ALTERNATIVE INVESTMENT FUND (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     20th December 2023        

Context: Reserve Bank of India (RBI) has  issued an advisory on Tuesday to banks and financial companies to curb the evergreening of loans and misuse of they alternative investment funds AIF route

Alternative investment funds (AIF)

  • About: Alternative Investment Fund or AIF is any fund established in India which is a privately pooled investment vehicle that collects funds from sophisticated investors, both Indian or foreign, for investing.

o AIF does not include funds covered under Indian market regulator SEBI’s mutual fund regulations.

  • Categorization:

o Category I AIFs: They include venture capital funds like angel funds, SME Funds, social venture funds, infrastructure funds and such other AIFs as may be specified.

o Category II AIFs are those which are not classified under Category I or Category III. They do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the regulations

o Category III AIFs are funds which employ complex or diverse trading strategies and may employ leverage including through investment in listed or unlisted derivatives hedge funds, PIPE Funds, etc.

  • Salient features:

o Category I and II AIFs are required to be close ended and have a minimum tenure of three years.

o An AIF under the SEBI regulations can be incorporated in the form of a trust or a company or a limited liability partnership or a body corporate.

o No scheme of an AIF, with the exception of angel funds, shall have more than 1000 investors.

o Each scheme of an AIF shall have a corpus of at least twenty crore rupees. In case of an angel fund, it shall have a corpus of at least ten crore rupees.