Alternative Investment Fund (AIF) Registration

Apply for AIF Registration under SEBI

• Submit Form A with the necessary documents as SEBI regulations
• Receive a Response within 21 working days, depending on compliance speed
• Check Eligibility by reviewing SEBI regulations
• Include Key Details in your application about AIF registration 

ETA – End-to-end process closure in 180 working days

AIF Registration – Understanding Alternative Investment Funds

AIFs are privately pooled investment funds that collect capital from High-Net-Worth Individuals (HNIs), institutional investors, or corporates. The full form of AIF is alternative investment fund. AIFs differ from traditional investment funds as they do not focus on stocks, bonds and cash. Instead, AIFs invest in a wide range of non-traditional assets. 

 AIFs explore opportunities in private equity, start-ups, pre-IPOs and post-IPO investments, venture capital, hedge funds, real estate, commodities and even are or rare collectables. AIFs have become an integral part of most net-high-worth individuals and family offices.

In India, AIF registration is categorized into three types. Each category has guidelines and compliance requirements based on the activities undertaken. If you are planning to register an AIF, it is essential to choose the right category based on your intended business investment activity. While most AIFs are registered as Trusts, fund managers often register as Limited Liability Partnerships (LLPs).

In India, AIFs are governed by the Securities and Exchange Board of India (SEBI) under the SEBI (Alternative Investment Funds) Regulations, 2012. These regulations ensure that AIFs maintain transparency and adhere to standards to protect investors and uphold the integrity of the financial system.

Choosing the right AIF category and regulatory landscape is essential for successful Alternative Investment Fund Registration and operation. AIF investment is recommended for high-net-worth individuals and corporations willing to take high risks for high returns. This is why SEBI has imposed a minimum investment cap of Rs. 25 lakhs in the case of angel investments and Rs. 1 crore in other AIF categories.

Right Legal Structure for AIF Registration in India

If you wish to register an Alternative Investment Fund (AIF) in India, you can choose from the following structures. Usually, the Trust structure is the most commonly used by applicants.

• Trust – A private trust registered under the Trust Act of 1882.
• Company – A private or public company registered under the Companies Act, 1956 or the Companies Act, 2013.
• Limited Liability Partnership (LLP) – An LLP registered under the LLP Act, 2008.

Each structure has its own legal and regulatory requirements, so selecting the one that best suits your investment strategy and operational needs is important.

Types of Alternative Investment Funds in India

The three prominent types of alternative investment funds in India are mentioned below-

Category I AIF—Category I AIF invests in start-ups, early-stage ventures, social ventures, SMEs, infrastructure, or sectors deemed socially/economically desirable. It includes Angel Funds, Venture Capital Funds, SME funds, social venture funds, and infrastructure funds. This category is more popular for investing in start-ups. Units of angel funds shall not be listed on any recognized stock exchange.

Minimum Corpus Required—Rs. 10 crore and 2.5% of the corpus or 50 lakhs must be invested by the manager and sponsors of the fund, whichever is lesser.

Category II AIF – Includes funds that do not fit into Category I or III, like private equity, debt funds, or fund of funds. These funds don’t use leverage except for day-to-day operations.

Minimum Corpus Required – Rs 10 crore, and the sponsor must invest 2.5% of the corpus amount or Rs 5 crore, whichever is less.

Category III AIF – Includes funds using diverse or complex trading strategies like private investment in public equity. It involves investing in publicly traded company shares and leverage like hedge funds. Can undertake all activities in categories I and II. It can also leverage its investment and raise funds for expansion.

Minimum Corpus Required – Rs 20 crore corpus is required, and sponsor contribution should be at least 5% of the corpus or Rs 10 crore, whichever is less.

FDI in AIF

SEBI has categorized AIFs into three categories for better compliance and industry outlook. Additionally, 100% FDI is permitted under all categories of AIFs, and AIFs are free to invest in foreign companies and stock exchanges, subject to compliance with RBI and FEMA guidelines.

