Introduction
The Indian wealth management space is expanding fast. Among the many options, Alternative Investment Funds (AIFs in India) are gaining strong interest from HNIs, Ultra-HNIs, and institutions.
Unlike mutual funds, AIFs are privately pooled investments. They collect money from a limited number of sophisticated investors and invest it as per a defined strategy.
By mid-2025, SEBI reported AIF commitments of nearly ₹13.5–14.2 lakh crore. This shows the growing demand for alternative assets beyond traditional equity and bonds.
Categories of Alternative Investment Funds in India
Category I AIFs
These funds invest in startups, SMEs, social ventures, and infrastructure projects. The aim is to support sectors that add economic value. For example, post-2023, renewable energy and EV-focused venture funds saw strong growth, thanks to supportive policies.
Category II AIFs
This category is the most common among investors. It includes private equity funds, real estate funds, debt funds, and distressed asset funds. They don’t get special tax benefits but focus on long-term value creation.
Category III AIFs
These funds employ hedge fund strategies, including arbitrage, derivatives, and long-short positions. They are riskier but can offer higher returns. Only seasoned or accredited investors usually invest here.
Types of AIFs
- Venture Capital Funds (VCF)
- Angel Funds
- Private Equity Funds (PEFs)
- Real Estate Funds
- Infrastructure Funds
- Social Venture Capital Funds
- Debt Funds
- Fund of Funds
- Hedge Funds
[Read our detailed guide on AIF types and benefits here].
Benefits of Investing in AIFs
- Wider access to private markets, bonds, infrastructure, and even pre-IPO shares.
- Opportunity to generate alpha returns beyond regular investments.
- Customised portfolios based on investor goals and risk appetite.
- Exposure to unique asset classes not available in traditional mutual funds.
Example: In 2025, infrastructure-focused AIFs delivered double-digit returns from renewable energy and logistics projects – opportunities retail investors often miss.
How to Invest in AIFs in India
Investing in AIFs is different from mutual funds or stocks. Since AIFs cater to HNIs and sophisticated investors, SEBI has set strict entry rules.:
- Investor Criteria: Minimum investment of ₹1 crore. (₹25 lakh for AIF employees, directors, or managers).
- Due Diligence: Review the fund manager’s track record, past exits, and strategy before investing.
- Regulations: All investments must follow SEBI’s AIF guidelines
- Process: Complete KYC, submit the application, sign the contribution documents, and commit funds. Capital is drawn down as per the fund’s schedule.
AIFs usually come with a lock-in, so liquidity is limited.
Taxation of AIFs in India
- Category I & II AIFs: Pass-through taxation. The fund is not taxed; investors pay tax directly on gains. This is more tax-efficient.
- Category III AIFs: Taxed at the fund level. Short-term gains → taxed at slab rate; long-term gains → taxed at 10% without indexation. Losses cannot be passed on to investors.
Category I & II AIFs are generally more tax-efficient, but investors should always check the latest SEBI circulars and Union Budget updates, as taxation rules can change frequently. Consulting Equentis Investech before committing large sums is always recommended.
Minimum Subscription to AIFs
- Investors must contribute at least ₹1 crore.
- Directors, employees, and fund managers can invest with a minimum of ₹25 lakh.
This ensures only sophisticated investors enter the AIF ecosystem.
Conclusion
Alternative Investment Funds in India are no longer niche. They are now a mainstream choice for wealthy investors. With strong growth in venture capital, private equity, and infrastructure funds, AIFs offer higher returns, broader diversification, and unique investment opportunities.
At Equentis Investech, we help investors explore AIF opportunities, pre-IPO shares, and wealth-building strategies. Our goal is to help you stay ahead in India’s fast-changing investment landscape.
