AIF Equity Funds vs. Mutual Funds
Category III AIF equity funds differ significantly from mutual funds: they take concentrated positions (15–30 stocks), are exempt from SEBI's MF diversification norms, can use leverage, take short positions, and invest in unlisted securities. They charge performance fees (carried interest) aligning manager interests with investors.
- No Diversification Restrictions: Unlike MFs, AIFs can hold 10%+ in single stocks
- Performance Fees: 20% carried interest above hurdle aligns manager incentives
- Flexible Mandate: Can invest in unlisted, pre-IPO, and offshore securities
- Access to Top PMs: Many India's best portfolio managers run only AIF structures
- Lower SEBI Reporting: More operational flexibility vs. MF regulations
Key Differences from Mutual Funds
Structural advantages of AIF equity funds:
- Min. Investment: ₹1 Crore (vs. ₹500 for MFs)
- No single-stock cap: can hold 15–20% in high-conviction positions
- Can use leverage: up to 2x NAV for Cat III funds
- Can short stocks: hedging and pair trades permitted
- Quarterly liquidity: no daily redemption like open-ended MFs