The appetite for AIFs among HNIs seems to be on the rise. To cater to this demand, many entities have applied to SEBI to launch AIFs, especially Category II AIFs.
The processing status of AIF licenses as on June 2016 shows that 26 entities are seeking SEBI nod to float AIFs. Of these, SEBI has already given in-principle approval to three AIFs – one each from all categories.
The data shows that a majority of applications (14) 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 62% of the market share in terms of commitment raised or AUM in MF parlance. As on March 2016, the Category II funds had raised commitments of Rs. 24,061 crore. There are 108 Category II funds in India as on March 2016.
“There is a lot of demand for the Category II funds especially from HNIs. Also, government and regulatory push such as granting of pass through status and allowing FPIs to invest in these funds has given a much needed push to Category II AIFs,” said Aditya Gadge, CEO, Association of International Wealth Management of India (AIWMI).
Nine applications were filed for Category I AIFs which are venture capital funds, SME funds, social venture funds and infrastructure funds.
Only three 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.
