Read further to know how alternative investment funds are different from traditional options.
What are AIFs?
Alternative Investment Funds are a category of investment vehicles that directly invest in assets and strategies, different from traditional options like stocks, bonds, or cash. The investors usually include high-net-worth individuals, institutions, and offices. While AIFs carry a higher risk due to their complex strategies, they offer an opportunity for capital gain and exposure in non-traditional asset classes.
AIFs are divided into three categories as follows:
Category I: Funds are invested in early-stage companies, start-ups, and infrastructural sectors for both economic and social benefits.
Category II: Such AIFs invest in private companies that are not listed on the stock exchange, thus aiming to raise capital through private equity assets Likewise, they also invest in debt funds for corporate governance and high-growth potential.
Category III: They are invested in publicly traded companies and hedge funds with the main purpose of raising capital and generating higher returns.
Some of AIFs’ key features include lower liquidity in comparison to traditional funds which can make it challenging to access or sell investments quickly. Also, they offer higher returns followed by higher fees and minimum investment requirements than traditional funds.
Difference between AIFs and Traditional funds
– AIFs are invested in various classes such as real estate, hedge funds, private equity, and more, whereas traditional asset classes include bonds, gold, and cash.
– AIFs have a higher minimum investment requirement while traditional ones require a lower investment.
– AIFs are regulated by SEBI with lesser restrictions while traditional funds are completely monitored by SEBI.
– AIFs are less liquid; however, traditional assets can be redeemed at anytime.
In final thoughts, your investment goals, financial strategy, and risk appetite play a key role in choosing between traditional investments and AIFs.
