Alternative Investment Funds (AIFs)
Why it Matters?
To curb indirect exposure risks, the Reserve Bank of India (RBI) has capped investments by banks and Non-Banking Financial Companies (NBFCs) in Alternative Investment Funds (AIFs).
What You Should Know?
AIF is a privately pooled investment vehicle, established in India, collecting funds from sophisticated investors (Indian or foreign).
It invests based on a defined investment policy for the benefit of its investors.
AIFs are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012.
AIFs exclude Mutual Funds, Collective Investment Schemes, or any other SEBI-regulated fund structures.
Exemptions from AIF registration apply to family trusts, employee welfare trusts, gratuity trusts, and holding companies (under the Companies Act, 1956).
Categories of Alternative Investment Funds (AIFs):
Category
Key Features
Examples
Category I
Invest in sectors considered socially or economically desirable; usually early-stage, development-focused; low risk.
Venture Capital Funds, Angel Funds, SME Funds, Social Venture Funds, Infrastructure Funds
Category II
Do not fall under Category I or III; do not use leverage (except for operational needs); medium risk.
Private Equity Funds, Real Estate Funds, Distressed Asset Funds
Category III
Use complex strategies and leverage; invest in listed/unlisted derivatives; high risk and high return potential.
Hedge Funds, PIPE Funds, Arbitrage Funds