An Alternative Investment Fund is a privately pooled investment vehicle that collects money from investors and invests in non-traditional asset classes, following a defined investment strategy. These funds are not covered under traditional mutual fund or retail investment regulations.
Key Features
Privately pooled: AIFs typically have high minimum investment requirements.
Diversification: They invest in alternatives beyond stocks and bonds.
Flexible strategies: Use leverage, derivatives, long/short strategies, etc.
AIF Categories (based on Indian regulations – SEBI)
Category I – Funds that invest in socially or economically desirable sectors:
Venture capital funds
Infrastructure funds
SME funds
Social venture funds
Category II – Funds that do not take leverage and do not fall under Cat I or III:
Private equity funds
Debt funds
Category III – Funds that use complex strategies and may take leverage:
Hedge funds
Long-short equity funds
Examples of Assets in AIFs
Hedge funds
Private equity
Venture capital
Real estate
Commodities
Structured credit
Benefits
Access to high-growth or unlisted assets
Diversification beyond traditional investments
Higher potential returns (with higher risk)
Risks
Less regulation = higher risk
Illiquidity (lock-in periods, hard to exit early)
High minimum investment (often for HNIs or institutional investors)
