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Lowering of investment limit will make AIFs accessible to more investors

Risk of mis-selling of these funds to investors who don't understand their risks fully may also rise

Sanjay Kumar Singh  |  New Delhi 

Photo: Shutterstock
Photo: Shutterstock

The Securities and Exchange Board of India (Sebi) committee for deciding the norms of alternate (AIF), headed by former Infosys chairman N R Narayana Murthy, may recommend lowering of the minimum limit in them from Rs. 1 crore to Rs. 25 lakh, according to media reports. This will bring the minimum limit for in AIFs at par with that for (PMS). The committee is expected to submit its report by the end of this month.

Mutual and PMS allow to invest only in a few basic asset classes -- equities, debt and hybrid. AIFs, on the other hand, offer exposure to high net worth individuals in a variety of options, such as venture funds, private equity funds, real estate funds, hedge funds, infrastructure venture funds, social venture funds, and equity and equity-related These are well suited for who can take a higher degree of risk, and wish to diversify their portfolios into newer asset classes.

Financial advisors say that lowering of the limit, if it happens, will be a positive. "At Rs. 1 crore, the pool of who could invest in these was very small. If the limit is lowered, more will become eligible to invest in them," says Mumbai-based financial planner Arnav Pandya. 

Deepesh Raghaw, founder, PersonalFinancePlan.in, a Sebi-registered advisor (RIA) adds: "will be able to diversify their portfolios further. These also offer the potential for higher returns."  

However, lowering of the limit will also give rise to certain risks. "Many people who do not understand how these work and the risks inherent in them could also invest," says Pandya.

Many of the investments that private equity and venture capital make don't work out. During bear phases, exiting their investments become difficult for these Venture capital invest in very early stage companies. Private equity invest in later stage companies also, but primarily in the unlisted space. All these companies are young and their failure rate tends to be high. Real estate and infrastructure funds, which AIFs also invest in, have a long gestation period, low liquidity, and so on. Sometimes the projects they invest in don't give the expected returns upon completion.  

Lowering of the limit also raises the chances of mis-selling. "These products could be sold to individuals whose net worth is not very high. These could come to comprise a very high portion of an individual's total portfolio," says Raghaw.

should also be aware that many of the that AIFs invest in come with a lock-in period, and some categories of AIFs too have their own lock-in periods.

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Lowering of investment limit will make AIFs accessible to more investors

Risk of mis-selling of these funds to investors who don't understand their risks fully may also rise

Risk of mis-selling of these funds to investors who don't understand their risks fully may also rise
The Securities and Exchange Board of India (Sebi) committee for deciding the norms of alternate (AIF), headed by former Infosys chairman N R Narayana Murthy, may recommend lowering of the minimum limit in them from Rs. 1 crore to Rs. 25 lakh, according to media reports. This will bring the minimum limit for in AIFs at par with that for (PMS). The committee is expected to submit its report by the end of this month.

Mutual and PMS allow to invest only in a few basic asset classes -- equities, debt and hybrid. AIFs, on the other hand, offer exposure to high net worth individuals in a variety of options, such as venture funds, private equity funds, real estate funds, hedge funds, infrastructure venture funds, social venture funds, and equity and equity-related These are well suited for who can take a higher degree of risk, and wish to diversify their portfolios into newer asset classes.

Financial advisors say that lowering of the limit, if it happens, will be a positive. "At Rs. 1 crore, the pool of who could invest in these was very small. If the limit is lowered, more will become eligible to invest in them," says Mumbai-based financial planner Arnav Pandya. 

Deepesh Raghaw, founder, PersonalFinancePlan.in, a Sebi-registered advisor (RIA) adds: "will be able to diversify their portfolios further. These also offer the potential for higher returns."  

However, lowering of the limit will also give rise to certain risks. "Many people who do not understand how these work and the risks inherent in them could also invest," says Pandya.

Many of the investments that private equity and venture capital make don't work out. During bear phases, exiting their investments become difficult for these Venture capital invest in very early stage companies. Private equity invest in later stage companies also, but primarily in the unlisted space. All these companies are young and their failure rate tends to be high. Real estate and infrastructure funds, which AIFs also invest in, have a long gestation period, low liquidity, and so on. Sometimes the projects they invest in don't give the expected returns upon completion.  

Lowering of the limit also raises the chances of mis-selling. "These products could be sold to individuals whose net worth is not very high. These could come to comprise a very high portion of an individual's total portfolio," says Raghaw.

should also be aware that many of the that AIFs invest in come with a lock-in period, and some categories of AIFs too have their own lock-in periods.
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Business Standard
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Lowering of investment limit will make AIFs accessible to more investors

Risk of mis-selling of these funds to investors who don't understand their risks fully may also rise

The Securities and Exchange Board of India (Sebi) committee for deciding the norms of alternate (AIF), headed by former Infosys chairman N R Narayana Murthy, may recommend lowering of the minimum limit in them from Rs. 1 crore to Rs. 25 lakh, according to media reports. This will bring the minimum limit for in AIFs at par with that for (PMS). The committee is expected to submit its report by the end of this month.

Mutual and PMS allow to invest only in a few basic asset classes -- equities, debt and hybrid. AIFs, on the other hand, offer exposure to high net worth individuals in a variety of options, such as venture funds, private equity funds, real estate funds, hedge funds, infrastructure venture funds, social venture funds, and equity and equity-related These are well suited for who can take a higher degree of risk, and wish to diversify their portfolios into newer asset classes.

Financial advisors say that lowering of the limit, if it happens, will be a positive. "At Rs. 1 crore, the pool of who could invest in these was very small. If the limit is lowered, more will become eligible to invest in them," says Mumbai-based financial planner Arnav Pandya. 

Deepesh Raghaw, founder, PersonalFinancePlan.in, a Sebi-registered advisor (RIA) adds: "will be able to diversify their portfolios further. These also offer the potential for higher returns."  

However, lowering of the limit will also give rise to certain risks. "Many people who do not understand how these work and the risks inherent in them could also invest," says Pandya.

Many of the investments that private equity and venture capital make don't work out. During bear phases, exiting their investments become difficult for these Venture capital invest in very early stage companies. Private equity invest in later stage companies also, but primarily in the unlisted space. All these companies are young and their failure rate tends to be high. Real estate and infrastructure funds, which AIFs also invest in, have a long gestation period, low liquidity, and so on. Sometimes the projects they invest in don't give the expected returns upon completion.  

Lowering of the limit also raises the chances of mis-selling. "These products could be sold to individuals whose net worth is not very high. These could come to comprise a very high portion of an individual's total portfolio," says Raghaw.

should also be aware that many of the that AIFs invest in come with a lock-in period, and some categories of AIFs too have their own lock-in periods.

image
Business Standard
177 22