Alternative Investment Funds (AIF) are a unique set of investment choices. They differ from frequent traditional investments and asset classes such as debt, stocks, securities and so forth. AIFs do not come below the purview of the Securities and Exchange Board of India (SEBI) mutual fund regulations.
AIF is a privately pooled investment car that collects income from private investors, and normally involves private equity, hedge fund, venture capital, angel fund, and so forth. Experts say investors who want to diversify their portfolio can decide on Alternative Investment Funds to invest in.
Anshul Gupta, Co-Founder at WintWealth, says, “Traditionally, alternative asset classes have been subjugated by institutional investors and high net worth individuals (HNIs), as they require clients to be comfortable with a certain portion of their portfolios remaining in long-term and illiquid opportunities.” However, he adds, “the time has been changing rapidly. Various personal investment/ alternative investment companies and start-ups are democratizing investment options for retail investors.”
Having mentioned that, Covid-19 has also invariably changed the investment patterns. Experts say allocations are now most likely to come about at 3 levels i.e. threat, asset, and solution. An enhance has been witnessed in allocations to option investments.
According to the newest information offered with market place regulator SEBI, the cumulative net investments made by AIFs at the finish of March 2021 stood at Rs 2-lakh crore against Rs 1.53-lakh crore at the finish of the prior fiscal.
Gupta says, “AIF’s can be great portfolio diversifiers and help mitigate risks, generate passive income as they offer safer yields, and not all but some are tax-efficient.” However, one have to be wary of threat, regulation, and lock-ins connected with these investments.
Experts say these investments are more complicated than classic investment automobiles. Gupta additional adds, “Even though the AIFs are not directly linked with the market, it is crucial to monitor market, credit, liquidity, counterparty, and operational risks.”
Here are some of the critical issues to take into account when investing in AIFs
- They are unique from mutual funds in all elements.
- Each AIF will have a unique degree of threat and return connected with it. This can be evaluated by hunting at the previous overall performance of the asset
- It’s vital to know all the expenses involved – There is no regulatory limit on expenses in AIFs as compared to the limits on the total expense ratio (TER) in mutual funds.
- The taxation guidelines of the numerous categories of AIFs are unique.
Every investment carries its advantages and dangers. Industry professionals say, when AIFs make for a profitable investment, there is a significant mastering curve attached to understanding them. Therefore, it becomes vital to invest by means of platforms that are transparent and can assistance one make informed choices.