Types of Alternative Investment Funds

Equity Oriented

High Risk I High Return

Long Only Equity Funds in Listed Space - These funds aim to achieve long - term capital appreciation by primarily investing in the listed companies with some funds deploying up to max 20% exposure in un-listed space as well. Alternate Investment Funds platform is used for equity investments as it provides both operational ease as well as flexibility to the fund manager, to aim best potential returns. Draw-down structure makes it convenient for investors to invest a targeted sum over a planned and stipulated period and also gives fund manager a staggered approach to building and investment portfolio.

Long Only Equity Funds in Un-Listed Space - These funds aim to achieve long term capital appreciation by only investing in the unlisted securities of Indian companies. Funds in this space invest on the basis of conviction in the company’s sound business model. They do so, by investing in the units of venture capital funds, making private equity investments, Pre-IPO investments, investing in an unsubscribed portion of an IPO by entering into agreement with merchant banker. So, basically investments can be done at any stage of company’s life-cycle before it is listed in the equity market. Since by nature these investments are high risk, these funds are not allowed to use borrowing for leveraging, except to meet only temporary requirements. So, funds can borrow money only for 30 days and not on more than four occasions in a year and the borrowed amount must not be more than 10% of its investible funds. To control risk, these funds can engage in hedging.

Long - Short A fund with Equity Bias - Long/short funds deploy an investment strategy that works on hedge funds style of investing. Funds in this space maintain high net equity exposures and employ diverse trading and investing strategies. It involves buying equities that are expected to increase in value and short-selling equities that are expected to decrease in value. Since these funds control risk by way of hedging, these are allowed to borrow and leverage to enhance potential returns. Such structuring is designed to deliver return between debt & equity, closer to equity, with lower volatility and improved risk management. Since these funds maintain high net equity exposure, and so are meant for long term equity investors.

Debt Oriented

Moderate Risk I Moderate Return

Long Short Funds with Debt Bias - Long/short funds deploy an investment strategy that works on hedge funds style of investing. These funds maintain very low net equity exposure that is not more than 10% to 15% on the capital of 100 as the larger portion of capital is invested in debt and arbitrage opportunities. So, these funds are absolute return funds meant to deliver more than debt returns with low volatility and low correlation to equity markets. Because of low-risk nature, these funds are meant for low-risk investors who prefer low risk over high returns. Also, these funds are highly liquid and can be invested in with a short-term horizon. 

High Yield Credit Funds - These funds invest in the debt securities that present credit opportunities. This space covers fixed-income investments in between 2 extremes - very low yield Sovereign/AAA on one hand and very high yielding unrated/B-rated on the other hand. There are several companies with fundamentally sound business and great management control but because their credit rating is not high, their securities command high coupon rate. Credit rating is just the face of it and rating could depend upon many factors like size of business, company’s ageing etc. So, during its life cycle, visa Vis credit risk, some of these companies are undervalued and priced incorrectly owning to lower liquidity, limited understanding of business model and outdated credit appraisal methods. Such deserving companies are considered as credit opportunities.

High Yield Real Estate Funds - These funds are well-diversified portfolios of pure debt, and/or secured structured debt and/or mezzanine transactions. The endeavour of these funds is to deliver periodic cash flows and/or also strive for equity upside. Real estate sector has seen price and time correction over last more than 5 years, and the imminent slowdown in NBFC may disrupt the financing to real estate. So, this makes attractive possibilities of funding & investing opportunities to real estate at attractive IRRs across residential, commercial and mid-market segments. To control risks, these funds follow stringent due diligence and follow the multi-layered security mechanism. This involves a charge on underlying asset (land, building, receivables and/or units in a project), personal & corporate guarantees, additional collateral, strong clauses & veto rights. RERA brings in significant transparency and confidence in this sector.