Alternative Investment Funds: Key Features and Indian Market Growth

The advent of wealth management is such that high net-worth individuals (HNWIs) are always looking for new assets to fill in their portfolios and generate returns. Alternative Investment Funds (AIFs) have stood out as a very attractive option. Moving away from traditional investment avenues like equities and bonds becomes a necessary evil when the return patterns presented by these instruments becomes erratic. AIFs have emerged as one of the most sophisticated methods of making asset allocation, with diversification as well as heightened returns, professional management, and customization.

Diversification

Diversification is one of the primary tenets, or principles, of investment strategy with the objective of minimizing risk through investing in diverse asset classes. AIFs exemplify this as they allow for a range of non-traditional assets, such as private equity, hedge funds, managed futures, real estate, commodities, and derivative contracts. Unlike standard investments, the assets will not be directly associated with the stock market and will tend to behave differently in varying economic scenarios. This unique characteristic allows investors to correlate market volatility to enhance the sturdiness of their overall portfolio.

There are high profit returns 

A best feature of AIFs is that they can give a highly-returned investment. Not easily found in public markets, these could help AIF achieve huge financial returns, especially when investing in early-stage companies, real estate projects, or distressed debt. Such forms of investments are riskier but carry the offsetting probability of better-than-average outsized returns to become an investor's high worth. For instance, some private equity, where profits are realized through potential start-up investment or successful buyout, can yield great returns. Hedge funds similarly use leveraged and short-selling strategies to rake in superior returns from market inefficiencies. 

Professional Management 

AIFs are run by professionals who have a wealth of experience in their fields. These fund managers skilfully carry out extensive research and ensure rigorous due diligence and well-thought-out risk management practices for the competent decision-making when it comes to investing. For a high-net-worth individual, there is really great value from professional management, as they not only give access to investments that are out of reach for an individual, but it is also ensured that the investments are managed at the highest possible level. Professional management may in itself enhance the chances of success in complicated environment investments where specialized expertise is necessary.

Customization

Another important feature of AIFs is that investment can be completely customized to your needs and objectives, not like the vanilla-type investment available in traditional investment vehicles. Most AIFs are structured for individual needs and can be further modified considering an investor's risk profile, horizon, and financial goals. The whole personalization process makes investment possible, meeting all uniquely defined requirements of each investor. For example, structuring the fund to invest only in sustainable investments or focusing on a particular sector like technology or healthcare; AIFs definitely give the flexibility that is required by discerning investors.

The Indian Market Context

AIFs in India have since long been evolving, supported by the regulation aligned by and increasing interest by the investors. The AIF landscape in India is going through rapid changes and the fact that Securities and Exchange Board of India (SEBI) is bringing regulations to define an environment of transparency and investor protection that enables innovation has served to immensely uplift AIFs in the country, as seen in the astounding increase in AUM and registered funds.

High net worth individuals in India increasingly appreciate the AIF as an integral part of their diversified investment. These efforts are, indeed, reflected in some of the rapidly changing sectors within a fast-growing economy, such as technology, real estate, and private equity, into which AIFs will capitalize on for taking leverage out of India's growth story. The trend toward ESG investments is also gaining traction, with many AIFs incorporating sustainable investment strategies to cater to changing investor preferences.