Taxation Rate of AIF in India

Given below is the category-wise bifurcation of taxation rate of AIF in India-

• Category I and II – Long-term capital gains investments in AIFs (more than one-year-old) in Category I and II are subjected to tax at long-term capital gain tax rates. Unlisted shares and other assets are taxed at 20%, while listed shares are taxed at 10%. Short-term capital gains are taxed at short-term capital gains tax rate of 15% (generally).

• Category III – Income, capital gains and business subject to fund-level taxation. Tax summary applicable to Category III AIFs:

Type of Income	Tax Rate
Long-Term Capital Gain	10%
Short-Term Capital Gain	15%
Income from Dividend	30%
Income from Interest	30%
Income from Business	30%

Eligibility Criteria for AIF Registration

To start an Alternative Investment Fund (AIF) in India, the applicant must obtain a certificate of fund registration from SEBI.

Given below is the bifurcation of eligibility criteria for AIF registration:

1. Allowed Business Activities

• Company– The memorandum of association (MOA) must allow AIF investment activities as allowed in different categories of AIF.
• Trust– The trust deed must permit AIF activities and be registered under the Registration Act, 1908.
• Limited Liability Partnership (LLP) – The partnership deed must permit AIF activities and be filed with the Registrar under the LLP Act, 2008.

2. Private Subscription

The applicant's founding documents (Memorandum of Association, Articles of Association, Trust Deed or Partnership Deed) must prohibit public invitations to subscribe to its securities.

3. Legal Incorporation

• Trusts– Must be registered under the Registration Act, 1908.
• LLPs – Must be incorporated and have their partnership deed filed under the LLP Act, 2008.
• Company – Private or public company registered under the Companies Act, 1956/2013.

4. Fit and Proper Criteria

The applicants, sponsors, and managers must be considered fit and proper people according to Schedule II of the SEBI (Intermediaries) Regulations, 2008.

5. Qualified Management

The AIF management team must have a minimum of 5-10 years of experience, with at least one key personnel having a minimum of five years of experience in relevant financial activities and holding relevant professional qualifications like CFA/CA.
At least one member of the key investment team need to have NISM Series-XIX-C: Alternative Investment Fund Managers Certification.

6. Infrastructure and Manpower

The manager or sponsor must have the necessary infrastructure and manpower to manage AIF activities effectively. The infrastructure includes a data storage server and file lock room. In general, the minimum office space should be 500 square feet at the time of the application.

7. Clear Investment Plan

The applicant must clearly describe the investment objective, targeted investors, proposed corpus, investment style or strategy, and the proposed tenure of the fund or scheme at the time of registration.

Steps for Registering an Alternative Investment Fund (AIF)

Application Submission to SEBI

For each category of registration, applicants need to submit an application in Form A of SEBI (Alternative Investment Funds) AIF Regulations 2012, along with the following necessary details:

• Contact Information
• Founding Documents
• Ownership Details
• Business Strategies
• Key Personnel & Experience
• Private Placement Memorandum (PPM)
• Authorization

Application Fees – Rs. 1,00,000

Processing by SEBI

• SEBI reviews the application and verifies the documents
• SEBI may request additional information or clarifications
• In some cases, SEBI may conduct a personal meeting with AIF officials
• SEBI may inspect the AIFs office to ensure it has the necessary infrastructure to operate
• SEBI grants principal registration if the applicant meets all regulatory requirements within 120 working days.

Payment for Final Fee for Grant of Registration

Category I – Rs. 5,00,000

Category II – Rs. 10,00,000

Category III – Rs. 15,00,000

Validity of Certificate

The registration certificate is valid throughout the life of the AIF.

