The concept of alternative funds may have seemed to cater to the investment needs of only large institutional investors, given the relative complexity in the concept and working of these funds.However recent changes have opened up this investment option to a larger segment of the society. This is because, though these alternative investment funds were introduced in India only in 2021, they saw a huge influx of demand as the benefits associated with various types of alternative investment funds are more advantageous than one can expect.The year on year increase in the principal fundraised as depicted in the table below is a clear indication of the gaining popularity of AIFs. (data source: SEBI)
INR 115564. 58 crores
INR 154762. 286 crores
INR 197159.7 crores
This alternative investment platform includes funds from angel investors, hedge funds, private equity, venture capital among others. These funds are not covered by the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
Subject to meeting gate criterion; all Indian citizens, Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCI) can choose to invest in Alternative Investment Funds.
It is a fact that investment in AIF or Alternative Investment Funds differs from those in conventional investment tools or options like our stocks, bonds and debt market instruments.
AIF consists of a fund incorporated by privately pooled investment vehicles that gathers funds from sophisticated HNI investors. In order to benefit its investors, these investments are governed by a defined investment policy of AIF but are not guided by principles of SEBI regulations or other regulations of the Board to regulate fund management activities.
Regulation 2 (1) (b) of the Regulation Act, 2012 of SEBI regulates investments in AIF. An Indian AIF may be formed as a trust, a company, Limited Liability Partnership (LLP) or a corporate body. Trust is the most common form in which AIFs are registered.
SEBI classified Alternative Investment Funds under three fundamental categories based on the types of investments they encompass – viz. Category I AIF, Category II AIF and Category III AIF. As mentioned earlier, they entail angel funds, private equity, hedge funds, venture capital, etc.
It is to be noted that any AIF generally does not permit more than 1000 investors. Thus the investment fees and minimum investments required in each of the funds are higher than any conventional investment platforms.
However, transaction costs in alternative investments platforms are lower as turnover is lower compared to traditional options. Liquidity options are less in AIFs and information relating to these funds is not available publicly most of the time.
A sophisticated investor who is looking for diversifying his/ her risk in various asset portfolios and willing to take the inherent/ underlying risk involved in these unlisted and illiquid securities is an ideal investor for an Alternative Investments Company.
Usually, Foreigners, resident Indians, PIOs, OICs and NRIs are eligible to invest in various types of alternate investments.
Permissible limits to invest in alternative investment funds are defined as below –
Permissible limit in INR
Maximum 1 crore
Minimum 25 lakhs
Senior Management (like directors, VPs, fund managers)
Minimum 25 lakhs
Maximum numbers of investors allowed are –
for AIF – 1000 investors (if the AIF is formed as a company under Companies Act, 1956)
for angel fund – 49 angel investors
Since funds are raised only through private placements by sophisticated investors, and AIF cannot go for large public subscription under any circumstance.
Minimum fund corpus mandated by SEBI is –
for AIFs – at least INR 20 crores
for angel fund – INR 10 crores
Alternative investment strategy allows funds for any AIF to be raised by private placements from High Net-worth Investors.
Following are the steps to AIF listing in Stock Exchange:
1) A placement memorandum is required to be filed with SEBI to launch a scheme under the alternate investment platform. INR 1 lakh is to be paid as a scheme fee while placing the memorandum. This is to be done at least 30 days before the launch of the scheme. However, angel fund investors are exempt from this payment for the first time they launch schemes under AIF.
2) It takes 21 days for the application to be evaluated by SEBI and update investor on the status on the success rate of the application.
3) Once registered, an amount of INR 5 lakhs is to be submitted as registration fee for the fund to be classified as an AIF in India.
4) Then the Alternate Investment Fund connects with stock exchanges in order to list the following defined norms with an agreement for investment management.
The necessary documents are –
Draft information or a placement memorandum,
MOA and AOA i.e. Memorandum of Association and Articles of Association of the issuer
A written undertaking from the Compliance Officer or the CEO that the particular AIF is in accordance with the SEBI(AIF) Regulations, 2012.
An investor requires his/ her income proof, ID proof and the PAN card to be able to invest in an AIF or Alternative Investment platform.
There are 3 distinctive categories in which SEBI has classified the Alternative Investment Funds –
1) Category I AIF.
2) Category II AIF and
3) Category III AIF
Each of Category I and II AIFs is needed to be closed-ended schemes with a minimum tenure of 3 years. Category III AIFs, however, may be open or closed-ended as desired. [Ref. Regulation 13(1) and 13 (3)]
Each category has to have a minimum investment of INR 20 crores. However, Angel Fund (a subcategory of AIF I) can also have INR 10 crores as its fund. Investors have a choice to invest in any of the 3 categories or sub-categories as found below.
Category I AIF comprises of:
Venture Capital funds (including Angel funds)
Social venture capital funds
Simply put, AIFs that invest in start-ups or early-stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as economically or socially advantageous and shall include in this category of alternate funds.
Category II AIF:
Category II AIFs include all those alternate funds that do not fall in Category I and III. They do not assume leverage and/ or borrowing except to meet regular operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. [Ref. Regulation 3(4)(b)]
PE Funds, REIT or Real Estate funds, funds from distressed assets among others are registered under Category II AIF.
Category III AIF:
Funds like hedge funds, PIPE funds, etc, comprise of Category III AIFs.
The alternate investment strategy employed in this alternate fund involves complex trading strategies and is likely to employ leverage including through investments in listed or unlisted derivates as well. [Ref. Regulation 3(4)(c)]
Given the above, it is the hedge funds, private equity, venture capital, real estate and, oil and gas where most of the alternative investments are made. However, some are likely to invest even in art & antiques, collectables and, gems and precious metals.
Let us understand the most common alternative investments:
1) Hedge Funds:
In hedge funds investments are mostly done into the array of securities and are limited generally to publicly traded instruments. The alternate investment strategies undertaken are many, as the aim of the fund managers here is to generate returns in both bull and bear market conditions.
2) Venture Capital:
Wealthy investors prefer to invest their funds into promising start-up companies that are privately owned and have potential long-term growth prospects. These companies are generally in their early stage of growth or even at the start-up stage; but have an aim to grow rapidly and eventually go for BOT (build operate and transfer) either through merger, acquisition or IPO (initial public offer) offering.
