A Quick Guide To Alternative Investment Funds In India

By Author: Charli
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As of March 2025, Alternative Investment Funds (AIFs) in India attracted over INR 13.49 lakh crore in investments. This shows fast AIFs are gaining ground among Indian investors. 
Unlike traditional options like stocks and fixed deposits, alternative assets open the door to new opportunities, helping you spread risk and aim for stronger portfolio returns.
An Overview of Alternative Investment Funds
The Alternative Investment Funds, or AIFs, are a category of investment which comes under the collective investments or mutual funds scheme. They invest in assets and capitalise on them, which are different from traditional assets such as bonds, stocks, cash, etc.
They carry a comparatively higher risk and complex investment strategies. The following are some characteristics of AIF investment to expand your portfolio:

In India, AIFs require INR 25 lakh to INR 1 crore, depending on investor types. 
To generate better returns, AIFs invest in diversified asset classes such as real estate, commodities, private equities, infrastructure, etc.
Wealth managers who manage ...
... such funds usually charge higher, typically more than 2% on the total Asset Under Management or AUM. 

How Do Alternative Investment Fund Categories Generate Returns?
 

Category I AIF

 
Early-stage ventures, socially and economically viable projects, Small and Medium Enterprises and more fall under this category. 
If you are an HNI investor, you can choose to invest in one of these options under this category for an optimised return:

You can invest in venture capital funds which target recent start-ups from different industries with potential growth. As of FY 2024 2025, funding in venture capital rose to 1.4 times compared to the previous year, showing investors' confidence in profits.
You can also invest in infrastructure as an alternate investment fund. Such funds help build railroads, airports, roadways, etc. 
You can opt for investments in social venture funds for an optimised return that solves environmental or social issues. For example, listed renewable energy stocks have generated 80% gains for investors, which enhances your portfolio returns.
For AIF investments, you can also consider SME funds, as they have potential growth opportunities as well. 

Category II AIF

 
If you choose a Category II AIF, the gathered fund works to support the daily operations of companies or ventures. Here is a detailed breakdown of such a category:

Once the companies improve their performance, private equity funds withdraw their investment and holdings, earning a significant profit at the time of exit.
A real estate fund invests a maximum of 25% of its funds in a real estate company. Due to their extended lock-in period, such funds are less risky compared to others. 
Various unlisted companies in India issue debt securities to invest in for funding. However, such investments can be riskier due to low credit ratings and defaults. 

Category III AIF

 
Funds under this category require advanced strategies for trading for an optimised return. You can choose from the following investment avenues listed under this category:

Using techniques like margin trading, short selling, arbitrage and other hedging strategies, this becomes a high-risk, high-reward investment option. 
You can invest in Private Investment in Public Equity (PIPE) Funds that invest at a discounted rate in listed companies. 

Eligibility for AIF Investments in India

Any Indian national, preferably a High Networth Individual with INR 5 crore investable assets, can invest in such funds.
Also, Joint investors, NRIs, and foreign nationals can invest in such funds. However, it is wise to consult a wealth manager. They will help make an informed investment decision and also create a free Demat account to invest in assets like stocks. 

Conclusion
Alternative Investment Funds allocate your money into non-traditional assets like venture capital, SMEs, real estate, etc. When such companies grow profitable, the funds get a higher return, and you earn higher profits.