There are quite a few investment possibilities readily available for men and women to invest. The popular investments may perhaps be of two categories – equity-oriented investments are industry linked and contribute to equity capital of corporations, though debt-oriented investments are non-linked and invest in fixed-return instruments.
There are capital dangers involved in equity-oriented investments, but along with the dangers, the prospect of having superior return is there in comparison to debt-oriented investments.
On the other hand, the danger of losing the capital invested is technically not there in the debt-oriented investments, but the prospect of earning greater return than the the pre-decided price of return is absent.
Although quite a few regular investment instruments are readily available in each equity-oriented and debt-oriented categories, but most of them have generalised investment patterns and person investors have tiny say in portfolio compositions.
With significant amounts to invest, High Net worth Individuals (HNIs), nevertheless, want their say on investment management to produce superior returns by investing in niche segments, which are otherwise out of bound for regular investment merchandise due to greater regulatory controls.
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“Alternative Investment Funds are an avenue to pool in funds for investing in private equity, real estate or hedge funds,” mentioned Nitin Rao CEO InCred Wealth.
As described by Rao, there are 3 categories of AIFs :
- Category I AIF are these funds that invest in start off-ups or social venture funds, infrastructure funds, SME funds, and so on. The government or regulators take into account this category of funds as socially viable or economically desirable.
- Category II Funds are these that do not leverage or borrow, other than to meet the day-to-day operational specifications. This category normally consists of Private Equity Funds and Debt funds.
- Category III funds normally comprised of Hedge Funds that employ diverse or complicated trading methods. By investing in listed or unlisted derivatives, AIF managers attempt to employ leverage.
“Generally, having significant previous experience in handling entrepreneurial funds and/or Mutual Funds, AIF fund managers tend to bring more experience than MF managers, to bring in better management and innovation,” mentioned Rao.
So, AIFs provide HNIs possibilities to produce superior returns via customised investments.
However, with decrease regulatory handle and interventions, AIFs carry more dangers compared to MFs and other regular investments.
“It must be noted that by nature AIFs carry more risk, have a lock-in period and require time for the strategy to play out. As a result, they are suitable only for those who are willing to wait for the innovative theme to play out and carry the risk for such time. Investors should invest in AIFs only if their risk profile aligns with this expectation,” mentioned Rao.
Cautioning the HNIs on the greater danger element, Rao mentioned, “In terms of allocation to AIFs, the overall portfolio allocation to the underlying asset is important to keep in mind, however it would be prudent to not to go beyond 5 per cent in a non-traditional AIF in a single name.”