In today’s dynamic financial landscape, investors are seeking opportunities beyond traditional avenues. This quest for diversification and higher returns has led to a surge in alternative investments. In India, the realm of alternative investment funds (AIFs) is gaining momentum. It offers a gateway to exciting and innovative investment opportunities. In this blog, we will explore emerging alternative investments in India. We will focus on Alternative Investment Funds (AIFs).
If you are looking for one of the best alternative investments in India, commercial real estate structured debt is one. You can invest with just Rs. 10 lacs via alternative investment platforms like Assetmonk.
What are Alternative Investments?
Alternative investments refer to asset classes that fall outside traditional investments. These include equities, fixed-income securities, and cash equivalents. These unconventional assets encompass a diverse range of opportunities. They include private equity, hedge funds, venture capital, real estate, commodities, and more. The allure of alternative investments lies in their potential to deliver uncorrelated returns. They also act as a hedge against market volatility.
The Growing Appeal of Alternative Investments
In recent years, investors have recognized the need to diversify their portfolios to minimize risk and optimize returns. The quest for low correlation with mainstream investments, coupled with the desire for enhanced yields, has driven interest in alternative assets. As a result, the alternative investment landscape has experienced robust growth and offers a compelling avenue for investors looking to explore new financial horizons.
What Are Alternative Investment Funds in India?
What is alternative investment funds in India?
In India, Alternative Investment Funds (AIFs) serve as a regulated investment vehicle that pools funds from investors and deploys them in various alternative assets. AIFs are distinct from traditional mutual funds and come with a different set of rules and investment strategies. SEBI governs alternative investment funds, ensuring investor protection and transparency.
Some of the best alternative investment funds in India include hedge funds, private equity, and real estate.
Features of Alternative Investment Funds
| Eligibility | ● Indian residents
● NRIs ● Foreign nationals |
| Minimum Investment | ● Regular investors: Rs 1 crore
● Directors, employees, and fund managers associated with the AIF: Rs 25 lakh |
| Lock-in period | ● 3 years |
| Maximum number of Investors | ● 100 investors
● Angel funds: 49 investors |
Types of Alternative Investment Funds in India
AIFs or alternative investment funds in India are classified into 3 categories depending on their investment strategies:
- Category I: Category I AIFs or alternative investment funds that invest in small or medium-sized enterprises, social ventures, early-stage ventures, start-ups, infrastructure, and other economically or socially desirable sectors.
- Infrastructure fund
- Venture Capital Funds
- Angel funds
- Social venture fund
- Category II: Category II AIFs or alternative investment funds that invest in debt funds, private equity, real estate, and other non-start-up or SME entities.
- Debt Funds
- Funds of funds
- Private Equity Fund
- Category III: Category III AIFs or Alternative investment funds that employ diverse trading strategies to generate short-term returns, including hedge funds and funds pursuing high-frequency trading.
- Private Investment in Public Equity Fund
- Hedge Funds
Exploring Emerging Alternative Investments in India
- Real Estate AIFs
Real estate has long been a popular alternative investment avenue in India. With a growing population and increasing urbanization, the demand for commercial and residential properties remains robust. Investing in real estate alternative investment funds allows investors to participate in the property market without directly owning physical assets, offering potential capital appreciation and steady passive income via rental income.
- Venture Capital and Start-up Investments AIFs
India’s thriving start-up ecosystem presents exciting opportunities for investors looking to back early-stage ventures with high growth potential. Venture capital alternative investment funds invest in promising start-ups across various sectors, fostering innovation and nurturing entrepreneurship while seeking substantial returns on successful exits.
- Private Equity AIFs
Private equity alternative investment funds play a vital role in funding and supporting mature companies looking to expand or restructure their operations. By investing in established businesses, investors can gain exposure to a diverse portfolio of companies and potentially benefit from capital gains and dividends.
- Infrastructure Investments AIFs
India’s ambitious infrastructure development plans present significant investment prospects. Infrastructure-focused alternative investment funds invest in projects related to transportation, energy, utilities, and other critical sectors, contributing to the country’s economic growth while generating attractive returns for investors.
Advantages of Alternative Investment Funds
- Diversification: Alternative investment funds provide access to diverse asset classes, reducing concentration risk.
- Professional Management: Alternative investment funds are managed by experienced professionals, enhancing the chances of successful investment outcomes.
- Regulatory Oversight: SEBI regulates alternative investment funds. Thus, it ensures transparency and investor protection.
- Potential for Higher Returns: When managed effectively, alternative investments can deliver superior returns compared to traditional assets.
Risks of Alternative Investments Funds
- Illiquidity: Many alternative investment funds have limited liquidity, making it challenging to exit investments quickly.
