Alternative Investment Fund comprises pooled investment funds that invest in venture capital, private equity, hedge funds, managed futures, etc. In simpler terms, an AIF refers to an investment that differs from conventional investment avenues such as stocks, debt securities, etc. Any sophisticated investor whether Indian, foreign or non-resident Indian is allowed to invest in an AIF, provided s/he has the required funds for investment and is willing to bet on the unlisted and illiquid securities.
Many investors have now discovered alternative investment funds as a way to protect against market volatility and as a great option to diversify their investment portfolios.
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 incentivizes investment in these projects as they have a multiplier effect on the economy in terms of growth and job creation.
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 markets.
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.
It does not change relative to the ups and downs of the market while adding great value to your diversified investment portfolio.
Unlike fluctuating share prices, your investment is not typically backed by a real asset, avoiding the volatility of public investments.
In many alternative investments, you become a part-owner of the fund, and as such, the tax benefits get directly passed on to you.
These investments pay you a substantial amount of money on a monthly or quarterly basis without any effect of market volatility.
When you buy a paper asset, you get future expected returns without having any direct ownership in your name.
With this investment, you get exposure to markets, products, or opportunities which are otherwise difficult to access, allowing for a diversified investment strategy.