As per SEBI Regulations, “Private equity fund” means an Alternative Investment Fund which invests primarily in equity or equity linked instruments or partnership interests of investee companies according to the stated objective of the fund.

PE funds mostly invests in equity/equity-linked instruments or partnership interests of unlisted companies with potential for giving high returns, as these companies find it difficult to secure capital through equity and debt instruments.  In this manner PE funds can take part in ownership of the company

Managed by a private equity firm, or LLP, private equity funds are a type of collective investment plan. They can be used to invest in debt and equity. These PE funds invest in unlisted companies and secure a share of the ownership. There is a team of professionals in the private equity firm who raise the money and manage the entire fund. The fund managers utilize the funds for raising new capital, new technology for the companies, future acquisitions, and even investing in other companies to make the fund strong. Private Equity Funds usually have a high rate of return. Most of the investors in a PE are High- Net individuals, or Investment Banks. 

PE funds usually have a fixed investment horizon. The lock-in typically lasts between four and seven years. The tenure of these funds can also be anywhere between 5-10 years with the option of annual extension. 

The major difference between VCF and PE is the nature and purpose of investment. Unlike PE, which invests in larger, more established companies with the intention of acquiring equity, VCF invests in startups and small businesses with significant growth potential.

Private equity firms generate value through several means, such as:

• Leverage: When buying businesses, private equity firms frequently employ leverage. This implies that they take out a loan to fund the purchase, which, should the business succeed, might increase profits. 
• Operational Enhancements: Due to their frequent experience in business management, private equity firms can assist in enhancing the operational performance of the companies they buy. Higher valuations and higher profitability may result from this.
• Strategic Adjustments: Private equity firms can assist in implementing strategic adjustments for the businesses they purchase. This can involve taking over other businesses, growing product lines, or breaking into new private markets. Growth and profitability may increase as a result of these adjustments.
• Exit Strategies: Due to their limited investment horizons, private equity firms must eventually sell their holdings. An IPO, a sale to another business, or a sale to a strategic buyer are the several ways to accomplish this.

A general partner (GP), usually the private equity firm that started the fund, is in charge of managing private equity funds. 

All of the fund's management choices are made by the GP. It also contributes 1% to 3% of the fund’s capital to ensure it has skin in the game. In return, the GP earns a management fee often set at 2% of fund assets and may be entitled to 20% of fund profits above a preset minimum as incentive compensation, known in private equity jargon as carried interest.

Limited partners (LPs) are clients of the private equity firm that invest in its fund; they have limited liability. While limited partners (LPs) are not involved in the management of the fund, they are able to cast votes on some significant decisions, such the sale of a portfolio firm.

A potential investor may do so in private equity in the following ways:

• Direct Investment: The most conventional approach to invest in private equity is to make a direct investment in a fund. By buying fund shares, investors can make direct investments in private equity funds. 
• Fund of Funds: A mutual fund that makes investments in other mutual funds, such as private equity funds, is known as a fund of funds. Investors that are unable to satisfy the high investment minimums required for private equity funding may find this to be a suitable approach to get exposure to private equity.
• Exchange-Traded Fund (ETF): A variety of ETFs follow indices of private equity. Investors may be exposed to a diverse portfolio of private equity investments through these exchange-traded funds (ETFs).
• Secondary Buyout: Buying a private equity fund's stake in a business from another investor is known as a secondary buyout. Without having to make an investment in a new fund, this might be an excellent method for investors to have exposure to private equity.
• A Special Purpose Acquisition Company (SPAC): is a type of shell company that is established exclusively for the aim of purchasing another business. Investors who want to learn about private equity but don't want to go through the conventional process can consider SPACs as a viable option.

Before making a private equity investment, however, one should thoroughly assess their investment goals and risk tolerance.

Because of the high minimum investment requirements, illiquidity, and complexity of private equity investing, it is generally limited to institutional investors and high-net-worth individuals. Those eligible to invest in private equity are broken down as follows:

• Institutional Investors: Large financial institutions such as insurance firms, foundations, pension funds, and endowments are examples of institutional investors. They can fulfill the high investment minimums required by private equity firms since they have the necessary capital and resources.
• High Net Worth Individuals: Investing in more complex ventures such as private equity is made possible for High-Net-Worth Individuals (HNWIs).
• Family Offices: The investments of extremely wealthy people and families are managed by family offices, which are private wealth management companies. They may assess and participate in private equity opportunities because they possess the necessary knowledge and assets.
• Secondary Market Investors: These individuals buy existing private equity fund shares from other investors, usually at a reduced cost. 
• Retail Investors: There has been an increasing tendency in recent years to increase retail investors' access to private equity investments through a variety of channels, including:
  • Private Equity ETFs
  • Online Crowdfunding
  • Investing directly in Special Purpose Acquisition Companies (SPACs)

Before making a private equity investment, however, investors should be aware of the development potential as well as the difficulties faced by private equity organizations.

• Possibility of High Returns: PE investments have the potential to yield large returns, particularly over an extended period of time. This is due to the fact that PE firms usually fund businesses with the potential for quick growth.
• Access to Private Companies: This may be a chance for investors to put money into businesses that could see rapid growth.
• Active Management: Private equity firms generally manage the businesses in which they make investments actively. This has the potential to enhance business performance and increase investment returns.
• Tax Benefits: Investors may occasionally receive tax benefits from PE investments. 

• Illiquidity: Private equity (PE) investments are generally not easily acquired or traded. This may make it challenging to sell an investment if necessary.
• Hefty Fees: The rewards on PE investments are often reduced by the hefty fees associated with them.
• Risk: Compared to other investment categories like shares or bonds, private equity (PE) investments are often riskier. This is due to the fact that PE firms frequently invest in young, developing businesses, which increases their volatility.
• Lack of Transparency: Private equity (PE) investments may be opaque, making it challenging to learn more about the businesses they fund. This might make evaluating the risks associated with an investment challenging.