Infrastructure fund, a category 1 Alternative Investment Fund (AIF), raises capital by pooling investments from private players and primarily invest in companies that develop infrastructure projects.
Infrastructure projects include roads, renewable energy, water, railways, transmissions and municipal solid waste. Since such projects are considered to have a positive spillover impact on the country’s economy, the Government of India provides incentives and concessions to infrastructure funds.
Other category 1 AIFs, such as venture capital funds, SME Funds, and social venture funds also get incentives, as the government considers them socially or economically desirable.
Features:
A high risk-high return investment
Low liquidity
Long investment horizon
A chance to invest in a sector that has a lot of potential in India
Structures and regulation
- Since infrastructure funds come under category 1, these are close-ended and come with a minimum tenure of three years, which could be extended by additional two years
- Liquidate within one year following expiry of fund tenure
- Listed in stock exchanges with a minimum tradable lot of Rs.1 crore
- Cannot invest more than 25% in one company
- Can invest in their own sub categories (venture capital, SME, and social venture) but cannot invest in funds of funds
- Infrastructure funds cannot borrow funds directly or indirectly to run their operations
- Up to 1,000 investors per scheme allowed
Commissions
AIFs typically offer an upfront commission in the range of 2% to 3% to distributors depending on the type of AIF. However, the structure and quantum may vary from fund to fund.
How it has fared so far
AIFs started their journey in India in 2012. Since then, commitments raised under the infrastructure fund has reached Rs.12,082 crore as on March 31, 2019.
Commitments raised under infrastructure funds was the second highest among all the funds that come under AIF category 1. Venture capital funds top the list, while SME and social venture funds stood at the third and fourth spot, respectively, in this list.
These funds account for 36% of the total funds raised under the category.
Market players
Some of the renowned players are Edelweiss Infrastructure Yield Plus, L&T Infra Investment Partners and Piramal Infrastructure Fund.