Alternate Investment Funds (AIFs): The Complete Handbook

What Are Alternate Investment Funds (AIFs)?

Cumulative private funds known as Alternate Investment Funds (AIFs) raise money from high net-worth individuals to invest in alternative types of assets that do not typically fall into the traditional investment products. The Securities and Exchange Board of India (SEBI) regulates the funds through the 2012 AIF Regulations.

Whereas mutual funds invest in listed securities, AIFs consider unlisted entities, venture capital schemes, hedge strategies, infrastructure, etc.

Key Features of AIFs

• Privately pooled: Not open to the general public. Access is limited only to accredited investors or HNIs.
• Minimum investment: ₹1 crore if individual, hence serious and worthy buyers only join in.
• Diversified refers to: AIFs permit investment in debt securities, start-ups, infrastructure and even social ventures.
• SEBI-governed: SEBI oversees AIFs and follows AIF guidelines that increase investor trust and transparency.
• Lock-in Period: Depending upon the nature of the fund, the lock-in period is usually long and may be three to five years or even longer.
• Risk of high returns: Is most probably going to yield higher returns since it places investment in high-growth but risky securities.

Alternate Investment Funds: How Do They Work?

Alternate Investment Funds operate through a structure of a fund wherein money is pooled from investors and managed by professional fund managers.

This is the simplified version:

• Fund formation: A fund house structures an AIF under one of the categories delineated by SEBI.
• Investor contribution: Experienced investors contribute a minimum (₹1 crore).
• Capital deployment: The fund manager formulations a well-researched investment plan and invests money in alternative asset opportunities.
• Returns & exit: Investors are provided with returns in the form of the performance of the fund over a period, typically after the lock-in.

Types of Alternative Investment Funds

SEBI also classifies types of alternative investment funds into three wide categories depending upon the investment purpose and risk. Knowledge about types of alternative investment funds facilitates the investor to make proper decisions.

Advantages of Investment in Alternate Investment Funds

Investing in AIFs with VSRK Capital has several advantages:

• 1. Diversification: Equity exposure in alternative asset classes provides diversification to your portfolio and less dependence on market-linked products.
• 2. Potential for Higher Return: AIFs try to offer higher returns by investing in start-ups, unlisted companies, or niche industries.
• 3. Professional Management: Professional fund managers and domain experts operate AIFs with a clearly defined investment strategy.
• 4. Access to Specialty Opportunities: Social causes, infrastructure funds, and angel funds in the early stages cannot be invested in by individual investors—AIFs facilitate that.

AIF Guidelines You Need to Know

The new SEBI regulations for AIFs are founded on the following important norms, according to the new regulations:

• Minimum Investment: ₹1 crore per investor
• Tenure: Close-ended schemes for a minimum period of 3 years
• Disclosure: Stringent disclosure standards of risk, cost, and portfolio
• Accreditation: Accredited only for institutional/HNI investors

Guidelines are in the direction of investor protection as well as capital markets innovation.

Who Can Invest in AIFs?

Alternate investment Funds (AIFs) are most suitable for:

• HNIs and accredited investors who are looking to aggressively diversify
• Long-term goal-driven financial investors with high risk tolerance
• People who want to test beyond mutual funds and conventional investments

AIFs are not ideal for short-term, low-risk investors.

AIFs Have Risks

Every reward involves risk. Following are the risks involved in AIFs:

• Low Liquidity: AIFs typically have a long lock-in period, hence, are hard to exit prematurely. Investors are compelled to hold the investment for years.
• Market Volatility: Category III AIFs will typically invest in public markets and derivatives, subjecting them to high market volatility and short-term risk.
• Long Gestation Period: AIFs' returns, particularly venture capital or infrastructure funds, take years to crystallize, compelling investors to be patient for years.

Investing in AIFs with VSRK Capital

We at VSRK Capital walk you through every step of your AIF experience—from the fundamentals to helping you choose the most appropriate investment approach based on your purpose.

This is how we assist:

• Personalized AIF Plans: We analyze your financial objectives and risk profile to recommend the best Alternate Investment Funds (AIFs) to build wealth.
• Detailed Research: Our professionals conduct thorough analysis of fund performance, strategy, and asset allocation to help you make the right choices.
• Complete Compliance Assistance: We manage paperwork and make sure all SEBI regulations and AIF rules are fulfilled so that your investing process becomes seamless and compliant.

We assist you in gaining access to well-established fund houses with high-quality portfolios of infrastructure funds, fund of funds, and alternative asset classes.

• Learn more by visiting our website.
• Speak with our team for bespoke advice.
• Read our Google reviews and understand why investors trust VSRK Capital.

AIFs vs Mutual Funds – What's the Difference?

Last Words: Are AIFs for You?

Alternate Investment Funds (AIFs) are powerful instruments of investment for the ones wanting to enter the uncharted landscape of financial markets. With the leverage of diversification, niche assets, and SEBI-approved management, AIFs are drawing the road map of India's prosperity tale.

Of course, they're not for everyone.

If you're a retail investor looking to diversify beyond mutual funds and can tolerate medium to high risk, AIFs could be your answer.

We'll walk you through step by step—at VSRK Capital, via AIFs, choosing the most appropriate alternative investment fund structures, and investing comfortably and in plain sight.

• Talk to an advisor today or see opportunities on our site.