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PIPE Funds are investment vehicles that focus on
purchasing equity or debt of publicly listed
companies
through private placements. These investments are
typically made in the form
of common or preferred
shares, convertible securities, or debt, and are often
utilized
by companies seeking capital for growth,
restructuring, or other strategic initiatives.
Investing in PIPE Funds allows investors to capitalize on the
potential undervaluation of
public companies, with the added
benefit of structured deal terms that may offer
advantages
over traditional public market investments. PIPE investments
can also provide
quicker access to capital for the issuing
company, making it a mutually beneficial
arrangement.
PIPE funds are privately sourced funds from investors, usually reserved for public equity investments – which refers to the practice of private investors means buying shares of publicly traded stock at a cost less than the going rate for the general population. Such sales are not executed through the stock exchanges.
Investors in PIPE, purchases a company stake and the company in return receives a capital to grow its business. The PIPE transactions give access to a capital at a lower cost than other underwritten offerings. This also increases institutional investments in the company, and improve the public float of securities.
PIPE transactions facilitate the easy funding of projects for small and medium-sized firms. PIPE transactions require less documentation and administrative work than secondary (public) issues. There are fewer rules for PIPE funding than there are for secondary issues. Additionally, funding a problem through PIPE takes a lot less time than funding a secondary issue. Because of the share price discount, companies choose PIPE even when the capital inflow is lower.
Unlike Category I and II, there is no pass-through status for Category III. This category is taxable at the fund level. Category III AIFs are taxable at the highest income tax slab level (42.7%) at the fund level. The returns given to investors are after deducting the tax.