Fee for Additional Schemes – Rs. 1,00,000

Investment Limit

• For AIF Category II & III, each investor must invest a minimum of Rs. 1 crore
• In the case of Angel fund, the minimum investment prescribed per investor is Rs. 25 lakhs
• Employees or directors of AIFs or their managers can invest a minimum of Rs. 25 lakhs

AIF Registration Process – Key Requirements and Conditions

The significant requirements and conditions pertaining to AIF registration process are mentioned below-

Details of Applicants

For Trusts

1. Write up on the activities of the applicants
2. Confirmation of Trust Deed registration under the Registration Act, 1908
3. Trust Deed must permit AIF activities
4. Details of Trustees/Trustee Company, including registration and activities

For Companies

1. Write up on the activities of the applicant
2. Shareholding pattern and director profiles (including identity and address proof)
3. Memorandum of Association must permit AIF activities
4. Prohibition of public invitations to subscribe to securities in the Memorandum and Articles of Association

For Limited Liability Partnerships (LLPs)

1. Write up on the activities of the applicant
2. Beneficial ownership pattern and partner profiles (including identity and address proof)
3. Partnership Deed must be filed under the LLP Act, 2008 and permit AIF activities
4. Prohibition of public invitations to subscribe to securities in the Partnership Deed

For Body Corporates

1. Write up on the activities of the applicant
2. Shareholding pattern and director profiles (including identity and address proof)
3. Established under Central or State legislature laws
4. Relevant statutes/Acts must permit AIF activities
5. Prohibition of public invitations to subscribe to securities in the Memorandum and Articles of Association

Details of Sponsor(s)

1. Name, address, contact details and legal status
2. Brief profile including professional qualifications
3. Registration with SEBI or other regulatory authorities
4. Experience in managing or advising capital pools
5. Copies of financial statements for the previous financial year
6. Details of any previously floated AIFs or Venture Capital Funds

Details of Manager

1. Name, address, contact details and legal status
2. Write-up on past experience in managing capital pools
3. Identity and address proof of key personnel
4. Shareholding pattern and profiles of directors/partners
5. Profile of key investment team
6. Copies of financial statements from the previous financial year
7. Details of any previously managed AIFs or Venture Capital Funds

Business Plan and Investment Strategy

1. Investment objectives and strategy
2. Target investors and industries/sectors
3. Proposed corpus and fees
4. Tenure of the fund or scheme
5. Use of leverage for Category III AIFs

Regulatory Actions

1. Details of any past litigation or regulatory actions
2. Declaration of no involvement in adverse litigation
3. Confirmation of no previous SEBI certificate refusal or suspension

Other Information/Declarations

1. Contribution details from sponsor(s)/manager(s)
2. Declaration of compliance with SEBI regulations for investment and general conditions

These streamlined requirements help ensure a smooth AIF registration process while meeting SEBI’s regulatory standards.

Tenure of AIFs

Open-ended (infinite) for Category III AIFs, while other categories of AIFs are close-ended with a minimum tenure of 36 months.

For Category I &II

It shall be a close-ended fund, and tenure shall be decided by the applicant at the time of submission of the application to the board. However, the minimum tenure prescribed is 3 years, and the AIF shall fix the maximum tenure.

For Category III

It may be open-ended or close-ended. Most of the AIF Category III is open-ended in India.

Extension of Tenure for Close-Ended AIFs

The tenure of a close-ended Alternative Investment Fund (AIF) can be extended by up to two years if two-thirds of the unit holders approve it based on the value of their investments.

Investment Conditions for Alternative Investment Funds (AIFs)

General conditions for all AIF categories are as follows:

Foreign Investments

AIFs can invest in foreign companies' securities, following RBI and SEBI guidelines.

Co-Investment Terms

Co-investments by a manager or sponsor must match the terms offered to the AIF.

Investment Limits

• Category I & II AIFs – Up to 25% of investible funds in one investee company
• Category III AIFs – Up to 10% of investible funds in one investee company

Investments in Associates

Requires 75% investor approval by value

Uninvested Funds

It can be placed in liquid mutual funds, bank deposits, or other high-quality liquid assets.

Nominated Investor Role

AIFs can act as nominated investors under IPO.

