A Brief Overview of AIFs
| Metric | Most recent value | CAGR (period of estimation) |
|---|---|---|
| Global reported assets under management by AIFs | US $136.1 bn (Dec 2024) | 13% (2019–2029, projected to $247 bn) |
| Assets under management by Indian AIFs (SEBI reported, across Cat I–III) | ₹5.63 lakh crore (Mar 2025) | 50% growth since Mar 2023 |
| Combined Indian alternative industry (Portfolio Management and AIFs combined) | ₹11.2 lakh crore (FY24 est.) | 27% (FY19–FY24) |
Why It’s the Right Time to Start an AIF
Over the past five years, AIFs in India have gone from being a niche product to becoming a major force in the investment world. These numbers indicate the growing investor confidence and maturity of the AIF ecosystem in India, both in terms of commitments made and actual deployment of funds.
Types of Alternative Investment Funds (AIFs) in India (as per SEBI Classification)
We will now take a closer look at the different types of AIF available in India.
| Category | Targeted sector | Sub-types | Govt. incentives |
|---|---|---|---|
| Category I | Startups, SMEs, infrastructure, social impact | Venture Capital Funds (such as early-stage startups); Infrastructure Funds (roads, airports, etc., govt-backed); Social Impact Funds (ESG-focused); SME Funds (high-growth small and mid-sized firms); Special Situation Funds (NPA resolution) | Yes (tax benefits, concessions) |
| Category II | Unlisted companies (debt or equity through private placements) | Private Equity Funds (stake in unlisted firms); Debt Funds (bonds and debentures in unlisted firms); Fund of Funds (invests in other AIFs); Real Estate and Distressed Funds (property or NPA focused) | No |
| Category III | Listed and unlisted (leverage funds) | PIPE Funds (invest in distressed public equities at a discount); Hedge Funds (use short-selling, arbitrage and derivatives for high returns) | No |
Prerequisites for Setting Up an AIF in India
- Allowed in the MOA or Trust Deed of the legal entity. The entity’s foundational legal documents must explicitly authorise it to operate as an AIF.
- Restriction on public offer. The documents must clearly state that the entity is not permitted to invite the public to subscribe to its securities.
- Qualified fund management. At least one key member from the founding or management team, who will be actively managing the fund, is required to have cleared NISM Series XIX C.
- Infrastructure and human resources. Adequate infrastructure and staffing are the basic requirement to run the fund professionally.
- Defined investment plan. The AIF’s objectives, strategy and targeted asset classes must be listed in the application.
- Minimum fund size. To qualify for registration, the AIF must have a committed corpus of at least ₹20 crore.
- Investor contribution threshold. ₹1 crore is the minimum investment amount in any AIF.
- Minimum contribution by fund operators. Fund managers or employees associated with the AIF (employees of the company running the fund) must invest at least ₹25 lakh into the fund from their own resources.
- Cap on number of investors. A maximum of 1,000 investors are allowed at any point in time.
- Post-closure listing conditions. AIF units can be listed on a recognised stock exchange, with the smallest trading unit being ₹1 crore, but only after the fund has been closed to new investments.
A Guide to Setting Up an AIF in India
- Submit Form A to SEBI, with a cover letter. Form A must be completed and submitted exactly as per SEBI guidelines. The cover letter should explain whether the vehicle is already registered as a Venture Capital entity (if so, furnish those registration details), and whether you have commenced AIF-type activities before registration (if yes, describe what has been done to date). SEBI typically takes around 21 days to process a correctly filed application.
- Arrange the application fee. Prepare a bank draft for ₹1,00,000 drawn in favour of “SEBI” and submit it with your completed Form A.
- Undergo SEBI’s review. SEBI will screen your submission for completeness and regulatory compliance. Only once the regulator is satisfied that all requirements are met will it grant approval to proceed.
- Pay the category-specific registration fee. After receiving SEBI’s approval letter, remit the registration fee for your chosen AIF category. If you are converting from an existing Venture Capital registration, a reduced fee of ₹1,00,000 applies instead of the full amount. On receipt of payment, SEBI issues your Certificate of Enrolment.
- Stay compliant with SEBI. The applicant must adhere strictly to SEBI’s AIF regulations. SEBI circulates updates and amendments through official circulars; make sure you implement changes promptly. Any change to the original fund documentation or key data must be formally notified to SEBI within the stipulated timeframe.
Other Requirements by Category (all figures in INR)
| Criteria | Category I | Category II | Category III |
|---|---|---|---|
| Registration fees | 5 lakh (2 lakh for Angel Funds) | 10 lakh | 15 lakh |
| Manager’s contribution | Greater of 2.5% of corpus or 5 crore (2 crore for Angel Funds) | Greater of 2.5% of corpus or 5 crore | Greater of 5% of corpus or 10 crore |
| Minimum corpus to begin | 20 crore (5 crore for Angel Funds) | 20 crore (5 crore for Angel Funds) | 20 crore (5 crore for Angel Funds) |
| Investment in listed securities | Varies by type of security (not fixed by sector) | Allowed, but less than 50% of total fund value | Allowed, up to 100% of total fund value |
| Investment period | 3–10 years | 2–5 years | 1–10 years |
| Use of leverage | Not permitted | Not permitted | High exposure to leverage permitted |
| Investment by banks and insurance companies | Permitted; Angel Funds capped at 10% | Permitted; Angel Funds capped at 10% | Not permitted |
| Type of fund | Closed-end | Closed-end | Closed-end or open-end |
Conclusion
There is no best AIF. It all depends on the investor’s risk appetite and how they wish to deploy their capital. Someone who wants to play a risky bet may go to Category III. Someone who is new might go for Category I, as it has the lowest registration fees. Someone who wishes to invest across highly diversified sectors might opt for Category II. There is no fixed method for selecting an AIF.
Sources
Vivriti Asset Management; The Times of India; Vinod Kothari Consultants; CARE Ratings; PMS Bazaar; ILO Consulting. Figures are as reported at the time of writing (September 2025).
