SEBI Alternative Investment Funds (AIFs) are privately pooled investment vehicles collecting funds from sophisticated investors for investing in accordance with defined investment policy. Regulated under SEBI (AIF) Regulations 2012, they are categorized into Category I (venture capital, infrastructure funds), Category II (private equity, debt funds), and Category III (hedge funds employing diverse strategies). Minimum corpus is ₹20 crore, with minimum investment of ₹1 crore per investor. Over 800 AIFs registered with SEBI managing assets exceeding ₹7 lakh crore as of 2024.

AIFs bridge the gap between traditional mutual funds and direct investments, targeting sophisticated investors who can bear higher risks. Category I funds receive government incentives as they invest in startups, SMEs, and infrastructure - areas crucial for economic growth. Category II funds, including private equity and debt funds, provide patient capital to established businesses without leverage restrictions. Category III funds employ complex strategies like long-short equity, using leverage up to twice their corpus. The regulatory framework ensures investor protection while allowing flexibility for innovative investment strategies. AIFs have become vital for startup ecosystem funding, with Category I venture funds supporting unicorn creation. They also provide alternative routes for corporate funding beyond traditional banking. The sector's rapid growth from ₹50,000 crore in 2015 to over ₹7 lakh crore demonstrates institutional investor appetite for alternative assets. SEBI's light-touch regulation balances innovation with systemic risk management, making AIFs attractive for pension funds, insurance companies, and high net worth individuals seeking portfolio diversification.