An Alternative Investment Fund (AIF) is a privately pooled investment vehicle registered with SEBI (Securities and Exchange Board of India) that collects funds from sophisticated investors and invests them in non-traditional asset classes such as private equity, venture capital, hedge funds, real estate, infrastructure, and structured products.
AIFs are primarily designed for High Net Worth Individuals (HNIs), Ultra-HNIs, family offices, and institutional investors.
| Category | Description |
|---|---|
| Category I AIF | Invests in startups, SMEs, infrastructure, social ventures |
| Category II AIF | Private equity funds, debt funds, fund of funds |
| Category III AIF | Hedge funds, arbitrage, complex trading strategies |
| Feature | Details |
|---|---|
| Regulator | SEBI |
| Minimum Investment | ?1 Crore per investor |
| Investment Horizon | Medium to Long Term |
| Lock-in Period | Usually 3–7 years |
| Risk Level | Medium to Very High |
| Structure | Trust / Company / LLP |
| Target Investors | HNIs & Institutions |
| Transparency | Periodic disclosures to investors |
| Advantage | Explanation |
|---|---|
| High Return Potential | Opportunity to earn higher returns |
| Portfolio Diversification | Exposure beyond stocks & bonds |
| Professional Management | Managed by experienced fund managers |
| Access to Private Markets | Investment in unlisted companies |
| Long-Term Wealth Creation | Ideal for strategic investments |
| SEBI Regulation | Better governance and compliance |
| Disadvantage | Explanation |
|---|---|
| High Risk | Market & business risks involved |
| High Entry Barrier | ?1 Crore minimum investment |
| Low Liquidity | Lock-in restricts early exit |
| No Guaranteed Returns | Performance is market-linked |
| Complex Structure | Not suitable for retail investors |
| Long Gestation Period | Returns may take time |
? Minimum investment of ?1 Crore
? HNI / Institutional investor
? High risk-taking ability
? Long-term investment outlook
(Employees or directors of the AIF may invest with a minimum of ?25 lakh)
? Relevant experience in fund management
? Minimum sponsor contribution:
Category I & II: 2.5% or ?5 crore (whichever is lower)
Category III: 5% or ?10 crore
PAN Card
Aadhaar / Passport
Address Proof
Bank Statement
Net Worth Certificate (CA Certified)
KYC Documents
Trust Deed / LLP Agreement
Sponsor & Manager Details
Investment Strategy Document
Risk Management & Compliance Policy
| Category | Tax Treatment |
|---|---|
| Category I & II | Pass-through taxation |
| Category III | Taxed at fund level |
| Capital Gains | As per asset class |
| GST | Applicable on management fees |
? High Net Worth Individuals
? Family Offices
? Institutional Investors
? Investors seeking higher returns
? Investors with high risk appetite
| Basis | AIF | Mutual Fund |
|---|---|---|
| Minimum Investment | ?1 Crore | ?500 |
| Risk Level | High | Low–Medium |
| Liquidity | Low | High |
| Regulation | SEBI (AIF) | SEBI (MF) |
| Investor Type | HNI | Retail |
Alternative Investment Fund
?1 Crore per investor.
Yes, AIFs involve higher risk compared to traditional investments.
Yes, usually between 3 to 7 years.
AIFs invest in alternative assets and have higher risk and return potential.
HNIs, institutional investors, and family offices.
Yes, AIFs are regulated by SEBI.
No, returns are market-linked and not guaranteed.
Taxation depends on the AIF category.
No, AIFs are designed for sophisticated investors only.
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