What are Alternative Investment Funds (AIFs)

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Successful hedge funds will be entrepreneurial; it is the essence of the craft. –Paul Singer

An AIF or an Alternate Investment Fund means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

In AIFs, one does not need to open a demat account this is a pooled vehicle; hence all clients investing at the same closure have similar returns experience. The tax implications are different for the different categories of AIF.

AIFs combines the operational ease of a mutual fund and the flexibility of a PMS making it a perfect blend geared for generating optimum performance for a stipulated investment objective.

To enhance risk-adjusted performance, these products can use complex strategies like unlisted equity investments, long-short hedging style of investments, and so on.

Types of AIF

1. Category I AIF

AIFs which invest in the unlisted & private space of start-up or early-stage of ventures and popularly known as venture capital equity or debt funds. Besides the world of start-ups and disrupting ideas, this category also covers social ventures or SMEs or infrastructure projects or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital debt funds, SME Funds, social venture funds, infrastructure debt or equity funds and such other Alternative Investment Funds as may be specified.

 

2. Category II AIF

AIFs which invest in the unlisted or private space of mid stage or late stage of a business either in form of debt or equity. These funds, when investing in the mid-stage of a business are also called private equity funds or PE funds. The same CAT II funds, when investing in late stage businesses are called Pre-IPO funds. Both these categories of funds are very popular and many investment companies have AIFs running in this category, like Edelweiss, IIFL, Kotak, Axis, Avendus, and so on.

While the above described are equity funds, mid stage investing can also be in the form of debt financing as well and then these funds are called Real Estate funds, Credit Opportunities Funds, Distressed Asset Funds [as lending is in such funds is against real estate projects or business cash flows or business assets as a collateral for the lending], and so on. Again, this category is also very popular with companies like Sundaram, HDFC, Birla, Axis, Kotak, Edelweiss, IIFL, and so on.

 

3. Category III AIF

AIFs which invest primarily in the listed space of equities across large, mid, small cap businesses and are allowed to employ diverse or complex trading strategies and may employ leverage through investment in listed or unlisted derivatives. This is one of the most popular and largest categories from the sellers and buyers’ perspectives as this category has maximum number of funds, as well as maximum number of investors.

Category III AIFs are further divided into Long Only and Long Short Funds. Many well-known companies with long only AIFs are Motilal Oswal, ASK, Alchemy, IIFL, Abakkus, Sage One, and so on. Some companies with Long short AIF products are Tata, Kotak, Avendus, IIFL, Edelweiss, ITI, and so on.

Advantages of AIF Investment

Skin in the Game

• Investment Manager (IM) / Sponsor must invest 10cr or 5% of the committed capital whichever is lower
• Alignment of Interest
• IM / Sponsor must be well-capitalized

Flexible Investment Mandate

• Can raise money in drawdown mode and so take advantage of market volatility
• There is No compulsion to reinvest. Can return the capital by booking profits from securities that attain targets, before the completion of the tenure of fund. Helps in profit booking if valuations are high
• Allowed to Participate in IPOs as Qualified Institutional Buyer (QIB)
• Allowed to invest in SME Stocks

Scope for Alpha Generation

• Maximum Investors allowed per scheme is 1000
• Limited corpus allows the investment manager to create differentiated & uncorrelated portfolio
• No compulsion to invest in higher weightage stocks in Benchmark —not benchmark hugging

Ease and Convenience

• No Need to open Demat account
• Taxation at scheme level.
• Pooled vehicle hence all clients investing at the same closure have similar returns experience
• No Requirement/ Restriction of opening a PIS (Portfolio Investment Scheme) account for NRI investors.

The safest and most potentially profitable thing is to buy something when no one likes it. – Howard Marks

The future is never clear; you pay a very heavy price in the stock market for a cheery consensus. Uncertainty is actually a friend of the buyer of long-term values. – Warren Buffett

Why Choose PMS AIF World?

PMS AIF World is a New Age Investment Services Company, providing analytics-backed good quality investing service experience with an endeavor and promise for wealth creation and prosperity. Over 4+ years, we have been managing 350+ UHNI & NRI families, across 600 Cr+ assets. We offer the right Service, Products, and Portfolios to help you make informed investment decisions.

We have close to 200 PMS strategies listed on our website and each has its own trajectories and characteristics; our proprietory QRC framework helps you choose the strategies that work best for you. This analysis, our trademarked proprietary framework, deep dives into the performance of the portfolio to bring out the metrics relevant to you as an investor and helps you choose the portfolio that will best serve your investment objectives. By looking at factors like outperformance compared to multiple indices, risk-adjusted returns, consistency of returns, and other such parameters, QRC is one of the most effective ways of measuring all-round portfolio performance.

To view the latest QRC report, please visit: https://www.pmsaifworld.com/best-30-pms-aif-qrc-report-cards/

Suggested AIF Products by PMS AIF World

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FAQs

1. What is an AIF?

An AIF or an Alternate Investment Fund means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

In AIFs, one does not need to open a demat account this is a pooled vehicle; hence all clients investing at the same closure have similar returns experience. The tax implications are different for the different categories of AIF.

2. What funds do AIF not include?

AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities. Further, certain exemptions from registration are provided under the AIF Regulations to family trusts set up for the benefit of ‘relatives‘ as defined under Companies Act, 1956, employee welfare trusts or gratuity trusts set up for the benefit of employees, ‘holding companies‘ within the meaning of Section 4 of the Companies Act, 1956 etc.

3. How are AIFs unique

AIFs combines the operational ease of a mutual fund and the flexibility of a PMS making it a perfect blend geared for generating optimum performance for a stipulated investment objective. To enhance risk-adjusted performance, these products can use complex strategies like unlisted equity investments, long-short hedging style of investments etc.

Click here to check the whole list of FAQs – AIF FAQs

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