Categories Of AIFs By AltSmart
There are three broad categories of AIFs in India created by the SEBI. Before we have a closer look at all the three categories, we will first understand what AIFs are. Alternative invest funds (AIFs)are fast becoming a highly preferred investment option in India. The fact that investors can now take the SIP route to invest in AIFs is making them even more popular as a diversification tool. An AIF tends to pool in the funds that it procures from high net-worth individuals (HNIs). It invests these funds by spreading them across different asset categories to earn maximum returns for the investors.
The asset classes in which best alternative funds in India invest include unlisted securities, SMEs, and business startups. The main objective of AIFs investing in these asset classes is to promote entrepreneurship. Venture Capital funds (VCs) and Private Equity Funds (PEs), types of AIFs, have over the past decade invested large sums into the growing industries in India. Policy-oriented central government, favorable demographic dividend, and Make In India drive are some of the factors largely responsible for this positive sentiment for investing in India.
Categories of AIFs SEBI classified AIFs into the three broad categories in 2012: Category I AIFs Category II AIFs Category III AIFs
Category I AIFs The infrastructure or social venture funds fall under this category. Category I AIFs generally tend to have a positive impact on the Indian economy. AIFs falling in this category tend to invest in startup businesses or early-stage business/social ventures, or SMEs, infrastructure. Moreover, Category I AIFs tend to invest also in other sectors or areas that government considers socially or economically desirable. The broad sectors that fall under Category II AIFs include VC, SME funds, social venture funds, and infrastructure funds.
Category II AIFs Category II AIFs include those that do not fall under Category I and III. Moreover, it includes AIFst hat do not undertake leverage or borrowing other than to meet their daily requirement for business operations. However, SEBI has clear regulations under the SEBI (Alternative Investment Funds) Regulations, 2012, which indicate how AIFs can borrow funds for meeting their daily funds requirement. Category II AIFs include real estate funds, PE funds, and funds for distressed assets.
Category III AIFs This category includes AIFs that employ diverse or complex trading strategies. Moreover, Category III AIFs may also employ leverage. This may include investing in listed or unlisted derivatives. ď‚ž Some of the funds that fall under Category III AIFs include hedge funds and PIPE Funds. ď‚ž
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