Strategies Beyond Traditional Markets, for Sophisticated Investors
Privately pooled, SEBI-registered funds investing in private credit, real estate, venture capital and more. Higher minimums, long lock-ins and higher risk.
High to Very High
₹1 crore per investor (SEBI minimum); accredited investors may be eligible for lower thresholds in specific cases permitted by SEBI
Category I and II are close-ended, typically for several years with possible extensions; Category III may be open- or close-ended. Lock-in as per PPM.
- High-net-worth and sophisticated investors
- Family offices, trusts and corporates with long-term surplus
- Investors who can lock in capital for several years
- Those seeking exposure to private markets as a small part of a diversified portfolio
- SEBI-registered under the SEBI (Alternative Investment Funds) Regulations, 2012
- Category I, II and III with different strategies and rules
- Access to private credit, real estate, venture capital and special situations
- Offered privately through a Private Placement Memorandum (PPM)
- Category I & II: generally pass-through — income is taxed in your hands by its nature (except business income, taxed at fund level)
- Category III: taxed at the fund level
- Treatment depends on the fund's structure; check the PPM and tax opinion
Tax treatment as per current law and subject to change; please consult a qualified Chartered Accountant before investing.
What Is an Alternative Investment Fund?
An Alternative Investment Fund (AIF) is a privately pooled investment vehicle set up in India and registered with SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012. It collects money from investors and invests it according to a defined strategy — often in assets that mutual funds cannot or do not usually hold.
AIFs are not mutual funds. They are offered privately, have high minimum investments and long lock-ins, and have more flexibility in what they invest in. That flexibility can create opportunities, but it also means higher and more complex risks. WealthBay facilitates access to AIFs of SEBI-registered managers; investment decisions are made by the fund manager.
Category I, II and III Explained
Category I AIF
Invests in start-ups, early-stage ventures, social ventures, SMEs, infrastructure and other areas regulators consider economically desirable. Close-ended with long tenures.
- Venture capital funds (including angel funds)
- SME and social venture funds
- Infrastructure funds
- Special situation funds
Category II AIF
Funds that are not Category I or III and do not use leverage beyond day-to-day operational needs. Includes most private equity, private credit and real estate funds. Close-ended.
- Private equity funds
- Private credit / debt funds
- Real estate funds
- Funds of funds
Category III AIF
Funds that use diverse or complex trading strategies and may use leverage, including through derivatives. Can be open- or close-ended and typically invest in listed markets.
- Long-only public equity
- Long-short equity
- Arbitrage and absolute-return strategies
- Derivatives-based strategies
Common AIF Strategies
Private Credit
Lending to companies outside the bank and bond markets, often secured. Returns depend on borrowers repaying; defaults and delays are key risks.
Real Estate
Investing in residential or commercial projects, typically through structured debt or equity. Project execution, approvals and sales drive outcomes.
Venture Capital
Backing start-ups and early-stage companies. A few successes may drive results while many investments may fail; exits can take years.
Special Situations
Investing in stressed assets, restructurings or other event-driven opportunities. Outcomes depend on resolution processes and timelines.
How Long Your Money Is Committed
General characteristics only. The actual tenure, extensions, drawdown schedule and exit options for any scheme are as per its PPM.
| Aspect | Category I | Category II | Category III |
|---|---|---|---|
| Structure | Close-ended | Close-ended | Open- or close-ended |
| Tenure | Typically several years, plus possible extensions | Typically several years, plus possible extensions | Varies by scheme |
| Capital calls | Usually drawn down in tranches over time | Usually drawn down in tranches over time | Often invested upfront |
| Early exit | Generally not available | Generally not available | Periodic redemptions in some open-ended schemes, subject to exit load |
| Leverage | Not beyond operational needs | Not beyond operational needs | Permitted within SEBI limits |
Who Can Invest in an AIF
AIFs can accept investments from resident Indians, NRIs, HUFs, family trusts, companies and other entities, subject to KYC and the scheme's terms. SEBI prescribes a minimum investment of ₹1 crore per investor for most AIFs.
Accredited investors — those certified as meeting SEBI's income or net-worth criteria — may be eligible for lower thresholds in specific cases permitted by SEBI. We confirm the applicable minimum for each scheme against current SEBI rules and the PPM before you invest.
Indicative Fee Structure
Fees differ widely by manager and scheme. Exact fees, hurdle and calculation method are in the PPM and contribution agreement.
Management Fee
An annual fee for managing the fund, commonly charged on committed or invested capital, regardless of performance.
- Charged regardless of performance
- Basis (committed vs invested capital) varies
- Fund expenses may be charged separately
Carried Interest / Performance Fee
A share of profits paid to the manager, commonly only after investors receive a hurdle return. Category III funds often charge a performance fee subject to a high-water mark.
- Hurdle: minimum return before profit sharing
- Catch-up and waterfall terms vary
- High-water mark common in Category III
Other Costs
Setup costs, fund expenses and any distribution commission are disclosed in the PPM.
- One-time setup expenses
- Ongoing fund operating expenses
- Distributor commission disclosed
Risks to Understand Before Investing in an AIF
Any investment in an AIF is made only on the basis of the scheme's PPM, contribution agreement and other offer documents. This page is educational and is not an offer or solicitation.
- Returns are not guaranteed, and you may lose part or all of your investment.
- Long lock-ins with limited or no liquidity before the fund's term ends.
- Valuations of unlisted holdings are estimates and may not reflect realisable value.
- Category III AIFs may use leverage, which magnifies both gains and losses.
- Past performance of the manager or any scheme does not indicate future results.
How to Invest
- 1
Check Eligibility
We discuss your goals, net worth, liquidity needs and risk appetite to see whether an AIF is appropriate at all.
- 2
Read the PPM
We walk you through the strategy, manager, fees, hurdle, lock-in and risk factors in the Private Placement Memorandum.
- 3
Commit & Monitor
Sign the contribution agreement, meet capital calls as drawn down, and review the fund's periodic reports.
Have questions about Alternative Investment Funds?
Speak to our team — no obligation. We'll explain the options, risks and costs.
Common Questions About AIFs
How is an AIF different from a mutual fund?
What is the minimum investment in an AIF?
Can I withdraw my money early?
What is a PPM?
Disclaimer: AIFs are illiquid and unsuitable for all investors. Read the Private Placement Memorandum carefully. Returns are not guaranteed, and WealthBay is not a SEBI-registered investment adviser; investment decisions are made by the AIF's manager.
WealthBay Private Limited — AMFI-registered Mutual Fund Distributor, ARN-29566. WealthBay acts as a distributor of third-party financial products and earns commissions from product providers. Please read all scheme / offer documents carefully before investing.
Find Out Whether an AIF Fits Your Portfolio
Talk to us about your eligibility, goals and risk appetite before looking at any specific scheme.