3) Private Equity:
Perhaps the biggest bands of investments fall under private equity where all private investments other than venture capital are encapsulated. PE fund is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity.
While there are many benefits investing in hedge funds and venture capital investments that attract alternate fund investors, the majority of investors enjoy the advantages they get by investing in private equity alternatives as that is where the gap lay.
Advantages of Investing in Alternative Funds
1) Generally do not correlate to the stock market:
Any investor who has been in the stock markets for some time is sure to have made some big wins and major losses as well. While gains made them feel great, the losses have surely caused heartburn.
Thus such investors, who have been in the stock market and are nearing retirement or aims to take retirement shortly, can look at alternative funds as a great way to diversify their portfolios to mitigate volatility in the markets.
Just as in any investments in the market, investments in AIFs too are subject to volatility but the potential to make higher returns in traditional market instruments via inflation hedging mechanism and robust diversification.
Being uncorrelated to the stock market, it makes investments in privately held AIFs less reactive to market ups and downs. For example, let us see and investment in a mortgaged property or rental property.
Even though the market may have been extremely volatile over the past one year, the borrower or the tenant would have been making their loan repayments or rent as usual in most cases.
2) Investments are subject to less volatility:
any investments made in equity or bond markets, are subject to market fluctuations and that makes investments risky for investors, especially the short term ones.
These fluctuations can be as a result of an array of factors and need not necessarily be connected directly to the real asset in question. Since shares of AIFs are not traded publicly in the traditional stock markets, they remain guarded against the volatility of traditional public investments.
Moreover, one’s investments in the alternate funds are typically backed by real assets.
While some may argue that if one would remain invested in the stock market for a long time, say, 8 to 10 years, the investor is likely to overcome the volatility and still gets an average of about 8 – 10 per cent return. But what they need to understand that the volatility mars the power of compounding.
As a result in private alternative investments platform, the effect of the power of compounding is much higher compared to traditional markets.
If you are investing in direct equity of any company in the traditional stock market, what you are entitled to be a paper asset as a very small/ nominal owner to the said properties of the company.
There is no question of having your name imprinted in the any of the assets of the company you invest in.
However in case of AIFs, given the number of maximum investors are limited, your investments are totally not gone for loss in case an AIF were to disappear.
That is because; the investors would retain their ownership in the mortgage and the rights as a lender to the business/ property.
4) Passive Investments:
Time is money for the HNI investors who pool funds various types of alternative investments. It is true that they generally may have funds that lay idle and they would be keen to find avenues to increase their wealth too.
Investing in stock markets or multiple homes or other tangible assets may not always be a feasible option as that demands a lot of their attention and time which is an expensive ask for such set of personnel.
Alternative investment companies have posed them with a great option for investment in real assets for medium to long term that comes with less volatility and high returns subject to underlying risk for a seasoned educated investor.
5) Tax norms:
Tax norms for alternative investment funds vary for each category. Let us take understand the taxability for each category –
AIF Category I and II are pass-through instruments. The AIFs do not need to bear any tax on their earnings.
The earnings are taxable in the hands of the investors who need to pay a tax per their tax slabs. In case there have been capital gains on the shares, then it entails 10% or 15% tax based on the holding periods.
AIF Category III on the other hand is taxed at the highest income tax slab level at 42.7%. However, this happens at the fund level itself. The investor receives the returns post-tax deducted by the fund itself.
6) Redressal of complaints:
SEBI has set up a web-based central grievance redressal system by the name of SEBI Complaint Redress System (SCORES) at http://scores.gov.in for investors to lodge their complaints, if any, against AIFs.
Further for dispute resolution, the AIF Regulations calls for each AIF by itself or by the Sponsor or Manager, is required to formulate and roll out procedures for dispute resolutions for investors, AIFs, Sponsors or Managers via arbitration or similar machinery as mutually arrived and agreed between investors and the Alternative Investment Fund.
All of the above and more have resulted in the increasing popularity of investments in alternative investment funds. So the educated HNI investors, who are willing to invest in unlisted and illiquid securities to absorb the underlying risk, find AIFs a viable and attractive vehicle to diversify the risk of their investment portfolios.
Start Investing in Alternative Investment Funds Today!
Today’s Indian Financial Market is flooded with varied options of investments like the traditional options namely, mutual funds, stocks etc. and the unconventional options like Alternative Investment Funds.
If you are perplexed about where to invest your investible surplus, Alternative Investment Funds are a very good option currently, provided you are willing to take the additional risk.
To invest in an AIF and reap good profits, you need to be well-read about these funds, which have a bright future in India especially with the High Net-worth Individual (HNI) clients.
So let us delve deeper to understand the different nuances of Alternative means of investing in funds and its benefits thereof.
What is an Alternative Investment Fund?
Alternative Fund Investment AIF varies from regular traditional asset class investments like stocks, securities, debt securities and debentures etc.
AIF refers to a privately pooled fund formed by investments made by some sophisticated and private investors, who are risk lovers and are keen on taking a high risk with surplus money.
The AIF in India is established either as a company, Limited Liability Partnership (LLP), trust or a corporate body. This asset class includes venture capital funds, private equity, angel funds and hedge funds.
If you are an investor meeting all the investment eligibility criteria and prefer to have a well-diversified portfolio, the Alternative Investment Fund is the best option for you.
All the Indians like the Non-Resident Indians, Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs), are allowed to invest in the Alternative Investment Funds.
The alternative investment platform includes investment options like private equity, hedge fund, venture capital, and angel fund etc., according to the drafted investment strategy for investing in the AIF.
These funds do not come under the purview of the Securities and Exchange Board of India (SEBI) mutual fund regulations.
However, the Alternative Investment products come under the purview of Regulation 2 (1) (b) of the Regulation Act, 2012 of SEBI.
The Securities and Exchange Board of India classifies the Alternative Investment Funds into three broad categories as in Category I, Category II and Category III.
Since the transaction costs for Alternative Funds are lower than the traditional investments, minimum investment limit and processing fees required to invest in AIFs are steeper than the conventional investments. Due to lower turnover, the cost of transaction in AIFs are lower than the traditional investments.
