Back to Blog
What are Alternative Investment Funds?
AIFs, or alternative investment funds, are privately pooled investment vehicles that make bets on derivatives, real estate, commodities, hedge funds, private equity, and other alternative asset classes. Due to the significantly larger investment amount in AIFs, HNIs (high net-worth individuals) and institutions typically make these kinds of investments.
The Securities and Exchange Board of India (SEBI) oversees AIF regulation. An alternative investment fund (AIF) may be established as a trust, company, limited liability partnership, or corporate body by the SEBI (Alternative Investment Funds) Regulations, 2012. Nonetheless, a large number of AIFs that have been registered with SEBI take the shape of trusts.
So, what are things you need to consider before investing in AIFs?
Considerations Before Investing in AIFs
Before investing in Alternative Investment Funds (AIF) in India, there are a few more things to think about. Here’s a list of a few of them:
- Investment Goals: Investors should assess the Alternate Investment Fund India’s investment goal to make sure it fits with their risk tolerance and investment objectives.
- Track Record: Investors should assess the AIF’s track record by looking at how it has performed over time. Using this information, investors can assess the fund’s risk-adjusted returns and consistency of returns.
- Management Team: Choosing investments and overseeing fund assets fall under the purview of the AIF’s management team. Before investing, investors should consider the management team’s background and performance.
- Fees and Expenses: Performance and management fees are commonly assessed by AIFs. Investors ought to consider the AIF’s fees and how they affect returns.
- Liquidity: Because AIFs are often illiquid investments, investors might not be able to sell their holdings right away. Before investing, investors should assess the AIF’s liquidity and take their investment horizon into account.
- Assess the risk: AIFs generally entail greater risk in comparison to conventional investments. Before investing, investors should consider the risk profile of the AIF and their own risk tolerance.
- Regulatory Structure: Before investing in an alternative investment fund, investors should assess the regulatory structure that oversees it and make sure the fund complies with all relevant laws.
- Options for Exit: Investors should assess their options for leaving and take the Alternate Investment Fund’s lock-in period into account.
Now, let’s have a look at the advantages of AIFs.
The following are a few advantages of purchasing AIFs:
- High Potential Return: Compared to other investment options, AIFs typically offer a higher potential return. Fund managers have ample space to devise adaptable strategies to optimize returns thanks to the substantial amount pooled.
- Diversification: These funds give an investment portfolio much-needed diversification. They have the potential to provide stability during periods of economic downturn or fluctuations in the market.
- Volatility: Unlike equity or mutual fund investments, which are more volatile due to their relationship to the stock market, AIFs are not affected by stock market fluctuations.
Conclusion
AIFs (Alternative Investing Funds) are complex products that only experienced investors should consider for diversification. These funds provide exclusive investing techniques and help diversify portfolios. However, investing in AIFs requires a significant amount of money, making it unsuitable for small investors who wish to make regular small investments. Typically, AIFs are more appropriate for large investors, such as HNIs (high-net-worth individuals), who are willing to take on greater risks and can invest a sizable amount of money at once.