Investments in Listed Shares

Considered as investments in unlisted securities for regulatory purposes.

Category II AIFs Specific Conditions

Investment Focus

• Primarily in unlisted companies or units of other AIFs.
• You can invest in Category I or II AIF units but not other Fund of Funds.

Borrowing & Leverage

• No borrowing or leverage except for temporary needs (up to 30 days, 4 times a year, 10% of investible funds).
• May engage in hedging as per SEBI guidelines.

Market Making

Funds are allowed to enter into agreements with merchant bankers for market making.

Insider Trader Regulations

Exempt from investments in SME-listed companies, with disclosure and lock-in requirement of 12 months.

Category III AIFs Specific Conditions

Investment Scope

• Can invest in listed/unlisted securities, derivatives or complex products.
• Can invest in units of Category I or II AIFs but not in any other Fund of Funds.

Leverage & Borrowing>

• Allowed with investor consent and within SEBI limits.
• Must disclose leverage details to investors and SEBI

Regulatory Compliance

Must follow SEBI's rules on operations, business conduct, prudential requirements, redemption restrictions and conflict of interest management.

AIF Registration – Angel Fund Investment Conditions

Registration of Angel Funds

Application Process

• Apply for registration as an angel fund per Chapter II of SEBI Regulations.
• Existing AIFs without investments can convert to angel funds.

Investment in Angel Funds

Fundraising

• Raise funds only by issuing units to angel investors.
• Minimum corpus of Rs. 5 crores.
• Minimum investment of Rs. 25 lakhs per angel investor, up to five years.
• Raise funds via private placements through information or placement memorandums.

Schemes

Launching Schemes

• File a scheme memorandum with SEBI 10 days before launch.
• There are no scheme fees for angel funds.
• The scheme memorandum must include all material investment information.
• SEBI may provide comments to be incorporated before launch.
• No more than 200 angel investors per scheme.

Investments by Angel Funds

Investment Criteria

• Invest in venture capital undertakings/start-ups as per Department of Industrial Policy and Promotion guidelines.
• Companies must have a turnover of less than Rs. 25 crores and not be a part of an industrial group exceeding Rs. 300 crores.
• No investment in companies with family connections to angel investors.
• Investment range – Rs. 25 lakhs to Rs. 5 crores per venture.
• Investments are locked in for one year.
• No investment in associates.
• Maximum of 25% of total investments in one venture.

Foreign Investments

Angel funds may invest in companies outside India, following RBI and SEBI guidelines.

Which Entities do not Fall under AIF?

As per the SEBI Regulations, 2012, the entities that do not fall under Alternative Investment Funds are given under the sub-clause (b) of Regulation-2 discussed below for your better insight:

• Family trusts
• Holding companies
• Employee welfare trusts or gratuity trusts for employees
• Any other pool of funds that any other regulator in India directly regulates
• ESOPs under SEBI (Share Based Employee Benefits) Regulations, 2014 or the Companies Act, 2013
• Funds managed by a securitization or reconstruction company registered under SARFAESI Act, 2012
• Special Purpose Vehicles include securitization trusts not established by fund managers and are regulated under a specific regulatory framework

Compliance & Regulatory Requirements for AIF

Annual Audit

AIFs must have their financial statements audited annually by a qualified auditor.

Quarterly Reporting

AIFs must submit quarterly reports to SEBI detailing their activities, including the performance and valuation of their portfolio, fund expenses and any significant changes in investment strategy.

Valuation Reports

• Category I and II AIFs must have their investments valued by an independent valuer at least once every six months. This period can be extended to one year with the approval of 75% of investors by value.
• Category III AIFs must calculate and disclose their Net Asset Value NAV) at quarterly intervals for close-ended funds.

Investor Reporting

AIF fund performance updates must be shared regularly with the investors. Updates include detailed statements, valuations, and any other significant development by the AIF.

Disclosure of Conflicts of Interests

AIFs must disclose conflicts of interest (if any) with SEBI and their investors to maintain transparency and to follow ethical standards.