The specialty of Alternative Funds lies in the fact that they have lesser potential to advertise to the potential investors and hence do not share any information relating to the fund publicly.
Classification of Alternative Investment Funds
The Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds can be categorised into three broad groups, as under:
1) Category I Alternative Investment Fund:
Category I Alternative Investment Funds usually invest in start-ups or Small and Medium Enterprises or ventures in their early-stages or infrastructure or social ventures, etc.
These sectors are considered as socially desirable or economical by the Government of India as well as the regulatory bodies.
Here are the sub-categories of investment under Category I of AIF:
Venture capital funds:
This is a type of financing of equity that primarily invests in start-ups and emerging businesses which have been planning for a long term growth curve.
Venture capitalists often participate in the regular operations of the company. They cannot borrow funds directly or indirectly to manage their operations.
The venture capital funds are close-ended investments with a bare minimum period of about three years, which can be extended up to two more years with prior approval from the AIF unit holders under special circumstances.
Though investments in other subcategories of Category I Alternative Investment Funds are permissible, investments in Fund of Funds (FoFs) are not allowed.
Angel funds are a subcategory of venture capital funds which comply with the regulations of Chapter III-A of the SEBI AIF Regulations for making investments.
They usually comprise individual investors who have net tangible assets not less than INR 2 crores, with a minimum of ten years of senior professional experience.
They also refer to a corporate body having a bare minimum net worth of INR 10 crore and do not accept investments lesser than INR 25 lakhs for a maximum duration of three years.
SME (Small and Medium Enterprises) Funds
These funds are usually invested in smalland medium enterprises, micro-enterprises which could be listed or unlisted. Since SME funds provide equity finance for the NBFCs, the debt is raised through them.
The minimum investment for these funds is capped at INR 1 Crore, with a minimum tenure for lock-in tenure of three years, which can be extended further by two more years.
Social Venture Capital Funds
These funds are also known as ‘Impact Funds’ as they provide funding for ventures that have a positive impact on lives, while they analyse the social impact that is created by the business on the society.
These funds have a minimum investment amount of INR 1 crore and lock-in period up to three years, which can be extended further by up to two more years.
The SVC funds engage in theme-based investments in India, namely education, agriculture, affordable healthcare and clean energy.
Apart from facilitating seed investment, these funds also help the businesses with operational as well as technical support whilst laying down the regulations for governance and compliance, for additional funding. Usually, the returns are shared by both the investors and the fund.
Thesefunds mainly invest in companies that develop infrastructure and housing projects, while raising capital even from different private investors and permitting only one thousand investors per scheme.
These funds include investments made in infrastructure projects namely roads, railways, municipal solid waste, water as well as renewable energy.
These close-ended funds are tradable on the stock exchanges with a minimum tradable amount of INR 1 crore and a minimum tenure for lock-in period of three years, which is expandable up to two more years.
Usually, the investors can easily liquidate their investments within a period of one year of the expiry of the tenure of the fund. Infrastructure funds get a lot of incentives and concessions for investment and can thus invest in various other subcategories of Category I AIF, though cannot do so in Fund of Funds (FoFs).
2) Category II Alternative Investment Fund
Category II AIFs do not undertake any sort of borrowing or leverage except for meeting the daily operational requirements.
The minimum corpus for these schemes is under INR 20 crores with a minimum amount of investment being INR 1 crore, with a minimum tenure for lock-in period of three years.
They are allowed to invest only with other AIFs or buy stocks of unlisted companies. These funds engage in the activity of hedging and accept joint investments, where the investment amount cannot be lesser than INR 1 crore.
There is no incentive or concession from the Government for these funds. Following are the subcategories under Category II AIF:
Private Equity (PE) Funds
Private Equity funds take complete ownership of the company as they cannot raise funds by equity and invest in unlisted private companies. These funds have a fixed tenure for investment, with a lock-in period ranging between four to seven years.
Debt Funds –
Thesefunds generally invest in debt securities. The investments are done in either listed or unlisted companies according to the fund objectives, while they may be facing a debt crunch.
Funds of Funds
The funds of funds (FoFs) invest in several alternative investment funds, which follow a strategy of investment to invest in other Alternative Investment Funds. They cannot make their own dedicated investment portfolio and do not issue any units of the specific fund to the open public.
3) Category III Alternative Investment Funds
SEBI registered Alternative Investment Funds of Category III, apply various trading strategies like futures and margin trading, arbitrage and derivatives trading while investing in listed or unlisted derivatives.
These funds are of two types – open-ended or closed-ended funds and are way less regulated than the traditional funds.
Thus, their information is not published regularly and the Indian Government does not give leeway for investing in these funds.
They are classified into two types:
Hedge funds pool investments from private investors to invest in internationals as well the domestic markets using several trading as well as investment strategies.
They are held for long or short positions in securities and in listed or unlisted derivatives. They use leveraging options and strategies and are aggressively managed.
They are quite expensive as compared to its peers as the fund managers charge a hefty fee of about 2% of the investment and about 20% share of the profits.
Since the hedge funds are vulnerable to market movements, associated risks and returns are higher as compared to traditional investments.
Private Investment in Public Equity (PIPE)
The fund managers in this strategy often buy stocks of publicly traded companies, but at a discounted price. This helps the businesses to put in or infuse substantial capital into the operation of the business.
These transactions require less administrative work as compared to a secondary public issue while helping the medium and small-sized businesses to fund their projects with ease.
It is easier to fund an issue with PIPE as compared to any secondary issue, which makes PIPE the most preferred method of capital inflow due to discounted share price value.
SEBI Regulations devised for the Alternative Investment Funds
If you are planning to invest in any Alternative Investment Fund (AIF) registered under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, you need to be aware that these funds are usually incorporated in the form of a company or a trust or a limited liability partnership (LLP).
These regulations came into force for the first time on 21st May 2012 and usually aim at regulating the activities performed by the private pool of AIF. All information pertaining to the AIF is stated in the SEBI (Alternative Investment Funds) Regulations 2012 and circulars are available on the SEBI website.
