Alternative Investment Funds (AIFs)

Current Context : The Reserve Bank of India (RBI) has released revised draft guidelines concerning investments made by Regulated Entities (REs) in Alternative Investment Funds (AIFs).

About

• Regulated Entities (REs): Financial institutions regulated by authorities like RBI, SEBI, IRDAI (e.g., Banks, NBFCs, Insurance Companies).
• REs ensure financial stability, regulatory compliance, and prevent financial crimes like fraud and money laundering.
• Alternative Investment Funds (AIFs): Privately pooled investment vehicles regulated by SEBI under the 2012 AIF Regulations.
• AIFs collect capital from high-net-worth and institutional investors, investing in various asset classes.
• AIFs can be set up as trusts, LLPs, companies, etc.

Categories of AIFs

• Category I: Invest in start-ups, SMEs, infrastructure, social ventures (e.g., Venture Capital Funds, Angel Funds).
• Category II: PE Funds, Debt Funds, Real Estate Funds; cannot use leverage (except operationally).
• Category III: Hedge Funds, PIPE Funds; can use complex strategies and leverage; can be open or close-ended.