Category II consists of private and equity funds that are allowed to invest anywhere in any combination. These funds are the most popular among investors and account for more than half of total AIF inflows. However, they cannot invest in debt except for the purpose of day-to-day operations
Considering the volatility in the equity and derivative markets, institutional investors and high net worth individuals (HNIs) have increased their fund allocation towards alternative investment funds (AIFs).The cumulative funds raised via the AIF route has nearly tripled to Rs 14,024.24 crore in Q2FY16 from Rs 5,847.5 in Q2FY15,
data compiled by Sebi showed.
Inflows into Category II funds have witnessed an eight-fold increase in the last two years, while fund flows into Category III AIFs have climbed nine times, data showed. Even the total number of registered AIFs has increased to 182 in December 2015 from 135 at the end of calendar 2014.
“The huge increase in AIF inflows reflects the growing interest of investors in Category II funds which are used to fund start-ups. The equity- and derivatives-related funds have also witnessed good inflows due to decent returns that AIFs gave in 2015 despite a 5% fall in benchmark indices last year,” said Radhika Gupta, business head, Forefront Capital, an Edelweiss Group company.
AIFs are special investment vehicles established to pool in funds for investing in real estate, private equity and hedge funds. As per Sebi guidelines, there are three categories of AIFs.
Category I comprises infrastructure, social venture and SME funds. These funds attract special concessions including tax breaks for investors and were designed to fund the capital intensive sectors such as infrastructure. Despite the special incentives, Category I AIFs have witnessed a lukewarm response from investors so far. As on September 2015, Category I funds constituted only 23% of total funds raised via AIFs.
Category II consists of private and equity funds that are allowed to invest anywhere in any combination. However, these funds cannot invest in debt except for the purpose of day-to-day operations. These funds are the most popular among investors and account for more than half of total AIF inflows. Category III consists of funds that make short-term investments and then sell. This category includes hedge funds.
Sebi had released regulations for the AIFs in 2012. According to these regulations, every AIF needs prior approval from Sebi.