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What is an Alternative Investment Fund (AIF)?

Alternative Investment Fund or AIF means any fund established or incorporated in India, which is a privately pooled investment vehicle, which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

Unifi Capital Private Limited (Unifi) is one of India’s leading Portfolio Management Services (PMS) and AIF with a twenty-year performance track record and assets under management (AUM) of over Rs 10,900 Crs (as of 28th Feb 2022).

What are the different categories of AIF?

Applicants can seek registration as an AIF in one of the following categories, and in sub-categories thereof, as may be applicable:

Category I AIF:

AIFs which invest in

  • Venture capital funds (Including Angel Funds)
  • SME Funds
  • Social Venture Funds
  • Infrastructure funds

which the government or regulators consider as socially or economically desirable.

Category II AIF:

Various types of funds such as real estate funds, private equity funds (PE funds), funds for distressed assets, etc., are registered as Category II AIFs.

Category III AIF:

AIFs can pursue multi-asset class strategies and have the flexibility to employ diverse investing / trading strategies in accordance with their stated investment policy in their offer documents. Such AIFs may undertake leverage that includes positions in listed or unlisted derivatives within limits prescribed by SEBI regulations.

Unifi currently manages a few focused Category III AIFs with underlying investments in listed Equity and listed / unlisted Debt. While the equity AIFs target long term capital appreciation, the debt AIF, which also participates in event arbitrage opportunities, strives to generate stable above average consistent returns with low volatility.

Who can offer AIF management services in India?

AIF management services can be offered only by SEBI registered entity under SEBI (Alternative Investment Funds) Regulations, 2012.

Who is an ideal AIF investor?

The specialised investment solutions provided by Alternate Investment Funds typically cater to a niche segment of Ultra-high net worth clients. These clients can be individuals or Institutional entities who require a dedicated investment management service.

The AIF platform is ideal for investors who:

  • Seek to invest in asset classes like equity, fixed income, structured products, etc.
  • Value a highly customised investment management solution
  • Are discerning and appreciate a high level of client service
  • Require investment advice for long-term wealth creation

What is the minimum or maximum investment in Unifi’s AIF?

The statutory minimum investment size is INR 1Cr. Additional investments can be made on any dealing date notified in the offer document in multiples of Rs.10,000 or the amount specified for open-ended funds.

At Unifi, there is no maximum investment limit into an AIF. The size of the fund and subscriptions received (in the case of a closed-ended fund) will decide on the maximum amount of investment. We cater to clients of varying portfolio sizes, and our Relationship Managers are equipped to manage individual accounts of a sizeable asset under management (AUM).

Why should I Invest in Unifi AIF? I am already an investor in Unifi PMS.

Though AIF and PMS appear to be similar investment vehicles at a glance, there are differences and features in both which would be suitable for a customer based on their requirements.