There are certain listed criteria under the AIF regulations on the number of investors and the validity of the registration certificate of the entity.
SEBI guidelines specify that no AIF scheme should have more than one thousand investors except for an angel fund, which could have up to a maximum of forty-nine angel investors.
You should be aware that the AIF cannot subscribe to the units publicly rather can only invest through private placement by the issue of the information memorandum or placement memorandum.
If you were to invest in an AIF, you would be curious to know about its several launch schemes.
The AIF is allowed to launch schemes in accordance with the filling of the placement memorandum with the Securities and Exchange Board of India.
However, the AIF is entitled to pay a scheme fee of INR 1 Lakh to SEBI, at least thirty days prior to the launch, in order to fill the placement memorandum. There is an exception to the payment of scheme fees in case it is an angel fund or it is the first scheme launched by the AIF.
If you are a risk-loving investor and like to diversify risk, you can invest in the SEBI registered Alternative Investment Funds.
You have to be eligible to invest in AIFs, usually, it is the resident Indians, Non-Resident Indians (NRIs) i.e. who have settled abroad and foreigners, who are eligible to make investments in Alternative Investment Funds.
If you are a general investor, your permissible limit will be INR 1 crore; whereas the minimum investment limit is INR 25 lakhs for the angel investors.
Similarly, the minimum amount for investment is INR 25 lakhs for the senior management like the directors, fund managers and all the people who work for the AIF.
If you are an investor who is willing to make an investment in these unlisted as well as partially illiquid securities, you should be prepared to undertake the associated underlying risk.
An Alternative Investment product cannot openly invite the public to subscribe to its units, rather they can only raise funds from the esteemed investors through a private placement.
So, if you are a potential investor, you have to invest through a private placement. AIF schemes launched by SEBI are supported by the filling of its placement memorandum.
After payment of the registration fees, once the certification is done by SEBI that the AIF has been registered, the AIF contacts the stock exchanges for the listing of the funds by submitting an investment management agreement or a placement memorandum, in accordance with Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012. You have to submit your income proof, ID proof and the PAN card to invest in an AIF.
To start your investment in AIF through Koppr, all you need to do is:
2) Go to the ACT section as shown in the screenshot
3) Scroll through the details to the AIF that you are interested in and click on “I am Interested” tab
And start your exciting investment journey with AIF through Koppr.
Since the last seven to eight years, the AIF industry has been gaining popularity amongst the High Net worth Individuals (HNIs) as they prefer to diversify their surplus assets. The investment mechanism is fairly simple and is gradually becoming the most preferred vehicle for diversified investment amongst the risk-loving investors.
Alternative Investment Fund (AIF) refers to a privately held pooled fund incorporated within India in the form of a limited liability partnership or a trust or a company. It collects investment from both Indian as well as foreign investors for investing in accordance with a predefined chalked-out investment policy. for the benefit of its investors.
If you decide to invest in an AIF, you need to verify if it is registered with the Securities and Exchange Board of India (SEBI) as an Alternative Investment Fund.
The SEBI registered AIF seeks registration in the trade of the categories listed below:
1) Category I AIF –
Category I Alternative Funds invest in ventures in the early-stage or start-ups or social ventures or infrastructure sectors or Small and Medium Enterprises, which the Indian Government or the regulatory bodies consider as economically or socially viable.
This category includes different SME funds, venture capital funds, infrastructure funds and social venture funds.
2) Category II AIF –
This category comprises funds which do not fall in either Category I or III and neither undertake any leverage other than just to meet the regular day-to-day expenses for operational requirements.
This fund usually consists of the debt funds or private equity funds, which do not receive any specific incentives or concessions from the government or any other regulatory body.
3) Category III AIF –
The funds in this category deploy complex or diverse trading strategies as well as are usually invested in either listed derivatives or unlisted ones.
This set of Alternative Funds include the hedge funds or some other funds which are traded to earn short term gains and are open-ended. All the funds which are not under the purview of any specific incentive or concession given by the government or any other regulatory body is generally included in this group.
SEBI Rules and Regulations complying with the Alternative Investment Funds
Any Alternative Investment Fund (AIF) registered under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 are usually incorporated as a company or a trust or an LLP (Limited liability partnership).
These regulations were implemented for the first time on 21st May 2012 and are aimed at regulating the activities performed by the private pool of funds via the AIF route.
Research states that most of the SEBI registered AIFs are available in trust form and no entity can be classified as an AIF unless it has obtained a registration certificate from the SEBI.
Any existing fund that is classified as an Alternative Investment Fund but is not registered with the SEBI, will continue to operate if it has made an application for registration under sub-regulation (5) till the application is disposed of.
The schemes that are already existing will be allowed to complete their designated tenure, according to the commitments already made till SEBI grants them as registered under regulation (6).
There are certain listed criteria under the AIF regulations on the number of investors and the validity of the registration certificate of the entity.
SEBI guidelines specify that no AIF scheme should have more than one thousand investors except for an angel fund, which could have up to a maximum of forty-nine angel investors. You should be aware that the AIF cannot subscribe to the units publicly rather can only invest through private placement by the issue of the information memorandum or placement memorandum.
The validity of the registration certificate is maintained intact till the Alternative Investment Fund is dissolved.
If you were to invest in an AIF, you would be curious to know about its several launch schemes. The AIF is allowed to launch schemes in accordance with the filling of the placement memorandum with the Securities and Exchange Board of India.
However, the AIF is entitled to pay a scheme fee of INR 1 Lakh to SEBI, at least thirty days prior to the launch in order to fill the placement memorandum.
There is an exception to the payment of scheme fees in case it is an angel fund or it is the first scheme launched by the AIF.
For all the SEBI registered category I and II AIFs, which do not take any leverage are required to submit a report to SEBI on a quarterly basis; while category III AIFs submit the report on a monthly basis.
These reports are submitted via email irrespective of whether the AIF has started any activity or not, as physical reports are not entertained.
They are sent to SEBI within seven calendar days from the end of the quarter or the month, depending on the category of the AIF.
