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Investment in an AIF is essential for achieving long-term financial goals. The investment industry has experienced a significant rise, offering unique opportunities beyond traditional investments. An AIF is considered a valuable addition to an investor’s portfolio. The present blog discusses the benefits of making your life satisfactory through investing in an AIF.
Alternative investment funds (AIFs) are specialized investment vehicles that encompass assets like real estate, commodities, hedge funds, and private equity. They are emerging as a sought-after investment avenue that provides specialized opportunities to sophisticated investors and offers broader access to various assets, strategies, and other investments.
To tap into these lucrative opportunities, proper AIF registration is essential for securing a position in the growing market.
The investors benefitting from investments in AIF are individuals who wish to diversify their investment portfolio. Below is a list of some of the crucial investors benefitting from AIF investments:
Active Investors regularly seek to adjust and manage their portfolios. They enjoy managing their investment and are always looking for ways to invest in different assets and reduce the risk of loss. AIFs allow them access to invest in a variety of assets beyond regular stocks and bonds, like private companies, real estate, or commodities. AIFs also let them invest in unique or emerging markets that aren’t accessible through traditional investments.
Passive investors are those who prefer a relaxed approach to investing with minimal intervention. Unlike active investors, they don’t manage their portfolios regularly. They invest in funds that don’t require constant monitoring, like index funds or ETFs.
AIFs are designed to track large areas of alternative investments or use simple, hands-off strategies in sectors like real estate or infrastructure.
In the context of AIFS, retired or income-focused investors” are interested in options that provide reliable and regular returns rather than seeking high growth. AIFs that invest in these types of assets can provide a reliable stream of income without the need to sell investments or rely on unpredictable stock market gains.
High-net-worth individuals with substantial wealth are important players in the world of AIFs. They look for exclusive investment opportunities beyond traditional stocks and bonds that are not available to the general public. HNWIs are often willing to invest in AIFs like hedge funds and private equity, seeking higher returns with greater risk.
Institutional Investors are those who invest on behalf of their clients. This includes- pension funds, insurance companies, endowments, and foundations. Institutional investors spread their risk across alternative assets. This helps protect against market fluctuations in traditional investments. Institutional investors use their investment strategies to determine potential returns while managing the associated risks.
Long-term investors plan to hold their investments for an extended period of time. They invest in assets that will grow over time. Holding investments in private companies, new businesses, or real estate is the best option as they take time to grow in value, leading to a big gain in the future.
VCs are the investors who provide funding to startups & emerging companies with high growth potential. They spread the investment in many different startups to balance the risk. VCs are usually involved in an AIF focused on venture capital investments to increase their chances of earning returns.
Retail investors are individuals who invest in smaller amounts. They might use brokerage accounts or mutual funds to do this. Retail investors can benefit from AIFs through mutual funds or exchange-traded funds (ETFs) rather than investing in hedge funds, private equity, or real estate investments, which require more money.
Hedge fund investors are those investors who invest in hedge funds that use various strategies to try to achieve high returns. Investors who choose hedge funds are usually looking for higher profits and are okay with the risk and complexities involved. These funds try to make higher returns than traditional investments.
Investing in an AIF offers diverse benefits, ensuring the financial life of investment enthusiasts. The following are some of the benefits of investment in an AIF enhancing the financial satisfaction of the investors:
Alternative investment funds offer more stable returns even in volatile markets. Investors in AIF enjoy outsized returns in comparison to traditional investment avenues. Alternatively, real estate, infrastructure, and hedge fund investments tackle market turbulence to enhance investors’ portfolios.
Alternative investment funds are designed to encourage financial security by diversifying investors’ investment portfolios. They are keen on minimizing the chances of increasing risk to sense the growth of financial security and wealth among AIF investors.
The alternative investment fund generates passive income streams for investors, driving them to invest in assets like real estate and dividend-yielding stocks. The generation of passive income streams ultimately satisfies the daily expenses of managing alternative investments in India.
Alternative investment fund categories I and II offer various tax benefits to investors under the pass-through taxation regime. The income or loss incurred through AIFs is only taxed at the investors’ expense. Category III of AIFs is not given the pass-through tax status, which means the income incurred through AIFs will also be taxed at the expense of the fund business.
The alternative investment fund ensures diversification of investments for long-term financial goals like retirement. AIF investments ensure long-term financial well-being in correlation with traditional assets. It has a long-term investment horizon with an average duration of approximately 10 years.
The alternative investment fund offers diverse, socially responsible investment options that align with investors’ financial goals and values. Simply put, investing in an AIF offers better, exclusive opportunities for personal growth for investors. It also accelerates startups’ investment in the growing trend of AIFs.
Unlike traditional investment options, the alternative investment fund ensures that assets are accessible and liquid. It means that investors are flexible about accessing their investments and addressing unexpected expenses or opportunities (if any).
Investors in an AIF experience a professional management system headed by fund managers or investment experts with an in-depth understanding of the alternate asset market.
Investments in the best AIF secure growth prospects and wealth, satisfying investors’ lives. Various benefits that satisfy investors’ day-to-day existence are secured through investing in an AIF. Alternative fund investors flexibly diversify their alternative investment portfolios to attain the peace of mind and freedom that comes with it.
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Many factors, such as better returns, a defined professional management system, and the maintenance of asset accessibility and liquidity, drive investment in AIF. These are some of the reasons that attract most people to make investments.
Alternative investments offer better exposure to alternate assets and yield high returns, which is why AIFs are considered better than MFs (Mutual Funds).
According to SEBI, the risk involved in AIFs is comparatively higher than that of traditional investment avenues. However, an alternate investment made for a long period is considered a safe option as it offers higher returns and flexibility.
As of June 2024, alternate investments in top funds like Vivriti, Motilal Oswal, Alchemy, and Marcellus were considered the best options in India.
The main objective of alternative investment funds is to diversify the investment portfolio for better risk-adjusted returns over a long period.
Yes, any income earned by AIF (other than business income) is tax-free.
Yes, alternative investment funds are considered riskier and more volatile than traditional investment avenues like stocks, bonds, and mutual funds.
Asset illiquidity, higher risks, lack of transparency, and complexity are some of the disadvantages of alternative investments in India.
Alternative investment funds are considered the future of the modern investment landscape. The industry's instant growth and higher returns contribute around Rs. 8.3 trillion.
The dividend income earned from alternative investment funds is taxed based on the investor’s tax slab.
Some of the significant benefits investors enjoy when investing in alternate assets are stable returns, protection against volatility in the investment market, financial security, passive income streams, and tax exemption.
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