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Infrastructure funds raise capital by pooling investments from private investors and primarily invest in companies that develop infrastructure projects. Infrastructure has emerged as a compelling category within AIFs, which offers the possibility of stable and long-term returns while also contributing to economic development.
Infrastructure investments charter a broad spectrum of assets critical for economic activity and societal functioning. This includes transportation networks (roads, bridges, airports, etc.), utilities (water, electricity), telecommunications, and social infrastructure (schools, hospitals).
Since infrastructure is classified as Category 1 AIF, these investments are subject to stringent regulations that safeguard investor interest and ensure transparency.
Characteristics
- Longevity: Infrastructure assets usually have a longer lifespan, spanning several decades. This longevity brings stable and predictable cash flows making infrastructure AIFs attractive to investors seeking consistent returns over the long term.
- Essential: Infrastructure assets help essential services that underpin economic growth and societal well-being. This means the demand for these services remains important regardless of economic conditions. They also provide investors with a degree of insulation against market volatility.
- Inflation Hedge: Infrastructure investments often showcase inflation-hedging characteristics. As the prices of goods and services rise over time, revenues generated by infrastructure assets tend to go up.
- Low Correlation: Infrastructure AIFs have historically demonstrated low correlation with traditional asset classes such as stocks and bonds. The low correlation enhances portfolio diversification and reduces overall risk for the investor.
Regulations
- Eligibility: SEBI regulations specify the types of investors eligible to invest in AIFs. Category I AIFs are typically open to institutional investors, high-net-worth individuals (HNIs), family offices, and other sophisticated investors.
- Minimum Corpus: Category I AIFs, including those focused on infrastructure, must have a minimum corpus of Rs. 20 crore from investors at the time of the initial closing of the fund.
- Tenure: Infrastructure funds come under category 1, they are generally close-ended in nature and come with a minimum tenure of three years, and can be extended by an additional two years. They must liquidate within one year following the expiry of fund tenure
- Quantity: Up to 1,000 investors per scheme allowed
- Limitations: Cannot invest more than 25% in one company. They can invest in their own sub-categories like venture capital, SME, and social venture. However, they cannot invest in funds of funds. They cannot borrow funds directly or indirectly to run their operations.
Size
AIFs launched in India back in 2012. Since then, the infrastructure fund category has reached Rs 18,738 crore becoming the highest in the AIF Category 1. Social venture and venture capital funds stand at the second and third spots respectively.
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