What are various kinds of AIFs in India? RupeeIQ explains the concept and taxation related to AIFs

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2. Alternative Investment Funds are privately pooled investment vehicles incorporated in the form of
a trust/ company/ body corporate or a LLP. AIFs cover Venture Capital funds, Infrastructure funds,
Private Equity funds, Hedge funds, Debt Funds (Credit) etc.
AIFs are designed for sophisticated or savvy investors, Indian as well as foreign, whose risk appetite
is considerably higher.
2 Article Dates : 21st
Nov and 22nd
Nov 2018 Resp.

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• Category I AIF: These are the AIFs which invest in start-up or early stage ventures, social
ventures, SMEs, infrastructure or other sectors or areas which the government or regulators
consider as socially or economically desirable.
• Category II AIF: In this category no specific incentives or concessions are given. Leverage is not
permitted in category II AIF unless it is to meet day to day operational requirement.
• Category III AIF: The funds that are not covered under category I & Category II are covered
under category III. These funds run diverse and complex strategies to deliver higher returns.
Article Dates : 21st
Nov and 22nd
Nov 2018 Resp.

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Category I & category II AIFs benefit from pass-through taxation i.e. tax will not be deducted at the
fund level and all income (excluding income from business or profession) will be passed on to
investors. Whereas, Category III AIF’s are taxed at the fund level and do not enjoy the benefit of
pass-through taxation.
Article Dates : 21st
Nov and 22nd
Nov 2018 Resp.

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Industry experts believe that the size of AIF industry is likely to double over next two to three years
supported by increasing number of wealth investors, family offices and favorable policies by the
regulators.
Among the three categories of AIF, category III seems to be receiving major preference from
investors fuelled by the long – short funds which are new to Indian markets.
Article Dates : 21st
Nov and 22nd
Nov 2018 Resp.

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Visit the links below to know more about AIFs
• What are Alternative Investment Funds or AIFs?
https://www.rupeeiq.com/content/what-are-alternative-investment-funds-or-aifs/
• The long and short of it: Category III AIFs getting boost from long-short funds
https://www.rupeeiq.com/content/aifs-in-india-category-iii-aifs-getting-boost-from-long-short-
funds/
Article Dates : 21st
Nov and 22nd
Nov 2018 Resp.

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