Private markets
Venture, private equity, credit and hedge strategies, beyond the listed market.
AIFs pool capital from a small number of large investors into assets ordinary funds can't reach: startups, unlisted companies, private credit, real assets and hedge strategies. Minimum commitment is ₹1 crore, typically drawn down in installments.
Layer 5 of 6 in the access spectrum
Entry point
₹1 crore per investor
Horizon
Often 7+ years, capital locked in
Drawdown
Committed capital called in installments
Typical fees
~1.5-2% management + ~20% carry
A sizing check: how large the portfolio needs to be before an AIF commitment clears the minimum without crowding out everything else.
Inputs
Result
A sizing check, not a recommendation: the right share depends on your goals, liquidity needs and the rest of the portfolio.
Category I backs venture, SME and infrastructure; Category II holds private equity, credit and real estate; Category III runs hedge and long-short strategies.
You sign for a total commitment; the fund calls capital as it finds deals. Your money goes to work in tranches, not all at once.
Value is created over years and returned as exits happen. The J-curve is real: early years can show paper losses before distributions begin.
SEBI places every Alternative Investment Fund in one of three categories, and the category decides what the fund may own, whether it can borrow, how long your money stays locked and who pays the tax.
Category I AIF
Commit
Sign the PPM for ₹1 crore or more; nothing is drawn yet
Capital calls
Tranches over 12 to 24 months as deals are found
Hold
Years 2 to 7: unlisted stakes, valuations move slowly
Exits
Distributions as companies list, sell or raise; fund closes by year 7 to 10
Costs and exit
What it invests in
Watch for
Suits you if you can leave the money untouched for 7 to 10 years, already hold liquid equity and debt, and want an early-stage sleeve where a few winners are expected to carry the whole portfolio.
Read the Category I guideWhat it holds
Structure
SEBI minimum tenure / typical life
Leverage
How you pay in
Getting out
Who pays tax (FY 2026-27)
AIF · 10 min read
An alternative investment fund is a SEBI-registered, privately pooled vehicle with a ₹1 crore minimum. Here is how its structure, PPM, units, drawdowns, tenure and exits work.
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AIF · 7 min read
SEBI's three AIF categories share a ₹1 crore minimum but differ in what they invest in, how long they lock capital, whether they can borrow and who pays the tax.
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AIF · 11 min read
Category I and II AIFs pass income to you with its character intact, with 10% TDS for residents; Category III AIFs pay tax at the fund level. How it works for FY 2026-27, with forms, losses and a worked example.
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AIF · 7 min read
Investing in an AIF means committing at least ₹1 crore, signing the PPM, paying capital calls over 12 to 24 months, waiting out a multi-year lock-in for distributions or a unit transfer, and reporting pass-through income on Form 64C or Form 78.
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AIF · 10 min read
Close-ended AIFs cannot be judged like mutual funds. Learn what IRR, DPI, RVPI and TVPI measure, why early returns dip, and how SEBI's benchmarking and valuation rules help.
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AIF · 11 min read
Three SEBI-regulated routes to a long-short strategy compared: Category III AIF (₹1 crore, leverage up to two times NAV), SIF (₹10 lakh, unhedged shorts up to 25% of net assets) and PMS (₹50 lakh, your own shares).
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UHNI and family-office allocations that can lock capital for years
Investors seeking exposure to venture, private equity or private credit
Portfolios large enough that a 7-year illiquid sleeve is a feature, not a risk
You sign for a total amount, say ₹1 crore, but the fund calls it in tranches as it finds deals, often around a quarter at first close and the rest over the following 12 to 24 months. Each drawdown notice has a deadline set by the fund's Private Placement Memorandum, not by SEBI, and a missed payment can mean default interest or forfeiture, so the uncalled portion should stay liquid. The full commitment is not always called, but you should plan as if it will be.
As the fund exits its investments, through sales, listings or refinancing, proceeds are distributed to investors. Category I and II funds are close-ended with a minimum tenure of three years, and most run seven to ten years with no redemption window in between; a transfer of units to another eligible investor may be possible with the manager's consent, often at a discount to NAV. Category III funds may be open-ended with monthly or quarterly windows, never daily.
Early years show fees and unrealised positions before any exits happen, so reported value often dips before it climbs. It is a structural feature of private-market investing, not necessarily a sign the fund is failing. Judge a Category I or II fund on its distributions over the full tenure, not on the NAV in year two.
Category I backs early-stage and economically useful businesses: venture capital, angel, SME, social impact, infrastructure and special situation funds, with no leverage beyond temporary borrowing. Category II is the largest group and covers private equity, private credit and real estate funds, also without leverage except for short-term operational needs. Category III invests mainly in listed securities through long-short, arbitrage and hedge-fund strategies and may use derivatives and leverage up to two times NAV under SEBI's 2013 circular.
Individuals, HUFs, family offices, companies, trusts and NRIs can invest if they meet the minimum. The SEBI (AIF) Regulations, 2012 set ₹1 crore per investor, with ₹25 lakh for employees and directors of the fund or its manager, and angel funds now open only to accredited investors; a scheme open only to accredited investors may set its own threshold. You can commit more than ₹1 crore, and a scheme is capped at 1,000 investors, so capacity in a popular fund matters.
Category I and II AIFs are pass-through: the fund pays no tax on investment income and you are taxed on your share with its character preserved, so capital gains stay capital gains and interest stays interest, under Section 115UB of the Income-tax Act, 1961, carried into Section 224 of the Income-tax Act, 2025 from 1 April 2026. The fund deducts 10% TDS for residents under Section 194LBB (now Section 393), which is a credit against your final tax and not the tax itself, and Budget 2025 confirmed that securities held by Category I and II AIFs are capital assets from AY 2026-27. Category III AIFs are taxed at fund level at the maximum marginal rate, roughly 42.7% with surcharge, so you receive post-tax distributions.
Three layers: a management fee commonly in the 1% to 2.5% a year range, carried interest of typically 15% to 20% of profits above a hurdle rate (commonly 8% to 12% a year), and set-up, custody, audit and administration costs. Every scheme must also offer a Direct Plan with no distribution or placement fee under SEBI's circular of April 2023, any distributor commission must be disclosed to you at onboarding, and for Category III it may only be paid out of the manager's own management fee. Compare funds on net returns after all of these, not on gross figures.
Yes, under FEMA's automatic route with no prior RBI approval, subject to the scheme's eligibility terms and KYC. Distributions to non-residents attract TDS at the rates in force, which a Tax Residency Certificate and Form 10F can reduce under the relevant DTAA. Capital calls must be funded from your NRE or NRO account on time, so line up the banking before you commit.
Capital is illiquid, locked in for the fund's life, often seven years or more.
Outcomes depend heavily on manager skill and deal selection; funds can lose money.
Concentrated holdings mean less diversification than public-market funds.
Alternative Investment Funds are high-risk, illiquid products suitable only for investors who meet regulatory minimums and can bear extended lock-ins and potential loss of capital. Returns are not guaranteed.
That depends on your goals, horizon and what you already hold: exactly the conversation we start with.
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