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In our childhood, remember, there were few things that were only for our elder siblings? We used to play with small toys, such as lighter cricket bats made of plastic or even softballs, but we witnessed that our senior siblings used to play with hard balls, wooden bats, and some high-end games. And this was not only limited to sports but also to studies as well.
We used to have a less difficult syllabus to study, whereas our seniors used to study day in and day out as their subjects were hard. This fact is self-explanatory. We didn’t have the calibre, age, mindset, and talent to study and play at the senior level. But gradually, as we grew, we started participating in those events or learning the harder subjects.
This is somewhat true of Alternate Investment Funds in India. Experts advise small investors not to invest in AIFs. Investing in Alternative Investment Funds requires a sizable corpus; it might not be the best choice for small investors who wish to make regular small investments. As a result, AIFs are typically thought to be appropriate for large investors, such as HNIs (high-net-worth individuals), who are prepared to take on greater risk and have the capacity to invest a sizable sum of money at once.
Before we dive in and look at why HNIs invest in Alternative Investment Funds in India, let’s briefly understand what AIFs, or Alternative Investment Funds, are.
What is an Alternative Investment Fund (AIF)?
AIF, or Alternative Investment Fund, is a private pooled investment vehicle that makes investments in alternative asset classes like derivatives, real estate, commodities, hedge funds, private equity, and venture capital. Since the investment amount in AIFs is significantly higher, HNIs (high-net-worth individuals) and institutions generally invest in them.
Why do HNIs invest in AIFs?
Investors who are looking for alternatives to traditional asset classes like stocks and bonds and diversification, as well as the possibility of higher returns, may find AIFs an appealing choice. Investors may want to think about making an AIF investment for the following reasons:
- Possibility of Higher Returns: Since AIFs are exposed to a wider range of assets and investment strategies than traditional investments, they may provide higher returns than the latter. But there’s a higher risk associated with this higher return.
- Diversification: Alternative investment funds (AIFs), which give investors access to hedge funds, real estate, and private equity among other asset classes, facilitate portfolio diversification. Know the role of AIFs in diversification here.
- Low Volatility: Compared to other investments like equity or mutual fund investments, AIFs are less volatile because they are not correlated with the stock market.
Conclusion
In conclusion, because AIFs are complex products, only experienced investors should consider them as a good option for diversification. Alternative investment funds enable them to access exclusive investing techniques and diversify their portfolios.
