ARTHUM
// 03 — Alternative Investment Funds

The part of the market mutual funds can't reach.

Private credit, pre-IPO, venture, long-short equity — strategies that don't fit inside a mutual fund's rulebook. AIFs open them up, with a ₹1 crore minimum and lock-ins that deserve a lot more thought than they usually get.

What an AIF is

An Alternative Investment Fund is a privately pooled vehicle registered with SEBI under the AIF Regulations, which raises capital from a limited set of sophisticated investors. The minimum commitment is ₹1 crore per investor, and a scheme is capped at 1,000 investors.

The three categories

  • Category I — funds investing in areas the government considers socially or economically desirable: venture capital, angel funds, SME funds, infrastructure and social venture funds. Close-ended, with a defined tenure.
  • Category II — the largest bucket in practice: private equity, private credit and debt funds, real-estate funds and funds-of-funds. No leverage other than for day-to-day operations. Close-ended.
  • Category III — strategies that trade actively and may use leverage or derivatives: long-short equity, absolute-return and hedge-fund-style funds. Can be open- or close-ended.

What we help with

  • Whether an AIF belongs in your portfolio at all, and at what percentage
  • Matching category to objective — private credit for yield, venture for growth, long-short for lower drawdowns
  • Reading the Private Placement Memorandum: the terms that actually bind you
  • Drawdown structures and capital-call schedules — you commit ₹1 crore, but it goes out in tranches
  • Lock-in, fund tenure, extension clauses and exit options
  • The full fee stack: management fee, carry, hurdle rate, catch-up and setup costs
  • Taxation — Category I and II are generally tax pass-through, while Category III is taxed at the fund level
  • Tracking capital calls, distributions and portfolio updates through the fund's life

What we insist you understand first

  1. Illiquidity is the deal, not a side effect. A closed-ended AIF ties up capital for years, and there is no reliable secondary market.
  2. Track records are short and self-selected. Compare against the vintage, not against the Nifty.
  3. Fees compound against you. A 2% management fee plus 20% carry needs a lot of alpha before you are ahead of an index fund.
  4. Concentration risk is real. Private credit funds can be undone by two or three defaults.
  5. Reporting is quarterly at best. Valuations are estimates until an exit happens.

Who it's for

Investors whose core portfolio is already built, who have surplus capital they genuinely will not need for 5–8 years, and who want exposure to return streams that don't move in lockstep with listed equity. Not a first, second or third investment.

If you can't explain the exit, you don't understand the investment.

AIF investments are subject to market and credit risks, are illiquid, and carry no assurance or guarantee of returns. Please read the Private Placement Memorandum and all scheme documents carefully before investing.