Alternative Investment Funds
What is an Alternative Investment Fund?
Many investors have now discovered alternative investment funds as a way to protect against market volatility and a great option to diversify their investment portfolios.
Types of Alternative Investment Fund
Category I
Funds that invest in StartUps, Small and Medium Enterprises (SMEs) and new businesses which have high growth potential and are considered socially and economically viable, are part of this category. The government promotes and incentivises investment in these projects as they have a multiplier effect on the economy in terms of growth and job creation.
Category II
Funds investing in various equity securities and debt securities come under this category. All those funds that are not described under categories I and III by SEBI, fall under category II. No incentive or concession is given by the government in these funds. Category II comprises Private Equity, Debt Funds, Fund Of Funds, etc. Category II funds are a great way of protection against volatile market.
Category III
Funds that aim at short term returns fall under category III. They employ diverse trading strategies to achieve the goal of short term capital appreciation. There is no specific incentive or concession given by the government in these funds as well. Hedge funds which pool capital from institutions and invest in different markets; and Public Equity Funds come under this category.
Benefits of Alternative Investment Funds
Unrelated to Market
It does not change relative to the ups and downs of the market while adding great value to your diversified investment portfolio.
Lack of Volatility
Unlike the fluctuating share prices, your investment is not typically backed by a real asset avoiding the volatility of public investments.
Direct Tax Benefits
In many alternative investments, you become a part-owner of the fund and as such the tax benefits get directly passed on to you.
Passive Income
These Investments pay you a huge amount of money on a monthly or quarterly basis without any effect of market volatility.
Indirect Ownership
When you buy a paper asset, you get future expected returns without having any direct ownership on your name.
Strong Payment
Many of these alternative funds are structured in a way that you get paid first with a huge amount, that too in cash.
