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Exploring alternative investment funds (AIFs)

Alternative Investment Funds (AIFs), with their unique features and investment strategies, have become a preferred choice for sophisticated investors looking beyond traditional avenues. AIFs, regulated by the Securities and Exchange Board of India (SEBI), offer a diverse range of investment opportunities, catering to high-net-worth individuals, family offices, and institutional investors.

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AIFs, an acronym for Alternative Investment Funds, represent Indian investment vehicles that pool funds from sophisticated investors, both domestic and foreign. These funds operate under a defined investment policy, providing exposure to assets beyond conventional stocks and bonds. SEBI regulates AIFs, ensuring investor protection and transparency.

Why AIFs?

Investors turn to AIFs for several compelling reasons. Portfolio diversification is a key advantage, as AIFs offer exposure to a wide range of alternative assets, including early-stage startups, private equity deals, distressed assets, and real estate projects. The potential for high returns is another attractive feature, with AIFs targeting high-risk, high-reward opportunities. Additionally, AIFs can serve as a hedge against inflation, investing in assets historically known to perform well in inflationary environments.

Factors to Consider when Investing in AIFs

Before delving into AIF investments, investors should consider various factors. The investment objective, track record, management team, fees and expenses, liquidity, risk profile, regulatory framework, and exit options are crucial aspects. A thorough evaluation of these factors ensures alignment with investment goals and risk tolerance.

AIFs are categorized into three distinct categories:

  • Category I AIF:

Venture Capital Funds: These funds venture into start-ups with high growth potential, fostering innovation and entrepreneurial spirit.

SME Funds: Targeting small and medium-sized enterprises with proven profitability, these funds contribute to the growth of the backbone of the economy.

Social Venture Funds: Aligned with societal and environmental impact, these funds invest in enterprises aiming for positive change.

Infrastructure Funds: Supporting critical projects like airports and power plants, these funds play a vital role in the development of infrastructure.

  • Category II AIF:

Real Estate Funds: Investing in properties for rental income or capital appreciation, these funds offer exposure to the real estate market.

Private Equity Funds: Providing capital to private companies for growth, these funds actively contribute to the expansion of businesses.

Debt Funds: Engaging in debt securities such as bonds and debentures, these funds offer fixed-income opportunities.

  • Category III AIF:

Hedge Funds: Employing diverse strategies for returns, hedge funds operate in both listed and unlisted spaces.

Commodity Funds: Investing in physical commodities and derivatives, these funds tap into the volatility of commodity markets.

Private Investment in Public Equity (PIPE): By purchasing shares at a discount, these funds support small to medium-sized companies in funding their projects.

The following table focuses on the Top 10 Long-Only AIFs as of 30 September 2023


Inception Date 1M 3M 6M 1Y 2Y 3Y Since Inception


Prudent Equity ACE Fund Dec-22 2.73% 25.96% 53.60% 47.53% Open Ended
First Water Capital Fund Aug-20 5.49% 22.77% 49.28% 46.95% 21.35% 43.18% 40.74% Close Ended
Guardian Capital Parners Fund Opportunities Scheme Jan-20 -0.85% 5.13% 21.19% 33.11% 13.59% 36.97% 37.96% Open Ended
Abakkus Emerging Opp. Fund Jun-19 0.10% 15.40% 35.70% 51.50% 16.40% 43.30% 37.50% Close Ended
Carnelian Structural Shift Fund Apr-22 0.88% 9.73% 36.79% 33.93% 30.26% Close Ended
Monarch AIF MNCL Capital Compounder Fund 1 Aug-22 3.77% 8.72% 25.77% 27.27% 28.53% Close Ended
Abakkus Growth Fund 1 Jul-18 2.00% 11.70% 30.80% 36.20% 8.90% 33.20% 21.60% Close Ended
Sameeksha India Equity Fund Feb-22 1.42% 15.01% 31.04% 36.87% 21.26% Open Ended
Abakkus Growth Fund 2 Nov-21 2.10% 9.70% 27.10% 31.60% 20.50% Close Ended
Carnelian Compounder Fund 1 May-19 3.44% 13.40% 33.21% 31.16% 9.17% 26.50% 20.25% Close Ended

Source – PMS AIF World

Investor Eligibility:

AIFs are designed for sophisticated investors, including Qualified Institutional Buyers (QIBs), High Net worth Individuals (HNIs), family offices, and employees/directors of the AIF. This exclusivity ensures that the investors have the expertise and financial resources required to navigate the complexities of alternative investments.

Key Considerations Before Investing:

Prospective investors should conduct a thorough evaluation of various factors before venturing into AIF investments. This includes analyzing the fund’s investment objective, reviewing its track record, assessing the expertise and track record of the management team, understanding the fee structure, considering the liquidity of the fund, evaluating the risk profile, ensuring regulatory compliance, and examining the available exit options.

While AIFs offer diversification benefits and the potential for high returns, they are not without challenges. Investors must navigate risks associated with non-traditional asset classes, contend with limited liquidity due to lock-in periods, understand the complexity of fund structures and strategies, stay abreast of regulatory changes, manage high minimum investment requirements, and be aware of the performance variability inherent in AIFs.

In conclusion, as investors navigate the evolving financial landscape, AIFs emerge as a compelling choice for those seeking diversified and high-performing investment options. The top 10 long-only and long-short AIFs represent pillars of stability and dynamism, respectively, in the alternative investment space. Understanding the nuances of AIFs, considering investor eligibility, and evaluating factors for investment are essential steps for making informed decisions in this ever-evolving financial landscape.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions. 
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