AIF categories explained — Category I, II and III under the SEBI AIF Regulations
What are the three categories of AIF in India?
SEBI sorts every Alternative Investment Fund into three categories. Category I covers venture capital, angel, SME, social impact and infrastructure funds. Category II is everything that is neither I nor III, mainly private equity and private credit, and it holds about three-quarters of the industry. Category III runs complex trading strategies and may use leverage.
What the categories actually are
The SEBI (Alternative Investment Funds) Regulations, 2012
sort every registered fund into one of three categories. The category is fixed
at registration and it is visible in the fund's
registration number: the digit after AIF in
IN/AIF2/24-25/1234 is the category.
The number is a classification, not a grade. Category I is not the beginner tier and Category III is not the advanced one. Each describes what the fund may invest in, whether it may borrow, and whether it may offer redemption.
The three categories side by side
| Category I | Category II | Category III | |
|---|---|---|---|
| What it covers | Venture capital, angel, SME, social impact, infrastructure and special situation funds | Everything that is neither I nor III — private equity, private credit, real estate, funds of funds | Complex or diverse trading strategies, including long-short and other hedge-style approaches |
| Typical assets | Unlisted early-stage and growth companies, infrastructure projects | Unlisted companies, private debt, security receipts | Listed securities, derivatives |
| Structure | Close-ended | Close-ended | Open-ended or close-ended |
| Leverage | Not permitted | Operational needs only | Permitted, within SEBI's limits |
| Tenure | Fixed at launch, extendable with investor consent | Fixed at launch, extendable with investor consent | Not required to be fixed if open-ended |
| Minimum investment | ₹1 crore | ₹1 crore | ₹1 crore |
| Investors per scheme | 1,000 | 1,000 | 1,000 |
| Policy treatment | SEBI states these funds have positive spillovers and may receive incentives | No stated incentive or disincentive | May be subject to specific SEBI direction on leverage and risk |
Source for the table: SEBI (Alternative Investment Funds) Regulations, 2012, as amended to 18 November 2025. The category classification is in Regulation 3(4) and the ₹1 crore minimum in Regulation 10(c). The 1,000-investor cap applies to a scheme of any AIF other than an angel fund; an angel fund scheme is capped at 49 angel investors, and angel funds sit in Category I.
The ₹1 crore floor is the same in all three. It does not vary by category. See AIF minimum investment for the exceptions to it, which are about who the investor is rather than which category the fund is.
How large each category is
This is the part that goes out of date on every other page about AIF categories. The table below is read from SEBI's quarterly statistics at build time, so it carries the latest quarter SEBI has published and says which quarter that is.
₹12,74,300 crore of commitments sit in Category II, 75.2% of the ₹16,94,262 crore raised across all three categories (SEBI, as at 31 March 2026)
| Category | Commitments raised | Share | Investments made | Registered funds |
|---|---|---|---|---|
| Category I | 1,05,249 | 6.2% | 50,530 | 386 |
| Category II | 12,74,300 | 75.2% | 4,12,628 | 1,127 |
| Category III | 3,14,713 | 18.6% | 2,13,207 | 477 |
| All categories | 16,94,262 | 100% | 6,76,365 | 1,990 |
These figures update whenever SEBI publishes a new quarter. Commitments raised is what investors have contractually promised the fund; investments made is what the fund has actually deployed. Neither is a return, and SEBI publishes no per-fund performance. The full series is on the SEBI quarterly data page.
Category II dominating by this margin is the single most useful fact about the shape of the Indian AIF industry. When somebody says "the AIF market", they are mostly describing private equity and private credit funds, whatever the conversation started out being about.
Why Category II is a residual, and why that matters
Category II is defined by exclusion. A fund is Category II if it is not Category I and not Category III. That is genuinely how the regulation works, and it explains the concentration above: the category has no strategy test to fail, so most private-markets funds land in it.
The practical consequence for anyone reading a fund's category is that Category II tells you less than the other two do. A Category I registration narrows a fund to a defined list of fund types. A Category III registration tells you the fund trades and may be levered. A Category II registration tells you the fund is neither of those. Two Category II funds can be almost nothing alike — a ten-year infrastructure-adjacent private equity fund and a two-year private credit fund carry the same category digit.
Tax treatment, in outline
Category I and Category II AIFs have pass-through status. Income other than business income is taxed in the hands of the investor rather than at the fund, as though the investor had made the investment directly. Business income is taxed at the fund.
The provision is Section 224 of the Income-tax Act, 2025, headed "Tax on income of investment fund and its unit holders". It replaced Section 115UB of the Income-tax Act, 1961 when the new Act came into force on 1 April 2026. Section 224(10)(a) confines "investment fund" to funds registered as a Category I or a Category II AIF, which is why the category on the registration certificate, and not the strategy, decides the treatment. See AIF taxation.
Category III AIFs do not have that pass-through status. Income is generally taxed at the fund level, and the treatment depends on how the fund is constituted and what it earns.
That difference is one of the reasons the split between II and III is not merely descriptive. It changes who pays and when.
This is an outline of the statutory position, not tax advice, and it is not a substitute for reading the fund's own disclosure. The tax section of a private placement memorandum is specific to that fund's constitution and it is where the answer for a particular investment actually lives.
What the category does not tell you
It does not tell you the fund's returns, and neither does anything else that is public. SEBI mandates benchmarking, but what that produces is category-level series rather than per-fund disclosure, so there is no way to compare a Category II fund against another Category II fund on results, let alone across categories.
That is not a gap on this page. It is the state of the disclosure regime, and the reasoning is set out at why AIF performance is not public. If you are trying to work out which fund to look at, the category narrows the field and then the work moves to the diligence framework.
Registration in any category is also not an endorsement. It records that a fund filed and SEBI registered it. It says nothing about whether the fund is any good.
Where to look next
- Every registered fund in each category: Category I, Category II, Category III.
- The full quarterly series with a CSV: SEBI quarterly data.
- The regulation itself, amendment by amendment: SEBI AIF Regulations.
- Search the whole register: fund directory.
Checked against source on 24 August 2026. This page is information, not legal, tax or investment advice.