Alternate Investment Fund refer to asset classes outside of traditional investments like stocks, bonds, and fixed deposits. In India, these include:
Private equity
Venture capital
Hedge funds
Real estate
Private credit
Commodities and structured products
These are typically available to high-net-worth individuals (HNIs) and institutional investors.
As per SEBI guidelines, the minimum investment in an AIF is:
₹1 crore per investor
₹25 lakh for employees or directors of the AIF or its fund manag
Alternate Investment Fund tend to carry higher risk compared to traditional products due to:
Illiquidity
Long lock-in periods
Market or credit risk
Complex strategies
However, they also offer the potential for higher returns and portfolio diversification.
Taxation depends on the category of AIF:
Category I & II: Treated as pass-through vehicles for tax; investors pay tax as per their individual tax bracket on capital gains or income.
Category III: Taxed at the fund level, often at the maximum marginal rate.
Always consult a tax advisor before investing.