Alternative Investment Funds (AIFs) represent a sophisticated investment avenue tailored for High Net Worth Individuals (HNIs), family offices, institutional investors, and other eligible participants.
Advik Capital Limited, an RBI-registered Non-Banking Financial Company (NBFC), firmed up its plan to apply for a licence for AIF category-II with SEBI Alternative Investment Fund Regulations. The company has informed the BSE that is aiming to raise up to Rs 250 crores in its Alternative Investment Fund.
Advik Capital is aiming to raise up to Rs 250 crores in its Alternative Investment Fund and as sponsor of the proposed AIF has earmarked/is committed to invest 10% of the corpus of the fund,” the company said in an exchange filing.
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What are Alternative Investment Funds (AIFs)?
Alternative Investment Funds (AIFs) represent a sophisticated investment avenue tailored for High Net Worth Individuals (HNIs), family offices, institutional investors, and other eligible participants. According to Kresha Gupta, Fund Manager Director, Chanakya Opportunities Fund, these privately pooled investment vehicles, regulated by the SEBI (Alternative Investment Fund) Regulation, 2012, play a pivotal role in diversifying investment portfolios.
Key Features of AIF:
1. Minimum Investment Commitment: According to Akhil Bhardwaj, Senior Partner at Alpha Capital, RIA, AIF requires a substantial commitment, with a minimum investment of 1 crore. This criterion ensures that participants are sophisticated investors with significant financial capacity.
2. Regulatory Framework: While AIF doesn’t fall under SEBI mutual fund regulations, it is regulated by Regulation 2 (1) (b) of the Regulation Act, 2012 of SEBI. “This regulatory oversight ensures a level of governance,” Bhardwaj added.
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Categories of AIF:
1. Category 1 AIF: This category focuses on investing in startups, SMEs, and economically viable corporations with high growth potential. Examples include Infrastructure funds, Venture Capital funds, and Angel funds.
2. Category 2 AIF: Defined by SEBI as funds not falling under Category I and III, Category 2 AIFs don’t undertake leverage and invest in unlisted companies. Subcategories include Private Equity Funds, Debt Funds, and Funds of Funds.
– Private Equity (PE) Funds:
These funds invest in unlisted private companies, taking ownership of their investments.
– Debt Funds:
Primarily investing in debt or debt securities, these funds target listed or unlisted investee companies.
– Funds of Funds:
Investing in various AIFs, these funds follow a strategy of diversification through investments in other AIFs.
3. Category 3 AIF: This category employs diverse or complex trading strategies, investing in both listed and unlisted derivatives. Strategies include Long Only, Long Short, and Debt.
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Risk & Returns associated with AIF Category II funds
For the AIF Category II funds, the risk profile is generally higher than traditional investment options but varies based on the specific investment strategy. According to Krishna Maggo, Founder, Altitude Club, these funds are usually suitable for investors with moderate to high risk profiles. “The potential for higher returns is associated with a higher risk level. Returns are generally aligned with the growth and performance of the underlying investments.,” Maggo said.
Taxation Aspects
Category II AIFs enjoy a pass-through status for income tax purposes, meaning the income is taxed in the hands of the investors and not at the fund level. Investments held for over two years in unlisted securities are subject to long-term capital gains tax, which is beneficial for investors seeking long-term growth.
