Definition
Alternative Investment Funds (AIFs) are privately pooled investment vehicles established or incorporated in India that collect funds from sophisticated investors—both Indian and foreign—to invest according to a defined strategy in assets beyond traditional investments like stocks, bonds, or cash
Key Features
- Privately pooled from high-net-worth individuals (HNIs), institutions, or family offices
- Minimum investment size is typically ₹1 crore per investor (excluding certain accredited investors)
- Regulated by SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012
- Not covered under SEBI’s mutual fund or collective investment scheme regulations.
Categories of AIFs
| Category | Typical Investments | Examples |
| Category I | Startups, SMEs, social ventures, infrastructure | Venture capital, angel funds, infra funds |
| Category II | Private equity, debt funds, funds of funds | PE funds, debt funds |
| Category III | Publicly traded securities, complex strategies, hedge funds | Hedge funds, PIPE funds |
Category I focuses on sectors considered socially or economically desirable, such as startups, small and medium-sized enterprises (SMEs), infrastructure, and social ventures.
Category II invests in private equity, debt, and other funds not falling under Category I or III. These funds do not undertake leverage except for day-to-day operational requirements.
Category III employs diverse or complex trading strategies, including investment in listed or unlisted derivatives, and may use leverage
Benefits and Considerations
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- Diversification: Access to asset classes and strategies beyond traditional markets
- Potential for Higher Returns: Especially in early-stage or private investments, though with higher risk.
- Less Volatility: Many AIFs are less impacted by daily market swings since they invest in private assets.
Conclusion
AIFs are generally suitable for sophisticated investors with a higher risk appetite and longer investment horizons. Please consider all aspects and seek professional advice before investing.
