Alternative Investment Funds (AIF)

Alternatives can add differentiated return streams to a large portfolio when used with care. We assess each AIF opportunity on strategy, structure, liquidity, taxation and fit — and integrate only those that make sense for your overall plan.

What we do for you

• Category I, II and III AIFs from SEBI-registered fund managers
• Screening on strategy, structure, lock-ins, fees and taxation
• Consideration of portfolio fit, liquidity and concentration
• Documentation guidance and consolidated performance reporting
• Ongoing dialogue with fund managers and independent review

How we work

1. 01Evaluate suitability and risk appetite
2. 02Shortlist AIFs aligned to strategic asset allocation
3. 03Guide compliant onboarding and documentation
4. 04Track drawdowns, distributions and NAV updates

What Alternative Investment Funds are

Alternative Investment Funds are privately pooled vehicles registered with SEBI under the AIF Regulations, 2012, with a minimum commitment of ₹1 crore for most investors. They are organised into three categories. Category I covers funds directed at areas the regulator considers socially or economically desirable, such as venture capital, SME and infrastructure funds. Category II covers private equity, private credit and real estate funds that do not use significant leverage. Category III covers strategies that may employ leverage and complex instruments, including long-short equity funds.

The defining features of the asset class are illiquidity, long lock-in periods, a drawdown structure where capital is called over time rather than invested at once, and considerably less standardisation than listed markets. These are not defects to be worked around — they are the source of whatever differentiated return the strategy is designed to deliver. They are also the reason AIFs suit only a specific kind of investor.

Who this asset class actually suits

In our experience, an AIF allocation makes sense when three conditions hold together. First, the core portfolio is already built and funded — emergency reserves, protection, goal-linked liquid assets and a diversified market-linked core. Second, the capital being committed is genuinely surplus over a seven to ten year horizon, with no realistic call on it in between. Third, you are comfortable with limited interim visibility and with the possibility of loss of capital.

If any one of those is missing, we say so. A commitment that has to be broken early, where an exit market may not exist at all, is a worse outcome than never having made it. We would rather lose the transaction than place a client in a structure whose liquidity profile does not match their life.

Reading an AIF term sheet properly

AIF documentation rewards patient reading. The commitment period determines how long the manager may call your capital. The drawdown schedule affects how much idle cash you must keep available and therefore your real return on committed capital. The fund term, and the extension options attached to it, determine when you might realistically see money back.

On economics, look at the management fee base — committed capital or invested capital makes a meaningful difference — the hurdle rate, whether the carry structure includes a catch-up, and whether distributions follow a whole-of-fund or deal-by-deal waterfall. Category III funds also carry taxation at the fund level, unlike Categories I and II which are generally pass-through. We work through each of these with you before the commitment letter is signed.

Manager diligence and portfolio fit

Track record in private markets is harder to interpret than in listed markets, because vintage year, deal access and mark-to-model valuations all shape the reported numbers. We examine what the manager has actually realised in cash rather than what remains marked on paper, how the team has changed since the referenced track record was generated, and how much of their own capital is committed alongside yours.

Portfolio fit is the final test. A private credit fund and a mid-market private equity fund behave quite differently in a slowdown, and neither behaves like your listed equity. We map any proposed AIF against what you already hold so the addition genuinely diversifies rather than doubling down on an exposure you did not realise you had.

Reporting, capital calls and the long middle

The years between commitment and exit require administration. Capital calls arrive with limited notice and must be funded on time. Distributions arrive irregularly and need to be redeployed thoughtfully rather than left idle. Valuations are periodic and can move without any transaction occurring.

We track the commitment schedule alongside your wider cash flow, prompt you before calls fall due, consolidate AIF reporting into your overall portfolio view, and keep a running record of drawn capital, distributions received and residual commitment. It is unglamorous work, and it is where a distribution relationship earns its place.

Risks & important considerations

• AIFs carry a minimum commitment of ₹1 crore for most investors under SEBI's AIF Regulations, 2012.
• These are illiquid, long-lock-in structures with the risk of loss of capital, including total loss in some strategies.
• Capital is drawn down over time; you must maintain liquidity to meet capital calls on schedule.
• Valuations may be periodic and model-based, and interim marks are not realisable prices.
• Taxation differs by AIF category — Category III is generally taxed at fund level while Categories I and II are broadly pass-through. Confirm your position with a qualified tax professional.

Frequently asked questions about Alternative Investment Funds (AIF)

More questions are answered on our general FAQ page and in the Knowledge Centre.

Who this typically suits

Not sure where you fit? Our seven-step process begins with a discovery conversation before anything is recommended.