InvestorQ : What are alternate investment funds?
Indrajeet Kashyap made post

What are alternate investment funds?

Deepali Khupte answered.
4 years ago
AIF stands for alternative investment funds (AIFs). It is an investment vehicle, primarily for high net worth individuals, to pool funds for investing in real estate, private equity and hedge funds.
Previously, the government allowed only Indian investors to pool money, and a select approval route for overseas investors and non-resident Indians (NRIs). However, things changed when in Union Budget 2016, the finance minister announced that foreign investments will be allowed in alternative investment funds (AIFs).
By doing this, the finance ministry did away with the categorisation of foreign portfolio investors (FPI) and foreign direct investments (FDI). The move also made it easier for foreign investors to invest in AIFs.
AIF is in the form of a trust or a company or a limited liability partnership (LLP) or a body corporate.
Key points about AIF:
• The minimum investment from an individual is Rs. 1 crore.
• Overall corpus of the AIF should be at least Rs. 20 crore (Rs. 10 crore for angel funds)
• There should not be over 1,000 investors at any point in time.
• The fund manager or promoter should have contributed at least 2.5% or Rs. 5 crore, whichever is less, to the initial capital.
The creation of AIF was said to increase the flow of long-term capital in the country and give confidence to global investors to invest in India.
Depending on its effect over the domestic economy, there are three categories of AIFs:
- Category-I AIFs: These AIFs have a positive impact spill over on the economy and may get concessions from the regulator or the government. These AIFs include venture funds, social venture funds and infrastructure funds, among others.
- Category-II AIFs: These include private equity funds and debt funds and do not get any concessions. These AIFs cannot raise debt for investment purposes, but they can do so to meet their day-to-day operational requirements.
- Category-III AIFs: These include hedge funds, and are usually traded in order to make short-term returns.