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Reasons to Choose Private Equity Funds

23, August 2017 | Vikash Singh

Here are 5 reasons to choose PE funds:

PE funds have general and specific investment criteria to multiple investors' money

PE funds invest the corpus that they collect largely in various private companies or startups with tremendous growth potential. General investment criteria would mean that a PE fund would park the money in diverse industries, which provides the investors as well as the PE fund with the diversification advantage.However, specific criteria would mean that a PE fund would park the corpus in specific industries, which it believes would reap strong and steady returns.

Long-term time horizon ensures strong and steady returns

One of the key features of a PE fund is that it would generally stay invested with a longer time horizon of approximately10-15 years.This provides investors in a PE fund with the chance to maximize their income over a longer time horizon while correcting short-term losses owing to market cyclicality. A medium to long-term investment perspective ensures that a PE fund would stay committed towards its investors right until the time of exit at the end of the investment term.

Strong and flexible capital base make PE funds an effective investment avenue

PE funds invest in small companies and startups, providing them with a strong and flexible capital base, which would help those companies achieve their growth potential. Therefore, the superior performance of the companies that a Private Equity fund invests in would automatically lead to stronger and steady returns for investors in the PE fund.

PE funds are good and bad-weather friends for investors and companies seeking funds

PE funds go the complete distance with every company or startups in which they invest corpus and never leave a company high-and-dry during challenging times.This becomes a key differentiator for PE funds as an investment class compared with other classes. PE funds support companies in which they have invested in case they go through a lean business phase, through all the possible help for executing a business turnaround to make the business profitable once again. Thus, PE funds often deliver the promised returns to its investors, since they stand by their investors and companies in which they invested in good and bad-weather.

The India advantage is a huge reason to invest in PE funds

Over the past two decades, India has become a popular investment destination for PE investments. This is largely due to a stable government at the center. Owing to a policy-oriented approach, the Prime Minister Narendra Modi-led government has succeeded in building credibility for international investors to park their funds in the India growth story through the PE route. Moreover, factors such as a young demographic dividend, increased focus on infrastructure sector, increasing middle-class population, and higher levels of disposable income have increased the performance potential of PE funds in India, while catching the eye of large global PE funds to invest in India.

Despite local and global headwinds that include demonetization or Brexit vote, the Indian economy could manage to see the light at the end of the tunnel even during these testing times. This amply testifies the potential that PE funds possess in India as an investment asset class.

 

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