The term "AIF Fund" refers to a group of pooled investment funds that invest in venture capital, private equity, hedge funds, controlled futures, and other types of investments.
AIFs are divided into three groups, according to the Securities and Exchange Board of India (SEBI):
This group includes funds that invest in start-ups, small and medium-sized companies (SMEs), and emerging businesses with strong growth potential and are deemed socially and economically viable. Since these ventures have a multiplier impact on the economy in terms of growth and job development, the government encourages and incentivizes investment in them. These funds have become a lifeline for already successful entrepreneurs in need of funding.
1. Funds in Category I include the following:
Venture Capital Fund (VCF) Venture Capital Funds invest in high-growth start-ups that are experiencing funding constraints in the early stages of their business and need funding to develop or expand their operations. Since it is difficult for new companies and entrepreneurs to raise funds via the stock markets, Venture Capital Funds have become the most popular choice for them.
VCFs pool money from individuals who wish to invest in projects as equity partners. They invest in a variety of startups based on their company profiles, asset size, and product development stage. Venture capital funds, unlike mutual funds and hedge funds, concentrate on early-stage investments. Each investor receives a proportional share of the company that the VCF has invested in, based on their investment.
VCFs are preferred by High Net Worth Investors (HNIs) looking for high-risk, high-return investments. Following the inclusion of VCFs in AIFs, HNIs from abroad can now invest in VCFs and contribute to the economy's growth.
Infrastructure Investment Fund (IF)
The fund invests in public assets such as road and rail networks, airports, and communication assets, among other things. Investors who are optimistic on future infrastructure growth will invest in the fund because the infrastructure sector has high entry barriers and low competition.
Infrastructure Fund investors should expect a mix of capital growth and dividend income as a result of their investment. When an Infrastructure Fund invests in projects that are socially beneficial and viable, the government can provide tax benefits.
Angel Investment Fund
This is a form of Venture Capital fund in which fund managers pool money from a number of “angel” investors to invest in early-stage startups. Investors receive dividends when new companies become profitable.
Units are given to angel investors in the case of Angel Funds. An "angel investor" is a person who wishes to invest in an angel fund and brings business management expertise to the table, thus leading the startup in the right direction. Because of the volatility of their development, these investors usually invest in companies that aren't funded by existing venture capital funds.
Fund for Social Entrepreneurship
Socially responsible investing has spawned the Social Venture Fund (SVF), which invests in businesses with a clear social conscience and a desire to have a positive impact on society.
These businesses are focused on making money while also addressing environmental and social problems. Despite the fact that it is a philanthropic investment, one should expect a return because the companies can still make money.
The Social Venture Fund usually invests in ventures that are focused in developed countries because they have a lot of room for development and social change. Such investments often carry the best management practices, innovations, and a wealth of expertise to the table, making it a win-win situation for all parties involved, including investors, businesses, and society.