The amount of leverage undertaken by Category III Alternative Investment Fund should not exceed more than twice that of the NAV of the fund. All information pertaining to the AIF is stated in the SEBI (Alternative Investment Funds) Regulations 2012 and circulars are available on the SEBI website.
Procedure to be followed to be registered with SEBI as an AIF
Simple just register with Koppr and let us handle the below process for you.
All the applicants should make an application under Form A as provided in the SEBI (Alternative Investment Funds) Regulations, 2012 along with the requisite supporting documents. The applicant has to pay an application fee of INR 1,00,000/- to SEBI.
Once SEBI approves the application, a registration fee or a re-registration fee or a scheme fee as applicable has to be paid.
Thereafter, different categories of the AIF has to pay the registration fee, as specified below:
Category I Alternative Investment Funds – INR 5,00,000
Category II Alternative Investment Funds – INR 10, 00,000
Category III Alternative Investment Funds – INR 15,00, 000
Angel Funds – INR 2,00, 000
If you have invested in the AIF and are not happy with any of its policies, you can register your complaint with SEBI via its digital grievance redressal system which is centralized in nature called SCORES or SEBI Complaint Redressal System (SCORES), where the investors can lodge their complaints against the AIFs.
Additionally, any dispute resolution for the AIF can be done by the Manager or Sponsor, who lay down the process for resolution of disputes between any two parties like the investors, Manager, Sponsor or the Alternative Investment Fund, through arbitration or any specific mechanism as mutually decided between the investors and the AIF.
New Amendments brought in by SEBI in 2020
In the financial world, the Security Exchange Board of India (“SEBI”) lays down the rules and regulations for primary and secondary security markets in India.
It acts as a surveillance mechanism for all the participants in the security market for intermediaries such as Stock Brokers, Stock Exchanges and Portfolio Managers, etc.
Few amendments were specified in the circulars released by SEBI in 2020. If you have invested in an AIF, it is pertinent for you to take a closer look at each of the specifications mentioned therein:
The first circular was released on February 5, 2020, and was based on the Disclosure Standards for the Alternative Investment Funds (AIFs).
The need to streamline the proforma for the information and disclosure standards has fostered SEBI to lay down a template for the Private Placement Memorandum (PPM), which contains specific information for the prospective investors in a SEBI specified format.
This template has two parts, Part-A which consists of the minimum disclosures and Part-B, the supplementary section, which comprises some additional information.
Adhering to the compliance clause, an annual audit of the PPM by the AIF is made mandatory.
If you are the Trustee or the Board or the Designated Partner of the Alternative Investment Fund, the audit findings and corrective steps will be communicated to you.
Although the subscription agreement has to be in sync with the PPM, there are some exceptions to the AIFs, where these PPM guidelines are not applicable:
SEBI registered AIFs or schemes, where each investor commits to a minimum capital contribution of INR 70 crores and also provides a fund waiver, as mentioned by the Annexure to CIRCULAR-I.
SEBI introduced a mandatory benchmarking framework to monitor the performance of AIFs to let investors make an informed decision and the Benchmarking Agencies to make a customized performance report.
Any association of Alternative Investment Funds which has at least 51% membership in AIFs, shall enter into a Benchmarking Agreement with a Benchmarking Agency.
This agreement consists of the mode and manner of data reporting, information specific to data that needs to be reported, and other terms pertaining to confidentiality of the data received by the Benchmarking Agency.
All sorts of fund information including cash flow data of the schemes are also reported to the agency. However, the Performance benchmarking criteria is not applicable to the Angel Funds, which are a constituent of Category I.
The second circular that was released on June 12, 2020, consisted of the clarification of the Disclosure Standards stated in Circular I for the AIFs.
The first clarification aimed to provide a timeline to the audit requirement, mainly at the end of each financial year.
It also stated that the results of the audit should be communicated to the Trustee or the Board or the Designated Partners of the AIF within six months from the end of the financial year.
However, these provisions are not applicable to those AIFs that have not raised any funds from their investors.
The earlier membership amount of 51% has been replaced by 33% to enter into a Benchmarking Agreement with a Benchmarking Agency.
This circular was released on June 30, 2020, specifying the collection of stamp duty on the issue, transfer and sale of AIF units. The Registrar & Share Transfer Agents (RTA) appointed by the AIFs are responsible for collecting the stamp duty on transfer, issue and sale of units of AIF.
The Alternative Investment Funds would comply with the amended Stamp Act and rules with effect from July 01, 2020. Till the time an RTA is appointed,
AIFs shall keep the applicable stamp duty for transactions in a designated bank account. Once the RTAs are appointed, the said amount is given for onward remittance to the states and Union Territories according to the provisions of the amended Stamp Act.
The fourth circular specifies the processing of applications for the registration of AIFs and the schemes launched by SEBI.
The amendment made by the SEBI (AIF) Regulations, 2012 on October 19, 2020, stated that the Manager will be a part of the Investment Committee which will enable him to approve all the investment decisions of the AIF.
All the applications from external members from resident Indians will be processed for being a part of the Investment Committee whereas the applications from the non-resident Indians will be processed only after the clarification sought by SEBI has been resolved.
Recent updates from SEBI specifies that category II and III alternative investment funds (AIFs) which are established as a trust may be certified as a qualified buyer according to the SARFAESI Act and are eligible to subscribe to security receipts issued by asset reconstruction companies, adhering to certain regulatory norms.
Recent Updates in AIF’s
Certain amendments by SEBI in the last quarter of 2020 pertains to professional qualifications and experience criteria of the investment team, that needs to be fulfilled.
Amendment 4(g) specifies that at least one important member of the team working as a manager of the AIF with a minimum of five years of working experience in managing asset pools or in the business of actively dealing in securities.
It is pertinent to have at least one professional in the investment team with domain expertise in accountancy, finance, business management, economics, commerce, banking or capital market from a reputed institution.
Additionally, Regulation 20(6) specified that the Manager of the AIF is responsible for all decisions regarding investment in funds.
This rule also provides the manager with the leverage to delegate all the investment decisions to the Investment Committee, subject to a few conditions.
Hence all the members of the core investment committee will be equally responsible as the Manager for all investment decisions of the AIF, with the autonomy to approve all the investment decisions.