Features Portfolio Management Service Alternative Investment Fund
  • Complete ownership of all assets remains with the investor. A Demat account is opened in the investor’s name.
  • The Portfolio Manager administers this arrangement on behalf of the investor to implement the investment strategy and allocation the investor has opted for.
  • Investment value is based on the overall client-level portfolio and P&L value.
  • Each AIF will have a pool account in which all investors pool together their assets.
  • Investment value is based on overall fund level Net Asset Value (NAV) published by the Fund Accountant.
Sponsor/ Manager's contribution
  • There is no need for participation from a manager.
  • Rs. 10 Cr or 5% total fund corpus, whichever is lower. This ensures ‘skin in the game’ and the sponsor's and its investors' alignment of interest.
Entry & Exit
  • PMS entry and exit are not restricted (though there may be charges for early withdrawal).
  • Additional funds can be provided at any time to make use of market situations.
  • Partial exit is allowed provided the value does not reduce below the minimum limit.
  • AIF funds can be both open-ended and closed-ended.
  • UNIFI HYF (debt fund) is an open-ended Fund with a monthly interval for subscription and redemption.
  • Unifi equity funds are open-ended with initial redemption lock-in and subsequent yearly redemption window. We do not launch funds often. We take 6 months to complete research on a theme. At most, we target one theme a year.
  • The execution is better while acquiring the portfolio components, and the benefit of exit would be the same for all participants since all purchases /sales are at the entity level and not at the individual investor level.
  • There are pre-defined inflow and out-flow dates defined for existing and new investors in the private placement memorandum which gives better control and planning for the fund manager.
Strategy & Execution
  • Though the scheme level strategy is defined, the investor level execution would be different. Entry and exits would also be at different periods at the investor level based on their time of investment and redemption.
  • PMS trades, as per regulation, a significant portion has to be outsourced to external brokers.
  • Since the investment is at the fund level, the Fund Manager has better visibility and timelines to plan and deploy.
  • AIF trades are handled in-house by the Unifi team.
Investment - IPO, Listed and Unlisted Securities
  • PMS can invest in listed securities.
  • IPO investment will be based on the investor category.
  • PMS cannot invest in unlisted securities.
  • AIF can invest in listed and unlisted securities.
  • In the case of IPOs, AIF will be under Qualified Institutional Bidders which guarantees assured allotment.
  • An AIF can participate in a pre-IPO allotment also.
  • PMS cannot leverage.
  • An AIF can leverage up to 2 times.
Disclosure of Interest in a body corporate
  • Since investments are at the investor level, a person with interest in a body corporate cannot invest in shares in which the client has access to insider information.
  • In some instances, the investor will have regulatory violations when there is an oversight due to non-disclosure.
  • The investments are at the unit level, and scrip level investment by fund need not be reported for regulatory purposes.
  • The tax liability of a PMS investor is the same as that of an investor who accessed the capital markets by himself. Under the PMS scheme, each transaction will be considered as an independent trade and capital gains will be applied to each transaction depending on the holding period of the stock.
  • Unifi AIF funds are structured as determinant trusts.
  • The tax is paid at the fund level and returns to the client are post-tax basis. Profits in the AIF are taxed at applicable capital gains tax rates.
  • PMS can invest in derivatives only to the value of the portfolio and subject to the same being mentioned in disclosure documents.
  • AIF can make use of derivative instruments as mentioned in the Private Placement Memorandum.
  • Hedging can be achieved better as leverage limits are available.
  • Unifi can use this enabling clause in case of a requirement.

What returns can I expect from an AIF?

As per the AIF regulations prescribed by SEBI, we cannot guarantee a specific rate of return. However, the investment objective of any AIF Manager is to outperform the benchmark indices.

At Unifi, each investment strategy has consistently outperformed respective benchmark indices over the years.

As an investor, what is the expected time horizon I need to bear in mind?

Our funds are open-ended Funds with or without an initial lock-in period, with periodic intervals for subscriptions and redemptions.

How often can I view my NAV, positions and transactions undertaken in my account?

The NAV is calculated monthly by the fund accounting team of HDFC bank. The Fund Management team also shares the Fund’s asset allocation, return attribution, top holdings and liquidity information fact sheet on a monthly basis followed by a more detailed quarterly review with the unitholders. The Annual Report is sent to the unitholders typically within 3 months from the end of the financial year.

What is my tax liability under the AIF?

Unifi AIF funds are structured as determinant trusts. The tax is paid at the fund level and returns to the client are post-tax basis. Profits in the AIF are taxed at applicable capital gains tax rates as regards equity and market-linked instruments and at Maximum Marginal Rates for income from other sources like interest, dividends, processing fees etc.

How do I introduce my initial corpus?

The initial corpus into Unifi’s AIF scheme can be funded in the form of cash transferred to the AIF’s account.

What are the documents required for opening an AIF account?

The documents required to enable your AIF account at Unifi are:

  • Account Opening Form
  • Address Proof
  • Identity Proof
  • PAN Card Copy
  • Relevant KYC Forms prescribed by the regulator

What is the fee structure under the AIF scheme?

In addition to a one-time setup fee (if applicable), UNIFI’S AIF compensation is based on two heads:

  • A flat management fee as agreed by the client will be charged proportionately every month on the funds managed, and
  • A performance-based fee computed as per a pre-agreed proportion of the profit earned over and above a predetermined threshold return.

Can NRIs avail of the AIF Services?

The AIF platform permits investments by all Indian nationals, resident or otherwise. NRI’s (except USA and Canadian Nationals) can also invest in AIF. Unlike PMS, there is no need for NRI’s to open a PIS account. However, it depends on the fund structure to accept funds from both NRE and NRO accounts.

Who do I call in case of any queries on my AIF portfolio?

  • If a client has been introduced by a wealth manager or RIA, he would typically call his RM in the introducing firm and reach out to Unifi as a second step if he requires further assistance.
  • Unifi provides its clients unrestricted and continuous access to its Relationship Managers who interact with clients on a regular basis for day-to-day requirements.
  • However, in case of any specific requirements that arise, contact details of senior management at Unifi, including the Chief Investment Officer, are made available in the welcome letter sent to clients.