SIF vs AIF (Alternative Investment Fund): What’s the Regulatory and Operational Difference?

India’s investment landscape has evolved in recent years, offering investors a variety of sophisticated fund options. Specialised Investment Funds (SIFs) and Alternative Investment Funds (AIFs) stand out among them. Both are intended for experienced investors seeking alternatives to conventional mutual funds, yet they differ in their regulation, structure, and management. Here, we compare both SIFs and AIFs to find out which is better for you.

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Regulatory Framework

SIFs are governed under the SEBI Mutual Fund Regulations with specific provisions tailored for them. This regulatory environment is relatively more structured and transparent, requiring SIFs to comply with strict portfolio disclosures and investor protection mechanisms similar to mutual funds. SEBI mandates that SIFs be managed exclusively by SEBI-registered Asset Management Companies (AMCs) that fulfill eligibility criteria such as minimum Assets Under Management (AUM) and staffing of qualified fund managers. The minimum investment required for SIFs is ₹10 lakh, which makes it accessible to experienced, high-income investors who may not necessarily qualify as high-net-worth individuals (HNIs).

AIFs operate under the SEBI (Alternative Investment Funds) Regulations, 2012, which allow greater operational flexibility and lighter regulatory controls compared to mutual funds and SIFs. AIFs can be structured as trusts, companies, limited liability partnerships, or partnership firms. They are divided into three categories: Category I (socially or economically desirable sectors), Category II (private equity, funds not falling under Category I and III), and Category III (hedge funds, funds employing complex trading strategies). The minimum investment required for AIFs is ₹1 crore, targeting HNIs and institutional investors. AIFs can follow multiple investment strategies simultaneously, unlike SIFs which are restricted to one per fund.

Investment Flexibility and Strategies

SIFs focus on a single investment strategy per fund, which can be equity-oriented, debt-oriented, or hybrid. They enjoy more tactical flexibility than mutual funds and can invest across diverse asset classes such as listed equities, debt instruments, commodity derivatives, REITs and InvITs. Notably, SIFs can hold unhedged short positions up to 25% of net assets, allowing participation in both rising and falling markets. This blend of flexibility and regulation makes SIFs appealing for investors seeking advanced investment approaches with enhanced risk controls.

AIFs allow multiple complex investment strategies and broader asset allocations across private equity, venture capital, real estate, hedge funds, structured debt, and other alternative assets. This flexibility enables fund managers to target emerging markets, illiquid and niche investments, and implement diverse, sophisticated strategies to achieve higher returns for investors willing to accept greater risks and longer commitment periods.

Liquidity and Tenure

Liquidity is a key operational difference. SIFs balance flexibility and investor access by offering a range of fund structures—including open-ended, close-ended, and interval funds—with redemption frequencies ranging from daily to quarterly or longer, subject to lock-in or notice periods. This relatively better liquidity profile positions SIFs as a middle ground between traditional mutual funds and illiquid customised investment products.

AIFs generally have longer lock-in periods, often spanning multiple years, reflecting their focus on long-term, value-driven investments such as early-stage ventures, infrastructure projects, or distressed assets. The minimum lock-in period for AIFs is three years. Their limited liquidity and extended tenures mean AIFs are suited for investors with a high risk tolerance and a long-term investment horizon looking for outsized returns from complex strategies or illiquid assets.

Operational Control and Investor Base

SIFs are managed only by SEBI-registered AMCs with proven expertise, ensuring robust governance, investor protection, and regulatory oversight. They are targeted toward sophisticated investors, offering systematic investment options like SIPs, SWPs, and STPs, which allow for structured participation and withdrawals under regulatory norms.

AIFs, by comparison, have a more flexible operational setup and can be sponsored by a wider range of entities such as trusts, LLPs, companies, or partnerships, without needing to meet stringent AMC criteria. This flexibility supports a diverse investor base mostly comprising HNIs and institutions who seek high return potential and are comfortable with lower regulatory transparency and longer lock-ins.

Summary Table of Key Differences

Conclusion

SIFs blend the regulatory rigour and investor safeguards of mutual funds with enhanced strategic flexibility, offering moderate liquidity and accessibility to sophisticated investors with an investment threshold of ₹10 lakh. They are ideal for those seeking professional management and relatively more regulated exposure to alternative assets.

Alternative Investment Funds (AIFs) provide extensive freedom in investment strategy and structure but come with higher minimum investments, longer tenure commitments, and less regulatory transparency. They cater primarily to high-net-worth and institutional investors willing to embrace higher risks and illiquidity for potentially greater returns.

Understanding these regulatory and operational differences helps investors align their investment choices with their risk appetite, liquidity preferences, and financial goals.