Alternate Investment Options

and Products
 Outline
• Asset Class (New • Other Alternative
Class) Investment Options
• Types of Financial • Oxane Partners
Products  What is their business
• Alternative Services offered
Investment Funds  Comparison with their
competitors
 Structure
• Career opportunities and
 Characteristics role in AI
 Regulatory
guidelines
 Comparison with
MF
 Target investors
 Categories of AIF
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 Size of the industry
 Asset Class
Asset Mix

Fixed Alternate
Equity Commodities Real Estate Investment
Income Options
Types of Financial Products
Types of
financial
products

Traditional Non- Traditional

Alternate
Equity
Investment Fund

Real Estate
Debt
Investment Trust

Infra Investment
Trust

Misc
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 Alternative Investment

 An alternative investment is a financial asset that does not

fall into one of the conventional equity/income/cash
categories.
 Private equity or venture capital, hedge funds, real
property, commodities, and tangible assets are all
examples of alternative investments.
 Most alternative investments are unregulated by the SEBI
and tend to be somewhat illiquid.
 Alternative investments have become feasible to retail
investors via alt funds, ETFs and mutual funds.

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Key Characteristics of Alternative Investments

• high minimum investments and fee structures,

• less opportunity to publish verifiable performance
data and advertise to potential investors.
• transaction costs are typically lower than those of
conventional assets, due to lower levels of turnover.
• illiquid and investors may have difficulty even
valuing some of the more unique alternative
investments, since the assets, and transactions
involving them, are often rare.

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 1. Alternate Investment Fund
• Alternative Investment Fund or AIF means any fund established or
incorporated in India which is a privately pooled investment vehicle which
collects funds from sophisticated investors, whether Indian or foreign, for
investing it in accordance with a defined investment policy for the benefit of
its investors.
• According to the Securities and Exchange Board of India (Alternative
Investment Funds) Regulations, 2012 for the registration of an Alternative
Investment Fund.
• AIF have been alternative source of capital for Indian businesses
• Private funds have been providing capital to various businesses across
various stages of life.
• Unlike traditional sources of finance who have limited risk appetite and more
restrained due to macro conditions.

• More than 500 AIFs, which are registered with SEBI. Globally there are 20k
plus AIFs available.
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 Structure of AIF

Sponsors/
Trustee/ LLP/
company

Investors AIF RTA/

Custodians

Portfolio
companies 8
 Regulatory guidelines
• Minimum Investments- 1 crore
• Sponsor contribution to fund- 2.5% of fund size or 5 cr which ever is
less. Higher for Cat 3 is 10 cr or 5% whichever s lesser
• Minimum fund corpus while launching is 20 cr
• Cat 1 and 2 invest in unlisted securities. Cat 3 is purely listed sec
• Cat 1 nd 2 have minimum 3 yrs tenure. Close ended fund. Cat 3 is
open ended
• Cat 1 and 2 can leverage for max thirty day and not more than 4
times in a year. Cat 3 doesn't have these restrictions
• Cat 1 and 2 single party exposure is upto 25% and cat 3 is upto 10%.
• Any changes in the objective, philosophy, expenses. Etc require at
least 75% investors approval.

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 Categories of AIFs
As per this classification, there are broadly three kinds of AIFs:
1.Category I
This category of funds is beneficial for the economic growth of
India. They include Infrastructure funds, VC funds, and Start-up
funds.

2.Category II
This category includes PE funds, real estate funds, and funds for
distressed assets that do not require leverage or borrowing.

3.Category III
These are funds which require meticulous strategies, leverage,
and trading—for example, PIPE funds, hedge funds, and other 10
 Who is eligible to invest in AIF?

• Resident Indian individuals, Non-Resident Indians (NRIs) and

foreign nationals can invest in alternative investment funds.
• Also, there is a cap on investment by each investor. The
minimum investment permitted is INR 1 crore. However, for
directors, employees and fund managers of the AIF, the
minimum amount is INR 25 lakhs.
• Additionally, the funds restrict the number of investors per
scheme to 1,000. However, for Angel funds, it is 49.
• Additionally, it is essential to know that AIFs have a minimum
lock-in of three years. Category I and II are close-ended funds,
while category III can be either close or open-ended.
• Therefore, investors who are willing to diversify their
investment portfolio by fulfilling all the above requirements 11
What are the taxation rules for AIFs?

• Alternative Investment Funds are privately pooled investment

vehicles. They collect money from sophisticated private
investors. Following are the taxation rules of AIFs for each
category:
• Category I and Category II are pass-through vehicles. The fund
doesn’t have to pay any tax on its earnings. However, the
investors have to pay the tax at their respective tax slabs. If
the fund has any capital gains on stocks, then the investors
have to pay 15% or 10% depending on the holding period.
• Category III AIFs are taxable at the highest income tax slab
level at the fund level. The returns given to investors are after
deducting the tax.
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 Why should you invest in an AIF?

