Why in the news?

  • The Reserve Bank of India (RBI) has provided an exemption to SWAMIH Fund from AIF curbs.

SWAMIH Fund

  • What is it?:
    • The name stands for Special Window for Affordable and Mid-Income Housing Investment Fund.
    • It is a government-backed initiative by the Ministry of Finance, Government of India, launched in November 2019.
    • The Fund is managed by SBICAP Ventures Ltd (a subsidiary of State Bank of India) and structured as a Category-II Alternate Investment Fund (AIF) focusing on debt financing in stressed residential real-estate projects.
  • Objective:
    • Its primary objective is last-mile financing of stalled or stressed residential housing projects, specifically in the affordable and mid-income segments.
    • The focus is on large-scale, brown-field, affordable/mid-income housing across Tier-1 and Tier-2 cities in India.
  • Key Features:
    • Projects must predominantly be for affordable/mid-income housing. For example: carpet area ≤ 200 m²; sale price thresholds apply (e.g., < ₹2 crore in Mumbai MMR, < ₹1.5 crore in NCR/other metros, < ₹1 crore in non-metros).
    • Funding cannot be used to repay existing debt of the project; it must be used for construction completion and other approved purposes.
    • Developers of varying backgrounds (first-time, experienced but stressed, etc.) can apply, provided the project meets criteria.
  • Importance:
    • For the real-estate and financial ecosystem: Unlocks capital stuck in stalled projects, reduces non-performing assets, stabilises the housing sector.
    • Socio-economic dimension: Addresses affordable/mid-income housing supply, which aligns with larger national goals of “Housing for All”.

Alternative Investment Fund

  • What is it?: Alternative Investment Fund (AIF) refers to privately pooled investment vehicles that collect funds from investors, Indian or foreign, to invest as per a defined policy for the benefit of their investors.
  • Regulation: AIFs are regulated by SEBI.
  • Objective & Purpose:
    • To channelize capital into non-traditional investments beyond equities, bonds, and mutual funds.
    • To promote entrepreneurship, innovation, infrastructure development, and job creation.
    • To provide institutional and high-net-worth investors with professionally managed portfolios in niche asset classes.
  • Categorisation:
    • Category I AIF:
      • Invests in economically or socially desirable sectors.
      • Eligible for government incentives or concessions.
      • Policy Objective: Encourage new entrepreneurship, early-stage innovation, and infrastructure growth.
      • e.g.: Venture Capital Funds (VCFs), SME Funds, Social Venture Funds, Infrastructure Funds and Angel Funds.
    • Category II AIF:
      • Includes funds not covered under Category I or III and do not undertake leverage other than temporary borrowing.
      • Objective: Provide long-term capital for established businesses or projects.
      • e.g.: Private Equity Funds (PE), Debt Funds and Real Estate Funds like SWAMIH Fund.
    • Category III AIF:
      • Employs complex trading strategies, including leverage, derivatives, and short-selling.
      • Objective: Generate short-term returns using diverse strategies in public markets.
      • e.g.: Hedge Funds and PIPE (Private Investment in Public Equity) Funds.
  • Key Features:
    • Private Placement Mode: Not offered to the public; open only to qualified investors.
    • Professional Management: Managed by fund managers with expertise in specialized asset classes.
    • Lock-in Period: Usually 3–5 years or as per fund strategy.
    • Taxation: Pass-through status for Category I and II AIFs (income taxed at investor level).
    • Transparency: SEBI mandates disclosures on risk, valuation, and performance to investors.
  • Significance:
    • Boosts alternative financing for startups, real estate, infrastructure, and social enterprises.
    • Supports the government’s “Atmanirbhar Bharat” and “Startup India” missions.
    • Diversifies India’s capital market beyond traditional instruments.
    • Helps reduce banking sector stress by channeling private risk capital.
  • Challenges:
    • Limited retail participation due to high investment thresholds.
    • Regulatory complexity and overlapping jurisdictions (SEBI, RBI, CBDT).
    • Risk of illiquid or opaque assets in some AIF categories.
    • Need for stronger governance, valuation, and risk-management standards.
  • Major AIFs in India:
    • SWAMIH Fund (2019): Affordable housing completion fund under the Ministry of Finance.
    • NIIF (National Investment and Infrastructure Fund): Government-anchored AIF for infrastructure.
    • SIDBI Fund of Funds: Supports startups via venture capital AIFs.
    • Green Growth Equity Fund (GGEF): For renewable and climate-resilient investments.