The three AIF categories.
SEBI sorts every AIF into one of three buckets. The category tells you what it can hold, how it is taxed and how liquid it is, far more than the brand name does.
One bucket each. Three very different rulebooks.
An Alternative Investment Fund is a privately pooled vehicle for sophisticated investors, with a ₹1 crore minimum across the board. The interesting part is the split: SEBI files every AIF into Category I, II or III, and that single classification decides the strategies it may run, whether it can use leverage, how its income is taxed and how long your capital stays locked. Get the category right and most other questions answer themselves.
A privately pooled fund for sophisticated investors
An AIF is a privately pooled vehicle with a ₹1 crore minimum across every category. It gathers capital from a small set of qualifying investors to run strategies a regular fund cannot.
The category SEBI assigns is what really matters: it decides the strategies a fund may run, whether it can use leverage, how its income is taxed and how long your capital stays locked.
What each one is built to do.
Pick a category and the panel shows what it may hold, whether it can borrow, how its income is taxed and how long your capital stays locked.
Close-ended trusts that lock capital while young companies or projects mature.
- Venture capital & angel funds
- SME and start-up funds
- Infrastructure funds
- Social-impact funds
- Leverage
- No investment leverage permitted, only short-term borrowing for operating needs.
- Taxation
- Pass-through. Gains flow to you and are taxed in your hands, not at the fund.
- Tenure
- Long, typically 7–10 years with a multi-year lock-in.
Who it suits: Patient capital chasing early-stage upside in government-encouraged sectors.
Close-ended trusts that lock capital while young companies or projects mature.
- Venture capital & angel funds
- SME and start-up funds
- Infrastructure funds
- Social-impact funds
- Leverage
- No investment leverage permitted, only short-term borrowing for operating needs.
- Taxation
- Pass-through. Gains flow to you and are taxed in your hands, not at the fund.
- Tenure
- Long, typically 7–10 years with a multi-year lock-in.
Who it suits: Patient capital chasing early-stage upside in government-encouraged sectors.
The whole rulebook on one screen.
The same six questions, answered for each category. Use it to sanity-check any AIF a distributor puts in front of you. If the pitch and the category disagree, ask why.
| Attribute | Category I | Category II | Category III |
|---|---|---|---|
| Core strategies | VC, SME, infra, social | PE, private credit, real estate | Long-short, hedge, arbitrage |
| Leverage | Not permitted | Operating needs only | Allowed (with derivatives) |
| Taxation | Pass-through | Pass-through | At the fund level |
| Typical tenure | 7–10 yrs | 5–8 yrs | Open / rolling |
| Liquidity | Locked | Locked | Periodic windows |
| Minimum ticket | ₹1 cr | ₹1 cr | ₹1 cr |
Pass-through (I & II) keeps tax out of the fund, so your reported gains are pre-tax and taxed once, in your hands.
Fund-level tax (III) means distributions arrive already taxed at the fund, so compare these returns net, not gross.
The category shapes the risk, not the brand name
Two funds with similar marketing can sit in different categories and behave nothing alike. Category II holds the most money (private equity, private credit and real estate) while Category III is the fastest growing.
Leverage, tax treatment and lock-in are all decided the moment a fund picks its category. Know the bucket and most other questions about how the money can behave answer themselves.
Read the category before you read the pitch.
Leverage, tax treatment and lock-in are decided the moment a fund picks its category, long before any deck reaches you. Know the bucket and you already know how the money can behave.
The AIF category questions we hear most.
Nyra has already read every AIF deck.
Every SEBI-registered strategy, scored on the same 0–10 basis, with every answer citing its source. Ask her which category fits your ₹1 crore ticket.
Related guides.
See the AIFs we track, scored.
Educational only, not investment advice. Figures are current to FY2025-26 and may change. AIF investments are subject to market risks; read all scheme documents carefully.