SEBI has classified Alternative Investment Fund (AIF) into three broad categories i.e. Category I, Category II and Category III. Discuss key features of AIF categories.

As per regulation 3 of the SEBI (Alternative Investment Funds) Regulations, 2012, Alternative investment funds (AIFs) are classified into three categories i.e. Category I, II & III. The following are the key features of AIFs categories: Category I and Category II shall have minimum tenure of 3 year & the tenure may be extended for a further period of 2 years only with the approval of two-third of the unit holders by value of their investment. There is no minimum tenure prescribed in case of Category III. The tenure may be extended for a further period of 2 years in case of close-ended fund subject to approval of two-third of the unitholders by value of their investment. Category I and Category II, investment in one Investor Company shall not invest more than 25% of its investible funds in one Investee Company. In case of Category III, maximum 10% of the investible funds in one Investee Company is allowed. Category I AIFs will be considered as venture capital funds/companies for the purpose of Section 10 (23FB) of the Income Tax Act, 1961. The income from Category II and III funds will not be exempt under section 10(23FB) of the Income Tax Act, 1961. Taxation of such hands would depend on the legal status of the fund i.e. company limited liability partnership or trust. In case of Category I, Category II & Category III, an annual report is required to be presented to the investor within 180 days from the end of the year. In case of Category III, AIF is also required to provide a quarterly report to the investors within 60 days from the end of the quarter.