NISM-Series-X-A: Investment Adviser (Level 1) · Overview of Alternative Investment Funds (AIFs)

Structure and Regulatory Framework of AIFs under SEBI Regulations

Updated 11 October 2026

An Alternative Investment Fund (AIF) is a privately pooled investment vehicle regulated under the SEBI (Alternative Investment Funds) Regulations, 2012. It can be set up as a trust, LLP, company or body corporate. To answer questions, identify the rule asked: structure, role, corpus, minimum investment, investor limit, tenure or investment restriction.

Understand Structure and Regulatory Framework of AIFs

An AIF pools money from investors and invests it under a defined policy. It is privately pooled, so it is not a mutual fund. It is regulated by SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012. An AIF must be registered with SEBI before it raises money.

An AIF can be set up as a trust, a company, a limited liability partnership (LLP) or a body corporate. In India, most AIFs are set up as trusts. The trust deed is registered, and a trustee holds the assets for investors.

Two roles matter most. The sponsor sets up the fund. The manager manages its investments. The sponsor and the manager can be the same entity or different entities. Both must meet SEBI's eligibility and fit-and-proper requirements. The sponsor or manager must also commit its own money into the fund. This is called the continuing interest. It keeps their interests aligned with investors.

SEBI also sets limits to protect investors. These cover the minimum size of the fund (corpus), the minimum amount each investor puts in, the maximum number of investors, the fund's life (tenure) and where the fund can invest. Each category of AIF has its own investment conditions, but the broad framework is common.

For the exam, learn the numbers exactly and know which ones apply to all AIFs and which apply to specific categories. Questions are usually direct recall, so precision matters.

Key formulas to remember

Permitted legal forms: Trust | Company | LLP | Body corporate; An AIF must be set up in one of these forms and registered with SEBI. Most Indian AIFs are trusts.
Minimum corpus: ₹20 crore (scheme-wise); Each scheme must have a minimum corpus of ₹20 crore. For an angel fund the minimum corpus is ₹5 crore. Corpus means the total amount of funds committed by investors, as per the contribution agreement.
Minimum investment per investor: ₹1 crore; Applies to each investor. For angel funds it is ₹25 lakh. Employees or directors of the AIF or of the manager can invest a minimum of ₹25 lakh.
Maximum number of investors: 1,000 per scheme; Applies to each scheme. For angel funds the limit is 200. Do not mix the two.
Continuing interest of sponsor/manager: 2.5% of corpus or ₹5 crore, whichever is lower (Category I and II); 5% of corpus or ₹10 crore, whichever is lower (Category III); For angel funds the continuing interest is 5% of the investment in each investee company or ₹50 lakh, whichever is lower, held for the period of the investment. The sponsor or manager must hold the continuing interest. It must be in the form of investment in the fund and cannot be through waiver of management fees.
Minimum tenure: Close-ended Category I and II: at least 3 years; Category III funds may be open-ended or close-ended. Tenure of a close-ended scheme can be extended only with the approval of two-thirds of investors by value, subject to the limits in the regulations.
Concentration limit: Category I and II: up to 25% of investable funds in one investee company; Category III: up to 10%; Learn the 25% and 10% pair as the general limits. Category III may invest up to 10% of investable funds in a single investee company. Category I sub-types such as SME, social venture and infrastructure funds have their own specific investment conditions, so check the sub-type when a question names one.

How to solve Structure and Regulatory Framework of AIFs questions

Use this method for any question on AIF structure, roles or limits. Most MCQs test one fact. Find it and avoid the trap options.

1Read the question and mark the exact item asked: legal form, role, corpus, minimum investment, investor limit, tenure or investment limit.
2Check for a category word: Category I, II, III or angel fund. Many limits differ by category.
3Recall the standard rule for that item from your formula list.
4Check for exceptions such as angel funds, employees or directors of the manager, or accredited investors.
5Match the unit: per scheme versus per fund, crore versus lakh, and 'whichever is lower'.
6Remove options that use numbers belonging to another rule, such as 200 investors for a regular fund.
7If two options remain, choose the one that matches the exact wording of the regulation.

Quickest way: Number-pair recall

When to use it: Use when the question is a direct recall of a limit and you have under a minute.

