Definition
Alternative Investment Fund (AIF)
An Alternative Investment Fund is a SEBI-regulated privately pooled vehicle for sophisticated investors, classified into Category I, II and III with high minimum investment thresholds.
An AIF pools money from investors to invest in assets beyond traditional stocks and bonds, under SEBI regulation. SEBI defines a high minimum investment per investor, restricting AIFs largely to wealthy and institutional participants.
The three categories are: Category I (funds in start-ups, SMEs, infrastructure, social ventures — areas seen as socially or economically desirable); Category II (private equity, debt funds and others not using significant leverage); and Category III (hedge-fund-style strategies that may use leverage and complex trades, such as long-short funds).
AIFs can offer differentiated strategies and returns but come with illiquidity, higher fees, complexity and risk, and distinct tax treatment that varies by category. They suit only experienced, high-net-worth investors.
Related terms
- InvITAn Infrastructure Investment Trust is a SEBI-regulated vehicle that owns operating infrastructure assets like roads or power lines and distributes their cash flows to unitholders.
- Portfolio Management Service (PMS)A Portfolio Management Service is a SEBI-regulated, personalised investment service where a professional manages a wealthy client's portfolio, subject to a high minimum investment.
- SmallcaseA smallcase is a ready-made basket of stocks or ETFs built around a theme or strategy that investors can buy in one click through their broker, holding the securities directly.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.