Alternative Investment Funds (AIFs) have quickly moved from being a niche product to a mainstream allocation for sophisticated Indian investors. As public markets become crowded and traditional products like fixed deposits and mutual funds deliver predictable returns, HNIs and family offices are actively exploring AIFs for better diversification, higher alpha, and access to private-market opportunities.
But the big question most investors ask is simple:
How exactly can I invest in an AIF in India? What is the minimum capital required? What is the process?
This guide covers everything you need to know — clearly, practically, and based on SEBI regulations.
What Is an AIF (Alternative Investment Fund)?
An AIF is a privately pooled investment vehicle registered with SEBI that invests in non-traditional asset classes such as:
Venture capital
Private equity
SME growth capital
Pre-IPO shares
Private credit
Distressed assets
Long–short hedge strategies
AIFs are typically used by HNIs, UHNIs, institutions, and professionals who want exposure beyond public markets.
Minimum Investment Required to Invest in an AIF
SEBI has defined clear minimum-ticket size rules:
Minimum investment: ₹1 crore per investor
This applies across all three AIF categories.
Exceptions:
Fund employees or directors: ₹25 lakh minimum
Accredited investors (as per SEBI): lower limits may apply depending on fund structure
Why such a high minimum?
AIFs involve higher risk
Longer lock-ins
Private-market volatility
Need sophisticated investor understanding
This ensures that only informed and financially sound investors participate.
Types of AIFs You Can Invest In
SEBI classifies AIFs into three categories:
Category I AIFs
Includes startup funds, SME funds, early-stage VC, and social impact funds.
Best for: Investors seeking high-growth, long-term private-market exposure.
Category II AIFs
Includes private equity, private credit, real estate, distressed asset funds.
Best for: Balanced growth + stability, predictable income (in private credit).
Category III AIFs
Includes long–short equity funds and hedge-fund style strategies.
Best for: Market-savvy investors aiming for hedged returns.
Step-by-Step Process to Invest in an AIF in India
The AIF investment process is professional and structured. Here is the exact sequence:
Step 1: Choose the Right Category and Strategy
Start by understanding:
Your risk appetite
Lock-in tolerance
Growth expectations
Tax implications
Sector preferences (startups, PE, credit, pre-IPO, etc.)
Tip: Category II (PE + Credit) offers the most balanced risk-return profile for most HNIs.
Step 2: Assess Fund Performance and Manager Expertise
Before investing, evaluate:
Track record of fund manager
Past IRRs
Portfolio diversification
Experience across market cycles
Risk management policies
Strong manager capability is the biggest success factor in AIFs.
Step 3: Complete KYC and Eligibility Checks
You must complete:
PAN
Aadhaar
Address proof
Bank proof
Income or net-worth eligibility
FATCA declaration
Accredited investors may require additional documentation.
Step 4: Review the Fund Documents
Essential documents include:
Private Placement Memorandum (PPM)
Contribution Agreement (CA)
Subscription Agreement
Risk disclosure document
The PPM outlines strategy, risks, fees, lock-in, exit policy, valuation method, and governance structure.
Step 5: Commit Capital and Complete Subscription
After agreement review:
Sign the Subscription Agreement
Transfer the minimum commitment (₹1 crore)
Complete onboarding and advisor documentation
Some funds use capital call (drawdown) structures where money is taken in tranches.
Step 6: Fund Deployment and Reporting
Once invested:
Fund manager deploys capital into deals
You receive quarterly or semi-annual reports
Valuation updates shared periodically
Tax statements provided annually
AIF investors must be comfortable with longer investment horizons (4–8 years depending on category).
Fees and Charges You Should Know
AIFs typically follow an institutional fee model:
Management Fees:
1%–2.5% annually depending on category
Performance Fees (Carry):
10%–20% on profits above hurdle rate
Setup / administrative charges:
Varies by fund
Understanding the fee structure helps in comparing fund performance fairly.
Risks : Investing n AIF
AIFs offer high-growth potential but come with risks:
Illiquidity (long lock-ins)
Higher volatility in private markets
Dependence on manager skill
Market cycle impact
Regulatory and taxation changes
Invest only with fund houses that maintain strong due diligence, governance, and transparency.
Taxation Rules for AIF Investments
Tax treatment differs by category:
Category I & II AIFs
Pass-through structure
Capital gains taxed in investor’s hands
Interest or dividend income taxed as per investor slab
Category III AIFs
Taxed at the fund level
Business income taxed at 42.744% (surcharge + cess included)
Capital gains taxed at normal rates
Always consult a tax specialist to structure your investments effectively.
Who Should/ Can Invest in AIFs?
AIFs are ideal for:
HNIs and UHNIs
Family offices
NRIs (subject to FEMA)
Professionals with surplus capital
Investors looking for non-market linked returns
Investors seeking pre-IPO, PE, and private market exposure
If you have a long-term horizon and a higher risk appetite, AIFs can play a major role in wealth creation.
Conclusion: AIFs Offer Access to India’s Most Powerful Emerging Opportunities
AIFs have become a core pillar of modern Indian wealth management because they unlock:
Early access to high-growth companies
Better diversification
Potential for superior returns
Exposure to private markets
A hedge against public-market saturation
As India continues its economic expansion, sophisticated investors are increasingly allocating to AIFs to participate in the country’s next decade of wealth creation.
Ekamya Capital helps investors access carefully curated AIF opportunities with transparency, research-driven selection, and disciplined portfolio strategy.
