What is an Alternative Investment Fund?

Alternative Investment Fund comprises pooled investment funds which invest in venture capital, private equity, hedge funds, managed futures, etc. In simpler terms, an AIF refers to an investment which differs from conventional investment avenues such as stocks, debt securities, etc.

Alternative Investment Fund is described under Regulation 2(1)(b) of the Regulation Act, 2012 of Securities and Exchange Board of India (SEBI). AIF can be established in the form of a company or a corporate body or a trust or a Limited Liability Partnership (LLP).

Generally, high net worth individuals and institutions invest in Alternative Investment Funds as it requires a high investment amount, unlike Mutual Funds.

Why invest in AIFs?

AIFs can be an attractive option for some investors seeking diversification and potentially higher returns outside traditional asset classes like stocks and bonds. Here are some reasons why investors might consider investing in AIFs:

Potential for Higher Returns: AIFs may offer higher returns than traditional investments due to their exposure to a broader range of assets and investment strategies. However, this higher return also comes with higher risk.

Portfolio Diversification: By giving investors access to alternative asset classes, including hedge funds, real estate, and private equity, AIFs help them diversify their portfolios.

Low Volatility: AIFs are unrelated to the stock market and, hence, are less volatile than other investments like equity or mutual funds investments.

FAQ's

What are the 3 categories of AIF?

Three categories of the AIF are Category I AIF, Category II AIF, and Category III AIF.

Is AIF better than MF?

The decision of selecting AIFs and mutual funds depends on your individual risk tolerance and investment goals. AIFs are suitable for savvy investors looking for diversification because they can offer a variety of asset classes but often carry a higher risk. Mutual funds are a better option if you want a more straightforward and diversified investing strategy, as they are typically easier to access. It also offers you flexible investment options, wherein you can start with a small amount via SIP, as well as a large corpus via lumpsum.

What are the examples of AIF in India?

Some examples of AIF in India include 021 Capital Trust, 108 Capital Venture Fund, Banyantree India Growth Capital Fund, Capitalmind Select India One, Deserve Innovation Fund, etc.

Is AIF risky?

Yes, AIFs are risky investments, as their investments in non-traditional assets like private equity or hedge funds may be more volatile and complex.

Who regulates AIF in India?

In India, AIF is regulated by the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.