In order for an economy to grow, capital infusion is one of the most important factors. If the industry lacks adequate capital within its system, capital infusion can influence the flow of funds in the economy. As the economy is infused with more capital, growth can be observed across many sectors.

There may not be a listing for every company. So, how can these companies raise capital? What are the ways that people invest in startups? The answer is Alternative Investment Funds (AIFs)!

The Indian market is saturated with various types of mutual funds and investment options. High Net Worth Individuals (HNIs), can invest in AIFs due to the non-conventional nature of these investments. It is indeed an interesting thought to consider how beneficial it is to the investor.

What are Alternative Investments Funds?

AIFs are funds that act as gateways for investors to deploy private capital into a variety of alternative investment avenues, such as hedge funds, private equity, venture capital, and debt funds. Alternative Investment Funds are established by companies, LLPs (limited liability partnerships), corporate bodies, or trusts.

Different AIF Categories

SEBI has segregated the AIFs into three categories. They are as follows:

  • Category I : Funds in this category are to be invested in new, fast-growing businesses. Economically and socially viable companies are the focus of this category. Governments across the country promote and incentivize these sectors, which are necessary for a country’s growth. They are –
    • Venture capital funds
    • Infrastructure funds
    • Angel funds
    • SME funds
    • Social venture capital funds
  • Category II : This pertains to funds that do not borrow or leverage outside their operational expenses.
    • Private equity funds
    • Debt funds
    • Fund of funds
    • Real estate funds
    • Fund for distressed assets
  • Category III : Funds in this category provide investors with short-term investment options.The following funds fall under the same.
    • Hedge funds
    • Private investment in public equity funds (PIPE)

Investment criteria for AIFs

Potential investors must now be interested to know what the investment criteria is after understanding the basics of AIFs. No worries; we cover that too:

  • NRIs, PIOs, and OCIs are all capable of investing in these funds.
  • An individual can invest Rs 1 crore as the minimum amount.
  • Furthermore, each fund is limited in its number of investors. In general, 1000 is the number, and for angel funds, 49.
  • Lock-in periods for these funds are three years.
  • While Category I and II funds are closed-ended, Category III funds may be either open-ended or closed.

Should investors go for it?

  • Diversification into less explored avenues can be accomplished by investing in AIFs.
  • These investments tend to perform better than stocks & there is little correlation between the two. Therefore, fluctuations are less likely. As returns rise, risk increases. This inherent risk must be considered by the investor.
  • While this is true, we should also recognize that the returns from the investment are better than those of other traditional investment instruments, improving investors’ passive income.

Investing Via OwnersTown in AIFs

If one has relatively high income levels and is in search of a different investment scheme, AIFs are an ideal choice. One can choose from several curated options listed in the AIFs section of our website.

Contact our experienced and knowledgeable professionals today to learn more about ways to multiply one’s capital. OwnersTown can help you better understand which investment will suit you best and how to further discover the extra benefits of investing in Alternative Investment Funds.