Covid-19 impact: AIFs grow at a marginal pace

The latest SEBI data shows that the commitments raised by AIFs grew by 4% to reach Rs.3.80 lakh crore as on June 2020.

Out of 3.80 lakh crore, 1.50 lakh crore or 41% of the funds have been invested by the AIFs.

While the commitments raised in Category I and II grew by 5% last quarter, commitments raised in Category III fell by 2% compared to previous quarter. 

The data shows that among the three categories, Category III AIFs have invested the majority of their commitments. Category III includes long short funds, long only funds and hedge funds. As on June 2020, AUM of Cat III AIFs fell from Rs.49,230 crore in March 2020 to Rs.48,410 crore in June 2020. Out of this, it has invested 75% of the commitments.

Meanwhile, Category II funds, which invest in private equity, structured debt and stressed debt have grown from 2.80 lakh crore in March 2020 to 2.90 lakh crore in June 2020. This category has invested 36% of its commitments.

Similarly, commitments of Category I AIFs grew from Rs.38,745 crore in March 2020 to Rs.40, 603 crore in June 2020. Category I AIFs invest in start-ups or early stage ventures, social ventures, SMEs or infrastructure funds. Category I AIFs have invested 39% of its commitments as on June 2020.

Experts say that AIFs are struggling to raise money largely due to weakening business sentiments and high taxation.

Nalin Moniz, CIO - Alternative Equity of Edelweiss says that AIFs are currently struggling to get inflows as businesses don’t have surplus due to covid-19 pandemic. In addition, HNIs and Ultra HNIs do not want to take risk considering the uncertainty in economy.  “This situation might continue for some more time,” believes Nalin.

Jay Shah, Founder, pmskart.com, a PMS and AIF research website attributes unfavorable taxation for decline in commitment raised in Category III AIFs. He said, “The biggest hurdle for Category III AIFs is taxation. Currently, Category III AIFs do not have a pass through status. As a result, investors end up paying tax twice – at scheme level and at the time of realizing gains. In most cases, investors end up paying significant portion of gains in tax. I believe AIFs can bring a lot of innovation but there is no real money coming in this segment. There is a need to ease taxation norms in AIFs.”