How to Register an Alternative Investment Fund (AIF) in India & Stay Compliant?
ComplianceSolution Advisor
How to Register an Alternative
Investment Fund (AIF) in India
& Stay Compliant
Alternative Investment Funds have become the defining vehicle for sophisticated capital deployment in India — from venture capital and private equity to hedge funds and real estate strategies. Whether you are a fund manager, family office, or institutional sponsor, this authoritative guide by Corpzo.com walks you through every stage of AIF registration with SEBI, and your complete annual and quarterly compliance obligations for 2025.
What Is an Alternative Investment Fund? India's Defined Framework
An Alternative Investment Fund (AIF) is any fund established or incorporated in India that raises capital from sophisticated investors — whether Indian or foreign — through private placement, for investing in accordance with a defined investment policy for the benefit of its investors. AIFs invest in asset classes beyond conventional instruments such as publicly listed equities and fixed income, covering private equity, venture capital, real estate, hedge strategies, infrastructure, social ventures, and structured credit.
The legal framework governing AIFs in India is the SEBI (Alternative Investment Funds) Regulations, 2012, framed by the Securities and Exchange Board of India under the Securities and Exchange Board of India Act, 1992. These regulations replaced the earlier SEBI (Venture Capital Funds) Regulations, 1996, and brought all categories of privately pooled investment vehicles under a unified registration and compliance framework. SEBI's Master Circular for AIFs (May 7, 2024) is the current consolidated reference for all operational compliance requirements.
Permitted Legal Structures for AIFs
An AIF in India can be established as a Trust (most common), a Company, a Limited Liability Partnership (LLP), or a Body Corporate. The trust structure is preferred by practitioners for its operational flexibility, tax pass-through treatment, and suitability for the commitment-drawdown model.
Eligible Entities & What Cannot Be an AIF
Fund managers, private equity firms, venture capital firms, hedge fund operators, family offices, HNI-backed investment vehicles, and institutional sponsors can all apply. Mutual funds, collective investment schemes, family trusts of a single family, and employee welfare trusts are specifically excluded from AIF regulations.
Sophisticated, High-Net-Worth Investors Only
AIFs are privately placed and restricted to sophisticated investors. The minimum investment per investor is ₹1 crore (with lower thresholds for employees and directors of the fund at ₹25 lakh). AIFs cannot make public offers or advertise to retail investors.
India's AIF Industry — A ₹10 Lakh Crore+ Ecosystem
India's AIF industry has grown from a nascent market to a powerhouse of alternative capital, with commitments raised crossing ₹10 lakh crore (approximately USD 120 billion). Category II (private equity, debt funds) commands the largest share, followed by Category III (hedge, long-short strategies) and Category I (venture capital, angel funds).
SEBI's Three AIF Categories — Structures, Strategies & Key Differences
SEBI classifies AIFs into three distinct categories based on the nature of their investment strategy, the sectors they target, and the regulatory treatment applicable to each. Choosing the correct category is the most consequential decision in the AIF setup process — it determines leverage permissions, investment restrictions, tax treatment, and compliance intensity.
Category I AIF
Socially & Economically DesirableCategory II AIF
Private Equity, Debt & Real EstateCategory III AIF
Hedge, Long-Short & Complex Strategies| Parameter | Category I | Category II | Category III |
|---|---|---|---|
| Investment Universe | VC, SME, Infra, Social | PE, Debt, RE, FoF | Hedge, L/S, Derivatives |
| Leverage | Not permitted | Not permitted | Permitted (with limits) |
| Listed Securities | Limited | Limited | Yes (core strategy) |
| Tax Treatment | Pass-through | Pass-through | Fund-level tax |
| SEBI Reporting | Quarterly | Quarterly | Monthly (if leveraged) |
| Custodian Required | ₹500 Cr+ or Cat III | ₹500 Cr+ or Cat III | Always mandatory |
| Sponsor Commitment | 2.5% or ₹5 Cr (lower) | 2.5% or ₹5 Cr (lower) | 5% or ₹10 Cr (lower) |
Who Can Register an AIF — Eligibility, Capital & Structural Requirements
Fund-Level Requirements
₹20 Crore per Scheme
Each scheme of an AIF must have a minimum corpus of ₹20 crore. The only exception is Angel Funds, where the minimum corpus per scheme is ₹10 crore. The corpus requirement applies at the scheme level — an AIF with multiple schemes must independently meet the threshold for each scheme.
