WHAT IS ALTERNATIVE INVESTMENT FUND?
Alternative Investment Funds are anything but traditional. Traditional investment has been in the form of equity, real estate, gold but AIFs look for those areas that are not too traditional in nature and explore the possibilities of return there. Here is a classification of the Alternative Investment Funds:
Category 1: Venture Capital Funds Venture Capital funds are meant for those sectors which are socially and economically significant for the economy. Such sectors are early-stage ventures, start-ups, SMEs, etc. Such ventures not only benefit the economy but also enhance growth and this is the reason why SEBI and the Government of India support such funds by providing concessions.
Category 2: Private Equity Funds Private Equity funds, especially Real Estate PE funds, typically help in reducing the risk profile by offering diversified investment portfolios which are managed by experienced fund managers. Thus, providing the dual benefit of defensive investment alternatives and a hedging mechanism by offering an alternative asset class.
Category 3: Hedge Funds These AIFs are funds that undertake leverage to a great extent as these hedge funds trade with a view to making short term returns. AIFs bring significant benefits to investment portfolios through diversifying exposure away from traditional fixed income as well as equity assets. Hedge funds help to aggressively manage a portfolio of investments. It uses several types of strategies such as long, short, leveraged and derivative positions in domestic and international markets.