Going beyond the ordinary is a familiar phrase many of us resonate with. But, alternative investment funds can be the torchbearer of this mantra in the investment world. Alternative investment funds (AIFs) help investors to explore beyond traditional investment instruments. These AIFs are generally open for large ticket-sized investments from high-net-worth individuals (HNIs) and institutional investors.
The alternative investment fund industry has proliferated in the last six years. It experienced a 10-fold increase in the commitments raised, totalling INR 8.3 lakh cr (see table below). These trends suggest that AIFs can grow into a large industry. It can potentially replicate the size and growth of the mutual funds industry (INR 47.79 lakh crores in AUM) in the coming years.
In this blog, we will delve deeper into the concept of alternative investment funds (AIF), their categorisation as per SEBI, their benefits and factors to consider before investing in them.
SEBI (Alternative Investment Funds) Regulations, 2012 defines an alternative investment fund as “any fund established or incorporated in India which is a privately pooled vehicle which collects funds from investors, whether Indian or foreign, for investing it under a defined investment policy for the benefit of its investors”. It can be formed as a company, trust or LLP.
There are three categories of AIFs - I, II, and III, according to SEBI.
It includes those instruments not falling under Category I and III, and funds are mainly invested in equity and debt securities. A few examples of funds in Category II:
With BondX, an alternative to debt funds, a retail investor can invest as low as INR 1.2 Lakhs. It is a first-of-its-kind alternative investment product that pools together investment-grade rated bonds from a curated set of issuers and provides access to investors at a fractionalised investment amount.
AIFs expose investors to a variety of asset classes. This can help them diversify their investment portfolio and lower the overall risk.
AIFs have a low correlation to the stock markets and are immune to market volatility. As a result, these funds help to stabilise your portfolio.
Alternative asset classes often deliver higher returns than traditional investments. For example, investments in venture capital can yield significant gains over the long term.
AIFs provide access to opportunities usually unavailable to individual investors. These may include early-stage startups, fractionalised real estate, or infrastructure projects.
AIFs carry higher risks than traditional investments. Investors should assess their risk tolerance before investing.
Prioritise detailed research before investing. Examine the fund manager's (or alternative investment platforms’) track record, investment strategy, and performance history.
AIFs often have longer lock-in periods (at least three years) and very low liquidity. Consider your investment horizon and liquidity needs before committing to these funds.
Familiarise yourself with the regulatory environment surrounding alternative investment. Ensure compliance and understand the investor protection measures in place.
Alternative investment funds allow investors to explore new asset classes and earn higher returns than conventional ones. Traditionally, AIFs and non-conventional investment opportunities were the domain of HNIs and required high initial investment. However, this is changing with the advent of new-age investment discovery platforms like Grip Invest! Visit us to learn more about how we are making a lot of alternative investment opportunities accessible to low-ticket-size investors.
Want to stay at the top of your finances?
Join the community of 2.5 lakh+ investors and learn more about Grip Invest, the latest financial knick-knacks and shenanigans that take place in the world of investing.
Disclaimer - Investments in debt securities are subject to risks. Read all the offer-related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading. This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip Invest”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip Invest or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip Invest does not guarantee or assure any return on investments and accepts no liability for the consequences of any actions taken based on the information provided. For more details, please visit https://www.gripinvest.in/.
Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001.