Alternative Investment Funds (AIFs) are becoming increasingly popular among high-net-worth individuals and institutional investors in India. These funds offer diversified investment avenues beyond traditional equity and debt markets. However, setting up an AIF requires compliance with specific guidelines issued by the Securities and Exchange Board of India (SEBI), especially related to corpus and net worth.

In this blog, we will walk you through the minimum corpus and net worth requirements to register an AIF in India, including details about each category of AIF and what promoters need to prepare before applying.

What is an Alternative Investment Fund (AIF)?

An Alternative Investment Fund is a privately pooled investment vehicle that collects funds from investors for investing in accordance with a defined investment policy. AIFs are governed by SEBI (Alternative Investment Funds) Regulations, 2012.

AIFs do not include mutual funds, collective investment schemes, or family trusts. They are typically structured as trusts, companies, or LLPs and must be registered with SEBI before beginning operations.

Categories of AIFs in India

SEBI classifies AIFs into three broad categories based on their investment objectives:

1. Category I AIF – These funds invest in start-ups, small and medium enterprises (SMEs), infrastructure, social ventures, etc. The government encourages these funds due to their positive impact on the economy.
2. Category II AIF – These include private equity funds, debt funds, and real estate funds that do not undertake leverage other than to meet day-to-day operational requirements.
3. Category III AIF – These funds employ diverse or complex trading strategies and may use leverage, including through investment in listed or unlisted derivatives. Hedge funds typically fall into this category.

Minimum Corpus Requirements for AIF Registration

SEBI has laid down clear minimum corpus requirements that apply at both the fund level and per investor level.

Fund-Level Minimum Corpus

• All Categories of AIFs are required to have a minimum corpus of INR 20 crore at the time of final closing of the fund.
• For Angel Funds, which fall under a sub-category of Category I AIFs, the minimum corpus requirement is INR 5 crore.

The corpus must be raised from investors within the prescribed timeline after receiving registration from SEBI.

Per Investor Minimum Commitment

• For all AIFs, the minimum investment by each investor must be INR 1 crore.
• For Angel Funds, the minimum investment per investor is INR 25 lakh.
• For employees or directors of the AIF or its manager, the minimum contribution can be INR 25 lakh.

This ensures that only informed and financially capable investors participate in AIFs, reducing the risk of mis-selling.

Sponsor and Manager Net Worth Requirements

To register AIF in India, both the sponsor and the investment manager must meet financial eligibility criteria as specified by SEBI.

Contribution by Sponsor or Manager

The sponsor or manager must have a continuing interest in the AIF, which is aligned with the interests of investors. This acts as a skin-in-the-game requirement.

• Category I and II AIFs: Sponsor/Manager must contribute at least 2.5% of the corpus or INR 5 crore, whichever is lower.
• Category III AIFs: Sponsor/Manager must contribute at least 5% of the corpus or INR 10 crore, whichever is lower.
• Angel Funds: Minimum contribution is 2.5% of the corpus or INR 50 lakh, whichever is lower.

The sponsor or manager cannot use any waiver or third-party funding to meet this requirement. It must come from their own funds.

Net Worth of Investment Manager

While SEBI does not mandate a fixed net worth requirement for the investment manager, in practice, SEBI examines the financial stability, credibility, and operational infrastructure of the manager during the registration process. Thus, maintaining adequate net worth and a clean financial history is essential to gain SEBI’s approval.

Timeline to Raise the Minimum Corpus

Once an AIF is registered with SEBI, it must raise the minimum corpus of INR 20 crore (or INR 5 crore for angel funds) within 12 months from the date of SEBI registration. Failure to meet this requirement can result in cancellation of registration or regulatory penalties.

SEBI may provide an extension on a case-by-case basis, but such exceptions are rare and need strong justification.

Documentation for AIF Registration

To register an AIF in India, the following documents and declarations must be submitted to SEBI:

• Trust Deed/Partnership Deed/Memorandum and Articles of Association
• Information Memorandum or Placement Memorandum
• Contribution Agreement between investors and fund
• Details of sponsor, investment manager, and key personnel
• Audited financials and net worth certificate of sponsor and manager
• Declaration of corpus and investor commitments
• Business plan and investment strategy
• Details of compliance and risk management systems

These documents help SEBI assess the fund’s eligibility and transparency before granting the AIF registration.

Key Considerations Before Applying for AIF Registration

• Choose the correct legal structure (trust, company, or LLP)
• Ensure all key management personnel meet SEBI’s fit and proper criteria
• Establish compliance, governance, and reporting systems
• Prepare strong fund documentation aligned with SEBI norms
• Secure commitments from anchor investors in advance
• Appoint a custodian (mandatory for Category III AIFs and AIFs with a corpus above INR 500 crore)

Conclusion

Registering an AIF in India requires more than just a strong investment idea. The sponsor and manager must meet the minimum corpus and financial contribution requirements laid down by SEBI to ensure credibility and investor protection. Whether you're planning to launch a venture capital fund, a debt fund, or a hedge fund, understanding and complying with these norms is critical to the success of your AIF.

Meeting the minimum net worth and corpus requirements is not only a legal obligation but also a reflection of your commitment to the fund’s performance and your investors’ trust. Proper planning, documentation, and compliance will ensure a smooth AIF registration process and position your fund for long-term success.

Also Read: How much does a NBFC license cost?

FAQs

1. Can foreign investors contribute to the corpus of an AIF in India?
Yes, foreign investors can invest in AIFs subject to compliance with FEMA regulations and SEBI guidelines. However, proper KYC and FDI rules must be followed.

2. Is the minimum corpus required at the time of AIF registration?
No, SEBI requires the minimum corpus to be raised within 12 months of AIF registration, not at the time of application.

3. Can a single investor contribute the entire INR 20 crore corpus?
Yes, a single investor can contribute the entire corpus provided the minimum per-investor threshold is met and the investor qualifies as an eligible investor.