What is the SEBI minimum investment for AIF?
SEBI mandates a minimum investment of ₹1 crore per investor for Alternative Investment Funds under the SEBI (AIF) Regulations, 2012. For employees or directors of an AIF, the minimum is reduced to ₹25 lakh.
Who qualifies as an accredited investor for AIF?
SEBI introduced the Accredited Investor framework in 2021. An individual qualifies with annual income above ₹2 crore, or net worth above ₹7.5 crore, or both income above ₹1 crore and net worth above ₹5 crore. Accredited investors may access AIFs with relaxed conditions in some cases.
What is the difference between AIF Category I, II, and III?
Category I invests in startups, SMEs, infrastructure (VC, social venture, SME funds). Category II covers PE, debt, real estate, fund-of-funds. Category III employs complex strategies including leverage and derivatives (hedge funds, long-short equity). Tax treatment differs significantly across categories.
How are AIF Category I and II taxed?
Category I and II AIFs have pass-through taxation — the fund is not taxed at the entity level. Investors are taxed based on their applicable rates when income is distributed or gains are realised. Equity LTCG at 12.5%, STCG at 20%, business income at slab rate.
How is AIF Category III taxed?
Category III AIFs are taxed at fund level at the maximum marginal rate (30% + surcharge + cess, effectively 42%+). This makes Cat III significantly less tax-efficient than Cat I or Cat II, even for gains that would attract 12.5% LTCG at the individual investor level.
What are the lock-in implications for AIF investors?
Most AIFs have a lock-in of 3–7 years. Close-ended funds have a fixed maturity. Investors typically cannot exit before the fund closes except through limited secondary market transactions. This illiquidity is a key risk to understand before investing.
Do AIF investors have co-investment rights?
Many Category II PE and VC funds offer co-investment rights — allowing existing investors to invest additional capital alongside the fund in specific deals at lower or no management fee. Co-investment terms are specified in the Private Placement Memorandum (PPM).
Is there a secondary market for AIF units?
SEBI has enabled AIF unit listing on recognised stock exchanges to improve liquidity. However, the secondary market for AIF units in India is currently limited with low trading volumes. Investors should assume capital is locked for the full fund tenure.
What are the key risks of AIF vs mutual funds?
AIFs are significantly less liquid, have much higher minimum investments, and invest in higher-risk asset classes (unlisted securities, complex derivatives). Unlike mutual funds, AIF NAVs are not published daily and valuations for unlisted holdings can be subjective and infrequent.
Are NRIs eligible to invest in AIFs?
Yes, NRIs and foreign investors can invest in AIFs in India subject to FEMA regulations and the fund's Private Placement Memorandum. Category I and II AIFs are broadly open to NRI investment. Category III AIFs may have specific restrictions on certain derivative strategies.