What are Alternative Investment Funds? - Divyam Smart Support

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Friday, 26 January 2018

What are Alternative Investment Funds?

There are many investment organizations where you can invest in different type of assets. These investment organizations are different from traditional investment institutions, and they are kept in the alternative investment categories. Due to the act, these institutions were required to classify.

For the overall security of the financial system and the development of the economy, good regulation of each financial entity is necessary.

alternative investment funds india

Category of Alternative Investment Funds:

It is very important to have an alternate name because it indicates that AIFs are not like traditional institutions like mutual funds, insurance companies etc. Any type of investment which is different from traditional investment practices comes in the category of alternative investment funds.

alternative investment funds detail

What are Alternatives Investment Funds?

Alternative investment funds are a class of investment institutions that do not come under the general regulatory framework for SEBI for investment institutions. AIFs refer to any private group investment fund, such as a trust or company or corporate body or LLP(Limited Liability Partnership) that does not fall under the regulations of RBI, SEBI, IRDA, And PFRDA. These can be either Indian Or Foreign.

regulation of AIF

Regulations Of AIF:

In may 2012, SEBI had made guidelines for AIF, according to which capital invested by any Indian or Foreigner investors for funds established in India will be in accordance with the pre-determined policy.

Three Categories Of AIFs

In 2014, SEBI decided that promoters of listed companies could divide equity shares to AIF by 10 percent. Such as SME Funds, Infrastructure funds, PE funds and venture capital funds that are registered to acquire a minimum 25% public shareholding.

Under SEBI Guidelines, AIF is divided into three categories. SEBI regulations are applicable to all AIFs, including private equity funds, real estate funds and hedge funds.

Category 1:

In category 1, comes those who create a positive effect on the economy and for this, they get encouragement from the government, SEBI or other regulators. These include social venture funds, Infrastructure funds, venture capital funds, Angel investors, SMEs, etc.

Category 2:

In category 2, those funds come which are not given any incentive or concessions by the government or other regulators. Institutions coming under this category are Private equity funds, Debt Funds, Funds of Funds and other such funds which do not fall under Category 1 and 3. These funds should be for a limited period and should not engage in any kind of benefits.

Category 3:

Category 3rd of AIFs offers organizations like Hedge Funds, that do business with the goal of getting returns in the short term. They use complex and diverse trading strategy and they benefit from inventory in listed or unlisted derivatives.

In the 2015 Budget, the government allowed foreign investments in AIFs. Now foreign investment in AIF is also permitted which can be a registered trust, a structured company or a limited liability partnership with a corporate company. According to this decision, foreign investment will be established like trust or corporate companies or LLP and they will be registered under SEBI(AIF) Regulatory 2012.

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