund (VCF): Targets SMEs and start-ups with high growth potential, offering vital financing during their nascent stages.
• Angel Funds: Invest in budding start-ups, providing early-stage management expertise. Minimum investment per angel investor is Rs 25 lakh.
• Infrastructure Funds: Focus on infrastructure development companies like railway and port construction firms.
• Social Venture Funds: Invest in socially responsible businesses, combining philanthropy with the potential for decent returns.

Category 2:

• Private Equity Funds: Invest in unlisted private companies, typically with a lock-in period of 4 to 7 years.
• Debt Funds: Primarily invest in debt securities of unlisted companies with high growth potential but low credit ratings.
• Fund of Funds: Invest in various other AIFs rather than holding an investment portfolio.

Category 3:

• Private Investment in Public Equity Fund (PIPE): Invest in shares of publicly traded companies at discounted prices.
• Hedge Funds: Pool money from accredited investors, employing aggressive strategies across domestic and international markets.

Eligibility and Regulations:

• Open to Resident Indians, NRIs, and foreign nationals with a minimum investment of Rs. 1 crore for investors and Rs. 25 lakh for directors, employees, and fund managers.
• Minimum lock-in period of three years with a cap of 1000 investors per scheme (except for angel funds, which can have up to 49 investors).

Benefits of AIF Investments:

• High Return Potential: Offers higher return potential compared to traditional options due to flexible strategies.
• Low Volatility: Exhibits less volatility, providing stability amidst market fluctuations.
• Diversification: Allows for portfolio diversification, serving as a hedge during financial crises.

PRACTICE QUESTION

Q. How many of the following statements regarding the National Investment and Infrastructure Fund Limited (NIIFL) is/are correct?

1. NIIFL is a privately-owned company aimed at maintaining infrastructure investment funds.
2. Its objective is to reduce the capital inflow into the country and support growth needs across various sectors.
3. It has been registered with SEBI as a Category I Alternative Investment Fund.
4. The Governing Council of NIIFL is chaired by the Finance Minister of India.

A.None

B.One only

C.Two only

D.Three only

Correct answer: B.  One only