Q. With reference to investments, consider the following :- Bonds
- Hedge Funds
- Stocks
- Venture Capital
How many of the above are treated as Alternative Investment Funds? (UPSC Prelims 2025)
Answer:
Only two
Notes: The correct answer is
[B] Only two. In India, Alternative Investment Funds (AIFs) are defined under SEBI (AIF) Regulations, 2012. They are private investment vehicles that collect funds from sophisticated investors for investing according to a defined policy for the benefit of those investors.
- Hedge Funds (Correct): These are categorized as Category III AIFs. They employ diverse or complex trading strategies and may use leverage, including investment in listed or unlisted derivatives.
- Venture Capital (Correct): These fall under Category I AIFs. They invest in start-ups, early-stage enterprises, or new projects which are socially or economically desirable.
- Bonds and Stocks (Incorrect): These are traditional investment assets. Direct investments in listed shares (stocks) or debt instruments (bonds) are regulated under standard SEBI guidelines for mutual funds or collective investment schemes and are not classified as AIFs.
Under SEBI rules, AIFs exclude family trusts, employee stock option trusts, and gratuity trusts. They are primarily divided into three categories: Category I (Venture capital, SME, Social ventures), Category II (Private equity, Debt funds), and Category III (Hedge funds).