What an AIF is
An Alternative Investment Fund is a privately pooled investment vehicle registered with SEBI under the AIF Regulations. It raises money from a limited set of sophisticated investors and deploys it according to a defined strategy — private equity, private credit, real estate, venture capital or long-short equity among them.
AIFs are close-ended or open-ended depending on category, are not required to publish a daily NAV, and are considerably less liquid than a mutual fund. They are intended for investors who can commit capital for several years and can absorb the risk of loss.
The three categories
- Category I — funds investing in start-ups, small and medium enterprises, infrastructure and social ventures, which the regulator views as economically desirable.
- Category II — the largest group in practice, covering private equity, private credit, real estate and fund-of-funds. These may not use leverage other than for day-to-day operational needs.
- Category III — funds employing complex or leveraged strategies, including long-short equity and derivative-based approaches. These face the closest regulatory attention.
Eligibility and commitment
- The minimum investment prescribed by SEBI is ₹1 crore per investor, with a lower threshold of ₹25 lakh available to employees and directors of the fund or its manager.
- Capital is typically drawn down over time against a commitment rather than paid in full at the outset.
- Exit is restricted. Assume your money is committed for the life of the fund.
Who this suits
AIFs are appropriate only where the core of a portfolio is already in place, where the amount committed is genuinely surplus, and where the investor understands both the illiquidity and the possibility of capital loss. They are not a substitute for a diversified long-term portfolio; they sit at the edge of one.