- Your Questions Answered
Frequently Asked Questions (FAQs)
- What is an Alternative Investment Fund (AIF)?
- What are the 3 categories of AIF?
- Is there a limit on the amount of leverage that can be undertaken by a Category III AIF?
- Who can invest in AIFs
- Is there a limit on the number of investors an AIF can have?
- How much money can a contributor invest in an AIF scheme?
- What is the process of signing up for subscribing to the fund?
- What kind of reports can an investor expect to receive from the Fund?
- Can an AIF opt to be close-ended or open-ended, as it desires?
What is an Alternative Investment Fund (AIF)?
As per SEBI (Alternative Investment Funds) Regulations, 2012, Alternative Investment Fund” means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which,
- is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.
- is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities.
What are the 3 categories of AIF?
AIFs are classified into three categories:
- Category I: Invests in startups, SMEs, infrastructure, or socially impactful sectors. Examples: Venture Capital Funds, Angel Funds, Social Venture Funds.
- Category II: Includes funds not covered under Category I/III, with no leverage except for operational needs.
Examples: Private Equity (PE) Funds, Real Estate Funds, Debt Funds. - Category III: Employs complex trading strategies (e.g., derivatives, leverage, equities). Examples: Hedge Funds, PIPE (Private Investment in Public Equity) Funds.
Is there a limit on the amount of leverage that can be undertaken by a Category III AIF?
Yes. As per circular No.CIR/IMD/DF/10/2013 dated 29th July, 2013, the leverage of a Category III AIF shall not exceed 2 times the NAV of the fund. [Ref. circular No.CIR/IMD/DF/10/2013 dated 29th July, 2013]
Who can invest in AIFs?
Here are the details about who can invest in this AIF:
- Eligible Investors: High-net-worth individuals, non-resident individuals, foreign nationals, foreign funds, and other foreign legal entities. Family offices, institutions, corporate bodies, and foreign investors are also welcome.
- Minimum Investment:
Category I & II AlFs: ₹1 crore
Category III AIFs: ₹1 crore - Exemptions: Employees and directors of the AIF can invest with a lower threshold of ₹25 lakh.
Is there a limit on the number of investors an AIF can have?
No scheme of an AIF (other than an angel fund which can have maximum of 49 investors) shall have more than 1000 investors.
How much money can a contributor invest in an AIF scheme?
The minimum commitment amount is Rs. 1 crore which can be drawn down by the Investment Manager over the commitment period by giving a 15 calendar days’ notice to the contributors. There is no upper limit to the amount one can invest.
What is the process of signing up for subscribing to the fund?
The investor must satisfy the mandatory KYC requirements as prescribed under laws by providing documents like an Identity Proof, PAN card, Address Proof, etc. Investors are required to sign the Application Form along with Contribution Agreement (which will detail the amount investor is committing to invest, management fees, and profit sharing of success-based fee amongst other things), and risk disclosures. The details of the KYC documents required by each category of contributors i.e. Individual, HUFs, Corporate, etc. are mentioned in the Application Form. Investor onboarding will be done after running an internal anti money-laundering check as applicable.
What kind of reports can an investor expect to receive from the Fund?
The investors will receive:
- An annual report (quarterly report in case of Category III) comprising financial information of the Portfolio Entities, material risks and how they are managed, and other material information on the Fund that is deemed to be relevant by the Investment Manager. This information shall be sent to the Contributors within 180 (one hundred and eighty) days from the close of the financial year and within 60 (sixty) days from the close of the quarter in case of Category III AIF.
- Information with respect to any fees charged by the Investment Manager and/or Sponsor or any fees charged to the Trust/Portfolio Entity by an Associate of the Investment Manager and/or Sponsor shall be disclosed periodically in accordance with applicable laws.
- Information with respect to any breach of a provision of this Memorandum, Contribution Agreements, or any Trust Documents, as and when it occurs.
- Information with respect to any change in control of Investment Manager and/or Sponsor and/or Portfolio Entities, any change in the Investment Manager and/or Sponsor, any change in the disciplinary history, any significant change in key investment team, and information with respect to any inquiries/legal actions by legal or regulatory bodies in any jurisdiction, as and when it occurs.
- Information in relation to any change to this Memorandum with details indicating the changes made, any change/s in the disciplinary history, and such other information as required to be reported/disclosed to the Contributors in terms of the Regulations, within 1 (one) month from the end of each financial year ona consolidated basis.
- Any other details/reports suo moto from the Investment Manager, as deemed necessary by the Investment Manager.
Can an AIF opt to be close-ended or open-ended, as it desires?
No. Category I and II AIFs are required to be close ended have a minimum tenure of three years. Category III AIFs may be open ended or close ended.