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The recent move of capital markets regulator Sebi to amend norms for Alternative Investment Funds (AIFs) is forward-looking, designed to shore up transparency and boost efficiency. The alternatives typically tend to perform differently than stocks and bonds, and adding them to an investment portfolio can well provide broader diversification of risks and, in tandem, enhanced returns.
An AIF is a privately pooled investment vehicle that is supposed to collect funds from savvy investors. Note that Category I AIFs include venture capital funds (and angel funds), infrastructure funds and small and medium enterprise funds, while real estate funds, private equity funds and funds for distressed assets are classified as Category II AIFs.
The new Sebi norms, for starters, harmonise the definition of startups with that of the Centre for the purpose of investment by early-stage angel funds. Next, the list of restricted activities or sectors for venture capital undertakings has been removed, to duly provide investment flexibility for VC funds. And AIFs, including funds of AIFs, now have the go-ahead to simultaneously invest in units of other AIFs, and can also do so directly in the securities of investee companies. The policy intention is to diversify investments, better manage risks and augment returns.
Further, Sebi has prescribed a Code of Conduct for AIF trustees and directors, as also members of the investment committees of the funds. The norms also provide clarity on the scope of responsibilities of managers of ICs, to stem opacity in private investment vehicles. In India’s maturing capital markets, revamped rules for AIFs would raise inflows into them, better allocate resources, diversify risks and gainfully rev up overall returns.
Courtesy - The Economic Times.
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