Founder, Underpitch · Source review includes AMFI, SEBI, NSE, RBI, IRDAI, exchange, company or insurer documents where relevant.
2 July 2026
An Alternative Investment Fund is a privately pooled investment vehicle registered under SEBI’s AIF framework that collects capital from sophisticated investors according to a defined strategy. AIFs can invest in areas such as venture capital, private equity, private credit, infrastructure, special situations, listed securities or complex trading strategies, depending on category and documents.
Key points
- AIFs raise money through private placement, not a public retail offer.
- The placement memorandum and contribution agreement control important investor rights.
- Strategies may involve illiquid assets, leverage or concentrated portfolios.
- Registration does not guarantee performance or eliminate manager and strategy risk.
How an AIF is structured
An AIF may be established through permitted legal structures and is managed according to its placement memorandum. Investors commit or contribute capital, while the manager selects investments and charges disclosed fees and expenses.
Why investors use AIFs
AIFs may provide access to private companies, private credit, real assets, long-short strategies or specialised opportunities that are not easily available through ordinary mutual funds. That access can come with longer lock-ins, complex valuation and limited exit options.
What must be checked
Review the manager’s record, team stability, investment process, conflicts, use of leverage, valuation policy, custody, fund tenure, distribution waterfall, fees, taxation, default history and exit assumptions.
Worked Indian example
A private-credit AIF may lend to mid-sized companies at a higher yield than traditional fixed income. The higher expected return can reflect weaker liquidity, concentrated borrowers, collateral-enforcement risk and delayed repayment. The coupon alone does not describe the investment risk.
Comparison table
| Feature | Typical AIF characteristic | Investor question |
|---|---|---|
| Fund raising | Private placement | Who is eligible and what is the minimum commitment? |
| Assets | Listed, unlisted or specialised assets depending on category | How will investments be valued and exited? |
| Liquidity | Often limited or close-ended | When can money realistically be returned? |
| Fees | Management fee, expenses and possible performance allocation | What is the total fee under different return outcomes? |
| Risk | Manager, strategy, liquidity, leverage and issuer risk | What can cause permanent capital loss? |
Actual terms differ significantly between AIF schemes and must be read in the current documents.
Risks and limitations
- Private and unlisted assets may be difficult to value and sell.
- Capital calls can create future funding obligations.
- Returns may be concentrated in a few successful exits.
- Fees and carried interest can materially reduce investor returns.
Frequently asked questions
Is an AIF guaranteed by SEBI?
No. SEBI registration is regulatory oversight, not a guarantee of capital or return.
Can an AIF invest in listed shares?
Depending on category and strategy, an AIF may invest in listed securities, but the permitted approach and limits come from regulations and scheme documents.
Are AIF units liquid?
Many are not. Close-ended tenure, transfer restrictions and limited secondary markets are common.
Where can I verify registration?
Use SEBI’s registered-intermediary list and match the exact fund and registration details.
Sources and methodology
Rules, thresholds and product terms can change. Verify the latest official material and product documents before relying on a figure.
This page is for education and product understanding. It is not a personalised investment, legal, tax, trading or buy/sell recommendation. Stocks, derivatives, PMS and AIFs can result in partial or total capital loss.