Best AIFs in India for 2025: High-Performance Funds Across Categories I, II & III

An AIF or an Alternate Investment Fund means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

In AIFs, one does not need to open a demat account this is a pooled vehicle; hence all clients investing at the same closure have similar returns experience. The tax implications are different for the different categories of AIF.

Rs 1 Crore.

These are specifically made for high-net-worth (HNI) or UHNIs investors with customized investment needs.

AIFs combines the operational ease of a mutual fund and the flexibility of a PMS making it a perfect blend geared for generating optimum performance for a stipulated investment objective. To enhance risk-adjusted performance, these products can use complex strategies like unlisted equity investments, long-short hedging style of investments etc.

There are three categories of AIF: Category I (CAT-I), Category II (CAT-II), and Category III (CAT-III),

AIFs which invest in the unlisted & private space of start-up or early-stage of ventures and popularly known as venture capital equity or debt funds. Besides the world of start-ups and disrupting ideas, this category also covers social ventures or SMEs or infrastructure projects or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital debt funds, SME Funds, social venture funds, infrastructure debt or equity funds and such other Alternative Investment Funds as may be specified.

AIFs which invest in the unlisted or private space of mid stage or late stage of a business either in form of debt or equity. These funds, when investing in the mid-stage of a business are also called private equity funds or PE funds. The same CAT II funds, when investing in late stage businesses are called Pre-IPO funds. Both these categories of funds are very popular and many investment companies have AIFs running in this category, like Edelweiss, IIFL, Kotak, Axis, Avendus, and so on.

While the above described are equity funds, mid stage investing can also be in the form of debt financing as well and then these funds are called Real Estate funds, Credit Opportunities Funds, Distressed Asset Funds [as lending is in such funds is against real estate projects or business cash flows or business assets as a collateral for the lending], and so on. Again, this category is also very popular with companies like Sundaram, HDFC, Birla, Axis, Kotak, Edelweiss, IIFL, and so on.

AIFs which invest primarily in the listed space of equities across large, mid, small cap businesses and are allowed to employ diverse or complex trading strategies and may employ leverage through investment in listed or unlisted derivatives. This is one of the most popular and largest categories from the sellers and buyers’ perspectives as this category has maximum number of funds, as well as maximum number of investors.

Category III AIFs are further divided into Long Only and Long Short Funds. Many well-known companies with long only AIFs are Motilal Oswal, ASK, Alchemy, IIFL, Abakkus, Sage One, and so on. Some companies with Long short AIF products are Tata, Kotak, Avendus, IIFL, Edelweiss, ITI, and so on.

AIFs follow variety of share classes and so offer variety of fee structures. Generally, profit sharing is 12% to 15% above 8% to 10% huddle.

In AIFs, one does not need to open a demat account this is a pooled vehicle; hence all clients investing at the same closure have similar returns experience. The tax implications are different for the different categories of AIF.

In AIFs, there is a pooled structure, and hence no negotiation on management fees is possible. But, set up fees can be waived off completely.

Angel Fund is a sub-category of Venture Capital Fund under Category I- Alternative Investment Fund that raises funds from angel investors and invests in accordance with the provisions of Chapter III-A of AIF Regulations.

In case of an angel fund, it shall only raise funds by way of issue of units to angel investors.

Sponsor is any person(s) who set up the AIF and includes promoter in case of a company and designated partner in case of a limited liability partnership.

Overseas investments by AIFs investments shall not exceed 25% of the investible funds of the scheme of the AIF subject to overall limit of USD 500 million (combined limit for AIFs and Venture Capital Funds registered under the SEBI (Venture Capital Funds) Regulations, 1996).