Alternative Investment Funds or AIF in short, are defined as privately pooled investment funds and categorized by The Securities Exchange Board of India (SEBI) as Category I AIF, Category II AIF, and Category III AIF. It is a fund of funds (FOF) that invests in asset classes other than stocks, bonds, Government securities, fixed deposits or cash. It pools money from various HNI investors and invests them under different investment categories as specified by the SEBI for the benefit of investors.
Assets under management (AUM) under AIF can include start-ups, SME funds, infrastructure funds, private equity funds, venture capital or even hedge funds that may be trading in listed or unlisted derivatives depending on the fund type.
The minimum investment amount to invest in an AIF is Rs 1.00 Crore depending on the type of AIF. Therefore, it can be called as product meant for the HNIs.
Advantages of AIF
AIF offers diversification as the key benefit. AIFs have considerable freedom to decide where to invest unlike most other funds or mutual funds which are totally regulated and follow the fund/ scheme guidelines as mandated by SEBI.
There are various non-traditional investment options available to AIFs which generally are not available to all investors, particularly retail investors.
How AIF works?
Alternative Investment Funds or AIF raise money to form an investment fund pool that invests in non-traditional assets classes that the ordinary investors may not have access through any other products like Mutual Funds. Money can be pooled from various types of investors, example - Resident Investors, NRIs or non-resident investors or foreign investors.
Who can invest in AIF?
AIFs are mainly aimed at high net worth or HNI individuals who are ready to invest minimum Rs 1.00 Crore and take high risk. While the return potential of AIF may be very high, the risk is also very high. Therefore, this is not meant for all investors excepting those who are well versed with these kind of investing.
In summary, if you have a large amount to invest in one instrument
You have the ability to sustain the risk
You are ready to remain invested with long lock-in periods
What Are REITs?
Real Estate Investment Trusts (REITs) are investment vehicles that own, operate or finance income-generating real estate assets. In India, listed REITs allow investors to participate in eligible real estate portfolios through exchange-traded units, similar to buying shares.
Instead of purchasing an entire commercial property, investors can buy REIT units and gain exposure to a portfolio of real estate assets. REITs may generate returns through distributions from property income and changes in the market price of their units.
What Are REITs?
Real Estate Exposure
Participate in income-generating commercial real estate without directly owning an entire property.
Potential Income Distributions
Eligible REITs may distribute income generated from their underlying assets, subject to applicable regulations and performance.
Portfolio Diversification
Add exposure to commercial real estate alongside other investments, depending on your overall portfolio.
Exchange-Traded Access
Listed REIT units can generally be bought and sold through the stock exchange during trading hours, subject to market liquidity.
Risks to Consider
Every investment carries risks. Before investing in REITs, consider:
- Market risk : Unit prices can rise or fall with market conditions.
- Real estate risk : Vacancies, lower rental income and declining property values can affect performance.
- Interest rate risk : Changes in interest rates can influence REIT valuations and borrowing costs.
- Liquidity risk : Some REIT units may be harder to sell at a desired price.
- Distribution risk : Income distributions can fluctuate and are not assured.