Alternative investment funds, a fund that is known for capital investments in non-traditional assets such as private equity of startups, debt funds, real estate etc is a very fruitful area of investment for High Net Worth individuals. But what is the average AIF returns across different categories?
Let’s find out the income you can generate by investing in the Alternative Investment Funds products.
Alternative Investment Funds Returns India
No doubt every investment product comes up with its own risk and return. When considering the AIF returns one can capitalize their investment many times by choosing the right type of category and the product.
The high return percentage in AIF products has attracted many investors in the last few years and as per the latest data of SEBI, the investors in alternative investment funds increased by the 27% growth in the commitments raised between December 2020 and December 2021.
The category 2 AIF contributes a huge 82% of all the commitments while category 3 helps to raise 10% and the AIF category 1 contributes 8% of the commitments respectively.
Are you looking to invest in alternative investment funds but unsure about the returns you can get from their products? In this article, we are going to look at the returns you can get by investing in different AIF products.
1. Hedge funds
Hedge funds use complex investment strategies to invest in high-risk but at the same time high returns assets. Generally, the investments are made in regular securities as well as listed and unlisted derivatives. An investor has to invest a minimum of ₹ 1 crore while the entire corpus of the fund should at least be ₹ 20 crores.
When it comes to the returns, hedge funds tend to give high returns as they are a lot riskier too. On average, Hedge funds in India can give a return of up to 15%.
2. Venture Capital Funds
The next AIF product involves investments in the private ownership of startup companies with high growth potential. The returns on it depend on how the company grows with time and it could turn out to be like tossing a coin if the investments are made without proper research.
As per the data, VCF is a major source of funding for emerging startup companies. It contributed a major chunk to the raise of the startup capital. On average, a VCF can yield a return of 25%-30% per year.
3. Fund of Funds
This involves investing in the portfolio of other investors and getting returns from the profits they make. This is considered a relatively safer investment model since the AIF that is investing relies on the expertise and experience of another AIF.
The returns on FoF varies as per the time period and for a time period of at least 3 years, the returns an FoF gives is up to 4%.
4. Infrastructure funds
Infrastructure funds involve investing in infrastructural projects such as Railways, Roadways, Waterways, communication assets and so on and make heavy returns from these investments.
The immediate benefit they get is tax exemption as the government grants them a pass-through status and the taxes are levied only on the capital gain on an individual level.
When it comes to returns on these projects, Infrastructure funds rule the charts with an average annual return of 75%. This has been made possible only by the government paradigm shift as it has started to pay more attention.
5. Debt funds
Under this product type, the investments are made into the debt securities of both listed and unlisted companies with high potential. However, the returns in this Alternative investment funds product is not guaranteed as it fluctuates with the change in the rate of interest.
The returns in debt funds are inversely proportional to the rate of interest. Low interest in the economy brings higher returns and vice-versa.
6. Private Equity Funds
When an AIF invests in the shares of unlisted private companies, the investment is categorized under category 2 AIF and these funds are known as private equity funds. This gives the investors ownership of the company at a very early stage.
Over a period of 20-years that ended in June 2020, Private Equity funds made an annual average return of 10.48%.
7. Private investment in public equity (PIPE)
Under this investment model, private investors purchase the equity ownership of the companies that have already been traded on an exchange at a discounted rate.
The average annual return on a PIPE investment is 12.7% when the investors buy and hold the shares for a significant amount of time. The returns get lower if they decided to sell the shares immediately.
Here is the complete summary of AIF returns of different products:
Even though no investment is free of risk, Alternative investment funds somewhat minimize it by investing in a wide range of assets, mostly free of market volatility. If we talk about the returns over these less risky investments, they seem to offer pretty handy returns on most of the alternative investment funds products.
With the change in the government’s approach, the infrastructure funds have started to reap bigger awards while the Hedge funds and Venture Capital funds aren’t too far behind in terms of producing high returns.
If you are an investor looking to invest in alternative investment funds based on their returns, we hope we helped you make your mind about which AIF product you can invest in to maximize your profit with minimizing your risks. You can also check the list of the best AIF in India to kickstart your investment journey with them.
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