These funds, regulated by SEBI (Alternative Investment Funds) Regulations, 2012, aim to provide returns for their owners by following a well-defined investing strategy.
The AIF
Regulations specify both basic investment conditions that apply to all AIFs and particular requirements that apply to each AIF’s category or subcategory, per Chapters III and III-A of the AIF Regulations.
Based on their investing goals, tactics, and laws, SEBI has divided AIFs into several categories: Venture Capital Funds (VCFs), Angel funds, Infrastructure funds, and Private equity funds, to name a few.
An ‘angel fund’ is a Type I Alternative Investment Fund subcategory of a venture capital fund that receives capital from angel investors and makes investments in compliance with Chapter III-A of the AIF Regulations.
An angel fund may also purchase stock in international businesses, provided that it complies with any rules or regulations that the Board and the Reserve Bank of India may occasionally establish.
‘Angel investor’ refers to any individual who offers to invest in an angel fund with net tangible assets of at least ₹2 crore, excluding the value of his primary residences.
The sponsor or manager must maintain a continuous interest in the angel fund equal to at least 2.5% of the corpus or ₹50 lakh, whichever is less. This interest cannot be obtained by waiving management costs.
Every angel investor who wants to invest in a venture capital project must provide the fund management with an undertaking attesting to his approval of the investment before the transaction takes place.
AIFs can provide a high potential return for investors with a longer investment outlook and a willingness to take on greater risk. They can produce returns from various sources, including interest, dividends, and capital growth.
These funds make investments in more volatile assets or approaches with strong growth potential, like hedge funds, start-ups, and private equity.
AIFs provide low-volatility solutions for investors looking for stability and steady returns. They make investments in debt, infrastructure, and fund of funds.
AIFs offer diversification by making investments in an array of strategies and assets with different traits, risk profiles, and performance, such as PIPE, social venture, and venture capital.