Office No. 106A, B-Wing Kanakia Wall Street,
Andheri - Kurla Rd, Chakala, Andheri East,
Mumbai, Maharashtra - 400093
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Alternative investments are financial investments that cannot be categorized as traditional, or conventional investments. For example, stocks, cash, and bonds are considered traditional assets whereas alternative assets can include private equity, hedge funds, art or antiques, Real Estate investments, etc.
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Due to the risks involved, investing in an alternative investment fund is typically limited to accredited investors, institutional investors, and high-net-worth individuals.
NRIs (Non-Resident Indians) are allowed to invest in AIFs subject to compliance with the necessary rules and regulations as per the Foreign Exchange Management Act (FEMA) and other applicable laws.
Proof of income, PAN card, and ID proof are required to invest in an AIF. The minimum investment amount for AIFs is INR 1 crore, while for angel funds, it is INR 25 lakhs.
Proof of income, PAN card, and ID proof are required to invest in an AIF. The minimum investment amount for AIFs is INR 1 crore, while for angel funds, it is INR 25 lakhs.
The regulation of Alternative Investment Funds (AIF) in India is done by the Securities and Exchange Board of India (SEBI). Investors can address their complaints against AIFs at the SEBI-regulated web-based centralized grievance redress system called SCORES or SEBI Complaint Redress System.
The tenure of any scheme of the AIF is calculated from the date of the final closing of the scheme.
The fee structure under the AIF scheme includes a one-time setup fee (if applicable) and two types of compensation: a flat management fee charged proportionately every month, and a performance-based fee computed based on a pre-agreed proportion of the profit earned.
When an investor exits an AIF by a transfer of units or partnership interests to another investor (called as ‘secondary transfer’), gains on the sale of units may be taxable directly in the hands of the investors. The taxability of gains on the sale of AIF units depend on the holding period- if more than 36 months, then categorized as a long-term capital gain and taxed at 20% with indexation. If less than 36 months, it would be considered as short-term capital gain and taxed at the applicable slab rates.
A Hurdle Rate is the minimal rate of return that a fund must meet before charging performance fees to its investors. It serves as a benchmark for the fund's performance, guaranteeing that investors receive a minimum level of returns before fund management can claim a portion of the profits.
Performance fees are additional charges that a fund manager earns when they surpass a specified return benchmark, often the fund's hurdle rate. These fees are a percentage of the excess returns generated, incentivizing fund managers to perform well.
Catch-up is a phase in fund management where the fund manager receives a larger share of profits after the hurdle rate is met but before reaching the high watermark. This mechanism ensures that fund managers can catch up to a predefined share of profits, usually after ensuring that the initial profits have been allocated to the investors up to the hurdle rate.
A high watermark is a clause in fund management that ensures performance fees are only charged on new profits. It means that fund managers can only collect performance fees if the fund's value exceeds its highest previous value. Investors are protected from having to pay fees for performance on the same returns over time.
Conversion of existing schemes from open-ended to close-ended or vice-versa is not permitted for Alternative Investment Funds (AIFs)
For Category-I and Category-II AIFs, which have a pass-through status, the tax liability is incurred by the investor, not the fund. This allows investors to benefit from treaty tax advantages. However, for Category-III AIFs, which do not have pass-through status, income is classified as business income.
Investments in AIFs are generally illiquid, as they often involve assets like unlisted companies or real estate, which are not easily convertible into cash. This necessitates a longer-term investment commitment. Additionally, while transferring units in an AIF is possible, such transfers are subject to the fund's specific terms and may face limited secondary market availability, making them less straightforward in contrast to liquid assets such as equities that are traded publicly.
An "accredited investor" can be an individual or business with a high income or significant net worth. For individuals, it's an annual income of at least two crore rupees or a net worth of seven crore fifty lakh rupees, with a substantial portion in financial assets. Alternatively, an annual income of one crore rupees and a net worth of five crore rupees, with a portion in financial assets, also qualifies.
For businesses, the net worth must be at least fifty crore rupees. Certain entities, like government agencies and qualified institutional buyers, are automatically considered accredited investors without needing a certificate.
AIFs can accept joint investments from investor pairs like an investor and their spouse, parent, or child, with a minimum investment of INR 1 Cr for each pair.
Based on the SPV's structure, you may possess debentures, equity, or both.
Yes. Any Indian citizen or an NRI (Non-Resident Indian) can own commercial real estate provided that a valid KYC (Know Your Customer), and documents are there, and regulatory guidelines are met. But NRIs can only make investments through their NRO (non-resident ordinary) accounts.
PAN card, address proof (Aadhar/Passport), bank account details for transfer of money, and depending on the property, and the platform, sometimes demat account number.
