Alternative investment funds (AIFs)

News: According to SEBI’s latest data, Alternative Investment Funds (AIFs) have raised over ₹5 trillion. Investment commitments have also surpassed ₹12 trillion for the first time.

About Alternative investment funds (AIFs)

1. An AIF is a fund established or incorporated in India that serves as a privately pooled investment vehicle. These investment vehicles adhere to the SEBI (Alternative Investment Funds) Regulations, 2012.

2. AIF collects funds from sophisticated investors, both Indian and foreign, to invest according to a defined investment policy for the benefit of its investors.

3. An AIF can be established or incorporated in the form of a trust or a company or a body corporate or a limited liability partnership

4. Categories of Alternative Investment Funds (AIFs)

• Category I-They invest in start-up or early-stage ventures or other areas which the government considers as socially or economically desirable. Examples include venture capital funds like angel funds, SME Funds, social venture funds, infrastructure funds etc.
• Category II– They are those which are not classified under Category I or Category III. They do not use leverage or borrowing, except for daily operational needs and as allowed by regulations. Examples include real estate funds, debt funds, private equity funds, and funds for distressed assets.
• Category III– They are funds which employs complex or diverse trading strategies and may use leverage, including investing in listed or unlisted derivatives. Examples include hedge funds and PIPE funds.

Note– Category I and II AIFs are required to be close ended and have a minimum tenure of three years. Category III AIFs may be open ended or close ended.

5. Minimum number of investors- No scheme of an AIF (other than angel fund) shall have more than 1000 investors. In case of an angel fund, no scheme shall have more than forty-nine angel investors.