These provisions also state that all the external members whose names have not been disclosed in the specified placement memorandum initially will be appointed to the core investment committee with the prior consent of at least 75% of the investors depending upon their investment value in the AIF.
Thus, if you plan to invest in a SEBI registered AIF visit Koppr
Investment = wealth creation or at least what you want to believe. However, whether it is due to mistakes, ignorance or a lack of financial literacy, your investments might not give you the desired results and might also result in a loss.What can you do to avoid losing money through your investments?
Investing is an art and unless you learn to master the art properly, your investments might leak money rather than accumulating it into a corpus that you need.
So, here are 9 tips on how not to lose money by investing right –
What is the basis of your investment? Creation of funds for your financial goals, isn’t it? So, start at your goals first. It is useless planning a journey anyways without having a destination in mind.
So, jot down your financial goals, both short-term and long-term. This listing would give you two distinct benefits – it would help you find out the corpus needed for each goal as well as the time horizon.
These two inputs form the basis of your financial plan and so, knowing your goals is the groundwork that you need to do before you jump on the investment bandwagon.
Plan your Financial goals for 2021 with Koppr’s Free Financial Planning Tool
2) Risk Profiling
The next thing to find out is your risk appetite. Risk appetite means your capacity of taking risks. Depending on your risk appetite the investment avenues would be selected.
If you don’t mind taking risks, you can invest in equity-oriented avenues and if you are risk-averse, fixed income avenues would be better.
Risk profiling should assess your tendency to bear risk vis-à-vis your age. Nobody like losing money and so, risky avenues are always seen with a bit of hesitation.
However, if given time, risks tend to smoothen out and you can get very good returns from risky investment avenues, i.e. equity. So, even if you are risk-averse, you can invest in equity provided – age is on your side and you have a long term investment horizon.
When you are young, you can give your investments time, time which minimizes the inherent risk. So, equity is suitable for long term goals. Do not lose your money by investing in the promise of equity for a quick buck.
Equity is highly volatile and while it can give quick gains, it can result in capital erosion too.
3) Tax Planning
Many of you also lose out on your returns because you don’t plan your taxes properly. Remember every investment avenue has its own tax implication.
If you understand such implication and then plan your investments around them, you would be able to save tax and generate good post-tax returns.
So, tax planning is essential, both when investing as well as on redemption. Find out which avenues help you save tax on investment so that you can reduce your taxable income while saving (Section 80C should be understood properly).
Then, when you redeem, check how your gains would be taxed and if you could do anything to avoid or reduce the possible taxation. A very common example is redeeming equity mutual funds.
If you redeem your investments within a year, a short term capital gains tax of 15% would apply on the returns that you have earned. On the other hand, if you redeem them after a year, you would be able to save tax if your returns are within Rs.1 lakh.
Even if your returns are greater than Rs.1 lakh, only the excess return would be taxed, and that too at 10%. So, if you are redeeming your mutual fund investments, check for the tax implication to see if you can save tax.
Losing money is not only through negative returns but also by not planning your taxes efficiently and letting them eat into your returns.
4) Know When to Hold and When to Redeem
This is a very technical aspect, especially when investing in equity stocks or equity mutual funds. Balancing between holding and redeeming is a fine line, one that you should toe with careful consideration.
If you hold your investments and the market falls further, you would lose money. On the other hand, if you redeem or switch and then the market rises, you would lose again as you could have earned better profits.
So, this is a tightrope and many investors fall flat while trying to walk it.
Wondering what you should do? Well, the answer lies in the first two points discussed earlier – goals and risk appetite.
If the market is falling and your goals are long term in nature, you can hold onto your investments as the market would correct itself, no matter its bearish run. In fact, the Sensex has emerged stronger after every crash. Have a look –
If you are on the initial curve of the fall, you can also book your profits and switch to debt mutual funds to protect against the volatility.
If you have a low-risk appetite, then also you should book your returns and switch to debt to prevent losing money.
5) Invest When the Market is Down
When the market is in a bear run and falling, it is a good time to invest as the stocks would be undervalued. Thereafter, when the market would rise, your investments would give you attractive returns.
So, a falling market is not necessarily a sign of losses. If you look on the brighter side, you can actually make profits by investing in undervalued stocks at that time.
That being said, try and buy good companies at a cheaper value and not bad stocks. Good companies would give good returns but bad ones would never do, even when the market is bullish.
So, try and choose the best-rated stocks with a high Price/Earnings (P/E) ratio as these companies would deliver good profits.
Which is your favourite investment avenue? If only one or two names spring to your mind, it is a cause of concern. Can you live on one food for your entire life? Variety is the needed spice, isn’t it, both from the taste and nutrition point of view?
So why play favourites with investments?
Your portfolio should be a mix of different investment avenues with different asset classes.
You need a mix of –
– Equity and debt investments
– Long term and short term products
– Fixed and liquid avenues
So while mutual funds are good, a little bit of fixed deposit should also be a part of your portfolio. Similarly, if gold is your preferred avenue, invest in equity too for liquidity and better returns.
A skewed portfolio, with a majority of one or two investment avenues, is a recipe for disaster. If any one of the avenues does not perform well, your entire investments would be in jeopardy.
For example, if you have a heavy proportion of real estate investments, where would you get money for emergency needs?
Too much exposure to equity is fatal in a market crash and too much investment in fixed income avenues is suicidal from an inflation point of view.
What you need is a balance of flavours, a balance of nutrition and a balance of investment avenues. Create a balanced and diversified portfolio and losing money on investments would be a thing of the past.
7) Factor in Inflation
Remember that inflation always eats into the purchasing power of money. Moreover, inflation is a reality and if the economy is growing, there would always be inflation.
So, when you invest, factor in this inflation. Invest in avenues that give you inflation-adjusted returns, i.e. returns that have a positive value even after factoring in inflation.
If you invest in avenues where the returns are not inflation adjusted, you would ultimately lose money even though the avenues give returns because such returns would have a low real worth. For example, say a fixed deposit scheme gives you a return of 6% per annum.
If the inflation in the country is 6.5% per annum, the return that you get from your fixed deposits is actually negative.
Let’s see it in monetary perspective.
