AIF Category I in India – Complete Guide, Regulations, Benefits & Angel Fund Structure (2025)

AIF CAT I

AIF Category I – India’s Most Powerful Early-Stage Investment Structure

Learn how Category I AIFs operate, who can invest, how returns work, and why Angel Funds are emerging as India’s preferred early-stage engine.

What Exactly Is a Category I AIF?

A Category I AIF is a SEBI-regulated investment vehicle designed to boost early-stage entrepreneurship, SME growth, infrastructure, and socially relevant sectors. These funds enjoy the highest regulatory trust, the strongest governance requirements, and the most founder-friendly structure in the AIF universe.

In simple terms:Investors pool capital → Fund manager deploys into startups → Returns distributed as per SEBI norms.

Angel Funds sit inside Category I, making them India’s cleanest and most scalable early-stage structure.

Types of Category I AIFs in India

Category I isn’t one fund type, it’s a family of structures:

1. Venture Capital Funds

Early-stage and growth-stage equity investments.

2. Angel Funds (Your domain)

Designed specifically for pooled early-stage capital. Fast decisions, smaller cheque sizes, diversified portfolios.

3. SME Funds

Invest in small and medium enterprises ready for expansion.

4. Social Venture Funds

Focus on impact-driven or mission-aligned startups.

5. Infrastructure Funds

Invest in India’s long-cycle infrastructure opportunities.

6. Special Situation Funds

Capital for companies undergoing restructuring, turnaround, or special situations.

Each has its own mandate. Angel Funds are the most dynamic among them.

Why Angel Funds Matter Inside Category I

Angel Funds are the most active engine in India’s early-stage investing because they offer:

• Lower minimum investment compared to other AIF structures

• Faster investment approval cycles

• Skin-in-the-game from fund managers

• Strong governance (SEBI compliant)

• A diversified portfolio of high-potential startups

• No leverage → lower systemic risk

This is why India Discovery Fund-I (IDF-I) grew into the largest Angel Fund under Category I, and why India Growth Fund-I continues that momentum.

SEBI Regulations for Category I AIFs

Category I AIFs operate under strict SEBI oversight. Key regulations include:

Minimum Investment

₹1,00,00,000 and ₹25,00,000 per investor (Angel Fund, exceptions apply for employees, directors, or managers).

Eligible Investors

• HNIs

• UHNIs

• Family Offices

• Corporates

• NRIs & OCI cardholders

• Accredited Investors

Fund Structure

• Units allotted to contributors

• Capital calls issued as per the drawdown schedule

• Mandatory audited financials

• Quarterly/annual reporting obligations

Governance Requirements

• Investment committee oversight

• Custodian (if fund size crosses ₹500cr)

• SEBI filings

• Strict KYC & AML compliance

This governance layer is one of the biggest trust signals for HNIs.

How Returns Work in a Category I AIF

Category I AIF returns follow a clean, predictable distribution model:

1. Capital returned to investors

2. Preferred return (if applicable)

3. Carry to the fund manager (profit share)

4. Remaining profits are distributed proportionally

Angel Funds typically invest in early-stage equity, meaning returns are driven by:

• equity markups

• secondary sales

• M&A exits

• IPO outcomes

There is no leverage, no derivatives, and no complex hedging, just pure equity participation.

Taxation for Category I AIFs

Category I AIFs enjoy pass-through status, which means:

• The fund does not pay tax on investment income.

• Investors pay tax on gains as if they invested directly.

• LTCG, STCG, and business income rules apply depending on asset class.

This structure makes Category I the cleanest option for long-term compounding.

Who Can Invest in a Category I AIF?

Category I AIFs are built for sophisticated investors with long-term views:

• High Net-Worth Individuals

• Ultra-HNIs

• Family Offices

• Corporates

• NRIs/OCIs

• Accredited Investors

• Institutional Investors

Minimum ticket: ₹25 lakh(Angel Fund) and ₹1Cr (VCF)

Tenor: Typically 4–7 years

Ideal for: Investors seeking diversified early-stage exposure with regulated oversight.

How Angel Funds Deploy Capital (Step-by-Step)

Here’s how the investment engine actually works:

1. Deal Sourcing

Founder applications, warm introductions, VC networks, ecosystem partners.

2. Deal Evaluation

Team, product, market, traction, defensibility, compliance.

3. Investment Committee (IC) Approval

Operator-experts review and approve deals.

4. SPV / Pool Creation

Investors opt into each deal (deal-by-deal model).

5. Capital Call

Drawdown notice issued, contributions collected.

6. Investment Execution

Money transferred → shareholder agreement executed → equity allotted.

7. Portfolio Support

Hiring help, distribution, partnerships and business development.

8. Follow-On Rounds

Support founders in later funding rounds.

This is the engine that produced the IDF-I track record.

Category I vs Category II vs Category III (Comparison Table)

Feature	Category I	Category II	Category III
Core Focus	Early-stage, Angel, VC, SME	PE/VC Funds	Hedge funds, PMS-like
Leverage	Not Allowed	Not Allowed	Allowed
Risk	Low–Medium	Medium–High	High
Tax Status	Pass-through	Mixed	No pass-through
Investors	HNIs/Family Offices	PE/FOs/HNIs	Traders, HFT, Hedge investors
Investment Horizon	4–7 yrs	4–6 yrs	1–3 yrs
Exposure Type	Early equity	Equity/debt mix	Listed derivatives/equities

Why 35North Ventures Operates a Category I AIF

Category I is built for operators and early-stage experts. It fits our philosophy:

• Founder-first approach

• Hands-on support in distribution, partnerships & strategy

• Sector-agnostic flexibility

• Fast decision cycles

• Transparent reporting

• Institutional governance

IDF-I became India’s largest Angel Fund under Category I for a reason, it scales without diluting quality.

FAQ: Category I AIFs in India

What is the minimum investment for Category I AIF?

₹1Cr and ₹25 lakh (Angel Fund), with certain exceptions.

Are Category I AIFs safe?

They are regulated, structured, and diversified, but still carry equity risk.

Are returns guaranteed?

No, all AIFs are market-linked.

What kind of tax applies?

Pass-through: gains taxed in investors' hands.

Can NRIs invest in Category I AIF?

Yes, through normal banking channels.

Angel Fund vs AIF vs VC – what’s the difference?

Angel Funds are a sub-category of AIF. VC funds are Category I/II. Structures differ but philosophy overlaps.

How do I invest in 35North Ventures’ AIF?

Connect with our team → review fund documents → onboarding → KYC → commitment → capital calls.

Invest with India’s Leading Category I AIF

Speak with our team, understand our structure, and explore our current fund opportunities.

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