This guide explains what Category I AIFs are, who can invest, the ₹1 crore minimum investment, tax pass-through treatment, and key risks like illiquidity and draw-downs. It includes a decision checklist for investors.
This is a practical investor guide to Category I Alternative Investment Funds (AIFs) regulated by SEBI. It is written for individuals, HUFs, NRIs, companies, LLPs, trusts, and institutions considering an investment in venture capital, SME, social venture, infrastructure, or angel funds.
The guide explains what Category I means: a developmental mandate focused on start-ups, SMEs, social ventures, and infrastructure. It distinguishes Category I from Category II (private equity, private credit, real estate) and Category III (trading strategies with leverage).
Eligibility and ticket size are covered in detail. The ordinary minimum investment is ₹1 crore per investor, with a ₹25 lakh exception for employees, directors, managers, or sponsors. Angel Funds have separate thresholds. Accredited investors may have additional flexibility under updated SEBI criteria.
The subscription process is described step by step: review the private placement memorandum, sign the contribution agreement, commit capital, respond to draw-down notices, and evaluate strategy, fees, governance, liquidity, and reporting. Online platforms may distribute AIFs but the legal relationship remains with the SEBI-registered AIF and its manager.
Tax treatment is explained: Category I and II AIFs are generally pass-through vehicles where capital gains, dividends, interest, and other income retain their character and are taxed in the investor's hands. Business income is an important exception that may be taxed at fund level. Distributions may attract TDS. Rates depend on investor status including resident or NRI status.
The guide concludes with real risks: illiquidity, draw-down schedules, and false certainty from past IRR. It provides a practical decision checklist covering mandate fit, eligibility, documents, tax understanding, manager registration and governance, and portfolio fit. NRIs are advised to assess FEMA and tax-residency effects.