Changes in Key Personnel

If the AIF makes any changes in the management or the key investment team, it must be reported to SEBI.

Compliance with Investment Limits

AIFs must ensure compliance with the investment limit and restrictions imposed by SEBI, including sector-specific limits and restrictions on borrowing and leverage.

Custodian Appointment

SEBI-registered custodians must be appointed for AIFs with the corpus of over Rs. 500 crores to ensure the safekeeping of the securities. Category III AIFs are mandated to appoint a custodian regardless of corpus size.

Record Keeping

The AIFs must maintain detailed records of transactions, financials, and investor communications for a specified period to ensure their easy accessibility for regulatory inspections.

Regulatory Filing

All AIFs are mandated to comply with regulatory filing requirements, such as filing annual returns and other documents as required by SEBI.

The compliances mentioned above, and reporting requirements are a must to:

• Ensure transparency
• Protect investor interests
• Maintain the integrity of the financial markets

How Can Enterslice Assist You in AIF Registration?

Advising on Optimal Structure

We recommend the best structure (Company, Trust or LLP) with efficient tax implications for your AIF.

Entity Selection

Guidance on choosing the correct entity for SEBI registration, investment management, sponsorship planning and management team setup.

AIF License Acquisition Support

Our experts will assist you in getting an AIF license with no scope for stress.

SEBI Registration Assistance

Help with the entire SEBI registration process, including online and physical application submission.

Fund Document Preparation

Assist in preparing essential fund documents such as the Private Placement Memorandum, Contribution Agreement and Investment Management Agreement.

Qualification and Experience Guidance

Advise on the qualifications and experience required for obtaining the necessary licenses.

SEBI Application

Complete and submit Form A and respond to SEBI queries to obtain the Certificate of Registration.

Professional Coordination

Coordinate with professional agencies like trustees, registrars and custodians.

Operational Setup

Assistance in establishing operational frameworks.

Policy and Procedure Design

Design policies, procedures and operational processes.

Benchmarking and Auditing

Assistance in coordination with benchmarking agencies and auditors.

Outsourcing and Non-Critical Functions

Handle outsourcing of non-critical functions like accounting and regulatory filings.

Frequently Asked Questions

What is the placement memorandum of AIF?

The placement memorandum of an Alternative Investment Fund (AIF) is a detailed document provided to probable investors. It outlines the fund's investment strategy, objectives, risks, terms, and conditions, serving as a guide to understanding the fund's goals and operational module.

What are schemes in AIF?

Schemes in an AIF refer to specific investment plans or strategies that the fund can launch. The fund must file each scheme with SEBI at least ten working days before its launch. It must provide detailed information about proposed investments and include operational guidelines.

Do all categories of AIF fall under the QIB category?

No, not all categories of AIFs come under the Qualified Institutional Buyer (QIB) category. However, AIFs can attract QIBs as investors owing to their sophisticated nature and regulatory compliance.

Who can be a sponsor in an AIF?

An AIF sponsor can be an individual, company, LLP, or body corporate—anyone who has played a significant role in setting up the fund. However, the sponsor must have the required financial strength, integrity, and experience to support the AIF's operations.

Who can be the fund manager in an AIF?

The fund manager in an AIF can be an individual, company, LLP, or body corporate—anyone with the expertise and capability to manage the fund's investments. The fund manager is the key person responsible for managing the fund's day-to-day operations and strategic decision-making.

What are the benefits of investing in AIFs?

The benefits of investing in AIFs are mentioned below-

1. AIFs helps in diversification of the portfolio of investors and thereby, it reduces overall investment risk.

2. One of the significant benefits of investing in AIFs is that it provides exposure to unique investment opportunities.

3. AIFs have the potential to deliver higher returns.

What qualifications are required for a Manager of an AIF Fund?

An AIF fund manager should have the required experience in managing or advising pools of capital. Should have at least five years' experience in fund or asset management and portfolio management. The fund manager can be someone in the business of buying, selling, and dealing with securities or other financial assets. Besides, he should have the relevant professional qualifications.