Rs.100 would fetch you a return of Rs.6 in a fixed deposit scheme. You plan on buying an item costing Rs.6 with the return that you get. Now, after a year, inflation has driven the cost of the item to Rs.7 but you get a return of Rs.6 from the deposit scheme. Is the return worth it especially since you can no longer afford to buy the article that you wanted?
Inflation, therefore, puts a leak into your returns, a leak that can be plugged by choosing inflation-adjusted investment avenues.
8) Review Your Financial Portfolio, Regularly
Another mistake that most investors make is that they invest and forget. This is another reason why they end up losing money on their returns. How many times do you opt for rollover of your fixed deposits on maturity?
Your financial needs keep changing with changing lifestyle. Your financial portfolio, therefore, needs to change to keep pace with your changing needs.
Change is the only constant and if your portfolio is stagnant you would lose out on the opportunities of maximizing your returns. So, make it a point to review your portfolio periodically, at least once every 6 months or a year.
This reviewing helps you make the necessary changes to your investments. You can redeem your investments if the time is right, you can make additional investments into a fund that is performing exceptionally well, or, you can switch around your portfolio to change the investment combinations.
Review and shuffle your portfolio to reflect whatever you think is the need of the hour to keep your investments relevant and to maximize returns.
Do you know why investors lose money even when they try and pick the best investment avenues? Lack of financial knowledge, that’s why and in India, financial literacy is depressingly low.
As per a Standard & Poor survey conducted in the year 2014, more than 76% of Indian adults did not understand the basics of financial planning. Have a look at the numbers of the survey –
Lack of financial awareness is the reason why investors cannot plan their financial right. They have limited knowledge of risk diversification, inflation, interest-earning, etc.
As such, they fail to choose the right avenues that would help them get the best returns on their money. The result – they lose out on returns. Financial literacy is, therefore, the foundation for building an effective financial portfolio. It is the bedrock of your finances and if you get the knowledge part right, you can avoid losing money on investments.
Here are few courses on Koppr Academy that will help you to get the right knowledge in Finance
If financial literacy is not your strong suit, you can take the help of online courses designed to impart the necessary wisdom. We have curated some of the most comprehensive financial courses on different financial instruments and financial planning as a whole. You can take the help of our courses and learn the ABC of finance.
Acknowledging is winning half the battle in investing right. Armed with sufficient financial knowledge, if you avoid the earlier discussed pitfalls, you can create a leak-proof financial portfolio which prevents loss of money either because of losses, tax cuts or improper financial planning.
So, start your financial journey on a strong footing. Learn the basics first – our courses are there to help you. Then start your investment journey. Plan your goals, understand your risk appetite, plan your taxes, invest right, redeem right, have a diversified portfolio and do a periodic review.
Plug your portfolio leaks and avoid making losses by investing right.
The year 2021 marks the start of a new decade. Moreover, with the COVID vaccine almost on the verge of being launched, the year is also filled with hope and new beginnings. In keeping with the tradition of every New Year, you make various resolutions. But how many do you stick to? As January progresses to February and then February moves to March, most of the resolutions are done away with. How about doing something different for a change? If the year 2020 and the COVID pandemic have taught us something, it is the importance of being financially prepared. The pandemic took everyone’s finances by surprise and if you want to avoid a possible reprise, how about taking some financial resolutions for the year ahead so that you can be financially healthy?
Here are some of the best financial resolutions that you can set for 2021 to sort out your finances –
Even though the COVID vaccine is almost ready, the time by which you and your family get the shot is still uncertain. It might be one or two years before the vaccine effectively reaches everyone and till then, the threat of the infection is considerable.
If you face complications and are hospitalised, which is not uncommon, the treatment costs might tax your savings considerably. While many States have specified a cap on COVID treatment costs are private facilities, the figures are still grim. Have a look –
To top it off, if multiple family members need hospitalisation, the costs would only multiply. To meet these costs head-on, invest in a health insurance policy with an adequate sum insured.
You can opt for COVID specific health plans which have been launched – Corona Kavach and Corona Rakshak, especially for protection against COVID related medical costs. For other illnesses and injuries, invest in a comprehensive health insurance plan for your family.
Opt for a high sum insured because the medical costs are increasing steadily. If affordability plays a spoil-sport, opt for top-up or super top-up plans to supplement your coverage but do take up the resolution of having an adequate cover, at all costs.
Pro tip: Don’t get complacent if you have an employer-sponsored group health plan. While the policy would cover hospitalisation expenses, it would be insufficient in covering high treatment costs.
Even if your employer offers a group health scheme, consider it to be a bonus and invest in an independent health plan for customized and sufficient coverage.
While health insurance takes care of your medical expenses, what about the risk of premature death? Whether it is due to COVID or other illnesses or even accidents, you are constantly exposed to the risk of a premature demise. While you cannot eliminate the risk, you can definitely insure it.
Term insurance plans help you cover your life risk at affordable premiums. You should opt for a high sum assured so that your family receives adequate financial assistance to fulfil the financial responsibilities if you are not around.
So, after you are done with health insurance, resolve to buy a term insurance plan for complete financial security.
Pro tip: Compare the available plans and then invest in one which offers a comprehensive scope of coverage at affordable premiums. For the right sum assured, there are online Human Life Value (HLV) calculators which you can use.
3) Creation of an Emergency Fund
The past year taught us one thing – anything can happen anytime. People in established jobs can lose their positions, availability of liquid funds can become an issue, a profitable business might completely shut down and whatnot.
To be financially prepared against such contingencies, an emergency fund is needed. You should set aside at least 6 months’ worth of your income in a liquid fund which can be accessed whenever an emergency strikes.
If you have an emergency fund, review its adequacy. If you haven’t created one, do so in the coming year so that any financial contingency would not threaten your best laid financial plans.
Pro tip: If you are unable to set aside a lump sum amount into an emergency fund at once, start small. Spare what you can and then build up the fund slowly but steadily.
4) Paying off Debts, Without Default!
Loans have become a common part of modern man’s lifestyle, both in the rural and the urban segment.
According to the Household Survey on India’s Citizen Environment & Consumer Economy, also called the ICE 360° survey, which was conducted in 2016, 27% of the surveyed households had at least one outstanding loan.
