Alternative Investment Fund – UPSC Prelims

What is an Alternative Investment Fund(AIF)?
  • Alternate investment funds(AIFs) are defined under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
  • It refers to any privately pooled investment fund(whether from Indian or foreign sources) established or incorporated in India for investing it in accordance with a defined investment policy.
  • An alternative investment is a financial asset that does not fall into one of the conventional equity/income/cash categories.
  • For example, private equity or venture capital, hedge funds, commodities, and tangible assets
  • AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
Categories of AIF:
  • Category I:
    • Under this, the funds are mainly invested in start-ups, SMEs or any other sector which Govt. considers economically and socially viable.
    • Examples include venture capital funds, social venture funds, infrastructure funds and other Alternative Investment Funds as may be specified.
  • Category II:
    • Under this category, funds that are invested in equity securities and debt securities are included.
    • These funds do not fall in Category I and III. They also do not undertake leverage or borrowing other than to meet day-to-day operational requirements.
    • Examples include real estate funds, private equity funds (PE funds), and funds for distressed assets.
  • Category III:
    • Under this category, funds are invested with a view to make short term return. The companies employ diverse or complex trading strategies and may also employ leverage including through investment in listed or unlisted derivatives.
    • Examples include hedge funds, PIPE Funds.

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