How Alternative Investment Funds in India Are Reshaping Wealth Portfolios?

With the more traditional methods of investing like mutual funds and fixed deposits working for seasoned investors, a new category is emerging: Alternative Investment Funds (AIFs). These are very high-value, regulated investment groups specifically crafted for sophisticated investors looking for more diversification, higher returns, and non-conventional assets. 

But how do they work, and who is eligible for such strategies? 

What Are Alternative Investment Funds? 

Alternative Investment Funds are pools for private investments, coordinated with SEBI. Different from common mutual fund schemes, where the investments are made in publicly available equity and debt capital markets, AIFs are concerned with the following unconventional assets: 

•  Private equity 

•  Venture capital 

•  Hedge funds 

•  Real estate 

•  Distressed assets 

•  Structured credit strategies 

There are three categories under Alternative Investment Fund in India: 

•  Category I: Investments into socially useful businesses such as infrastructure (e.g. Angel and Venture Capital funds)  

•  Category II: Includes private equity, debt funds, and funds of funds. There are no leveraged funds. 

•  Category III: Employs sophisticated trading strategies and leverage (e.g. Hedge funds)   

Why AIFs Are Attracting High Net Worth Investors 

AIFs appeal particularly to ultra-HNI and family offices because of these factors: 

•  Diversification beyond publicly traded assets 

•  Access to high real estate or high growth startup opportunities 

•  Customised risk-return balance 

•  Tax efficiencies for certain fund structures   

AIFs, however, have a minimum investment cap of 1 crore rupees, making these not suitable for retail investors or investors with a low risk appetite. 

Evaluating an AIF 

Consider evaluating: 

•  The fund manager’s history and the strategy employed. 

•  The exit timeline and liquidity conditions. 

•  The total fees charged, including any performance-related payments. 

•  Regulatory compliance and registration with SEBI 

AIFs are more opaque and less liquid as compared to traditional investments. Therefore, thorough due diligence is even more critical.  

Conclusion 

Alternative Investment funds in India are rapidly evolving, offering a more advanced approach for diversification. This is especially true in periods when volatility and inflation damage the returns offered from more traditional investments. AIFs are not for everyone, but they are highly attractive for those with a high-risk appetite and a willingness to invest for the long term. 

We no longer focus solely on what’s listed as the future of wealth creation lies in what’s alternative – and AIFs are leading the charge.