AIF Category I (Alternative Investment Fund — Category I)

AIF Category I is the SEBI-defined bucket of Alternative Investment Funds that invest in start-ups, early-stage ventures, SMEs, social ventures, infrastructure, or other sectors the government considers economically desirable. Cat I AIFs are seen as growth-enabling and receive certain tax pass-through and policy benefits.

Cat I includes four sub-categories: VCF (Venture Capital Fund), Angel Fund, Infrastructure Fund, and Social Venture Fund / SME Fund. Minimum investor commitment is Rs 1 crore (Rs 25 lakh for Angel Fund). Minimum corpus is Rs 20 crore. Investors must qualify as accredited or meet the net-worth threshold.

Tax treatment: Cat I AIFs enjoy tax pass-through status for income other than business income. The fund itself does not pay tax on capital gains, dividend, interest — these flow through to investors at their slab / capital-gains rate. Business income, however, is taxed at the fund level at maximum marginal rate.

Example 1: An Indian HNI commits Rs 2 crore to a Cat I VCF that invests in early-stage SaaS. After 7 years, the fund returns Rs 4 crore as LTCG on portfolio exits. The LTCG flows through to the investor at the equity LTCG rate (12.5% above Rs 1.25 lakh), not at fund level.

Example 2: A SEBI-Cat I Infrastructure Fund invests in a toll-road operator. Toll receipts are business income, taxed at the fund level. Capital gain on eventual exit is passed through to investors.

Cat I AIFs are close-ended, with typical 7-10 year tenor, and illiquid. They are not retail products despite the rising marketing reach.

Disclaimer: Educational content from MintByte (ARN-314872, MFD). Examples are illustrative. SEBI Investment Adviser registration is in process; we do not provide personalized AIF or product-recommendation advice. AIFs are not suitable for all investors.