Alternate Investment Funds 

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Traditional investment assets include bonds, listed stocks, cash, property etc depending on the rules of a country. But, investing in asset classes other than these traditional modes are termed as ‘alternate investments’. Alternate Investment Funds (AIFs) are those that make such a type of investments.

As per Securities and Exchange Board of India’s (Alternative Investment Funds) Regulations, 2012, AIFs are referred to any privately pooled investment funds (whether from Indian or foreign sources), in the form of a trust or a company or a body corporate or a Limited Liability Partnership (LLP).

AIFs are thus private funds which are otherwise not coming under the jurisdiction of any regulatory agency in India like RBI, SEBI, IRDA and PFRDA.

AIFs includes Private Equities, Venture Capital Fund, Hedge funds, Commodity funds, Debt Funds, infrastructure funds, etc. Most of these investment entities are owned by big corporate houses or wealthy individuals. Angel Investors are also categorized as AIFs.

How AIFs functions?

The Three Categories

How do AIFs source their funds?

AIFs are not allowed to raise money from public by selling securities. Being a privately pooled funds they raise funds through private placement by issue of information memorandum or placement memorandum, by whatever name called.

Alternative Investment Policy Advisory Committee

SEBI had constituted the Alternative Investment Policy Advisory Committee (AIPAC) standing committee under the chairmanship of Infosys Ltd co-founder Narayana Murthy in March 2015. The committee has submitted three reports till now.

First Report: Jan, 2016

Second Report: Nov, 2016

Third Report: Jan, 2018

Key recommendations in the Third Report:

  • social enterprises as a separate category of alternative investment funds (AIFs)
  • allocation of Corporate Social Responsibility (CSR) funds to Category I AIF — Social Venture Funds
  • a suitable tax and regulatory framework for domiciliation of AIFs in International Financial Services Centres (IFSCs) to incentivise offshore fund managers (who invest in India but operate from abroad) to shift their fund management and administration to the country

Analysis of AIFs

Till 2015, Alternative Investment Funds were very small and played little role in the development story of India. In 2015, the govt allowed foreign investment in AIFs. As a result, the amount entering India through AIFs are steadily rising and billions of dollars are now being invested through this in different sectors of the economy. National Investment and Infrastructure Fund (NIIF) being a case in point.

The feature of AIF is that it offers flexibility in structuring different kinds of funds that attracts various kinds of investors.