When reading Alternative Investment Fund (AIF): Key Points and Impact, the important part is to keep the core facts intact while presenting the context in a clearer way for readers.
What This Update Means
Readers should treat this as a tax and compliance update, not as personal advice.
Key Reader Takeaways
- The issue concerns the legal definition and structure of Alternative Investment Funds.
- The framework classifies AIFs as privately pooled investment vehicles regulated by SEBI with…
- WHAT IS ALTERNATIVE INVESTMENT FUND?
- Alternative investment fund, means any fund established or incorporated in India in the form of a Trust or a Company or a Limited Liability Partnership or a body corporate which is privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations 1999, or any other regulations of the board to regulate fund management activities.
LAMORC DIGITAL Context
The detailed section below preserves the source-backed information so readers can review the full context and important details in one place.
WHAT IS ALTERNATIVE INVESTMENT FUND?
Alternative investment fund, means any fund established or incorporated in India in the form of a Trust or a Company or a Limited Liability Partnership or a body corporate which is privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations 1999, or any other regulations of the board to regulate fund management activities.
The Family Trust is a popular vehicle in estate planning. You know your family best, and a family trust can help you customize how you provide for your family, both during your lifetime and after your death.
An ESOP Trust is an entity established by companies to hold shares for the purpose of the ESOP program and /or to hold shares on behalf of eligible employees participating in the ESOP program.
3. Employee Welfare Trusts (EWT)
Employee Welfare Trusts (EWT) are established to cater to employee welfare needs such as funding child education, medical expenses and extra ordinary expenses not covered under compensation.
A Holding Company is a type of financial organization that owns a controlling interest in other companies, which are called subsidiaries.
5. Securitization Trust
The Securitization Trust is the financial vehicle used in the process of securitization and plays a crucial role in converting various types of liquid financial assets into marketable securities.
Category Wise Classification:-
➤ Types of AIF. According to the Securities and Exchange Board of India (SEBI), AIFs are classified into three broad categories:
These funds do not have any fixed maturity period. Investors can conveniently purchase and sell units at the Net Asset Value (NAV), which is declared daily.
It have a fixed maturity period. It has fixed capital commencement from investors, means, they raise specific amount of capital during a limited fundraising period.
Evergreen funds are a type of investment vehicle that allows investors to make long-term investments in private companies. Unlike traditional private funds, which typically have a fixed lifespan of approximately 10 years, evergreen funds do not have a fixed end date.
CATEGORY OF AIF & ITS CRITERIA
Category I AIF Category I AIFs is one of the broad categories of AIF that invest in start-ups, SMEs and socially and economically viable projects and have different types of funds. They are;
1. Venture Capital Funds.
2. Infrastructure Funds.
4. Social Venture Funds.
1. Venture capital funds
Who seek private equity stakes in start-ups and small- to medium-sized enterprises with strong growth potential. These investments are generally characterized as very high-risk/high-return opportunities.
2. Infrastructure funds
Is a privately offered or publicly listed fund that invests directly or indirectly in infrastructure and associated industries. Examples of direct
It refers to a money pool created by high net-worth individuals or companies (generally called as angel investors), for investing in business start ups. They are a sub-category of venture capital funds with strict focus on startups, while venture capital funds generally invest at a later stage of development of the investee company.
4. Social venture Funds
To provide seed-funding investment, usually in a for-profit social enterprise, in return to achieve an outsized gain in financial return while delivering social impact to the world.
CATEGORY-II AIF Under this category, funds that are invested in equity securities and debt securities are included. Those funds not already under Category-I and III respectively are also included. No concession is given by the government for any investment made for Category-II AIFS.
Examples of this category are as follows:
3. Private Equity Funds
A FOF aims at diversifying the risk of a single fund by investing in several types of funds. An investor with limited capital can invest in one FOF and get a diversified portfolio consisting of, for example, bonds, gold, equity, and debt
A debt fund is a that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. That offer capital appreciation. Debt funds are also referred to as Income Funds or Bond Funds.
3. Private Equity Funds
A private equity fund (abbreviated as PE fund) is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity.
Category-III AIFs are those funds which give returns under a short period of time. These funds use complex and diverse trading strategies to achieve their goals. There is no known concession or incentive given towards these funds specifically by the government. Examples of this category are as follows:
2. Private Investment in Public Equity Funds
A Hedge fund is a pooled investment fund that holds liquid assets and that makes use of complex trading and risk management techniques to improve investment performance and secure returns from market risk.
Private investment in public equity (PIPE) is when an institutional or an accredited investor buys stock directly from a public company below market price. Because they have less stringent regulatory requirements than public offerings, PIPEs save companies time and money and raise funds more quickly.
HOW PRIVATE EQUITY FUNDS WORK?
HOW PRIVATE EQUITY FUNDS MAKE MONEY?
SEBI AIF REGULATIONS,2012
Structure And Stakeholders of AIF
Registration process of AIF
GRANT OF CERTIFICATE OF REGISTRATION
Taxation of Alternative Investment Funds(category Wise)
Tax Status of Category -3 AIF
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Readers should treat this as a tax and compliance update, not as personal advice.
This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.