What is Corpus in an AIF?

The corpus is the total capital invested by investors in the fund. It represents the financial resources available with the AIF for investment by its strategy and objectives.

What is the full form of AIF?

The full form of AIF is alternative investment fund.

What is AIF License?

AN AIF license in India is a regulatory approval granted by SEBI. It basically allows a fund to function as an AIF.

Can closed-ended Alternative Investment Fund (AIF) units be listed on a stock exchange?

Yes, units of a close-ended Alternative Investment Fund (AIF) can be listed on a stock exchange. However, only if the minimum tradable lot is Rs. 1 crore. Listing is allowed only after the fund or scheme is closed.

What is an angel investor?

An angel investor is a person who invests in an Angel fund and meets any of the given criteria:

1. Has net tangible assets of at least Rs. 2 crores (excluding primary residence)

2. Has early-stage investment experience

3. Has experience as a serial entrepreneur

4. Is a senior management professional with at least ten years of experience

When is a custodian required for an Alternative Investment Fund (AIF)?

A custodian for AIF is required only if:

1. The corpus of the AIF exceeds Rs. 500 crores

2. For Category III AIFs, a custodian must be appointed regardless of the fund size

The custodian must be registered with SEBI to keep the securities safe.

Who can Invest in an AIF?

Indian residents, foreign nationals, NRIs, and joint investors can invest in an AIF.

What are the valuation requirements for an AIF?

Valuation of units is a mandatory requirement for all categories of AIF.

1. Valuation Procedure – AIFs must inform investors about their valuation methods.
2. Frequency

• Category I & II – Valuation every six months by an independent valuer (can extend to one year with 75% investor approval)
• Category III– NAV calculation must be independent and disclosed
• Close-ended funds – Quarterly
• Open-ended funds – Monthly

What is the maximum tenure for an Angel Fund?

The maximum tenure for an Angel Fund is 5 years, which can be extended to 2 years with the approval of two-thirds of the unit holders by value.

What is the primary role of the fund management company?

Managing the investment portfolio of AIFs is the primary role of the fund management company.

How to start an Alternative Investment Fund?

To start an Alternative Investment Fund (AIF in India), apply to the Securities and Exchange Board of India, bring an authorisation letter, meet the SEBI compliance requirement, proceed with submitting the final application, wait for the timely scrutiny, and accept the grant of registration certificate.

What is the difference between PMS and AIF?

PMS stands for portfolio management services. On the other hand, AIF stands for Alternative Investment Fund. Portfolio management services refers to bespoke investment portfolios managed for individual clients whereas AIFs tend to pool funds from several investors.

Why Invest in AIFs?

AIFs are the healthiest options for investors who are focused on higher returns. Investors might consider investing in AIFs as they make alternative asset classes easily accessible and may help them secure higher returns over traditional investments.

How is AIF different from mutual funds?

AIFs extends a higher degree of flexibility in comparison to mutual funds. In addition to this, AIFs have a higher risk and return profile whereas mutual funds have a lower risk and return profile than AIFs.

What is the fee for registering an Alternative Investment Fund (AIF)?

The fee for AIF registration is as follows:

Application Fees – Rs. 1,00,000

Registration Fees:

• Category I AIFs (excluding Angel Funds) – Rs. 5,00,000
• Category II AIFs (excluding Angel Funds) – Rs. 10,00,000
• Category III AIFs (excluding Angel Funds) – Rs. 15,00,000

Scheme Fees – Rs. 1,00,000 (For all AIFs other than Angel Funds)

Re-registration Fees – Rs. 1,00,000

Is an investment management company a driving force behind an AIF?

Yes, an investment management company can be a driving force behind an AIF. It manages all aspects from inception to execution.

What is alternative investment management?

In simple words, alternative investment management refers to the significant strategies that are above and beyond traditional assets such as bonds, stocks, and cash.