Following are the reasons why one should invest in AIF:

 Diversification: AIF is a good option for portfolio diversification. The
performance of AIFs does not depend on the performance of the stock
market. With AIF, the investor’s portfolio becomes more resilient and
less volatile to market fluctuations.
 Volatility: Most alternative investments are comparatively less volatile
than stocks. Hence these are a good choice of investment for those
who are looking for portfolio stability.
 Better Returns: Alternative investments offer significant returns in
comparison to other traditional investments.
 Passive Income: AIFs can be a good source of passive income for
investors.

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Some of the borrowers through AIF route are:

• Lendingkart PVt Ltd.

• Hella Infra solutions Pvt Ltd.
• Kogta Financials
• Maduar Microfinance
• Zetwerk
• Oxygzo
• Fivestar Business
• SK finance
• Asirvad Microfinance
• Fusin Microfinance
• upGrad
• Slice
• Udaan
• KrazyBee
• Lead
• Cars24
• Stanza Living
• Atomberg
 Pros and cons of AIF
• Pros
 Counterweight to conventional assets
 Portfolio diversification
 Inflation hedge
 High rewards
• Cons
 Difficult to value
 Illiquid
 Unregulated
 High-risk
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 Comparison AIF and MF
AIF MF
Structure It can be a trustee/ LLP/ It is set u as a trust, which has
company which is sponsors, trustee and AMC
incorporated in India
Fund types Cat 1 and 2 are closed ended Has both close and open
and Cat 3 ahs both open and ended
close ended
Minimum corpus Min 20 cr at the time of launch Min 20 cr for debt and bal
funds. And 10 cr for others.
Avg AUM should be 20 cr on
half yearly basis. If less than
the scheme needs to be
closed down.
Minimum investment 1 cr except Angel funds can 500 in most schemes. Some
be 25 lacs. Employees/ selected ETFs and others have
dir/FMs can have 25 lacs 100 rs.
Investment by sponsors Cat 1 and 2 -2.5% of fund size AMC or sponsor invest 1% or
or 5 cr whichever is less. Cat 3 50 lacs
– 5% or 10 cr whichever is less
Issuance of units Through private placement Through public issue
Minimum tenure 3 years no
No. of investors Not more than 1000 No limit
Regulation Lightly touched due to Stringent guidelines for 16
sophisticated investors benefit of common investors
 AIF Risk-Return continuum

AIF-Equity/
R Highes
Realty
E t
T
U AIF-VC
R debt/Hybrid/
N Moder Structured
AA/AAA/
S ate Tax free
FDs/ bonds
NSC/
GSecs
Low Low Moderate
Highest RISK

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 AIF – Asset Class investment
Asset Class

4%
20%
Equity
Debt
Hybrid
77%

Source: KPMG

Most funds are equity funds

Among the debt funds. A large portion is invested in real estate
based AIFs
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 Target Investors

Institutional Retail Foreign

 Bank
Treasuries
HNI
NBFCs FPI in Cat 3
UHNI
Insurance Non FPI in all
MFO
Companies cat
SFO
Pension
funds
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 Size of AIF in India
Category I Amount in rs. Crore
Commitments Funds
Raised Raised Investments Made
Infrastructure Fund
12,202.41 8,819.26 7,624.45
Social Venture Fund
3,691.07 2,463.47 1,105.55
Venture Capital Fund
28,070.92 13,015.11 9,816.98
SME Fund
595.13 71.83 64.95
Category I Total
44,559.53 24,369.67 18,611.93

Category II
3,56,626.65 1,61,973.47 1,40,113.93
Category III
50,029.83 43,671.51 41,757.64

Grand Total
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Source: SEBI 4,51,216.01 2,30,014.65 2,00,483.50
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 Top AIFs in India

Rank AIFs Strategy

1 Abakkus Asset Manager
2 Roha Asset Managers
3 Girik Advisors
4 Vishuddha Capital
5 Ampersand Capital
6 Accuracap Tech
7 Proalpha Capital
Carnelian Asset
8 Capital Compounder Fund
Management
9 Alchemy Capital
10 TCG Advisory Services
Emerging Opportunities Fund
Roha Emerging Companies Fund
Girik Multicap Growth Equity Fund
India Value and Growth Fund
Growth Opportuities Fund Scheme
Vectra Fund
QG Dynamic Equity Fund (QGD)
Leaders of Tomorrow (ALOT)
SMF Disruption Fund

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 2. Real Estate
• Real- true
• Estate- Status
• Real Estate- True status
• Land – True financial status
• Types of real estate
1. Land
2. Residential
3. Commercial
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 3. REIT
• Options available to invest in real estate
1. Lands and buildings
2. Stocks of real estate companies
3. Invest via Real Estate Investment Trusts (REITs)
REIT is an entity, a trust that owns operates or
finances income-generated real estate
$2 trillion global market with Asia contributing $280
bn
Should be as an asset- Invest 5-10% of portfolio.
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 How REIT works?
Institutions
They work in similar
way to Mutual
Funds where in
they receive money
from different
investors; which is
pooling of money REIT
from different
investors.
Individuals Companies

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• Buying or renting or
selling commercial
properties like;
offices, hotels, Hotels
hospitals and malls
• Profits made by
Buy and
buying and selling is
Buy and rent
given in the form rent
dividend to investors
• This is calledMalls
as REIT Offices
equity REIT

