.png)
Best AIF Category 2 Funds in India: A Practical Investor Guide
- Ripradaman R
- 3 hours ago
- 3 min read
Introduction
Alternative Investment Funds (AIFs) have become a serious allocation choice for sophisticated investors in India.
Category 2 AIFs stand out for their structured risk and long-term return potential.
This blog explains the best AIF Category 2 funds in India and how investors should evaluate them.
What Are AIF Category 2 Funds
Category 2 AIFs are SEBI-regulated funds that do not use leverage except for operational needs.
They typically invest in private equity, debt, real assets, and structured opportunities.
Key characteristics:
No guaranteed returns
Medium to long-term investment horizon
Focus on capital appreciation
Why Investors Prefer Category 2 AIFs
Category 2 AIFs balance risk and reward better than highly aggressive alternatives.
Primary reasons:
Exposure to unlisted and pre-IPO companies
Structured debt opportunities with downside protection
Professional fund management
Lower volatility compared to Category 3 AIFs
Types of Category 2 AIF Strategies
Different strategies suit different investor objectives.
Common strategies include:
Private Equity Funds
Private Credit and Debt Funds
Real Estate AIFs
Fund of Funds (Category 2)
Each strategy carries distinct risk, liquidity, and return profiles.
Best AIF Category 2 Funds in India
The “best” fund depends on strategy alignment, track record, and risk tolerance.
Widely tracked Category 2 AIF managers in India include:
Private equity-focused AIFs with strong exit history
Credit-focused AIFs offering predictable cash flows
Hybrid AIFs combining equity upside with debt stability
Evaluation factors:
Fund manager experience
Past fund performance
Portfolio diversification
Exit strategy clarity
Also Read:
Who Should Invest in Category 2 AIFs
Category 2 AIFs are designed for informed, long-term investors.
Ideal for:
HNIs and UHNIs
Investors seeking diversification beyond mutual funds
Those comfortable with limited liquidity
Long-term wealth builders
Minimum investment requirement:
₹1 crore as mandated by SEBI
Risks and Considerations Before Investing
Despite strong potential, Category 2 AIFs are not risk-free.
Key risks:
Illiquidity due to long lock-in periods
Market and economic cycle exposure
Manager-specific execution risk
Interesting Read:
How to Choose the Right Category 2 AIF
Selection should be process-driven, not return-chasing.
Checklist for investors:
Consistency of fund manager’s past performance
Alignment of strategy with personal goals
Transparency in reporting
Fee structure and carried interest clarity
Watch This Video:
Conclusion
AIF Category 2 funds offer a disciplined way to access private markets in India.
They suit investors seeking structured growth with professional oversight.
Careful selection and long-term commitment remain critical for success.
Connect on LinkedIn:
FAQ
Q1. What is the minimum investment for Category 2 AIFs in India?
The minimum investment is ₹1 crore per investor as per SEBI regulations.
Q2. Are Category 2 AIFs safer than Category 3 AIFs?
They generally carry lower risk as they do not use active leverage or complex trading strategies.
Q3. What is the typical lock-in period for Category 2 AIFs?
Lock-in periods usually range from 5 to 10 years depending on the fund strategy.
Q4. Do Category 2 AIFs guarantee returns?
No. Returns are market-linked and depend on fund performance.
Q5. Are Category 2 AIFs suitable for first-time alternative investors?
They can be suitable if the investor understands illiquidity and long-term risk.
Citations
Securities and Exchange Board of India (SEBI)
Reserve Bank of India (RBI)
National Stock Exchange of India (NSE)
Economic Survey of India
Industry reports by EY and PwC
Comments