Alternate Investments Funds (AIF)

A Suite of products designed with an aim to strategically manage long term wealth Creation.

Alternate investment Fund or AIF means any fund established or incorporated in India which is privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or Foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

Key characteristics of AIFs:

  • Niche products with distinctive approaches
  • Investment Managers are given greater flexibility to generate Alpha
  • AIFs offer diversification of wealth through seamless accountability and transparency.

Types of AIFs

  • Category I – Invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME funds, social venture funds, Infrastructure funds and such other Alternate Investment funds as may be specified.
  • Category II – AIFs which do not fall in category I and III and which do not undertake leverage or borrowing other than to meet day to day operational requirements and as permitted in the SEBI ( Alternate Investment Funds) Regulations 2012. Various types of funds such as Real Estate funds, Private Equity funds, funds for distressed assets etc. are registered as Category II AIFs.
  • Category III – AIF which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. Various type of funds such as hedge funds, PIPE funds etc. are registered as category III AIFs. Category I & Category II AIFs are required to be close ended have a minimum tenure of three years from its initial closing. Category III AIFs may be open ended or close ended

Key Differences:

 

Mutual Fund

PMS 

AIF

Investor Base

Open to retail investors and institutional investors 

Typically limited to High net worth Individuals (HNIs) with a higher minimum investment requirement 

Primarily targeted towards sophisticated and accredited investors, including institutional investors, HNI, family offices and private equity firms.

Investment Size

Investors can start with a small amount due to the ability to purchase fractional units. Minimum investment amount is INR 500

Requires a higher minimum investment amount of INR 50 Lakhs due to personalised and tailored investment strategies.

Requires a higher minimum investment amount of INR 1 Cr due to personalised and tailored investment strategies.

Segregation of Funds

No segregation is required to be done

Under PMS Model, funds of every client is segregated and kept in different D-Mat accounts 

Pooling of funds is the main essence of this kind of investment model

Investment strategy

Offers predefined investment strategies (e.g. equity funds, debt funds, balanced funds) that are followed by the fund manager.

Provides flexibility to create personalised investment strategies based on individual client requirements and objectives.

Driving multi strategic vehicles that can expand into private equity, derivative products etc. 

Liquidity

Offers daily liquidity, allowing investors to buy or sell units at the prevailing Net Asset Value (NAV)

Less liquid compared to mutual funds. Redemption terms and lock in periods may apply depending on the PMS structure and agreement.

Limited liquidity is primarily due to the nature of the alternate assets in which AIFs invest. Such as private equity, real estate, hedge funds or venture capital. These investments often require a longer time horizon to achieve their intended objectives.

Taxation

Tax implications depend on the type of mutual fund and the holding period.

Taxed at investor level

Taxations as per category 

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