How to Invest in an Alternative Investment Fund in India?

AIFs are funds established, by foreign or domestic investors, in India for making investments in several asset development tools such as real estate, hedge fund , private equity funds , debt securities, and more. These funds pool in money from high net-worth individuals and are mostly privately held.AIFs do not come under rules and regulations as outlined by any regulatory authority in India. However, they have been described and classified under SEBI (Alternative Investment Funds) Regulation, 2012.As per this classification, there are broadly three kinds of AIFs:

1. Category I This category of funds is beneficial for the economic growth of India. They include Infrastructure funds, VC funds, and Start-up funds.
2. Category II This category includes PE funds, real estate funds , and funds for distressed assets that do not require leverage or borrowing.
3. Category III These are funds which require meticulous strategies, leverage, and trading—for example, PIPE funds, hedge funds, and others.

To start investing in AIF , an investor must fulfil the following criteria:

1. Must have a minimum corpus of Rs. 20 Cr. for any particular scheme or Rs. 10 Cr. in case of an Angel Fund.
2. The minimum investment for an individual is set at Rs. 1 Cr. or Rs. 25 lakhs for an employee, manager, or director of AIF.
3. Each scheme can have a maximum of 1000 investors. The number is limited to 49 when it is an Angel Fund.
4. While Category I & II AIF can only be close-ended, Category III can be both open and close-ended.
5. The fund manager or AIF sponsor must have continued vested interest of 2.5% of the initial corpus.
6. Every individual investor has to submit id proof, pan card , and proof of income.

AIFs are gaining popularity largely due to their higher returns as compared to portfolio management services or mutual funds. While the investments are prone to higher market and liquidity risks, the individuals investing are already attuned to such environments. All PIOs, NRIs, and OCIs, can invest in AIFs as long as they adhere to the guidelines laid out by the SEBI.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.