Why HNIs should consider Investing in AIF's

Why HNIs should consider Investing in AIF's

→ Driven by a high-performing market & low interest rates globally, India has increasingly become the preferred investment destination for global investors seeking double-digit returns. India attracted the highest ever FDI inflow of close to $70 billion during the first 9 months of FY 2020-21. It is, therefore, no surprise that millions of Indians are taking to more sophisticated investment vehicles & financial instruments as India continues to multiply wealth. This marks a paradigm shift from traditional physical assets, such as real estate, gold & bank deposits.

→ In addition to mutual funds & equities, Alternative Investment Funds (AIFs) have witnessed significant interest from domestic investors.

What are Alternative Investment Funds (AIFs)?
→ Alternative Investment Funds differ from regular conventional investments like public equities or debt securities. These funds are privately pooled funds which invest in venture capital, private equity, hedge funds, infrastructure, etc.
→ Currently, there are nearly 700 AIF's with over ₹ 4 trillion in investments, an impressive 15x growth since 2015.

What's driving AIFs in India
→ India is one of the fastest growing economies with a vibrant business ecosystem & the third largest startup ecosystem globally. Furthermore, Covid has resulted in major changes such as digitalization across industries, the rapid rise of health tech, widespread adoption of remote work, etc. The startup ecosystem, hence, is well poised to drive digital adoption in India and will be the real delta driving the economy in this decade. This is corroborated by the significant fundraising by India-focused funds in 2020, that raised $3 billion despite the pandemic.
→ In order to continue its fast-paced growth, however, infrastructure conforming to global standards is imperative for our country. AIF's have provided a viable route to make investments in public & private infrastructure much more accessible to investors who wish to capitalize on the opportunity presented by the development needs of India. This serves as a lucrative investment alternative for investors while contributing significantly to the overall economic growth.
→ To put things into perspective, India has already seen a record number of 12 Companies attain unicorn status to date in 2021. Additionally, more startups are getting public-market ready & set to launch their IPO's. These are strong indicators of the Indian market moving towards maturity. AIF's stand to benefit from the developments taking place in the venture ecosystem in addition to the overall infrastructure development drive by public & private players alike.

Growth of AIFs in India
→ The key growth enabler for AIF's has been the funds’ ability to customize & curate products across asset classes. These funds are managed by experienced fund managers who adopt sophisticated strategies. Therefore, these funds do not correlate to the stock market & help investors add diversification & reduce volatility in their portfolios. Proprietary investment techniques coupled with strategic diversification has led to higher returns compared to mutual funds, stocks & bonds.
→ The growth must also be attributed to growing investor awareness & flexibility in product offerings. More HNI's are setting up professionally-run family offices with specific investment mandates & allocation strategies. Investors can appropriate a portion of investable capital to different alternative products based on their risk appetite & target returns.
→ AIF's funds are generally subject to higher volatility, liquidity & credit risks than investments in traditional securities, which may act as a deterrent for investors. Investors today, however, have access to various products that offer high liquidity & low volatility. Most importantly, well-managed funds with a keen focus on comprehensive credit analysis & monitoring can greatly reduce the credit risk involved. For example, venture debt has the potential to yield high double-digit returns with reasonable certainty owing to the nature of the product. It also allows investors to participate in the equity upside, while earning a relatively predictable return on the debt component with regular payouts.
→ Although a long way to go, the investment narrative of India is changing as investors have started to embrace India’s growth story with domestic investors playing a pivotal role. This is driven by the belief that the country can build shared prosperity by transforming the way the economy creates value.

Join my telegram channel for more updates : https://t.me/moneplan