The Securities and Exchange Board of India, or SEBI, is in charge of regulating AIFs. The Alternative Investment Funds Regulations, 2012, provide that an AIF may be established as a corporation, limited liability partnership, trust, or business. However, many AIFs registered with SEBI are in the form of trusts.
What is AIF?
In Alternative Investment Fund (AIF), money is collected from investors and put into areas other than regular stocks and bonds.
These include venture capital, which means investing in startups; private equity, which means investing in companies; hedge funds; real estate; and debt funds.
AIF is divided into three categories. Category I means investing in start-ups, early-stage ventures, and social ventures. Category II means investing in private equity and debt funds, and Category III means hedge funds and private investment in public equity funds.
Key benefits of investing in AIF
Here are some of the benefits of investing in AIF.
- High return
By investing in assets or startups, AIFs offer high return potential for people looking to invest in areas willing to take more risks with a motive of longer investment.
For example, if an AIF invests in a tech startup that later becomes a big company like Google or Tesla, investors can earn huge profits.
- Diversification
Ditching the traditional method, AIFs invest in different areas, including startups, real estate, private companies, and hedge funds. This means your money is not stuck in just one type of investment, reducing the risk of loss.
This means if one investment doesn’t perform well, others might balance the loss. For example, if the stock market crashes, your real estate or private equity investments might still be growing.
- Access to Exclusive Markets
Normally, people investing in stocks or mutual funds do not get a chance to invest in venture capital, private equity, or hedge funds.
AIFs provide access to such exclusive markets, allowing investors to be part of big business deals before they become public. For example, many AIFs invested in Flipkart before it was sold to Walmart, making huge returns for investors.
(Edited by : Sudarsanan Mani)