Think in pairs: ₹20 crore corpus with ₹1 crore minimum investment.
Link angel funds to the smaller values: ₹5 crore corpus, ₹25 lakh minimum, 200 investors.
Link regular schemes to 1,000 investors.
Link tenure of 3 years to close-ended Category I and II.
Link continuing interest to 'whichever is lower': 2.5% or ₹5 crore, and 5% or ₹10 crore for Category III.
Pick the option that fits the pair and drop the others.

Common mistakes in Structure and Regulatory Framework of AIFs

Stating that an AIF is a type of mutual fund.
Both pool investor money and are regulated by SEBI.
Fix: Remember that an AIF is a privately pooled vehicle under the AIF Regulations, 2012, while mutual funds come under a separate set of regulations.
Mixing up the ₹1 crore minimum investment with the ₹20 crore corpus.
Both are large crore figures and appear together in questions.
Fix: Corpus is the size of the scheme. Minimum investment is what each investor commits. Say them in pairs: 20 and 1.
Applying the 1,000 investor limit to angel funds.
Students remember one limit and use it everywhere.
Fix: Angel funds have the lower limit of 200 investors and the lower minimum of ₹25 lakh.
Choosing the higher continuing interest for Category I and II funds.
The 5% and 2.5% figures are confused across categories.
Fix: Category I and II: 2.5% or ₹5 crore. Category III: 5% or ₹10 crore. In both cases take whichever is lower.
Ignoring the words 'whichever is lower'.
Students read only the percentage or only the rupee figure.
Fix: Compute both and take the lower amount.
Treating all categories as having the same concentration limit.
The 25% and 10% limits look alike across questions.
Fix: As general limits, Category I and II can invest up to 25% of investable funds in one company. Category III may invest up to 10% of investable funds in a single investee company. If a question names a Category I sub-type such as an SME, social venture or infrastructure fund, remember that it has its own specific investment conditions.

Worked examples

Example 1

A Category II AIF has a corpus of ₹300 crore. What is the minimum continuing interest the sponsor or manager must hold?

Show the solution

Category II uses 2.5% of corpus or ₹5 crore, whichever is lower.
2.5% of ₹300 crore = ₹7.5 crore.
Compare ₹7.5 crore with ₹5 crore. The lower is ₹5 crore.

Answer: ₹5 crore

Example 2

Which of the following is correct for a regular AIF scheme that is not an angel fund? (A) Minimum corpus ₹5 crore (B) Minimum investment per investor ₹1 crore (C) Maximum 200 investors (D) Minimum investment per investor ₹25 lakh for all investors

Show the solution

Option A: ₹5 crore is the angel fund corpus. The regular minimum is ₹20 crore. Wrong.
Option B: the standard minimum investment is ₹1 crore. This fits.
Option C: 200 is the angel fund limit. The regular limit is 1,000. Wrong.
Option D: ₹25 lakh applies to angel funds and to employees or directors of the AIF or manager, not to all investors. Wrong.

Answer: (B) Minimum investment per investor ₹1 crore

Exam tips

Revise the numbers as a one-page table: corpus, minimum investment, investor limit, continuing interest, tenure, concentration limit. Check what changes for angel funds.
Watch for angel fund wording. It changes the corpus, minimum investment and investor limit.
Look for 'whichever is lower' and calculate both values before choosing.
Remember that AIFs must be registered with SEBI and can be set up as a trust, company, LLP or body corporate.
In caselets, link the investor's amount to the minimum investment rule to judge suitability before advising on an AIF.

Practice questions from Overview of Alternative Investment Funds (AIFs)

Structure and Regulatory Framework of AIFs: frequently asked questions

What is the minimum investment in an AIF?

It is ₹1 crore per investor. Angel funds have a lower minimum of ₹25 lakh. Employees or directors of the AIF or its manager can also invest ₹25 lakh as a minimum.

What legal structures can an AIF have?

An AIF can be a trust, a company, an LLP or a body corporate. It must be registered with SEBI. Many AIFs in India use the trust structure.

What is the difference between a sponsor and a manager?

The sponsor sets up the AIF. The manager handles its investment decisions and day-to-day management. They can be the same entity or different ones. The sponsor or manager must hold the continuing interest in the fund.

What is the minimum corpus and tenure for an AIF?

Each scheme needs a minimum corpus of ₹20 crore, or ₹5 crore for an angel fund. Close-ended Category I and II AIFs must have a minimum tenure of 3 years. Category III funds can be open-ended or close-ended.