₹1 Crore per Investor (₹25 Lakh for Employees)
Each investor must commit a minimum of ₹1 crore. The minimum investment for employees or directors of the AIF or the Manager is ₹25 lakh. For Angel Funds, the minimum investment per angel investor is ₹25 lakh, with a specific accredited investor threshold of ₹5 lakh for accredited investors under the SEBI framework.
Maximum 1,000 Investors per Scheme
An AIF scheme can have a maximum of 1,000 investors. Angel Funds are subject to a further limit of 49 angel investors per scheme. This restriction ensures the private placement character of AIF fundraising and distinguishes it from public offerings.
Skin-in-the-Game Requirement
The Sponsor or Manager must maintain a continuing investment in the AIF — 2.5% of corpus or ₹5 crore (whichever is lower) for Category I and II, and 5% of corpus or ₹10 crore (whichever is lower) for Category III. This investment cannot be made through waiver of management fees — actual cash contribution is mandatory.
Manager Eligibility — Fit & Proper + NISM Certification
The Investment Manager (IM) of the AIF must demonstrate: (1) a sound track record and experience in fund management or financial services; (2) key investment team members holding a valid NISM (National Institute of Securities Markets) Series-XIX-C certification for AIF — introduced in SEBI's 2024 amendments; and (3) a board-approved compliance framework, risk management policy, and conflict-of-interest policy. The Manager must be a body corporate (company or LLP) and cannot be a natural person.
Step-by-Step AIF Registration Process with SEBI
The SEBI AIF registration process follows a structured pathway from entity formation to receipt of the Registration Certificate (Form B). Here is the complete process as managed by Corpzo for AIF clients across India:
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1FoundationChoose AIF Category & Define Investment Strategy The first and most consequential decision is selecting the appropriate AIF category (I, II, or III) based on your target investment universe, investor base, leverage requirements, and tax considerations. Simultaneously, draft a clear Investment Policy that specifies sectors, geographies, instrument types, return expectations, and risk parameters. The investment policy forms the backbone of the Private Placement Memorandum (PPM) and must be internally consistent throughout all application documents.
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2Entity SetupEstablish the Fund Entity (Trust / Company / LLP) & Appoint Parties Incorporate or establish the AIF as a Trust (execute a Trust Deed), Company (register under Companies Act 2013), or LLP (register under LLP Act 2008). Separately constitute or identify the Sponsor (entity providing the initial capital and regulatory standing), the Investment Manager (entity managing investments), and the Trustee (for trust-structured funds). The Manager and Sponsor can be the same entity. Draft the Investment Management Agreement, Trustee Agreement, and Contribution Agreement among these parties.
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3PPM DraftingDraft the Private Placement Memorandum (PPM) The PPM is the primary disclosure document for investors and the most scrutinised document in the SEBI review process. It must follow SEBI's prescribed template (as per the Master Circular 2024) and include: investment objectives, strategy, and restrictions; details of the Manager, Sponsor, and Trustee; fee structure (management fees, carry, hurdle rate); risk factors; investment committee composition; valuation policy; conflict-of-interest management; exit mechanisms; and material terms of the fund. The PPM must be filed with SEBI and provided to each investor prior to subscription.
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4ApplicationFile Form A on SEBI's Online Intermediary Portal Submit the AIF registration application through SEBI's online intermediary portal — the SEBI Intermediary Portal (SIP). The application (Form A) must be accompanied by the prescribed fee: ₹1 lakh for Category I and II and ₹2 lakh for Category III. Supporting documents include the PPM, constitutional documents, KYC of Sponsor/Manager/Trustee, trust deed/partnership agreement, NISM certifications of key personnel, investment management agreement, and the Sponsor's commitment undertaking. Upload all documents in prescribed format on the portal.
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5SEBI ReviewSEBI Scrutiny, Due Diligence & Clarification Response SEBI's Alternative Investment Policy Advisory Committee (AIPAC) and the Intermediary Registration Department review the application for completeness, PPM compliance with the prescribed template, fit-and-proper status of Sponsor/Manager/Trustee, and adequacy of the compliance framework. SEBI may issue a Clarification Letter seeking additional information or document rectification — responses must be filed within the stipulated timeframe (typically 30 days). SEBI may request multiple rounds of clarifications for complex fund structures.
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6CertificateReceipt of Registration Certificate (Form B) Upon satisfaction with the application, SEBI issues the Certificate of Registration in Form B — the formal authorisation to operate as an AIF in India. The Registration Certificate specifies the AIF category, the permitted investment policy, and the registration validity. AIF registration does not expire as long as the fund remains in operation and complies with SEBI regulations — there is no periodic renewal, but non-compliance can lead to suspension or cancellation.
