Alternative Investment Funds
Category I, II & III funds — long-short, private credit, pre-IPO and structured strategies that go beyond listed markets.
Overview
AIFs open up strategies a mutual fund cannot run: long-short equity, private credit, pre-IPO and structured plays. They suit investors with ₹1 crore-plus to allocate who want returns that do not simply track the index. We run independent manager due-diligence and decode the mandate and fee structure before a rupee moves.
At a glance
- Category I, II & III
- Curated managers
- ₹1 crore+
Key benefits
Category I, II & III — long-short, private credit, pre-IPO
Curated managers with verified track records
Returns less correlated to the listed market
Mandate, lock-in and fee structure explained plainly
Minimum investment
₹1 crore
Categories
I, II & III
Regulator
SEBI-registered
Typical horizon
3 – 7 years
Types of Alternative Investment Funds
Category I
Funds that back start-ups, early-stage ventures, SMEs, infrastructure and social ventures — areas the government considers economically desirable, and which often carry incentives.
Category II
The broadest bucket: private equity, private credit, real-estate and debt funds that use no leverage beyond day-to-day needs. This is where most HNI allocations sit.
Category III
Funds that employ complex or leveraged strategies — long-short equity, absolute return, arbitrage and structured plays, often with the freedom to use derivatives.
What to weigh before you invest
The manager is the strategy
In an AIF you are buying a manager's judgement, not an index. Track record, team stability and how they behaved in a bad year matter more than a glossy deck.
Your money is locked
Most AIFs run three to seven years with limited or no redemption windows. Commit only capital you can genuinely leave alone for that long.
Read the fee structure
Management fee, hurdle rate, catch-up and carry all interact. Two funds quoting the same headline can leave very different amounts in your hands.
Taxation varies by category
Category I and II funds enjoy pass-through status, so income is taxed in your hands. Category III is taxed at the fund level. The difference changes the net outcome.
Who Alternative Investment Funds suits
If you recognise yourself here, it is worth a conversation — a free review, with no obligation and nothing to sign.
- Investors with ₹1 crore-plus to allocate beyond listed markets
- Portfolios that already have a solid mutual fund and PMS core
- Those who want returns less correlated to the index
- Investors who can genuinely leave capital untouched for years
Got questions? We have answers
What is an AIF?
An Alternative Investment Fund is a SEBI-registered, privately pooled vehicle that invests in assets a mutual fund cannot easily reach — private equity, private credit, pre-IPO, long-short strategies and more. SEBI sorts them into Categories I, II and III.
What is the minimum investment?
SEBI mandates a minimum of ₹1 crore per investor in an AIF, which is why they suit only substantial portfolios.
How are AIFs taxed?
Category I and II funds have pass-through status: income flows to you and is taxed in your hands at your applicable rate. Category III funds are taxed at the fund level before distribution.
Can I exit early?
Generally no. Most AIFs are close-ended with a defined tenure and only limited redemption windows, if any. Liquidity is the price you pay for the strategy.
Can NRIs invest in an AIF?
Yes, through NRE or NRO accounts, subject to FEMA rules and the fund's own eligibility conditions. Some funds also run GIFT City structures aimed specifically at non-residents.
How is an AIF different from a mutual fund?
A mutual fund is open to everyone, daily-liquid and tightly constrained in what it may hold. An AIF needs ₹1 crore, locks your money for years, and in exchange can pursue strategies — private credit, pre-IPO, long-short — that a mutual fund simply cannot.
How is an AIF different from a PMS?
In a PMS you own the shares directly in your own demat account and the strategy is listed-equity. In an AIF your money is pooled with other investors into a fund that can hold unlisted, private or derivative positions. Different minimums, different liquidity, different tax.
What is a drawdown or capital call?
Many AIFs do not take your full commitment upfront. You commit, say, ₹1 crore, and the fund calls it in tranches as it finds deals. You must keep the uncalled money available — a missed capital call can carry a stiff penalty.
What fees does an AIF charge?
Typically a management fee of around 1–2% a year, plus performance-linked carry (often 10–20%) above a hurdle rate. Whether there is a catch-up clause materially changes what you keep, which is why we read the term sheet line by line.
What returns should I expect?
Nobody can honestly promise you a number, and treat anyone who does with suspicion. AIF outcomes vary enormously by strategy, by manager and by vintage. What we can do is show you the realistic range and how that manager behaved in a bad year.
Is an AIF riskier than a mutual fund?
Generally yes — through illiquidity, concentration and, in Category III, leverage. That risk can be intelligent when it sits on top of a solid fund and PMS core. It should never be where a portfolio starts.
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