What is an AIF?
An AIF (Alternative Investment Fund) is a privately pooled investment fund registered with SEBI under the AIF Regulations, 2012. It collects money from a small group of wealthy investors and invests it in areas such as start-ups, private companies, private credit, real estate or special trading strategies. The minimum investment is ₹1 crore, and a scheme can have at most 1,000 investors.
The three categories of AIF
- Category I: venture capital, angel, SME, social impact and infrastructure funds. They back new or small businesses and projects that the government wants to encourage.
- Category II: private equity, private debt and funds of funds. They cannot borrow to invest, except for short-term operational needs.
- Category III: funds that trade listed securities with advanced strategies, such as long-short equity or derivatives, and may use leverage. Most AIF returns published online are for this category.
AIF vs PMS vs mutual fund
| AIF | PMS | Mutual fund | |
|---|---|---|---|
| Minimum investment | ₹1 crore | ₹50 lakh | ₹100 to ₹5,000 |
| Structure | Pooled fund for a few investors | Your own portfolio in your demat account | Pooled fund open to everyone |
| What it can invest in | Private companies, credit, real estate, long-short | Mainly listed shares | Listed shares, bonds, gold |
| Withdrawals | Often locked in for 3+ years | Any time, with exit load in the first 3 years | Usually any time |
| Tax | Cat I and II: in your hands. Cat III: at fund level | On every sale, in your hands | Only when you redeem |
| Regulator | SEBI | SEBI | SEBI |