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Alternative Investment Funds invest in non-conventional or alternative assets, for instance, private equity and hedge funds. Such funds offer investors a chance to earn potentially high returns and diversify their portfolios. In this article, let us explore the concept, workings, benefits, and types of Alternative Investment Funds in India.
In today’s time, investors have access to various types of investing avenues spanning across industries, asset classes, and risk profiles. Although conventional market-linked investment vehicles such as equity, debt, and derivatives remain popular choices, the past few years have seen the rise in prominence of another type of investment tool, namely Alternative Investment Funds or AIFs. In this article, we shall shed light on
As their name suggests, Alternative Investment Funds (AIFs) invest in alternative assets. Such assets include private equity, social ventures, hedge funds, infrastructure funds, and SME funds, to name a few. AIFs in India carry a minimum investment threshold of Rs. 1 crore for investors and Rs. 25 lakhs for fund managers.
Although the tenure of each Alternative Investment Fund is different, a majority of such funds carry a lock-in period of three years or more. All AIFs in India are registered with and regulated by the Securities and Exchange Board of India (SEBI). According to SEBI regulations, an Alternative Investment Fund in India can take the form of
Alternative Investment Funds in India have been bifurcated into three major categories, with each comprising varying types of AIFs.
Category I Alternative Investment Funds
Category II Alternative Investment Funds in India
Category III Alternative Investment Funds in India
Additional Read: What is a Qualified Institutional Buyer (QIB)?
Now that we have discussed the meaning of Alternative Investment Funds and their types in India, let us turn our focus toward the eligibility criteria to invest in such funds. All resident Indians can invest in AIFs. Furthermore, Non-resident Indians and citizens of other nations can also invest in AIFs in India. There is also an option of joint investment in AIFs by the parents, spouses, and children of the fund's investors.
Investments in Alternative Investment Funds entail a host of benefits, prominent amongst which are as follows:
The taxability for AIFs in India is contingent upon the category of the fund. While all income generated from category I and category II AIFs (barring business income) is exempt from income tax in the hands of the AIF. The tax liability is imposed on the investor instead. In stark contrast, the income of category III AIFs is taxable in the hands of the fund, with no tax liability for the investors’ gains.
Alternative Investment Funds are considered to be complex investment vehicles that carry high risk and reward potential. AIFs invest in non-conventional asset classes and a variety of entities and sectors, including start-ups and social initiatives. As such, investments in AIFs should be undertaken with acute understanding of the instrument and their investment targets and strategies.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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