AIF Categories I-III Explained as Category III Funds Surge
Why in the news
Category III Alternative Investment Funds expanded far faster than Portfolio Management Services in FY25, according to SEBI and APMI data.
Key facts
- AIF commitments: ₹2.3 trillion, up 58% year on year; PMS AUM: ₹4.3 trillion, up 19%.
- AIFs are privately pooled vehicles, favoured by HNIs and institutions, set up as a company, LLP, trust or similar entity under the SEBI (AIF) Regulations, 2012.
| Category | Focus | Types |
|---|---|---|
| I | Growth and impact: start-ups, SMEs, social ventures | Venture capital funds; angel funds (minimum ₹25 lakh per angel); infrastructure funds; social venture funds |
| II | Private and debt investments, no leverage | Private equity (4-7 year lock-in); debt funds (no direct lending); fund of funds |
| III | Market-driven, high-risk, aggressive strategies | PIPE funds (discounted listed shares); hedge funds (derivatives, leverage, 2% fee plus 20% profit) |
Who can invest
- Resident Indians, NRIs and foreign nationals.
- Entry ticket: ₹1 crore, reduced to ₹25 lakh for managers, staff and directors of the fund.
- Lock-in: at least 3 years.
- Investor cap: 1,000 per scheme; angel funds allow up to 49.
Benefits
- High return potential through strategic models; lower volatility; diversification into alternative assets.
Exam angle
- Regulations year: 2012. Hedge funds fall in Category III; angel funds in Category I.