KYI: Know Your Investment

What are Category I AIF?

As per SEBI Regulations Category, I AIF are AIFs that invests in early-stage startups, social ventures, SMEs, infrastructure startups, or other sectors or areas which the government considers socially or economically desirable. It includes investments such as venture capital funds, SME Funds, social venture funds, infrastructure funds, etc.

Source: SEBI (June 2023)

General Conditions for Category I AIFs

  • Allowed to invest in units of other Category I AIF of the same sub-category or units of Category II AIF.
  • May engage in activities such as hedging, including credit default swaps.
  • Shall not borrow funds directly or indirectly, and not engage in any leverage apart from meeting provisional funding requirements.

Category I AIFs include

  • Venture Capital Fund
  • Infrastructure Fund
  • Angel Fund
  • Social Impact Fund
  • SME Fund

What is the minimum amount needed to invest in AIF?

All AIF categories in India except "angel fund" need a minimum investment of Rs. 1 crore, whereas, for the angel fund, that amount is Rs. 25 lakhs. In the case of an employee or director of AIF, the minimum value of investment shall be Rs. 25 lakhs

Why are Category I AIFs popular?

Category I AIFs are the most popular among investors. These are investments in small, or medium enterprises, or start-ups that have high-growth potential, and are socially and economically viable. These usually have the potential to grow the economy and create jobs, and hence Category I AIFs are encouraged and promoted by the government and are extremely valuable to start-ups in our country.

Explore Investment Opportunities

Taxation of Category I AIF

When it comes to taxation, Category I AIFs have a pass-through status. This means that any income (except for business income) that the fund generates, is taxed to the investor and not to the fund house - even if the investor has not redeemed the investment. The investors need to pay taxes according to their respective tax slabs.

Therefore, if you invest in category I AIF, you need to pay capital gain tax on the profit or loss you make from the AIF funds within a given duration. The duration here is important to understand whether long-term capital gain tax or short-term capital gain tax would be applied. As per the recent rules for LTCG, 20% is the rate of tax with indexation benefit. If the profits are taxed as STCG, then the rate would be 15%. There is a surcharge, and cess charges on and above the mentioned tax rates as well. Any income (except business income) distributed by the investment fund is not liable for DDT and TDS of 10% will be deducted by the investment fund. It is to be noted that in Category I AIF the investor needs to pay advance tax during the year.

Natural of Income Earned by the Fund Taxability Tax Rate
Other than business income ( For example capital gains ) Passed through - AIF does not pay any tax. The unit holder pays the tax Rates applicable to the unit holder
Business Income Taxed at AIF. Such income is not taxable for unit holder AIF was formed as a company or LLP. Taxed at the rates applicable to the company or the LLP.
AIF formet as Trust: Taxed at Maximum Marginal Rate*.

Disclaimer: However, it is advisable to consult your individual tax advisor and keep track of regulatory changes

Explore Other AIF Categories

AIF Category II

View Category Details

AIF Category III

View Category Details

Office No. 106A, B-Wing Kanakia Wall Street,
Andheri - Kurla Rd, Chakala, Andheri East,
Mumbai, Maharashtra - 400093

Quick Links