Alternative Investment Fund Investment Adviser PMS

Alternative Investment Fund (AIF)

As per the definition given by SEBI, an AIF is a privately pooled investment fund. An AIF can raise funds from both domestic investors and foreign investors. AIFs in India are regulated by Securities Exchange Board of India (SEBI). It can be registered under one of the three categories of Category I, Category II, or Category III. Category I AIFs usually invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable. They can include venture capital funds, SME Funds, Social impact funds, infrastructure funds, special situation funds. Category II AIFs invest in private equity and debt. They do not undertake leverage or borrowing other than to meet day-to-day operational requirements.

Category III AIFs include hedge funds, and other funds that invest in a range of assets mainly with the objective of generating short-term returns. They use diverse or complex trading strategies and may use leverage. They also take positions in listed or unlisted derivatives. Category III AIFs may be close ended or open-ended. Only close-ended AIFs can be listed on stock exchanges. The minimum lot in which the units of publicly listed AIFs can trade is Rs 1 crore.

A hedge fund is the best example of an AIF. These funds are more common in US than in India. The original objective of these funds was to use hedging strategies for generating superior returns while investing in high-risk assets. But hedge funds are no longer limited to using hedging. They now use a wide range of strategies. Investors in hedge funds are mainly more affluent ones. Minimum Investment for hedge fund usually start with $1 million.

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Regulatory Disclosures