Back to Blog
While fixed deposits, stocks, and bonds are still good long-term investment options, many savvy investors are now opting for alternative investment funds (AIFs). These financial instruments have the potential to give high-returns by investing in various asset classes. AIFs have recently become extremely popular among the HNIs looking to diversify their portfolio and grow their assets.
India and Asia, as a whole, are poised for the next significant expansion of alternative investment products. According to a report by Anand Rathi, AIFs in India are expected to grow by 25% between 2022 and 2025. The industry and the market are currently geared toward an alternative investment funds paradigm shift.
According to a report, wealth managers offering AIF products as alternatives to high net worth individuals (HNIs), family offices, and insurance companies will drive overall investments through AIFs to grow at a 25% CAGR between 2022 and 2025.
What are Alternative Investment Funds?
AIFs are essentially pooled investments that also invest in futures, hedge funds, private equity, and venture capital. Although the Securities and Exchange Board of India (SEBI) only introduced AIFs in 2012, they have quickly grown in popularity among many investors. High-net-worth investors can access assets that might not be directly related to the stock market through alternate investment funds (AIFs). In addition, compared to mutual funds and bonds, it provides them with investment diversification and potentially higher returns.
Let’s discuss in detail different types of Alternative Investment Funds in India.
Category I
This category includes Category I AIFs that invest in SMEs, start-ups, and other small businesses with high growth potential. Additionally, the Indian government provides tax breaks for people who invest in this sector. Due to the fact that investments in Category I appear to have a multiplier effect on the economy in terms of wealth and job creation.
Venture Capital Funds (VCF): VCFs invest in start-ups with high valuations who, however, are momentarily lacking in funding for expansion. VCFs invest in high valuation ventures by pooling money from individual investors.
Infrastructure Funds (IF): These funds make investments in the construction of public facilities like roads, bridges, dams, and rail lines. Dividend income and capital gains are typically combined to form the returns from this type of AIF.
Social Venture Funds (SVFs): They invest in businesses with a strong social conscience. These businesses make money while resolving environmental and social problems.
Angel Funds: Venture capitalists form an angel fund, a type of VCF, to support start-up businesses or aid in their growth.
Category II
Funds for Private Equity (PE): You can invest in unlisted private companies through PE funds. This sub-category is chosen by people who want to diversify their financial portfolio and include a potentially high-risk AIF.
Fund of Funds: The Fund of Funds combines numerous AIFs into one.
Debt Fund: As its name implies, this type invests in debt securities of both publicly traded and privately held businesses.
Category III
Private Investment in Public Equity: These funds are pooled and specifically designated for investments in public equity. Private investment in public equity funds.
Hedge Fund: Hedge funds pool capital from both individual and institutional investors to make high-yield investments in domestic and foreign markets.
The traditional investment tools that investors are now exposed to include direct investments, mutual funds, unit-linked insurance plans, and portfolio management services. But the main purpose of these options is to trade securities. Investor demand for alternative investments remains unfulfilled.
Conclusion
Although investing in AIFs can be very profitable, there is a significant learning curve involved in doing so. Get financial advice from financial experts, if you want to invest in AIFs. Develop your investing skills while our team supports and grows your wealth with specialised wealth management solutions.
