Funds which invest in economically and socially viable early-stage StartUps, Small and Medium Enterprises and new businesses with unique products or services with high potential for growth. Several promotional and incentivizing initiatives have been taken by the government for such funds due to the growth prospect and employment creation fuelled by such funds. These funds have proved to be very helpful to the startup ecosystem in India.
A] Category I comprises the following funds:
➲ Venture Capital Fund (VCF)

Venture Capital Funds are Category I Alternative Investment Funds which provide funding to startups, early-stage venture capital projects or to a small or medium-sized business, to own a part of its equity.

VC’s generally prefer funding businesses, that are already established or that are in their growth stage & have a long-term potential to mitigate their risk of losing investments.

VC’s act as a pool which collects money from various investors who are willing to undertake equity investments in ventures. VC’s, in turn invest this money, in multiple prospective projects including start-ups and SME’s. Such investments are made considering a calculated risk after taking elaborate note of several factors linked to the growth of the projects they invest in.

Unlike any collective investment schemes or mutual funds or hedge funds, investors of a VC get a pro rata share of every business the VC has invested in.

High Net Worth Individual Investors, from India and abroad, who seek high risk-high return ratio highly prefer investing in Venture Capital Form of AIF, Thus, contributing towards the growth of our economy.

➲ Angel Fund [AF]

An “Angel Investor” refers to an individual who is willing to invest in and “ANGEL FUND”. Angel funds are pretty much similar to Venture Capital Funds. The primary difference between the two is what money they use to invest.

This kind of funds comprises of various “angel” investors who contribute to the pool of funds known as the “ANGEL FUND”. Such funds prefer to invest in early-stage or budding start-ups for their growth.

When and “Angel Investor” invests in such funds, they are issued units of such fund. Angel Funds have a comparatively higher risk-return ratio. The source of returns on investments by such funds are the dividends from the profits that their investee companies make once they achieve growth and profitability.

➲ Infrastructure Fund [IF]

Infrastructure funds invest specifically to invest in companies incorporated for the purpose of development of infrastructure projects. This kind of fund facilitates investment for investors who prefer to put money in infra development projects since the infrastructure sector has considerably high entry barriers and relatively lower levels of competition. Such funds also enjoy various tax benefits and subsidies from the government of India.

Investment in Infrastructure funds generally yields double-fold returns in the form of capital growth and dividend income.

➲ Social Venture Fund [SCF]

Social venture funds [SCF’s] are a result of the evolution of socially responsible investing in India. This type of AIF’s typically invests in companies which focus on making profits and solve environmental as well as social issues simultaneously. Despite the investments being benevolent in nature, the expectation of returns is not far-fetched as the investees would still make profits.

The target investment opportunities for SCF’s are typically the social welfare projects carried out of developing countries as they have great potential for growth as well as social change.

Social Venture Funds engage the latest technology, best managerial practices and huge resource pool towards the target project with an aim at carving out a win-win situation for all the stakeholders including investors, enterprises and society in general by investing in social and infrastructure projects.

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