Wine & Art… Alternative Investments?!
World over, investments are usually made in shares, stocks, bonds, fixed deposits and or real estate. This is particularly true with reference to the Indian investment scenario. While there are stringent regulations for investments in mutual funds and collective investment schemes, there was hardly any regulation to address and protect interests of venture capitalists and private equity investors especially in public institutions, real estate and related activities.
Did you know?
The first private Venture Capital Fund (VC Fund) was sponsored by Credit Capital Finance Corporation (CFC) and promoted by Bank of India, Asian Development Bank, and the Commonwealth Development Corporation.
With a view to regulate, protect interests and provide incentives to venture capital funds and private equity funds to enable them invest freely in start-ups in India, SEBI introduced the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 which came into force on 21st May, 2012.
Alternative Investment Fund(s)
An alternative investment fund (AIF):
- Is any privately pooled investment fund (obtained either from Indians or foreigners)
- It is in the form of a company, trust, body corporate or LLP
- Is not governed by jurisdiction of any regulatory agency in India, SEBI or otherwise.
From the above, it is obvious that alternative investments are those that are not traditional asset classes. It includes mainstream assets such as real estate or commodities or even luxury goods such as art or wine. In the Indian context also there was an art fund house that was traded in between 2000-2006. However, it has been observed that in India alternative investment funds have been mainly concentrating in the venture capital, private equity and hedge funds space.
However, it is important to de-jargon the above terms:
Venture Capital Fund
Investment funds that manage money of investors seeking to invest in start-ups & SME’s.
Private Equity Fund
A collective investment scheme used for making investments in various equity securities. Some debt securities also.
An offshore investment fund, typically formed as a private limited partnership, that engages in speculation using credit or borrowed capital.
The SEBI (Alternative Investment Funds) Regulations in a nut shell:
- The Alternative Investment Fund may raise funds from any investor whether Indian, foreign or non-resident Indians by way of issue of units;
- It is aimed at high net worth individuals. The minimum investment into such a funds is One Crore rupees.
- Overall corpus of such fund should be a minimum of Rs. 20 Crores.
- The maximum number of investors should be 1,000.
- The fund manager or promoter should have contributed to the capital, at least 2.5% or Rs.5 crore, whichever is lesser.
The year 2015 witnessed a record VC investment and angel fund investment. With an intention to bring in more foreign funds in to India, the Union budget for financial year 2016, highlighted that foreign investments will be allowed in alternative investment funds (AIFs). This is a big boost to the nascent AIF industry in India. This is expected to increase inflow of foreign funds into India. The SEBI has created and given structure to this emerging investment space. The SEBI had constituted a standing committee ‘Alternative Investment Policy Advisory Committee’ (AIPAC) under chairmanship of Shri. N. R. Narayana Murthy in March 2015. The AIPAC had submitted its second report to SEBI in December 2016 with various recommendations to ensure continuous monitoring and effective provisions of laws which facilitate foreign inflow into India.
- Report submitted by Alternative Investment Policy Advisory Committee (AIPAC)