AIF Glossary: Every Term Investors Should Know

A

AIF (Alternative Investment Fund) — A privately pooled investment vehicle registered with SEBI under the AIF Regulations, 2012, that collects capital from sophisticated investors to invest according to a defined strategy — distinct from mutual funds and collective investment schemes.

Angel Fund — A sub-category of Category I AIF that pools capital from angel investors to fund early-stage startups. Runs on lighter eligibility thresholds than a standard AIF: ₹10 crore minimum corpus, ₹25 lakh minimum investor commitment, and a 50-investor cap.

C

Category I AIF — Funds investing in start-ups, early-stage ventures, SMEs, infrastructure, or social ventures — categories the government or a regulator considers economically or socially desirable, often with associated incentives.

Category II AIF — The residual category: private equity and debt funds that don't fall into Category I or III and don't use leverage beyond day-to-day operational needs.

Category III AIF — Funds employing diverse or complex trading strategies, including listed and unlisted derivatives and leverage — the category closest in spirit to a hedge fund.

Closed-Ended Fund — A fund with a fixed tenure and no ongoing redemptions — investors get their capital back only at exit events or fund wind-up. Category I and II AIFs must be closed-ended, with a minimum tenure of three years.

Contribution Agreement — The legal agreement between an investor and the fund setting out the investor's committed capital, the drawdown schedule, and their rights and obligations as a contributor.

Continuing Interest — The mandatory "skin in the game" capital the sponsor and/or manager must hold in the fund — 2.5% of corpus or ₹5 crore (whichever lower) for Category I/II, 5% of corpus or ₹10 crore (whichever lower) for Category III.

Corpus — The total amount of capital investors have committed to the fund, whether or not it has all been drawn down yet.

Custodian — An independent entity that holds and safekeeps a fund's securities and assets. Mandatory under Regulation 19 once a fund's corpus exceeds ₹500 crore, regardless of category.

D

Designated Partner — Where an AIF is structured as an LLP rather than a trust, the designated partners hold the governance responsibilities that a trustee or board of directors would otherwise carry.

Drawdown — A capital call — the fund's request to investors to pay in a portion of their committed capital, typically issued as investment opportunities arise rather than all at once.

F

Fast-Track Mechanism — Introduced by SEBI in April 2026, this lets a fund scheme begin soliciting investors 30 days after filing its PPM, without waiting for SEBI's formal sign-off, provided SEBI raises no objection in that window.

First Close — The point at which a fund has received enough investor commitments to meet its minimum corpus requirement and can formally begin operating and drawing down capital.

Fit and Proper Criteria — The integrity, financial soundness and track-record standard SEBI applies to an AIF's applicant, sponsor and manager, assessed against Schedule II of the SEBI Intermediaries Regulations.

L

Large Value Fund (LVF) — A fund for accredited investors where each investor commits at least ₹70 crore. LVFs are exempt from certain requirements, including the merchant banker due diligence on the PPM at registration and the annual PPM audit.

M

Manager (Investment Manager) — The entity responsible for the fund's day-to-day investment decisions — sourcing deals, running diligence, and executing the strategy set out in the PPM, under a fiduciary duty to investors.

P

Placement Memorandum (PPM) — The fund's core disclosure document — its investment strategy, fee structure, risk factors, governance, and terms — against which SEBI, the trustee and investors all measure the fund's actual conduct.

PPM Audit — The annual audit, required under Regulation 28, checking the fund's actual activity against what its PPM says it will do. Filed with the trustee and SEBI within six months of financial year end.

S

SI Portal — SEBI's Intermediary Portal (siportal.sebi.gov.in) — the online system through which AIFs file their registration application, PPM audit reports, and periodic activity reports.

Sponsor — The entity or individual who sets up the fund, files for SEBI registration, and — in a trust structure — acts as settlor of the trust deed. Often, though not always, the source of the fund's continuing interest.

Sub-Category — The narrower classification within Category I — venture capital fund, SME fund, social venture fund, infrastructure fund, or special situation fund — that a fund registers under at the point of application.

T

Tenure — The fixed life of a closed-ended fund, from first close to final wind-up — a minimum of three years for Category I and II AIFs, typically extendable with investor consent.

Trust Deed — The founding legal document of a trust-structured AIF, executed between the sponsor (as settlor) and the trustee, setting out the fund's objects, investment policy, governance and winding-up terms.

Trustee — The party that holds a trust-structured AIF's assets on behalf of investors and oversees the fund's overall administration — typically a professional, India-domiciled trustee company.

Terms and definitions are drawn from the SEBI (Alternative Investment Funds) Regulations, 2012, as amended, and SEBI's related circulars. This is general reference material, not legal or investment advice.