FAqs

What is AIF?

The term "alternative investment fund" refers to the collection of pooled investment funds that infuse in hedge funds, private equity, venture capital, and other investment types. An Alternative Investment Fund can be established through a company or a Limited Liability Partnership (LLP).

Types of Alternative Investment Funds (AIF)

You can better understand AIF by learning about its categories. AIF is put into three categories, as per the Securities and Exchange Board of India (SEBI). Below are those categories:
Category 1: Under this category, the AIF can invest in SMEs, start-ups, and new economically viable corporations with high growth potential. The different funds in this category include: ∙Infrastructure fund: These invest in companies engaged in infrastructural works like constructing airports, railroads, etc. ∙Venture Capital Funds (VCF): The fund invests money in promising entrepreneurial businesses that need large amounts of capital. ∙Angel funds: It invests in new-age start-ups that do not receive investment from VCF. Each angel fund investor allocates a minimum of Rs 25 lakh. ∙Social venture fund: The fund puts money into businesses that come under philanthropic activities. They aim to bring a change in society through investments.

Category 2: Funds do not use leverage for any reason other than to cover operational needs that do not fall under categories 1 and 3. Below are the funds under this category:
∙Debt funds: These funds invest in the debt securities of unlisted companies that the fund believes follow good governance models and have good growth potential.
∙Funds of funds: Under this option, the money goes into other alternative investment funds.
∙Private equity fund: Private equity funds invest in unlisted businesses that face problems raising capital by issuing debt and equity instruments.

Category 3: Funds that engage in many complex trading techniques, for example, investing in listed or unlisted derivatives. Below are the fundsunder this category:
∙Private Investment in Public Equity Fund (PEF): These funds invest in public firms by buying their shares at discounted prices.
∙Hedge funds: They collect money from investors and corporations to invest in equity and debt markets both on the domestic and international levels. These schemes follow an aggressive investment strategy to provide a higher return to their investors.

Who can invest in an AIF?

Below are the criteria for AIF investing:

• Indian residents, NRIs, and foreign nationals can invest in AIFs.
• The minimum investment limit is Rs 1 crore for investors. For directors, employees, and fund managers, the minimum limit is Rs 25 lakh.
• Most AIFs have a minimum lock-in of three years.
• The number of investors in every scheme is restricted to 100. For angel funds, the number of investors goes up to 49.

Why invest in AIFs?

Below are some benefits of investing in AIFs:

1. Diversification: Diversification is key for every investor. It is even more crucial for HNIs who have large ticket sizes. AIF allows investors to diversify their portfolios. They act as a cushion in times of market volatility.
2. High returns: AIFs can deliver higher returns to investors compared to other options. The massive pooled amount allows fund managers to prepare flexible strategies for maximizing returns.
3. Low volatility: AIFs are unlinked with the stock market. Therefore, the volatility is less in these funds - if you compare it with traditional equity investment (obviously, not without the risk).

Tax benefits of AIFs

Alternative investments offer significant tax advantages. Because of the structure of alternative funds, you get to keep more of the profit made. The AIF taxation will depend on and vary according to the category. For example, for categories 1 & 2, there is a pass-through status. It means the income (or loss) generated by the fund will be taxed at the investor's hand and not by the fund business. In short, under these two categories, you need to pay capital gains tax on profits made. For Category 3, different rates are applicable depending on profit type.

Portfolio Management Services-FAQs

What is Portfolio Management Services (PMS)?

Portfolio Management Services (PMS), service offered by the Portfolio Manager, is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives. When you invest in PMS, you own individual securities unlike a mutual fund investor, who owns units of the fund. You have the freedom and flexibility to tailor your portfolio to address personal preferences and financial goals. Although portfolio managers may oversee hundreds of portfolios, your account may be unique.

Discretionary:

Under these services, the choice as well as the timings of the investment decisions rest solely with the Portfolio Manager.

Non Discretionary

Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest solely with the Investor. However the execution of trade is done by the portfolio manager.

Advisory

Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the execution of the investment decisions rest solely with the Investor. Note: In India majority of Portfolio Managers offer Discretionary Services.

Who is an ideal PMS investor?

The Investment solutions provided by PMS cater to a niche segment of clients. The clients can be Individuals or Institutions entities with high net worth. The offerings are usually ideal for investors: who are looking to invest in asset classes like equity, fixed income, structured products etc ,who desire personalised investment solutions ,who desire long-term wealth creation ,who appreciate a high level of service.

What are the modes through which I can make investments in PMS?

Apart from cash, the client can also hand over an existing portfolio of stocks, bonds or mutual funds to a Portfolio Manager that could be revamped to suit his profile. However the Portfolio Manager may at his own sole discretion sell the said existing securities in favour of fresh investments.

What is the tax treatment in PMS investment?

The tax liability of a PMS investor would remain the same as if the investor is accessing the capital market directly. However, the investor should consult his tax advisor for the same. The Portfolio Manager ideally provides audited statement of accounts at the end of the financial year to aid the investor in assessing his/ her tax liabilities.

What are the benefits of PMS?

Professional Management:

The service provides professional management of portfolios with the objective of delivering consistent long-term performance while controlling risk.

Continuous Monitoring:

It is important to recognise that portfolios need to be constantly monitored and periodic changes made to optimise the results.

Risk Control :

A research team responsible for establishing the client's investment strategy and providing the PMS provider real time information to support it, backs any firm's portfolio managers.

Hassle Free Operation :

Portfolio Management Service provider gives the client a customised service. The company takes care of all the administrative aspects of the client's portfolio with a periodic reporting (usually daily) on the overall status of the portfolio and performance.

Flexibility :

The Portfolio Manager has fair amount of flexibility in terms of holding cash (can go up to 100% also depending on the market conditions). He can create a reasonable concentration in the investor portfolios by investing disproportionate amounts in favour of compelling opportunities.

Transparency :

PMS provide comprehensive communications and performance reporting. Investors will get regular statements and updates from the firm. Web-enabled access will ensure that client is just a click away from all information relating to his investment. Your account statements will give you a complete picture of which individual securities you hold, as well as the number of shares you own. It will also usually provide:

the current value of the securities you own;
the cost basis of each security;
details of account activity (such as purchases, sales and dividends paid out or reinvested);
your portfolio's asset allocation;
your portfolio's performance in comparison to a benchmark;
market commentary from your Portfolio Manager

Customised Advice :

PMS give select clients the benefit of tailor made investment advice designed to achieve his financial objectives. It can be structured to automatically exclude investments you may own in another account or investments you would prefer not to own. For example, if you are a long-term employee in a company and you have acquired concentrated stock positions over the years and have become over exposed to few company's stock, a separately managed account provides you with the ability to exclude that stock from your portfolio.

Who can invest in PMS?

Individuals and Non-Individuals such as HUFs, partnerships firms, sole proprietorship firms and Body Corporate.

Are there risks associated with PMS investments?

Yes. All investments involve a certain amount of risk, including the possible erosion of the principal amount invested, which varies depending on the security selected. For example, investments in small and mid-sized companies tend to involve more risk than investments in larger companies.