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Most of you reading this must have some knowledge of finance, investments or the stock market. (If not, that’s fine – it’s what we’re here for!) Surely you must have realized that the global economy has taken a hit recently, owing to the long-lasting effects of the pandemic and other international issues. In such uncertain times, investing in stable assets such as treasury bonds or digital gold is advisable (head on to Fello to learn more about digital gold).
However, we all want to find that one golden stock that is still going strong! What if we said there are investment instruments that deviate from the broader stock market trends and rely on unique investment strategies? With a low correlation to traditional financial assets, these instruments can diversify your portfolio and reduce the overall market risk – sounds too good to be true?
Scroll on to learn more about AIF or Alternate Investment Fund!
Alternative Investment Fund (AIF) is a unique investment category that differs from traditional investment instruments. More specifically, it is a privately pooled investment fund that adheres to the SEBI (Alternative Investment Funds) Regulations of 2012.
An AIF can be established as a corporation, trust, limited liability partnership (LLP), or any other legal entity in India, to receive funds from investors, both domestic and international, to invest in accordance with a specific investing strategy to generate profits. Naturally, it’s not the same as investing in any other asset on the financial market.
Why should you consider investing in AIF? Here are the main reasons –
If you’re invested (pun intended!) in the concept and are thinking of Googling the best types of AIFs to invest in, here’s what you need to know.
The various kinds of AIFs are based on their objectives and financial regulations, which SEBI (Securities and Exchange Board of India) has split into three groups:
These funds invest in small and medium-sized businesses (SMEs) as well as new economically viable organisations with strong development potential, such as start-ups, early-stage business ventures and social projects. The main investment vehicles in this category are:
AIFs that do not borrow money unless it’s for their day-to-day operations and are not classified under Category I or II belong to this category. Alternate Investment Funds that are considered a part of Category II funds are:
AIFs that employ diverse or complex trading strategies by investing in listed and unlisted derivatives fall under this category, commonly known as “hedge funds.” The two main funds under this category are:
Phew, that was a long list but those were all the categories of AIF available in India. However, just to be extra cautious (and it always pays to be when it comes to money!), let’s look at some of the misconceptions about AIF.
The following financial instruments are not Alternate Investment Funds –
Essentially, any financial instrument created for the purpose of obtaining capital from individuals – with the intention to invest in assets to make a profit can qualify as AIFs. With that out of the way, let’s check if you’re eligible to invest in an AIF, shall we?
Anyone who meets the following eligibility criterion can invest in AIFs:
That’s the checklist you need to be aware of when it comes to Alternate Investment Funds. Now that we know what an Alternate Investment Fund is, the benefits of investing, the different categories and the eligibility criterion, it’s time to discuss the most critical aspect – how to register and invest in Alternate Investment Funds!
To register an Alternate Investment Fund, you need to follow these steps:
Applying To SEBI: An applicant needs to apply using the Form A of SEBI (Alternative Investment Funds) Regulations, 2012, along with the necessary documents and a business plan.
Providing An Authorization Letter: The applicants must provide an authorization letter in case the applicant has authorized a director, promoter, manager or any officer to act as an authorized guarantor for the fund.
Reviewing SEBI Compliances: To ensure that the applicant is eligible to register an AIF, they must review the SEBI guidelines thoroughly to be compliant.
Attaching A Cover Letter: If the applicant is a venture capital fund registered with SEBI, they must furnish that information in their cover letter. The cover letter should also state whether the applicant has been involved in an existing AIF or is applying for a new one.
Final Submission Of The Application: For the issue of a certificate of registration, a dated, duly signed and stamped Form A, accompanied by essential documents and the corresponding registration fee by way of a draft made in favour of The Securities and Exchange Board of India, Mumbai, must be provided. This is the final submission to be made by the applicant.
Reviewing Of The Application: SEBI will review and respond to an application within 21 days after receiving it. The application is examined for its correctness in accordance with SEBI guidelines, and if found satisfactory, the application is approved.
Granting The Certificate Of Registration: As the last step in the process, SEBI grants the applicant a certificate of registration once the fees are disbursed. Applicants need to be aware of the registration fees for the three different categories of AIFs, as follows –
Now that your (hypothetical) AIF is set up, let’s explore how investors can invest in it.
It’s quite simple, just follow these rules!
Although AIF requires higher capital investment, we can agree that it is a compelling, one-of-a-kind financial investment option for investors seeking high returns. Start your AIF investment journey here!
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