All investments carry risks. Therefore, in the case of fractional ownership, risks inherent to properties are also applicable in fractional ownership. Typical risks include liquidity, re-lease ability if the tenant leaves, and potential loss of capital.
There are three ways for investors to exit: first, they can sell in the resale market through their dashboard. Second, they have the option of private sales, where they can sell their ownership to anyone independently. The third option is a complete asset sale, but this needs approval from most investors in the SPV.
REIT (Real Estate Investment Trust) are similar to mutual funds in that they pool funds from investors and invest in profitable real estate assets such as government bonds, direct equity, and stocks, among others. However, investors cannot choose the property to invest in with REITs, whereas fractional ownership allows investors to select their desired property.
According to the Foreign Exchange Management Association (FEMA), "Overseas Direct Investment" (ODI) refers to investments made through the purchase of unlisted equity capital of foreign entities, subscriptions made as part of foreign entities' memorandums of association, or investments totaling ten percent or more of the paid-up equity capital of foreign entities that are listed, or investments with control in cases where the investments are less than ten percent of the paid-up equity capital of foreign entities that are listed.
For the purposes of this clause, an investment made by an Indian resident in the equity capital of a foreign entity that is classified as ODI will be treated as such even if it decreases to less than 10% of the paid-up equity capital or the investor loses control of the foreign entity;
"Overseas Portfolio Investment," or "OPI," as defined by FEMA, refers to investments made in foreign securities other than ODI, but excludes any unlisted debt instruments or securities issued by an Indian resident who is not a member of an IFSC: As long as an Indian resident has OPI in the equity capital of a listed entity, even after the entity is delisted, the OPI will remain unrestricted until the entity receives a new investment.
International investment offers several benefits, including diversification across geographies to mitigate risk and stability against market volatility. It broadens investment options, allowing investment in foreign instruments and sectors not available domestically. Additionally, investors can gain from currency appreciation and enjoy enhanced protection against fraud due to stringent regulations in developed markets. Such investments also enable building a foreign currency corpus for various needs and provide opportunities to participate in global economic growth by investing in major corporations and emerging industries not present in the home market.
Demerits involve the need for greater market understanding, increased compliance requirement, and potentially higher taxes on capital gains compared to Indian listed stocks.
These are transactions involving individuals or organizations that don't change their outside of India assets or liabilities, including contingent liabilities. Current account transactions typically include:
Essentially, these are transactions related to day-to-day business operations and do not result in any change in the foreign assets or liabilities of a resident.
These transactions result in a change or transfer of assets or liabilities outside India. Capital account transactions include:
Capital account transactions typically influence the assets and liabilities position and are more long-term or investment-oriented.
The reporting requirements in India for an international investment for Indian residents are twofold, involving both foreign exchange regulations and income tax compliance:
International investing involves holding securities issued by entities outside an investor's home country. This strategy includes a range of global investment instruments as part of an investment portfolio, extending beyond the investor's domestic market.
There are two primary ways to invest in international markets:
Investors should thoroughly research the economic conditions, political stability, and market dynamics of the country in which they plan to invest. Understanding these factors is crucial to making informed investment decisions and managing risks in international markets.
As of August 22, 2022, the Indian Government and the Reserve Bank of India have issued a new framework providing clarity on overseas investment. This covers economic activities and revises reporting requirements for Overseas Direct Investment (ODI) and Overseas Portfolio Investments (OPI).
Under the Liberalized Remittance Scheme (LRS), Indian residents can invest up to $250,000 per financial year in permissible investments (OPI and ODI) and other purposes like overseas visits, gifts, medical treatment, and education.
Indian residents can invest in shares of foreign companies listed on overseas exchanges, with less than a 10% stake and without control over the foreign entity. Investments like stocks of Amazon, Apple, Microsoft, Tesla can be made through a demat account with foreign entities or Indian brokers tied up with international brokers.
Indian residents can invest in international mutual funds that have exposure to global markets and invest in foreign stocks, including international ETFs accessing global indices like Nasdaq.
Yes, they can invest in listed bonds of foreign governments and corporate bonds, which are also covered under the LRS limit with no reporting requirements under the new framework.
Indian residents can acquire foreign securities by inheritance, which does not count towards the LRS limit and requires no reporting under the new framework.
Yes, Indian residents can acquire foreign securities by gift without it being counted towards the LRS limit or requiring reporting under the new framework.
Investments in entities in the International Financial Services Centre, such as GIFT City, are considered overseas investments and are permissible within the LRS limit.
TCS at 5% applies to amounts exceeding INR 7 lakh under LRS. For individuals without a PAN or Aadhar card, the rate is 10%.
