Alternative Investment Funds (AIF)
A SEBI-regulated route for sophisticated investors to access private equity, venture capital, private credit, real estate, and hedge-fund-style strategies — beyond listed stocks and bonds, from a ₹1 crore commitment.
An Alternative Investment Fund (AIF) is a special fund for a small group of large investors. Instead of regular shares and bonds, it invests in less common things — like young startups, companies that aren’t listed on the stock market, private loans to businesses, real estate, or advanced trading strategies. AIFs are watched over by SEBI under special rules.
These investments can earn more, but they are riskier and harder to exit — your money may be locked in for years. That’s why the entry amount is high: it’s meant for people who can afford the risk and can wait.
The three types of AIF
Category I
- Venture Capital Funds — invest in young startups
- Angel Funds — invest in very early startups (you can start at ₹25 lakh here)
- SME Funds — invest in small and medium enterprises
- Infrastructure Funds — fund roads, power, and other infrastructure
- Social Venture Funds — pursue social impact alongside returns
Category II
- Private Equity (PE) Funds — invest in established unlisted companies
- Private Debt / Private Credit Funds — lend to companies, often at higher yields than bank loans
- Real Estate Funds and Funds of Funds (which invest in other AIFs)
Category III
- Hedge Funds and Long-Short Funds - trade in listed and derivative markets actively
- PIPE Funds — private investment in public equity
How an AIF works
Unlike a mutual fund, where you invest the full amount upfront, an AIF usually works on a commitment-and-drawdown model:
- You commit a minimum amount (typically ₹1 crore).
- The fund manager draws down that commitment in tranches (capital calls) as it finds investments — so you may pay in stages over the first few years rather than all at once.
- The fund deploys capital into its target assets during an investment period.
- As investments mature or exit, the fund distributes proceeds back to investors, often following a distribution waterfall.
Most AIFs are close-ended with a defined life (commonly 7–12 years for private equity and venture funds), during which liquidity is very limited.
How much you need
AIFs are for wealthy and big investors.
- Minimum: ₹1 crore for most AIFs.
- ₹25 lakh for angel funds, and for staff or directors of the fund.
- Remember, this is a promise — in many funds you pay it in parts over time.
- The fund itself must collect at least ₹20 crore in total (₹10 crore for angel funds).
- NRIs and foreign investors can invest too, following the rules.
Newer option: Since November 2025, there are special funds only for accredited (specially qualified) investors, with lighter rules — but these need a bigger promise of ₹25 crore.
What it costs
AIFs usually charge in two ways, so it’s good to know both:
- Management fee — a yearly fee (often around 1.5%–2%) to run the fund.
- Profit share (“carry”) — the manager keeps a share of the profit (often around 20%), but usually only after you get your money back plus a minimum agreed return first.
Because of these fees, the skill of the manager really matters to what you finally earn.
Things to be careful about
- Your money is locked in for years, often 7 or more. Only invest money you won’t need for a long time.
- Higher risk. These are private and complex investments. Returns are not guaranteed, and some funds lose money.
- A lot depends on the manager — their skill, their deals, and their fees.
- You may hold only a few investments, so it’s less spread out. Real diversification needs several crores.
- Once you promise money, you usually must pay when the fund asks — so plan your cash.
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Frequently asked questions
How is an AIF different from a mutual fund?
Mutual funds buy listed shares and bonds and start at ₹500. AIFs buy startups, private companies, and private loans, need at least ₹1 crore, and are riskier with longer lock-ins.
Do I pay the full ₹1 crore at once?
Often no. Many funds collect the money in parts as they invest. Check the fund documents for details.
Can NRIs invest in PMS?
Yes, typically through NRE/NRO accounts and subject to the applicable regulatory framework.
Can NRIs invest?
Yes, in accordance with SEBI and FEMA rules. Many AIFs aimed at NRIs are also based in GIFT City.
Talk to us
AIFs open the door to private deals and advanced strategies — but they need patience, a big amount, and careful choosing. If you’re wondering whether an AIF fits your overall plan, our team at Sanriya can help you understand the structure, the fees, and the documents.