Data from the Securities and Exchange Board of India (Sebi) shows that total funds raised by AIFs reached Rs 5.27 trillion, with total investments exceeding Rs 5 trillion in December.
AIFs are concentrated within institutional investors and ultra HNIs, with investments drawn in tranches, leading to funds raised trailing the commitment amount.
Alternative investment funds (AIFs), a niche investment vehicle catering to the affluent class, reached a total investment commitment of over ₹13 trillion till December 2024, marking a 5 per cent quarter-on-quarter increase, according to data provided by the Securities and Exchange Board of India (Sebi).
The surge in commitments is attributed to the growing wealth of high-net-worth individuals (HNIs) and their inclination towards diversification in a volatile market environment. AIFs raised ₹5.27 trillion, with total investments exceeding ₹5 trillion as of December. On a year-on-year basis, commitments and investments have surged by over 27 percent.
Frequently asked questions
What is an Alternative Investment Fund (AIF)?
An AIF is a privately pooled investment vehicle registered with SEBI that invests in assets beyond traditional listed equity and plain debt — such as private equity, private credit, venture capital, and hedge-fund-style strategies. SEBI classifies AIFs into Category I, II and III.
Who can invest in an AIF in India?
AIFs are meant for sophisticated investors. The minimum commitment is generally ₹1 crore (₹25 lakh for the fund's own employees and directors), and most schemes cap the number of investors per scheme at 1,000.
How is an AIF different from a mutual fund?
Compared with mutual funds, AIFs have far higher minimums, lower liquidity (often multi-year lock-ins or drawdown structures), lighter day-to-day disclosure, and — in Category III — the ability to use leverage and derivatives. They target a smaller, more sophisticated investor base.
How are AIFs taxed?
Broadly, Category I and II AIFs enjoy pass-through status — income (other than business income) is taxed in the hands of investors — while Category III AIFs are typically taxed at the fund level. Tax treatment is complex and depends on the income type; confirm specifics with your tax advisor.
Key terms
- Category I / II / III
- SEBI's three AIF buckets: Cat I (start-ups, SME, infra, social ventures), Cat II (private equity, private credit, real estate funds — no leverage for investing), Cat III (hedge-fund-style strategies that may use leverage and derivatives).
- Commitment & drawdown
- The total amount an investor agrees to invest (commitment) is called down by the fund in tranches (drawdowns) as it deploys capital, rather than all upfront.
- Hurdle rate
- The minimum return a fund must deliver to investors before the manager earns performance fees (carry).
- Carry (carried interest)
- The manager's share of profits above the hurdle rate — commonly around 20% — that aligns the manager's payout with investor returns.
- Lock-in
- The period during which committed capital cannot be redeemed. Cat I and II AIFs are close-ended with multi-year tenures.