Types of Alternative Investment Funds in India
In India, Alternative Investment Funds (AIFs) are regulated by SEBI and classified into three categories based on investment strategy and risk profile.
Category I AIFs invest in sectors that promote economic growth and innovation. These include Venture Capital Funds, Angel Funds, Social Venture Funds, and Infrastructure Funds. They often receive regulatory incentives and are considered low to moderate risk.
Category II AIFs include funds that do not fall under Category I or III and do not employ leverage (except for operational requirements). These include Private Equity Funds, Debt Funds, and Real Estate Funds. They are suitable for investors seeking medium- to long-term returns and involve moderate risk.
Category III AIFs use complex strategies, including leverage and short-selling, to generate short-term returns. Examples are Hedge Funds and Structured Funds. These carry higher risk and are suited for investors with a high-risk appetite.
AIFs offer portfolio diversification beyond traditional equity and debt markets and are typically targeted at high-net-worth individuals and institutional investors. The minimum investment in AIFs is ₹1 crore, and they are governed by strict disclosure and compliance norms. Choosing the right category depends on one’s financial goals, risk tolerance, and investment horizon.