Previous Year Question
With reference to investments, consider the following:
I. Bonds
II. Hedge Funds
III. Stocks
IV. Venture Capital
How many of the above are treated as Alternative Investment Funds?
Only one
Only two
Only three
All the four
Correct Answer: B
Detailed Solution
Among the four items, Hedge Funds and Venture Capital are treated as Alternative Investment Funds. Therefore, the correct number is two.
Under the SEBI (Alternative Investment Funds) Regulations, 2012, an Alternative Investment Fund—AIF is a privately pooled investment vehicle established or incorporated in India. It collects funds from investors and invests them according to a defined investment policy.
Item I—Bonds: A bond is a debt security. An investor lends money to a government or company and receives interest and repayment of principal. A bond is an investible financial instrument, not an Alternative Investment Fund by itself.
Item II—Hedge Funds: Hedge funds may employ diverse or complex trading strategies and may use leverage. Under the SEBI framework, such hedge funds generally fall within Category III AIFs. Therefore, this item is included.
Item III—Stocks: A stock represents an ownership or equity interest in a company. A stock is not itself an AIF. An AIF may purchase stocks for its portfolio, but that does not make individual stocks Alternative Investment Funds.
Item IV—Venture Capital: Venture Capital Funds invest in early-stage, innovative or high-growth-potential enterprises. SEBI classifies Venture Capital Funds under Category I AIFs. Therefore, this item is included.