Alternative Investment Funds (AIF) in India — A Friendly, Deep Guide for HNIs & Accredited Investors
Alternative Investment Funds are privately pooled investment vehicles that invest in “alternative” asset classes—venture capital, private equity, real estate, commodities, derivatives, unlisted shares, etc. They are different than mutual funds, fixed deposits etc.
What exactly is an AIF?
An AIF is a privately pooled fund that invests in alternative assets such as unlisted equity, pre-IPO deals, infrastructure, real estate, credit opportunities and sophisticated derivatives strategies. These funds are structured as trusts, LLPs or companies and must register with SEBI to operate.
The three AIF categories — what each one means
Category I AIF:
These AIFs invest in sectors or areas that are considered socially or economically desirable. They are encouraged by the government or regulators because they help with economic growth.
Category II AIF:
These AIFs pool funds from investors to invest in a variety of strategies but do not take government incentives or subsidies. They are often focused on generating high returns for investors rather than social benefits.
Category III AIF
These AIFs employ complex and diverse trading strategies, including derivatives and leverage, to maximize returns. They are suitable for sophisticated investors who can handle high risk.
Why HNIs & accredited investors choose AIFs
AIF Category & strategy
Does the strategy fit your risk profile
Fund tenure & liquidity
Close-ended funds often have multi-year lock-ins — understand exit windows.
Fees & carry structure
Management fees + performance carry can materially affect net returns.
Reporting & transparency
Frequency of reporting, valuation policies and investor governance.
How to integrate AIFs in a wealth plan
