Consider the following statements regarding Alternative Investment Funds (AIFs):
1 AIFs are regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (AIF) Regulations, 2012.
2. Venture Capital Funds, Hedge Funds, and Private Equity Funds are examples of AIFs.
3. AIFs are open to retail investors and offer high returns.
Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 3 only
Explanation
RBI has released new guidelines limiting investments by Regulated Entities (REs) to a maximum of 20% of an Alternative Investment Fund (AIF) scheme’s corpus.
Statement 1 is correct: In 2012, SEBI introduced the Alternative Investment Funds (AIF) Regulations to set clear rules for how AIFs should work, including their types, eligibility, structure, and compliance requirements.
Statement 2 is correct: AIFs are classified into three categories:
Category I AIF: Invest in start-ups, early-stage ventures or sectors considered socially or economically beneficial.
o E.g. Venture Capital Funds, Angel funds, SME Funds, Infrastructure Funds
Category II AIF: They do not use leverage or debts other than to cover their day-to-day operational expenses.
o E.g. Private Equity Funds, Debt Funds, Real Estate Funds.
Category III AIF: It may use leverage including through investment in listed or unlisted derivatives.
o E.g. Hedge Funds, Private investment in public equity (PIPE).
Statement 3 is not correct:Alternative Investment Funds (AIFs) are meant for high-net-worth individuals and institutional investors, not retail investors. They require a minimum investment of ₹1 crore (₹25 lakh for fund employees/directors) and carry high risk with no guaranteed returns, unlike government-backed schemes such as PPF, NPS, or Sukanya Samriddhi Yojana.
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