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7LaunchScheme Launch — Final PPM, Fundraising & First Close Post-registration, the fund proceeds to fundraise through private placement. The final PPM is provided to each prospective investor. Investor subscription agreements and KYC documentation are collected. Upon receiving binding commitments from investors totalling the first close amount, the fund issues units to investors through the depository (NSDL or CDSL) in dematerialised form — mandatory from November 2023 for all new unit issuances. The fund is now operational and all ongoing compliance obligations commence.
Documents Required for AIF Registration with SEBI
Constitutional Documents
- ✓Trust Deed (for trust-structured funds) / Certificate of Incorporation + MoA + AoA (for company) / LLP Agreement (for LLP)
- ✓PAN card of the fund entity
- ✓Evidence of registered office address (utility bill, rent agreement, or NOC from property owner)
- ✓List of Trustees (for trust) / Directors (for company) / Designated Partners (for LLP) with KYC
Sponsor & Manager Documents
- ✓Certificate of Incorporation and MoA/AoA of the Sponsor entity
- ✓Certificate of Incorporation and MoA/AoA of the Investment Manager entity
- ✓KYC documents — PAN, Aadhaar, address proof, passport-size photos of all directors/partners of Sponsor and Manager
- ✓NISM Series-XIX-C Certification certificates of all key investment team members of the Manager
- ✓Track record / experience note of the Manager and key investment personnel
- ✓Fit-and-proper self-declaration from all directors/partners of Sponsor and Manager
- ✓Investment Management Agreement (between AIF/Trustee and Manager)
- ✓Sponsor Commitment Undertaking (2.5%/5% of corpus — in writing)
Fund Documents
- ✓Private Placement Memorandum (PPM) — drafted in SEBI's prescribed template
- ✓Contribution Agreement / Subscription Agreement template
- ✓Investment Policy Note (with sectors, geographies, instruments, concentration limits)
- ✓Board-approved Compliance Framework and Risk Management Policy
- ✓Conflict-of-Interest Policy
- ✓Valuation Policy (describing methodology for each asset class)
- ✓Form A (SEBI AIF Registration Application) — filed online via SEBI Intermediary Portal
- ✓Application fee payment confirmation (₹1 lakh for Cat I/II, ₹2 lakh for Cat III)
AIF Annual & Quarterly Compliance Calendar — Complete Breakdown
AIF registration is the beginning of a rigorous, continuous compliance journey. SEBI's Master Circular 2024 and the AIF Regulations specify an extensive calendar of periodic, event-based, and ongoing compliance obligations. Missing deadlines attracts monetary penalties, regulatory notices, and reputational risk.
Quarterly Compliance Obligations
| Obligation | Category | Frequency | Due Date | Mode |
|---|---|---|---|---|
| Quarterly Report to SEBI | Cat I & II (and Cat III without leverage) | Quarterly | Within 30 days of quarter-end | SEBI Intermediary Portal |
| Monthly Report to SEBI | Category III (with leverage) | Monthly | Within 10 days of month-end | SEBI Intermediary Portal |
| Portfolio Valuation Update | All Categories | Quarterly | Quarterly disclosure to investors | Per PPM / SEBI norms |
| Demat Reconciliation | All Categories | Quarterly | Post quarter-end | NSDL / CDSL |
| KYC/AML Review | All Categories | Ongoing / Periodic | Per SEBI / PMLA norms | Internal records |
Annual Compliance Obligations
| Obligation | Category | Deadline | Notes |
|---|---|---|---|
| Annual Financial Audit | All Categories | Within 180 days of FY end | Audited financial statements of the fund; CA must be SEBI-compliant |
| Annual PPM Audit | All (except Large Value Funds with waiver) | Annually | Independent audit confirming compliance with PPM terms and disclosures |
| Annual Report to Investors | All Categories | Within 180 days of FY end | Audited accounts, portfolio summary, investor-specific P&L, NAV per unit |
| Income Tax Return | All Categories | 31 October (if audit applicable) | Trust / Company / LLP ITR as applicable; investor TDS certificates issued |
| FATCA/CRS Reporting | All Categories | 31 May (for previous calendar year) | Common Reporting Standard disclosures for foreign investors via CBDT |
| Performance Benchmarking | All Categories | Annually | Submit performance data to SEBI-approved benchmarking agency |
| Compliance Officer Report | All Categories | Annually | Compliance officer certifies adherence to all SEBI AIF regulations and internal policies |
| Key Personnel Changes | All Categories | Within 30 days of change | Intimate SEBI and investors of any change in key management personnel |
2024–2025 Updated Compliance Requirements
All AIF Units Must Be in Demat Form
From November 1, 2023, all AIF units issued must be in dematerialised form through NSDL or CDSL. Investors without demat accounts have units credited to an Aggregate Escrow Demat Account until details are provided. All investments held by AIFs must also be in demat form from October 1, 2024 onwards (with exemptions for pre-existing holdings under specific conditions).
