A growth story of alternative investment funds in Indian capital markets

Abstract

An Alternative Investment Fund (AIF) is a privately pooled investment vehicle and includes any fund established and incorporated in India. This vehicle collects funds from Indian and Foreign investors and has a defined investment policy. In recent years, prominent institutional and high net-worth individuals have targeted investment in multi-asset portfolios. AIFs provide them with various investment opportunities considering the long-term nature of the investment. The origins of AIFs can be found in the act passed by SEBI in 1996 to encourage investment in early-stage companies in India (VCF Regulations). Still, at a later stage, even private equity and real estate firms started using this path, which was not helpful for them, given their unique business objectives. Hence, the need arose to regulate the different structures of funds, and in 2011 SEBI published a regulatory framework for AIFs. The number of AIFs launched is continuously increasing in India. The number of newly launched AIFs has doubled in the last 6-7 years. In 2021, this number was 122; in 2014, it was 35 in all categories.