Buy and
Buy and
rent
rent

Hospitals
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 Mortgage REIT
• It loan out money for mortgagees tp property
owners or developers or purchase mortgages.
Who then invest in real estate.
• It receives interest
Also classified as per assets:
Retail
Residential
Office
Healthcare
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 REIT in India
• 2007 issued by SEBI
• Can be set up as trust and not as company or LLP
• Tradeable on Indian stock exchange
• Invest – 80% in rent generating commercial properties
• 20% in buying stocks, giving loans or investing in an under-
construction property
• Mandatory distribution of 90% of the net distributable cash
earning
• Taxation exemption on rental income, leasing, interests and
dividends. This reduces tax liability and generate higher
returns for investors
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 Class of returns
• Distributable income- dividends, interests
and return of capital
• Capital Appreciation – rise or fall in the
profit
value of NAV in the stock markets
Rent

interest REIT Distribution of

90% cash flow

Expenses- mgmt. fees,

maintenance, 29
depreciation
• Distribution History of Embassy Office Park
REIT
 Interest payment
 Dividend
 Amortization of SPV debt- subsidiary of REIT
whish it had taken from parent company
 Capital Gains

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 Advantages of REIT
• Regular income generation
• Relatively low investing threshold
• Professional Management fees
• Capital Gains
• Portfolio diversification

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 Limitations
• Few options- only 3
• Taxation – interest and dividend -30% slab
large bearing
• Impact of economic calamities

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 Taxation structure

• All interest income is taxable as per tax slab

For eg
Gross int 100
Income tax slab 30%
Net return 70
• Dividend income – If REIT SPV had opted for tax concession – taxed as
per income tax slab
If had not opted for tax concession- dividend are tax free for investors
• Amortization of SPV- non taxable
• Capital Gain – Shor term (less than 3 years)– Tax as per income tax
slab
Long term (more than or equal to 3 years)- 20% (with indexation benefit)

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 4. INVIT
• Infrastructure Investment Trust (InvIT)
• Infrastructure projects
 Roadways
 Highways
 Electricity generation
 Irrigation projects
 Communications
Funded by government or caproates
No retail investment
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 What are InvITs
• Eg 1000 cr bridge cost by company
• Travelling time is reduced
• Govt allows 50 rs /trip from truck
• To get funding of 1000 cr
• Company borrows money
• So company approaches InvIT which is
Trusts that are sponsored by infrastructure developers that own, operate
and invest in completed as under-construction infra projects.
• 10cr units of 100 rs each to total 1000 cr through IPO for general public
• Utilize for other projects
• Tax benefits for trust
• Recyclability of capital helps to fund more infra projects

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• It is like a MF
• Sponsor, trustee, managers, SPV for each project
• Regulated by SEBI
• 5 main heads are:
1. Energy
2. Transport and logistics
3. Communication
4. Social and commercial infra
5. Water and sanitation
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• Funding options
Public listed
Privately listed –more
• Returns
Net distribution cash flow-Net income after deduction of expenses
90% of NDCF to unit holders
As dividends
As interest
Through buy back of units
• IRB InvIt returns
Interest payment- 6.5-8.5% pa
Returning some of the capital- 2-3.4 rs /unit
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 Taxation rule of InvIT
• All interest income is taxable as per tax slab
For eg
Gross int 100
Income tax slab 30%
Net return 70
• Dividend income – If REIT SPV had opted for tax concession –
taxed as per income tax slab
If had not opted for tax concession- dividend are tax free for investors
• Capital Gain – Shor term (less than 3 years)– Short term tax i.e.
15%
Long term (more than or equal to 3 years)- 10% tax over 1 lakh

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 Advantages
• Tradeable
• Diversification
• Regular income
• Projects are professionally managed

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 Limitations
• Cash flows unpredictable- covid, natural
calamities, tariff changes
• Limited choices- 15 InvIT- India Grid trust,
India infra Trust, India Highway Concessior
trust
• No INVIT dedicated MFs

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 5. Commodities Market

• Regulated by Forward Market Commission under GoI

• Exchanges – NMCEX, NCDEX, MCX, ICEX
• India Commodities Exchanges are No. 1 in Gold
trading, No. 2 in Silver and No. 3 in Crude Oil, Gaur and
Chana
• Major commodities- Agri and Non-Agri, MFs ETFs
• Players – Brokers, corporates, individuals, Jewelers and
diamond merchants, Farmers, Speculators and
Arbitragers

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 Misc
• Art
• Philately
• Coin collection
• Antique items
• Paintings
• Yatch
• Personal jets

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 Career opportunities and role in AI
products
• The number of registered AIF players has increased from 21 in 2012 to
well over 500 as of now.
• Lot of start ups have entered also traditional companies too have
accepted these products and added in their line of business.
• Career will be uniquely placed.
• Millennial generation can reach the affluent class at a faster pace with
the technology back-up.
• Opportunities in research, fund management, trading and product
development.
• Develop skills in investment and economic analysis, risk management,
market structures and trading patterns of liquid as well as illiquid
securities.
• Clients are available at different time horizon across the globe

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THANK YOU FOR KIND ATTENTION

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