AIFs are private pooled investments that collect funds from investors, either Indian or foreign, for specific investment strategies. These are regulated by the Securities and Exchange Board of India (SEBI) and differ from mutual funds and collective investment schemes.
The different types of AIFs are; Category I AIFs, Category II AIFs and Category III AIFs.
1. Investment Needs- One needs to decide if one is searching for income, capital growth, or a combination of the two. Objectives should align with the strategy of the fund. Knowing investment needs is very important.
Different AIFs have different risks and liquidity levels. Therefore, one should choose a fund that matches his/her risk tolerance and liquidity needs.
The expertise of a fund manager plays an important role in AIF performance. One must seek managers with a proven track record, sound strategies, and strong market experience.
Before investing, one should go through the private placement memorandum and related documents. These give details on the fund's strategy, risks, fees, and operational rules.
Alternative Investment Funds (AIFs) exhibit distinct tax structures. Category I and II funds typically operate as pass-through entities, where income is taxed directly in the hands of investors. In contrast, Category III funds are taxed at the fund level.
