There are 3 Categories of AIF, they are:

• Category I AIF :
  1. Venture capital funds (Including Angel Funds)
  2. SME Funds
  3. Social Venture Funds
  4. Infrastructure funds
• Category II AIF :
  1. Private Equity
  2. Debt Funds
  3. Fund of Funds
• Category III AIF

AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. Various types of funds such as hedge funds, PIPE Funds, etc. are registered as Category III AIFs.

The Category - III AIFs are of two types :

• Close Ended : A close ended fund raises capital in one-time scale for a fixed number of units and shall hold the raised corpus for the entire fund tenure.
• Open - Ended : An open-ended Fund is open to for anytime entry and exit in the Fund. An open- ended Fund highly benefits the investors to redeem the units issued on the capital invested rightly at any point of their requirement.

• Long - Only CAT-III AIFs : Long- Only Cat-III AIFs invests for long-term investments by solely valuing the investee companies with their fundamentals to generate alpha and wealth creation within a term of 3-5 years.
• Long- Short AIFs : Long-short AIFs are a type of hedge fund that involves taking long positions and short positions

The Tax Treatment for the CAT-III AIF for its business income is taxed at Maximum Marginal Rate and its Capital Gains are taxed in the hands of the Trustee as a Representative Assessee.