Independent Valuers Mandatory for All Investments
SEBI's 2024 Master Circular mandates that all AIF investments be valued by SEBI-approved independent valuers. Managers must disclose the valuation methodology for each asset class in the PPM. Any deviation from the stated valuation methodology must be reported to SEBI and disclosed to investors. Fair valuation responsibility rests with the Manager.
New Waterfall Regulations for Cat I & II AIFs
SEBI's 2025 amendments introduced a mandatory Priority Distribution Model for Category I and II AIFs — prescribing the order in which investment returns are distributed among investors. This prevents carry-heavy waterfalls that shortchange ordinary investors and mandates a minimum preferred return before carry accrues to the manager.
Parallel Investment Vehicles Now Permitted
SEBI introduced Regulation 17A in September 2025, enabling registered AIFs to set up Co-Investment Schemes — parallel vehicles through which specific investors (typically LPs with co-investment rights) can invest alongside the main fund in specific opportunities on the same terms. Co-investment schemes have lighter compliance requirements than full AIF schemes.
Enhanced Framework for ₹70 Crore+ Investors
AIFs where each investor commits a minimum of ₹70 crore (proposed to be reduced to ₹25 crore per SEBI consultations) qualify as Large Value Funds (LVFs). LVFs are exempted from SEBI's prescribed PPM template and from annual PPM audit — recognising these investors as sufficiently sophisticated to negotiate their own terms without prescriptive regulatory protection.
Tightened Disclosure & Consent Requirements
SEBI's 2025 amendments significantly tightened the disclosure requirements for related-party transactions (RPTs) in AIFs — requiring prior consent of a supermajority of investors (not just disclosure) for material RPTs. This addresses conflicts of interest in PE/debt funds where managers or sponsors may benefit from fund investments in entities they control.
Ongoing Obligations (Continuous throughout AIF Lifecycle)
- ✓Maintain KYC and AML records for all investors — update periodically as required
- ✓Appoint a SEBI-registered custodian (mandatory for Category III AIFs and all funds with corpus above ₹500 crore)
- ✓Implement and enforce Insider Trading Prevention Code (mandatory for funds investing in listed securities)
- ✓Maintain records of all investments, fund accounts, investor communications, and board/investment committee minutes for SEBI inspection at any time
- ✓Conduct annual compliance review against SEBI AIF Regulations and file internal compliance certification
- ✓Notify SEBI of any change in control of the Sponsor or Manager (prior SEBI approval required)
- ✓File intimation to investors of any material change in investment policy, key personnel, or fund terms
- ✓Issue TDS certificates to investors for any income distributed or deemed distributed during the financial year
Penalties & Consequences of AIF Regulatory Non-Compliance
Monetary Penalties under SEBI Act
SEBI can impose monetary penalties of up to ₹1 crore per violation under Section 15HB of the SEBI Act, 1992 for contravention of AIF regulations. In 2024, SEBI issued show-cause notices to over 20 AIFs for reporting failures and valuation irregularities.
Registration Action for Persistent Non-Compliance
SEBI may suspend or cancel an AIF's Certificate of Registration (Form B) for persistent or serious non-compliance. This effectively prevents the fund from raising new capital, making new investments, or continuing operations — a terminal regulatory event for any fund manager.
Carry & Distribution Clawback Risk
Non-compliance with the Priority Distribution Model regulations or related-party transaction disclosure requirements can trigger investor litigation for clawback of management fees, carried interest, or fund distributions made in violation of the PPM or SEBI regulations.
Prosecution for Unregistered AIF Operations
Operating a pooled investment vehicle without SEBI registration, or fraudulently misrepresenting fund terms to investors, can attract prosecution under the SEBI Act, IPC, and PMLA — with potential imprisonment for key persons in the Manager and Trustee entities.
Launch & Manage Your AIF with Corpzo — End-to-End
From AIF category selection, PPM drafting, and SEBI registration to quarterly/annual reporting, valuation compliance, investor communications, and tax filings — Corpzo.com manages the complete AIF regulatory lifecycle.
AIF Registration & Compliance — Common Questions
Ready to Launch or Comply Your Alternative Investment Fund in India?
Corpzo's AIF regulatory specialists manage your complete journey — from SEBI registration to annual financial audits, quarterly SEBI reporting, dematerialisation, tax filings, and investor communications.
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