What is an alternative investment fund?
An alternative investment fund is a privately pooled investment vehicle, set up in India as a trust, a company, an LLP, or a body corporate, and registered with SEBI. It collects funds from investors for a stated investment policy. A scheme needs a corpus of at least ₹20 crore, and an investor puts in at least ₹1 crore.
What counts as an alternative investment fund?
The regulations cover a fund that is not a mutual fund, a collective investment scheme, a family trust, an ESOP trust, an employee welfare or gratuity trust, or a holding company. The manager invests the pool under the policy in the placement memorandum. Investors do not run the portfolio day to day.
What are the three categories?
| Category | What it invests in |
|---|---|
| I | Venture capital, startups, social ventures, SMEs, infrastructure, and other sectors the regulations treat as desirable for the economy |
| II | Funds that are neither Category I nor Category III, and that do not borrow except for day-to-day operations. Private equity and debt funds sit here |
| III | Funds that use diverse or complex trading strategies, including leverage. Hedge funds sit here |
The category is chosen in the registration application. A change needs SEBI’s approval, and only if the fund has neither raised money nor made an investment.
How much capital does a scheme need?
- Corpus of at least ₹20 crore for the scheme.
- At least ₹1 crore from an investor. A director or employee of the fund, or of the manager, may invest ₹25 lakh.
- The manager or sponsor keeps a continuing interest of at least 2.5 percent of the corpus or ₹5 crore, whichever is lower, in a Category I or II fund.
- In a Category III fund that interest is at least 5 percent of the corpus or ₹10 crore, whichever is lower.
The continuing interest is an investment in the fund. It is not created by waiving the management fee.
Twenty crore, and one crore. The scheme corpus is at least ₹20 crore. One investor puts in at least ₹1 crore.
How is the fund registered?
Registration with SEBI is mandatory before the fund raises money. The application names the category. Each scheme files its placement memorandum, covering the objective, the strategy, and the method. A change in those terms needs the approval of two-thirds of the unit holders. The vehicle itself, when it is a trust, a company, or an LLP, is formed under the law for that vehicle before the SEBI application.
Frequently asked questions
Four questions cover a mutual fund, the investor minimum, the manager’s interest, and a change of category.
Is a mutual fund an alternative investment fund?
No. A mutual fund is registered under the mutual fund regulations. Family trusts, ESOP trusts, employee welfare trusts, and holding companies are also outside the definition.
What is the minimum from one investor?
₹1 crore. A director or employee of the fund, or of its manager, may invest ₹25 lakh.
What must the manager keep in the fund?
For a Category I or II fund, a continuing interest of at least 2.5 percent of the corpus or ₹5 crore, whichever is lower. For a Category III fund, at least 5 percent of the corpus or ₹10 crore, whichever is lower. The interest is an actual investment, not a waiver of the management fee.
Can the fund change category later?
Only with SEBI’s approval, and only when the fund has not taken money from investors or made an investment.
Sources
The definition, categories, and corpus are in the SEBI (Alternative Investment Funds) Regulations, 2012, as amended up to 2026.