These funds concentrate on making investments in tangible assets such as energy projects, roads, bridges, and other vital infrastructure. They offer long-term funding to help with the building and maintenance of important infrastructure projects.
The Indian government offers incentives and exemptions to infrastructure AIFs because it considers these projects will have a positive ripple effect on the nation’s economy.
The government also provides incentives to other Category 1 AIFs, including Social Venture Funds, SME funds, and Venture Capital Funds, since it considers them economically or socially beneficial.
AIFs were introduced in India in 2012. Since then, the infrastructure fund category has grown to the greatest amount in AIF Category 1, reaching ₹ 18,738 crore. Social venture funds and venture capital funds are ranked second and third, respectively.
Infrastructure has become a very attractive segment within AIFs with the potential for steady, long-term profits and the ability to support economic growth. Roads, water, trains, transmissions, renewable energy, and municipal solid waste are all examples of infrastructure projects.
Infrastructure investments cover a wide range of resources that are essential to both economic activity and the smooth operation of society. These include utilities (water, electricity), social infrastructure (hospitals, schools), telecommunications, and transportation networks (roads, bridges, airports, etc.).
Features of Infrastructure Alternative Investment Funds include a high risk-high return investment, long investment horizon, low liquidity, and an opportunity to invest in a field with huge potential in India.
Characteristics of Infrastructure AIF
Infrastructure AIFs are appealing to investors looking for steady returns over the long run because of their longevity, which results in steady and predictable cash flows. Infrastructure assets have an average longevity of several decades.
Investments in infrastructure frequently exhibit inflation-hedging characteristics. Revenues from infrastructure assets often increase over time as the cost of products and services rises.
Infrastructure AIFs have shown minimal correlation with conventional asset classes like stocks and bonds in the past. The investor’s overall risk is reduced, and portfolio diversification is improved by the low correlation.
Infrastructure investments are subject to strict restrictions that protect investor interest and provide transparency because they are categorised as Category 1 AIF.
Regulations
One company may not get over 25% of the investment. They have the option to invest in their own subcategories, such as social ventures, SMEs, and venture capital. However, they cannot invest in funds of funds.
According to SEBI regulations, high-net-worth individuals (HNIs), family offices, institutional investors, and other wealthy investors are typically permitted to invest in Category I AIFs. A maximum of 1,000 investors per plan is permitted.
Infrastructure-focused Category I AIFs, among others, are required to have a minimum corpus of ₹ 20 crore from investors at the time of the fund’s inaugural closing.
