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Have you ever followed the steps to install software or a device at your home or office? You can do your research online or go by the user manual that comes with the product. There is a step-by-step guide you need to follow. As you follow the user manual, it becomes easier for you to install the product, and it also gives you more clarity about the product. You delve into its pages, where a treasure trove of information awaits, guiding you towards unlocking the full potential of your purchase.
The scenario of investing in alternative investment funds in India is a captivating tale waiting to unfold, and let this blog be your user manual on this transformative journey.
What are Alternative Investment Funds (AIFs)?
A unique type of investment that is distinct from traditional investment instruments is an alternative investment fund. It is a privately pooled fund. As significant investments are needed, institutions and HNIs generally invest in AIFs.
Alternative investment funds (AIFs) have become a well-liked type of investment vehicle over the past few years. AIFs are now more investor-friendly as a result of recent regulatory changes and shifting social norms.
There are 3 categories of AIFs, let’s have a look:
Category 1 – These funds are invested in start-ups, small businesses, and medium-sized enterprises that have the potential to grow financially. Examples of this category are:
- Infrastructure Funds
- Angel Funds
- Venture Capital Funds
- Social Venture Funds
Category 2 – Funds that are invested in both debt and equity securities fall under this category. Included are any funds that don’t already fall under Categories 1 and 3, respectively. Examples of this category are:
- Fund of Funds
- Debt Funds
- Private Equity Funds
Category 3 – AIFs in category 3 are those that offer returns in a short amount of time. To achieve their objectives, these funds employ a wide range of intricate trading strategies. There is no information regarding any special government incentives or concessions for these funds. Examples of this category are:
- Hedge Funds
- Private Investment in Public Equity Funds
Now, let’s discuss some of the steps to invest in AIFs.
Steps to invest in Alternative Investment Funds in India:
- Be familiar with the various AIF types – AIFs are divided into three groups: Category I, Category II, and Category III. The risk profiles and investment strategies vary for each category. Before making an investment, it’s critical to comprehend how they differ from one another.
- Fund manager selection – When selecting a fund manager, look for one with a solid track record and AIF management experience. Verify their fees, investment philosophy, and past performance.
- Verify the minimum investment requirement – The minimum investment requirement for AIFs is typically high, ranging from ₹1 crore to ₹10 crores.
- Finish the paperwork – Once you’ve made the decision to invest in an AIF, finish the required paperwork, which includes the subscription agreement and know-your-customer (KYC).
- Track your investment – Keep tabs on your investment and regularly check on how it is doing. This can assist you in early problem detection and any necessary investment strategy adjustments.
Conclusion
It is important to note that Alternative Investment Funds are considered high-risk investments, and investors should be prepared to bear the associated risks. Before you start your investment journey in AIFs, make sure you follow these steps, from choosing a fund manager to meeting minimum investment requirements to tracking your investment. It is also advisable to consult with a financial advisor before investing in AIFs to ensure that they are suitable for your investment goals and risk tolerance.
