Goel says that compared to other vehicles like mutual funds and PMS, these vehicles have their own advantages and that is why we have seen AIF as an industry grow quite well in the last eight to ten years with commitments of almost Rs 6-7 lakh crore and AUM of close to Rs 4 lakh crore at this point in time.
How risky are alternate investment funds? What exactly do you mean and how is it different from the traditional investment options that we are seeing now?
The alternate investment fund is a separate vehicle that Sebi has created for large investors like HNIs, family offices and for institutions. These are private capital which goes into pooled investments. There are three different kinds of AIFs. Category one are those funds which can have an impact on the broader economy. These could be venture capital funds, these could be social funds, these could be SME or infrastructure funds.
Category two is more unlisted investment, basically whether it is unlisted equity or unlisted debt.
Category three is primarily as of now being used for long-only equity and long-shot strategies. Basically, this works like a hedge fund. One can do all kinds of complex or more exotic strategies here. One can use leverage. So, these are the three different kinds of AIF products. Depending on the investor’s risk return profile, depending on what he is looking forward to, he can choose to invest in these products.
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Compared to other vehicles like mutual funds and PMS, these vehicles have their own advantages and that is why we have seen AIF as an industry grow quite well in the last eight to ten years with commitments of almost Rs 6-7 lakh crores and AUM of close to Rs 4 lakh crore at this point in time.The kind of funds which are available in the market right now, are they category wise specialised or themed or is it like a multi-asset allocation fund that we see?
At Nippon India Equity AIF, we have eight long-only equity AIFs currently. Of course, in these one can do a mix of a 100% listed equity, one can have some proportion of unlisted equity, then of course, most of them have their own specific investment themes that these funds are investing and most of them are close-ended with five, six, seven years of maturity. So, depending on the investment horizon, depending on the appetite of the investor in terms of what themes, what kinds of niche areas of the economy the investor wants to invest in, he can choose the product.
A lot of super rich HNIs are invested in AIFs. Do you think a normal retail investor can also make this a part of their portfolio? What is the minimum ticket price one should have to invest in these funds?
The current minimum ticket size is Rs 1 crore and, of course, there is discussion going on whether this will be taken upwards but as of now, it is Rs 1 crore which can be paid either upfront or can be paid through drawdowns. Typically the option that we give to our investors is let us say three drawdowns where they give 25% upfront and then let us say 30-35% over a period of six to nine months. Also, there are attractive SIP plans where investors can give 25-30% upfront and the rest can be done over a period of 6 to 18 months with a monthly payment plan.
What are the risks involved in AIFs?
Every product comes with its own risk in terms of AIFs, of course, in terms of what is the mandate, what is the asset class that one is investing in. If it is long-only equity, then it comes up with the risk associated with equity investment. If you are betting on a specific theme, that theme could have the risk in terms of the theme playing out or not.
In terms of other risks, they are similar to what we have in a mutual fund or in a PMS. If you are going for a long-shot AIF, of course, then you are taking the risk of leverage, you are going long and short and then you have to manage the risk when it comes to leverage. When it comes to unlisted instruments, let us say unlisted equity or unlisted debt, the risk is liquidity. We have to manage the risk in terms of the manager being able to liquidate the investment within a certain period of time or within the tenure of the fund. These are some of the major risks associated with these investments.