Under the Liberalised Remittance Scheme, residents, including minors, can freely transfer up to USD 2,50,000 or its equivalent in any convertible foreign currency per financial year (April–March) for permissible transactions in current or capital accounts, or a combination of both.
It eases the process of transferring money. LRS provides an extensive and structured system to remit funds without the hassle of too many protocols and paperwork.
All resident individuals are eligible to use the LRS. It can be used for overseas investments, private visits outside India, gifts, donations, maintenance of relatives abroad, medical treatment abroad, education abroad, and other permitted purposes.
Yes, the maximum limit is USD 2,50,000 per financial year. Once this limit is reached, further remittances are not allowed under LRS in that financial year, even if the proceeds of the investments are brought back to the country. Any Remittance exceeding this limit would require prior permission from the RBI.
Yes, remittances can be consolidated in respect of close family members, provided they comply with the LRS terms and conditions. However, clubbing is not allowed for capital account transactions unless they are co-owners or co-partners of the involved asset.
For minor remitters, the LRS declaration form requires the counter signature of the natural guardian.
The Scheme is not available to corporates, partnership firms, Hindu Undivided Families (HUF), trusts, etc.
The procedure includes due diligence by an Authorised Dealer (AD), filling the Form A2, mandatory quoting of PAN, adhering to KYC and AML guidelines, verifying the source of funds, designating a single AD branch for all remittances, and meeting other specific conditions.
Yes, individuals may exceed the LRS limit for specific purposes like emigration, medical treatment abroad, or education abroad, provided they submit required proof.
Transactions prohibited under the LRS include remittances for activities like purchase of lottery tickets, margin calls to overseas exchanges, trading in foreign exchange abroad, and remittances to countries or entities flagged for non-cooperation or terrorism risks.
Outward Remittance under LRS refers to the transfer of funds abroad within the LRS limit. Form A2 is a declaration and application form used for such remittances, specifying the amount and purpose of the transfer.
The purpose codes include S0001 for Indian Portfolio investment abroad in equity shares, S0002 for Indian Portfolio investment abroad in debt instruments, and S0003 for Direct Investment in Equity such as Joint Ventures/Wholly Owned Subsidiaries.
Form 15CA/15CB is not applicable for Indian Portfolio investments abroad in equity shares as per Rule 37BB of the Income Tax Act, 1961. This rule lists specific payments which do not require the submission of these forms.
Investing in residential real estate can offer various benefits, such as potential long-term appreciation in value, rental income, tax advantages, and the opportunity to create a home or living space tailored to personal preferences.
If you need a home to live then it is the best investment, but you can also fetch multiple benefits like putting it on rent will give you a regular source of income, then you can keep it as an option for good and bad times.
Investing in real estate can offer significant financial returns, but it also involves challenges such as liquidity issues, the need for substantial starting capital, the time it takes to realize profits, and the importance of location in property value appreciation.
Real estate depreciation, maintenance expenses, and principal repayments are all related to certain tax advantages. Additionally, because real estate values don't change frequently, owning it offers security. There are benefits to investing in gold, such as its strong sentimental value and high liquidity. People have different preferences depending on their financial circumstances when it comes to better investments.
Even with its higher capital requirements, real estate investing is still less complex. Forex trading can be intimidating for novices, and there's a good possibility they'll end up losing money. Expert traders, however, can turn a sizable profit in a single day. Real estate investing, on the other hand, is often less hazardous and is more likely to provide moderate to large returns over time.
The Real Estate (Regulation and Development) Act, 2016 (RERA) in India is a landmark legislation aimed at promoting transparency, accountability, and efficiency in the real estate sector.
While real estate investments are typically more stable and less prone to rapid fluctuations compared to stocks, they are not as liquid. Selling stocks and accessing funds is generally quicker and easier than doing so with real estate assets.
Bonds are considered a safer investment option, often offering consistent returns with low risk of loss. However, the potential financial gains are usually smaller compared to those achievable in real estate investments, which, while offering higher returns, also come with an increased risk of loss.
Certificates of Deposit (CDs), much like bonds, are among the safer investment choices, with a low likelihood of loss. However, the financial returns on CDs are generally modest compared to the potential gains from real estate investments.
Mutual funds are typically long-term investments that, if held for an extended period, are likely to appreciate in value, although this is not guaranteed. Investing in mutual funds is easier compared to real estate. Real estate investments can offer a buffer against economic downturns that might negatively impact the value of mutual funds.
The value appreciation of a property is heavily influenced by its location. Properties in areas where real estate prices are rising are more likely to increase in value. Therefore, thorough research to identify the right property in a promising location is crucial in real estate investing.
Office No. 106A, B-Wing Kanakia Wall Street,
Andheri - Kurla Rd, Chakala, Andheri East,
Mumbai, Maharashtra - 400093