- Market Volatility: Some alternative investment funds may be subject to market fluctuations and may not provide consistent returns.
- Complex Strategies: Certain alternative investment funds employ sophisticated investment strategies, which may involve higher risks and complexities.
Taxation of Alternative Investment Funds in India
When considering AIF investments, it’s crucial to be aware of the alternative investment fund taxation in India.
- Categories 1 and 2 of AIFs: The AIFs falling under these categories are not subject to taxation themselves. However, any income earned by investors from their investments in these AIFs will be taxed according to their current income tax slab.
- AIFs with Equity Investments: If you invest in an AIF that allocates its funds to equity investments, you will be liable to pay capital gains tax. For long-term capital gains, the rate of tax is 10%, and for short-term gains, the rate of tax is 15%.
- Category 3 AIFs: Investments in Category 3 AIFs attract taxation at the maximum marginal rate of 42.7%. Any earnings from investments in these funds will be received by investors after this deduction.
How to Invest in Alternative Investment Funds in India
- Eligibility and Minimum Investment
Investing in alternative investment funds typically requires investors to meet certain eligibility criteria, including minimum net worth and income thresholds. The minimum investment amount can vary based on the fund’s strategy and terms.
- Understanding Fund Documents
Before investing, it is crucial to thoroughly review the fund’s offering documents, including the Private Placement Memorandum (PPM) and the Limited Partnership Agreement (LPA). These documents outline the fund’s investment strategy, fees, and terms, helping investors make informed decisions.
- Due Diligence and Selection
Conducting due diligence on the alternative investment fund’s track record, the fund manager’s experience and the underlying assets is vital for making a sound investment choice. Investors should assess risk factors, fee structures, and the fund’s alignment with their investment objectives.
Bottom Line
In conclusion, exploring emerging alternative investments in India, particularly through Alternative Investment Funds (AIFs), presents an exciting avenue for investors seeking to diversify their portfolios and potentially achieve higher returns. While AIFs offer numerous benefits, it is essential for investors to carefully consider their risk tolerance and conduct thorough due diligence before committing to these investments. By partnering with experienced and reputable fund managers, investors can harness the power of alternative investments and embrace the opportunities they present in India’s ever-evolving financial landscape.
Assetmonk stands out as a specialized alternative investment platform that caters to investors seeking alternative investments in India. The platform’s primary focus lies in curating a diverse portfolio of alternative investments, including commercial real estate structured debt, opening doors to exclusive and high-potential ventures.
With a minimum investment threshold of just Rs. 10 lakhs, Assetmonk ensures accessibility to these otherwise exclusive opportunities. By channeling funds through the platform, investors unlock the potential to achieve an impressive Internal Rate of Return (IRR) of 18 percent.
FAQs
Q1. What is alternative investment Funds in India?
A. Alternative Investment Funds (AIFs) in India serve as a regulated investment vehicle that pools funds from investors and deploys them in various alternative assets. AIFs are distinct from traditional mutual funds and come with a different set of rules and investment strategies. SEBI governs alternative investment funds, ensuring investor protection and transparency.
Q2. How to invest in alternative investment funds in India?
A. You can invest in alternative investment funds in India via
- Eligibility and Minimum Investment
Investing in alternative investment funds typically requires investors to meet certain eligibility criteria, including minimum net worth and income thresholds. The minimum investment amount can vary based on the fund’s strategy and terms.
- Understanding Fund Documents
Before investing, it is crucial to thoroughly review the fund’s offering documents, including the Private Placement Memorandum (PPM) and the Limited Partnership Agreement (LPA). These documents outline the fund’s investment strategy, fees, and terms, helping investors make informed decisions.
- Due Diligence and Selection
Conducting due diligence on the alternative investment fund’s track record, the fund manager’s experience and the underlying assets is vital for making a sound investment choice. Investors should assess risk factors, fee structures, and the fund’s alignment with their investment objectives.
Q3. What is the taxation of Alternative Investment Funds in India?
A. When considering AIF investments, it’s crucial to be aware of the alternative investment fund taxation in India.
- Categories 1 and 2 of AIFs: The AIFs falling under these categories are not subject to taxation themselves. However, any income earned by investors from their investments in these AIFs will be taxed according to their current income tax slab.
- AIFs with Equity Investments: If you invest in an AIF that allocates its funds to equity investments, you will be liable to pay capital gains tax. For long-term capital gains, the rate of tax is 10%, and for short-term gains, the rate of tax is 15%.
- Category 3 AIFs: Investments in Category 3 AIFs attract taxation at the maximum marginal rate of 42.7%. Any earnings from investments in these funds will be received by investors after this deduction.
Q4. What are the alternative investments in India?
A. Commercial real estate structured debt and alternative investment funds are some alternative investments in India.
