What an AIF is
An AIF pools money from sophisticated investors — at least ₹1 crore each, unless they are accredited investors — under the SEBI (Alternative Investment Funds) Regulations, 2012. Each scheme needs a minimum corpus of ₹20 crore and can have up to 1,000 investors (accredited investors don’t count towards that limit).
Category I
Funds that invest in sectors the government considers socially or economically desirable. Sub-categories:
- Venture capital funds — at least 75% of investable funds in unlisted equity or equity-linked instruments of startups and venture undertakings (or SME-exchange-listed companies).
- Angel funds — a separate sub-category since September 2025, open only to accredited investors. See angel fund rules.
- SME funds, social impact funds, infrastructure funds and special situation funds.
Category II
The residual category — funds that aren’t Category I or III. Private equity and private credit funds usually sit here. They invest mainly in unlisted securities or listed debt rated ‘A’ or below, and can’t borrow except for short-term needs.
Category III
Funds using complex or trading strategies, including listed equity and derivatives — often called hedge funds in India. They can use leverage (up to 2x NAV) and can be open-ended. They are taxed at fund level, not pass-through.
Side by side
| Category I | Category II | Category III | |
|---|---|---|---|
| Typical strategy | Venture capital, angel, SME, social impact, infrastructure | Private equity, private credit | Long-short, arbitrage, derivatives |
| Structure | Close-ended, at least 3 years | Close-ended, at least 3 years | Open- or close-ended |
| Borrowing | Temporary only | Temporary only | Leverage up to 2x NAV |
| Single investee limit | 25% of investable funds | 25% of investable funds | 10% of investable funds |
| Sponsor/manager stake | Lower of 2.5% or ₹5 crore | Lower of 2.5% or ₹5 crore | Lower of 5% or ₹10 crore |
| Registration fee | ₹5 lakh (₹2 lakh angel) | ₹10 lakh | ₹15 lakh |
| Tax | Pass-through | Pass-through | Fund level |
Large value funds for accredited investors (minimum ₹25 crore per investor) can go up to 50% in one investee (Category I/II) or 20% (Category III).
Next: how to register an AIF and how AIFs are taxed.
Frequently asked questions
What is a Category I AIF?
What is the difference between Category I and Category II AIF?
Which AIF category can use leverage?
What is the minimum investment in an AIF?
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.