HNI wealth · AIF
Category I AIF: VC funds, SME funds, social ventures
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Facts
Category I AIFs invest in startups, SMEs, social enterprises, and infrastructure. Includes VC funds, angel funds, social venture funds, and infrastructure funds.
Provisions and law
- SEBI AIF Regulations 2012 | IT Act, Sec 10(23FBA) pass-through
Analysis
Tax (Finance Act 2023, from AY 2024-25): Full pass-through. Income accrues to unit holders in the same character as the AIF earned it, capital gains remain capital gains, interest remains interest. AIF files a tax return but pays no tax itself. Unit holders pay tax in their own returns. Key benefit: VC fund's LTCG on startup exits (unlisted equity held 24+ months) = 12.5% LTCG in investor's hands, same as if investor directly held the startup shares. Before 2023, this was much less clear and often taxed at slab rate.
Conclusion
- SEBI registration of the fund, verify on sebi.gov.in
- PPM (Private Placement Memorandum), read fully. Investment strategy, fees, lock-in, exit conditions.
- Fund manager track record, actual realised returns, not just IRR on paper
- Tax passthrough certificate, fund must issue Form 78 (old Form 64C) to each investor annually
- Understand: you cannot exit early, most AIFs have no secondary market
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