Kolkata: Alternative Investment Funds (AIFs) were introduced in the country by the Securities and Exchange Board of India on May 21, 2012. The rate of growth in popularity of AIFs is indicated by a Crisil report which stated that investors from the country injected as much as Rs 1.14 lakh crore into AIFs in 18 months up to Sept 2025. The report also revealed domestic investors constituted for 55.3% of category I and II AIF capital in Sept 2025, up from 50.3% in March 2024. “That indicates the industry is building a more self-sustaining, locally anchored capital base, reducing its reliance on foreign capital,” said the report which was authored by Oister Global and Crisil.
What are AIFs?
Alternative investment funds are privately pooled investment funds. Significantly, they usually function outside the traditional financial market rules. These funds are formalised as trusts, LLPs, companies or other legal entities. These are primarily targeted towards high-net-worth individuals and institutional investors and not for the common persons. AIFs are categorised into three divisions according to their investment strategies and objectives.
Categories of AIFs
AIFs are of three categories. These are referred to as Category I, II and III. These are:
Category I AIF: These funds usually invest in SMEs, start-ups and other sectors which the government considers socially and economically viable. These are Venture Capital Funds, Angel Funds, Infrastructure Funds and Social Venture Funds.
Category II AIF: This category of AIF includes private equity and debt funds. These do not receive government incentives and they invest in firmly established businesses. These include Private Equity Funds, Debt Funds and Fund of Funds.
Category III AIF: These funds get involved in complex trading strategies. Obviously, the objective of these funds is generating high returns. They include Hedge Funds, Private Investment in Public Equity Funds.
One has to note that category I and II AIFs are close-ended funds and has a minimum tenure of three years. On the other hand, category III AIFs can be both open-ended or close-ended. Experts also point out that close-ended AIFs can be listed on stock exchanges. However, the listing of these funds is voluntary and requires a minimum tradable lot of Rs 1 crore.
Minimum investment
Rules state that the minimum investment for a HNI or high net worth individual in an alternative investment fund is usually Rs 1 crore. This floor applies to Category I, II, and III AIFs. For employees, directors, or managers of the AIF, the minimum threshold is, however, Rs 25 lakh. Prominent AMCs (asset management companies) such as ICICI Prudential, HDFC, Axis, UTI, and Nippon India offer AIFs.
(Disclaimer: This article is only meant to provide information. News9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, InvITs and any form of alternative investment instruments and crypto assets.)
