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Private Equity: What Investors Need To Know

22, January 2018 | Vikas Singh

Private equity investment in India has gained good momentum over the past decade or two.In fact, Mumbai, the financial capital of India, has become a popular hub top Private equity firms lay an operational ground. Private equity firms in Mumbai have a wide spectrum of investment options owing to the fact that Mumbai is one of India's top business hubs with booming startups.

Private Equity funds generally gather corpus money from investors, which is invested largely in many private companies or startups with great growth potential. Let's now look at the two major investment criteria that Private Equity funds follow:

General Investment Criteria

PE funds that follow the general investment criteria normally invest the corpus in diversified industries.This helps them spread the investor risk effectively.

Specific Investment Criteria

On the other hand, Private Equity funds that follow specific investment criteria normally invest the corpus in specifically identified industries, which they feel have great growth potential.

PE funds stay invested for a long-term time horizon. This spans anywhere between 10-12 years. However, they tend to close down the fund immediately upon the completion of the allocated investment time horizon. At this time, they distribute the funds among its limited partners. Therefore, PE funds follow a medium-to-long term time horizon during which they stay committed to their investors until the point they exit the fund.

PE funds provide investors with a diversified investment option since they invest in companies with great growth prospects, which are currently in difficulty. They also hand-hold the companies through the difficult moments, making it easier for those companies to become profitable. This approach of PE funds ensures that the companies churn out good profits, which reflect in greater returns for the Private Equity funds.  

India has become a popular hub for Private Equity funds because of a stable and policy-oriented central government that's focused on foreign investments in India. Other key factors such as favorable demographic dividend higher disposable income have added to the India growth story and helped capture the attention of top global PE funds who are now parking their funds in India.

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