Important Factors to Consider Before Opting for Alternative Investment Funds in India
When it comes to making investments in India, investing in bonds, stocks, and currency is the first impulse. However, in addition to such investments, there's a category called Alternative Investment Funds, or AIF. An Alternative Investment Fund refers to privately pooled investments in assets, such as Infrastructure Investment Funds, hedge funds, venture capital funds, private equity funds, real estate investment funds, etc.
Understanding the risk profile of the AIF and one's own risk-taking capabilities:
As with any other type of investment, investing in Alternative Investment Funds in India comes with its own set of risks and returns. However, it is not a good idea to go for AIF options where the risks are higher than one's financial capabilities. Generally, a diversified investment AIF profile is a suitable choice for investment, as adheres to the principle of risk diversification.
Thus, one should carefully consider and research various Alternative Investment Funds in India, to gain a full grasp of the risk profiles and one's own risk-taking potential before opting for Alternative Investment Funds.
Considering costs - related to finding and maintaining fund managers and the ensuing fee structure:
When opting for an Alternative Investment Funds, unless one is an expert in the field, the investors must hire fund managers in order to manage and get the most out of their investments. In fact, a lot of investment fund managers = hire third parties in order to have unbiased input regarding their investment profile.
There are fees related to not only hiring a fund manager but also in finding one. Moreover, the investors need to go through many investment fund manager profiles, interview them, and do background checks, before they hire a fund manager. Additional to the regular fee of the fund manager, they are also paid a percentage share of the profits in case an investment fund performs well. The details of the payment need to be worked out contractually and are different for each type of AIF and fund manager.
Understand the Difference in Each Kind of AIF Option:
The investor must realize that each kind of AIF is different. Hence, the strategies, legalities, and fees involving these options are also different. Thus, the investor must understand the different complexities of each AIF option through due diligence before investing in the same. Few Alternative Investment Funds also involve complex tax structures that should be reviewed by investors prudently to ensure viability.
One must remember, An AIF's previous performance is not a guarantee of its performance in the future. These funds are mainly for "well-informed" investors that include institutional, professional, and qualified investors, and could represent speculative investments with a high degree of risk. Investors must have the financial ability, experience and readiness to face such risks when investing in an Alternative Investment Fund.