Reached Rs 5Cr net worth. Should I allocate Rs 1Cr to a Category 2 AIF for diversification?

The Rs 1Cr minimum commitment is a floor set by the government, not a recommendation that an AIF automatically becomes a good idea at a certain net worth. Crossing that threshold simply means you are allowed to invest, but it says nothing about whether you actually should.

The real test is whether this money can stay locked away for years without touching your emergency corpus or goal-linked investments. If the answer requires any hesitation, the answer is no. An AIF allocation should come from a slice of genuine surplus, never from core capital.

Let's set expectations honestly because most AIFs are genuinely illiquid. The lock-in is a feature, not a bug, as the fund commits capital to private companies or credit that cannot be returned on demand. Many investors miss the nuance that fund tenures can often be extended.

A structure might be designed for 7yr, plus a possible extension of up to 3 more years. Your capital may be committed for much longer than you initially assumed. While secondary transfers exist on paper, the market is thin and often happens at a steep discount to the stated value.

The practical rule of thumb is to treat AIF allocations as money you will not see until the full cycle plays out. If it comes back earlier, treat it as a bonus, not a plan.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.