AIFs that invest in start-ups or social enterprise funds, infrastructure funds, SME funds, and so on are classified as Category I AIF. For the government or regulators, they are frequently deemed socially or economically viable. Funds that do not use leverage or borrow for any reason other than to cover operational needs that do not fall under Categories I or III. This is where Private Equity Funds usually fall.

Funds that engage in a variety of or complex trading techniques, such as investing in listed or unlisted derivatives, fall into Category II. Hedge funds are typically included in this category.

The structure of an AIF can be tailored to fit a specific investing strategy, whether it's exposure to a single sector or diversification across asset classes.

The AIF may raise funds from any investor, whether Indian, foreign, or non-resident Indian (NRI) Have a Large Corpus Because AIFs act like mutual funds, they pool capital to create a larger corpus. The collected capital might be used to meet certain investment goals.