06 — Alternatives
Alternative Investment Funds
Private, differentiated strategies — beyond public markets.
SEBI-registered Category I, II, and III AIFs — long-short equity, private credit, venture, real estate, and structured products. Access reserved for sophisticated investors.
AIFs are privately pooled investment vehicles regulated by SEBI. They pursue strategies that public-market funds structurally cannot — long-short, private credit, venture, and thematic long-only.
Fig. 06 — Alternative Investment Funds
Alternatives
Horizon
3 – 10 years (strategy-dependent)
Risk
Moderate – Very High
Liquidity
Locked / periodic (per Category)
Ticket size
₹1 Cr (SEBI minimum)
I — What are Alternate Investment Fund ("AIF")
Alternative Investment Fund or AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors. AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities. Further, certain exemptions from registration are provided under the AIF Regulations to family trusts set up for the benefit of ‘relatives‘ as defined under Companies Act, 1956, employee welfare trusts or gratuity trusts set up for the benefit of employees, ‘holding companies‘ within the meaning of Section 4 of the Companies Act, 1956 etc. [Ref. Regulation 2(1)(b)]
How it works
A four-step process
01
Categorise the need
Cat II for private credit and venture; Cat III for long-short and market-neutral.
02
Diligence the GP
Track record, team continuity, alignment of carry, and prior fund vintages — no shortcut here.
03
Commit and draw
Capital called in tranches; deployment paced over 2–4 years for closed-end structures.
04
Track distributions
Quarterly NAV, capital-call schedules, DPI/RVPI tracking, and independent audit.
Chapter — Fit
Who this is for.
Alternative Investment Funds is not for every investor — and that is the point. We choose it deliberately, when the mandate calls for it.
01
Sophisticated investors with ₹5 Cr+ liquid net worth
02
Family offices seeking non-correlated returns
03
Investors comfortable with lock-ups and drawdowns
04
Portfolios needing genuine diversification beyond MFs
Why it works
Structural advantages
01 / 04
Differentiated returns
Access to strategies unavailable in public-market vehicles.
02 / 04
Lower correlation
Long-short and private credit smooth portfolio drawdowns.
03 / 04
Institutional access
GP relationships and allocation preference for our clients.
04 / 04
Structural alpha
Illiquidity premium, complexity premium, and manager skill — properly compensated.
Reference — SEBI AIF Categories
Regulatory framework
In what categories can an applicant seek registration as an AIF
Applicants can seek registration as an AIF in one of the following categories, and in sub-categories thereof, as may be applicable: [Ref. Regulation 3(4)]
- Category I AIF:
- Venture capital funds (Including Angel Funds)
- SME Funds
- Social Venture Funds
- Infrastructure funds
- Category II AIF
- Category III AIF
01
Category I AIF
AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds and such other Alternative Investment Funds as may be specified. [Ref. Regulation 3(4)(a)]
02
Category II AIF
AIFs which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. [Ref. Regulation 3(4)(b)]. Various types of funds such as real estate funds, private equity funds (PE funds), funds for distressed assets, etc. are registered as Category II AIFs.
03
Category III AIF
AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. [Ref. Regulation 3(4)(c)]. Various types of funds such as hedge funds, PIPE Funds, etc. are registered as Category III AIFs.
01
AIFs collect capital from sophisticated investors — Indian or foreign — for investment per a defined policy under Regulation 2(1)(b).
02
AIF excludes mutual funds, collective investment schemes, and certain family trusts, employee welfare trusts, and holding company arrangements.
Considerations
What we tell you before you commit.
01
Illiquidity — most Cat II AIFs lock capital for 5–8 years.
02
Higher fees (2/20 typical) — must clear the alpha bar.
03
Concentration and manager risk are structural, not incidental.
Frequently asked
Answered plainly
Cat II vs. Cat III AIF?
Cat II is closed-end (private credit, venture); Cat III is open/close-ended, uses leverage and shorting (long-short, arbitrage).
How are AIF gains taxed?
Cat I/II have pass-through status; Cat III is taxed at the fund level. Structure and jurisdiction matter — we plan pre-commit.
Ready to explore this route for your portfolio?
A private, no-obligation conversation with one of our experts — begin with your mandate, not a product.