Alternative Investment Funds

Alternative Investment Funds are the investments which do not happens through traditional modes of payments like cash, property, bonds, stocks etc. Regulation 2(1)(b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 define Alternate Investment Funds as  any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which is

  • Not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
  • Private investment such as mutual funds  whether Indian or foreign which collects funds from investors for investing it in accordance with a defined investment policy for the benefit of its investors

The funds which comes under the ambit of AIF are:

  • Infrastructure Equity Fund
  • Private Equity Fund
  • Real Estate Fund
  • PIPE (Private Investment in Public Equity ) Funds
  • Venture Capital Funds
  • Debt Funds
  • Social Venture Funds

Types Of AIFs:

SEBI has permitted three categories of AIFs. They are:

  1. These includes infrastructure funds, venture capital funds, social venture funds, SME funds. All these get incentive from the government.
  2. These are not given any special incentives or concessions and can invest anywhere without raising any debt. They can however consider the latter route for meeting their daily requirements. Private Equity funds, Debt funds etc. are included in this category.
  3. This includes Hedge Funds which operates to make short terms gain without concessions.

Foreign investors can also invest under this AIF. This has been announced in Budget 2016 that the foreign investments will be allowed in alternative investment funds (AIFs).The AIFs usually have a high limit of minimum investment to the tune of INR 1 Crore as per Security and Exchange Board of India Regulations, 2012.  It is basically directed at high net worth individuals. The total amount which is to be committed by investors in the investee company or trust by written contract or agreement should be a minimum of INR 20 Crores.

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