Hedge Funds in India
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Two fast growing emerging markets, India and China are keenly observed for new investment propositions, particularly investment in hedge funds. Presence of systematic institutional framework for hedging, regulatory factors, a well-developed capital economy, liberalized stable economy, rapid reforms, democratic set-up, good information disclosure standards, better return on capital have rather favored India score over China as a superior place for investment in hedge funds.
Investment in hedge funds is a cynosure of interest for sophisticated investors, wealthy individuals or families and big institutions. They are class of investors who believe in the finance mantra - higher risk, higher opportunity investments and higher rewards. Yes, investment in India focused hedge funds - for those with an appetite for risks, most willing to take risks in anticipation of explosive reward. Investment in hedge funds in India has been gaining momentum post 2001-2002. To invest in hedge funds in India, you need to first understand what they are and how it works.
Hedge funds basics
Investment fund: Money is collected from a group of people and invested. Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs) and persons of Indian Origin (PIOs) invest in securities in primary and secondary markets in shares, bonds, commodities, currencies etc.
With a minimum investment limit: The investors are high net worth individuals. Exclusively favoring the crème de la crème, the usual minimum investment amount is US$ 1, 000,000/ USD 1 million.
Returns through use of high-risk techniques and strategies: Hedge funds prefer to remain secluded and untouched by the market environment. Hedge funds seek absolute returns irrespective of how the markets behave. The fluctuations in the market are not to affect the absolute returns aimed at. For this, single or multi high-risk techniques and strategies are adopted to generate the returns.
Hedge funds in India
Hedge funds in India Glossary
Inception date: The date on which the fund starts trading.
Investment manager: The prospectus ought to provide details about the investment manager whether an individual or a group of persons who would oversee investment strategies. The investment manager may also play the roles of fund manager, investment advisor or sponsor. Investment manager provides clarification to the investor on any matter related to hedge fund investment.
Fund administrator: Primarily responsible for processing investor's subscriptions and redemption, the fund administrator calculates the value of investor's holding too. Fund administrator may be an individual or a group of persons.
Custodian: The financial entity that holds hedge fund assets. This includes cash in the fund as well as securities.
Prime broker: There can be overlapping of roles and responsibilities with fund administrators. But prime brokers bring in investment and operational perspective to hedge funds. Prime brokers help fund manager or investment manager to decide on allocation of investment funds to different brokers.
Transaction broker: All investment activities are executed through the transaction broker.
Typical hedge fund investment
Guide to investing in hedge funds in India