Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Alternative Investment Funds Have Invested Over $10 Billion In India

Alternative Investment Funds, which pool in money from rich and sophisticated investors, have raised nearly Rs 100,000 crore since the regulator first allowed them six years ago.

Of this, they have invested about Rs 75,000 crore (about $10 billion) as of June, according to the data released by the regulator. Nearly half these investments came in 12 months through June.

The AIFs have so far received commitments of nearly Rs 1.8 lakh crore from investors. In the last one year, money raised by all classes of AIFs doubled, with an average commitment of nearly Rs 7,000 crore and monthly fundraise of over Rs 4,000 crore.

AIFs started operations in India in December 2012 after the Securities and Exchange Board of India brought in new regulations governing them that replaced the erstwhile venture capital regulations.

There were 456 AIFs registered with SEBI as of July 31, according to data with the regulator. SEBI regulations require AIFs to maintain a corpus of at least Rs 20 crore. The funds are raised from high-net-worth investors, the minimum ticket size being Rs 1 crore.

Capital raised by category-I AIFs comprising infrastructure, social venture, venture capital and SME funds has plateaued. The increase in investments is driven by Category-II funds including real estate and private equity funds as well as the ones that pool in money for distressed assets. These funds, which aren’t allowed to take leverage, have so far raised Rs 56,224 crore out of the total commitment of over Rs 1.13 lakh crore as of June 30.

Category-III AIFs have raised a little over Rs 30,100 crore. These includes hedge funds and private investment in public equity funds, among others. They use diverse or complex trading strategies and may use leverage, including through investment in listed or unlisted derivatives.

SEBI last year allowed these AIFs to invest in the commodity markets. The AIF participation in the commodity market is yet to pick up as the regulator is yet to finalise the custodian regulations for commodities.

AIFs were sitting on over Rs 22,700 crore in cash at the end of June. Though this is lower than the preceding quarter, it’s significant since these funds raised over Rs 12,300 crore during the period—accounting for 23 percent of the total funds raised. Category-II AIFs held 29 percent of the funds raised in cash.