While 30% of rural households were found to be indebted, the percentage was 21% for urban households. Have a look –
Moreover, by March 2020, Indian households accounted for Rs.43.5 trillion in debt thereby causing retail loans to account for 21.3% of the total GDP. (Source: https://www.business-standard.com/article/economy-policy/household-debt-touches-record-high-at-rs-43-5-trn-amid-covid-19-crisis-120041701789_1.html)
While loans provide easy funds for your financial obligations, repaying them on time is of the essence. Defaulting on loans not only causes heavy interest outgoes, but it also hampers your credit score.
Ultimately, with mounting default, you enter into a debt trap, coming out of which takes years. So, pledge to pay off your debts timely in the coming year so that you can avoid the possibility of a debt trap.
Pro tip: Pay off your credit card debt and personal loans first because they have high-interest rates and affect your credit score considerably. Home loans, on the other hand, can be continued because they give tax benefits but make sure to pay the EMIs on time.
Plan your financial goals for 2021 with our free financial planning tool
5) Reviewing Your Portfolio Periodically
2020 was not so great when it came to your investments. Market-linked investments were in the red when the financial year started. However, since then, the equity market has recovered and now, the Sensex is trading at pre-COVID levels. Have a look –
As the Sensex has rebounded, your investments might have recovered too but there is an important lesson to learn from this crash.
The market is dynamic and so are your financial needs. So, it is important to review your portfolio regularly in tune with the changing market dynamics and your financial needs. Try and churn your investments to minimize risks and maximize gains.
For example, as the COVID impact was increasing in March, if you would have shifted to debt, you would have been able to book your equity profits and protect them against market volatility.
Similarly, now, as the markets are rising, it is sensible to shift to equity to gain on the bullish market. Having a stagnated portfolio is bad as it prevents you from getting the maximum returns and also exposes your investments to unnecessary risks.
Pro tip: Invest in mutual funds to get the benefit of diversification rather than picking specific stocks. You can choose different mutual fund schemes as per your risk appetite and investment horizon.
6) Picking Your Investments as Per Your Need and Risk Appetite
Planning a financial portfolio is no joke. You need to pick investment avenues depending on your financial goals, investment horizon, disposable income and, most importantly, risk profile.
Creating a haphazard portfolio by mimicking what others have invested in would not meet your financial needs sufficiently.
Your portfolio should be unique to your needs and requirements. So, first and foremost, assess your risk appetite. Usually, if you are young, i.e. in your 30s or 40s, you can afford to take risks since you have long investment tenure in front of you.
At this age, equity-oriented savings avenues would be the best as they would help you maximize your wealth.
In your older years, however, your equity exposure should reduce as you are nearing retirement and you need to protect your capital. So, understand your life stage and risk profile and then select investment avenues.
Moreover, whatever risk profile that you belong to, have a well-diversified portfolio. Keeping all your eggs in one basket is not wise. Variety is the essence of life and of investments too.
So, if you are risk-loving, allocate a part of your savings in debt to create a stable portfolio sturdy enough to weather out market volatilities. On the other hand, if you are risk-averse, invest a part of your savings in equity-oriented avenues too which would help you earn attractive returns and create a considerable corpus for your financial goals.
Just like a balanced diet is necessary to remain healthy, a diversified portfolio is needed to remain financially healthy.
Pro tip: When you start financial planning, first assess your disposable income and risk appetite. Then list the investment instruments available and classify them as risky or non-risky.
When investing in debt, choose debt mutual funds or other market-linked debt instruments to earn inflation-adjusted returns from your investments.
Tax planning is also necessary when creating a financial portfolio to ensure that you can minimize your tax liability and maximize your investments.
How many times do you find your income being spent before the end of the month arrives and you scraping by just till the month ends?
If your answer is ‘Often’, something is wrong with your financial planning and this something is ‘Budgeting’.
Budgeting is the first step in determining your disposable income and the amount that you can invest. If you skip this, overspending, being in debt and not having enough would always be a reality.
If you want to get your finances in order in the New Year, start by budgeting. Create a monthly budget listing all the sources of income on one side and the possible expenses in the other.
Besides the essential lifestyle expenses, make room for personal expenses as well but be a bit stingy in this aspect, especially if your income has shrunk due to the pandemic. Budgeting helps you figure out your incomes and expenses and also plugs unknown leaks. Moreover, when you have a budget, you are less likely to splurge or overspend.
If you haven’t learned the importance of budgeting as yet, it is time you do. Weed out unnecessary expenses and follow a strict budget if you want to save a decent amount of money for investments.
Rather than using up your income on expenses, try and create investments first and then allocate your income towards expenses, especially personal ones.
Pro tip: Budgeting is a pen and paper job or a computer screen and keyboard one. Don’t plan your budget over the top of your head. It would not prove fruitful.
Instead, take out some time and plan as detailed budget as possible at the start of the month. And of course, stick to the budget, only creating it is useless.
Watch a video on how to plan your monthly budget effectively with a FREE budgeting sheet!
8) Make a Resolution to Follow Through with Your Resolutions
What’s the point in making the above-mentioned resolutions if you don’t carry through with them? So, after you are done making the above-mentioned resolutions, take one more step and make a resolution to stick with them.
Backing out of your diet-related resolutions or habit-related resolution might not have as far-reaching implications as backing out of your financial resolutions will. Financial health is the most important one and if you are financially secured, you can face life’s challenges head-on.
So, ensure that you follow through with your financial resolutions for your financial well-being.
Pro tip: Write out your resolutions and stick them somewhere where you are bound to glance at them every day. This would give you the necessary discipline to soldier on with the resolution for finance that you have made.
The year 2021 is round the corner and only you have the power to start the year on a positive note. Don’t blame the economy, the Government or the markets for your financial problems.
Instead, make these financial resolutions for 2021 and create solutions. None of the resolutions is difficult or impossible to inculcate. It all boils down to your motivation and dedication towards your finances.
Start planning your finance for 2021 with Koppr’s FREE financial planning tool
So, what would it be? A financially healthy year or a struggling one? Comment Below 👇