The appetite for AIFs among UHNWIs seems to be on the rise. To cash in on this demand, many entities have filed applications with SEBI to launch AIFs, especially Category II AIFs.
SEBI data shows that a majority of applications (16) were filed for launching Category II AIFs. Category II AIFs are private equity funds, debt funds and fund of funds. The Category II funds account for 53% of the market share in terms of commitment raised or AUM in MF parlance. As on December 2015, the Category II funds had raised commitments of Rs.16, 200 crore.
“There is a good appetite for Category II funds among UHNWIs. However, investors today are not keen to invest in generic AIFs. You have to offer a differentiated strategy, shorter duration and more liquidity,” says Vikas V Gupta, Head - Research & Product Development, Arthveda Fund Management. Arthveda Fund Management has filed for Category II AIF called Arthveda Housing Trust which will fund affordable housing projects in the lower income category.
Eight applications were filed for Category I AIFs which are venture capital funds, SME funds, social venture funds and infrastructure funds.
Only two applications were filed for launching Category III AIFs. Category III AIFs include hedge funds which trade with a view to make short term returns by employing diverse or complex trading strategies. They also employ leverage by investing in listed or unlisted derivatives.
Currently, AIFs have a limited set of investors such as PSU banks, corporates and UHNWIs because of the Rs. 1 crore ticket size. To attract a bigger pool of investors, SEBI has recently allowed Foreign Portfolio Investors (FPIs) to invest in units of REITs, Infrastructure Investment Trusts (InvIts) and Category III AIFs.
As on March 2016, there are 209 AIFs registered with SEBI. If the 26 new AIFs receive SEBI approval, the total number of AIFs will go up to 235.
IFAs can also sell AIFs. The commissions offered by AIFs are comparatively better than other market linked financial products. However, only a few advisers are selling these products because of the high minimum ticket size, which is typically Rs. 1 crore and above.
To understand the challenges and opportunities in this space, book your seat at CCWM to be held on June 7.
