Why they’re gaining attention among India’s affluent investors.
Who are they meant for?
What Are AIFs and How Are They Classified?
Structured as privately pooled investment vehicles Broad classification under three SEBI categories:
Category I: Startups, infrastructure, impact investing
Category II: Private equity, debt, distressed assets
Category III: Hedge funds, long-short strategies, trading-focused
Data idea: Include a chart or stat of the rise in the Indian AIF market.
How AIFs Differ from Mutual Funds and PMS
Include a comparison table to highlight:
- Investment ticket size
- Liquidity
- Strategy flexibility
- Risk levels
- Fee structure
Key Features of AIFs
Fund Structure
High minimum investment: ₹1 crore (₹25L for employees/directors)
Access to niche or high-return strategies not available in MFs
Less regulated in terms of investment restrictions vs MFs
Benefits of AIFs
- Exposure to high-growth private companies or special situations
- Diversification away from listed equity and fixed income
- Professional management and bespoke strategies
- Potential for higher, uncorrelated returns
Risks and Things to Watch Out For
- Illiquidity: Long lock-in, early exit not always allowed
- High fees: Management + performance fees (often 2% + 20%)
- Manager risk: Fund success heavily dependent on expertise
- Lack of real-time transparency
- Regulatory risks (esp. in Cat III strategies)
Taxation of AIFs
- Cat I & II: Pass-through structure, taxed in hands of investor
- Cat III: Taxed at fund level as business income or capital gains
- Complexity depends on underlying asset class & fund structure
Is an AIF Right for You?
✅ Quick Checklist Before You Invest
I already have a diversified investment portfolio of more than ₹5 crore and want to diversify.
I’m comfortable locking in capital for 3–5+ years.
I understand the strategy or have an advisor guiding me.
I’m okay with lower liquidity and higher costs.
I’ve done due diligence on the fund manager/team.
I’m not chasing returns blindly — I know the risks.
Trends and What Lies Ahead
Surge in tech-focused, ESG, and private credit AIFs Family offices, NRIs, and UHNIs showing growing appetite SEBI’s evolving regulations on transparency, valuations, and reporting.
Data idea: News based on these updates
Final Thoughts
AIFs are powerful tools — but not for everyone. Fit them into your satellite portfolio, not the core a good advisor can help you sift through noise and choose wisely.
Prasad Iyer
[Certified Financial Planner – CFP CM]
