Firstly, by asset type. Traditional funds (UCITS) invest mainly in listed equities and bonds and liquid instruments. Alternative investment funds invest in alternative assets: real estate, private equity, loans, infrastructure, commodities, complex derivatives, private structures, etc. Regulation and investor protection. Open-ended investment funds have very strict rules on diversification, liquidity, and transparency (e.g., issuer concentration limits, daily or frequent redemption requirements). 

• Alternative investment funds have a specific regulatory framework under the AIFMD, focused mainly on the manager (AIFM) and risk management, leaving more flexibility in the structure and strategy of the fund, but also more responsibilities for the investor to understand. Liquidity. 
• Traditional funds usually allow frequent redemptions (daily/weekly). Alternative investment funds may have rare redemption windows or fixed lock-up periods, as they are designed for much longer horizons. Level of complexity. Alternative investment funds more often use leverage, derivatives, and sophisticated legal/contractual structures. Analyzing them requires knowledge of the details (offering documents, partnership agreement, valuation policy, liquidity policy, etc.). 

The type of investor targeted. Many alternative investment funds are primarily intended for professional or qualified investors, precisely because the risks and complexity are higher. The AIFMD regulation and national legislation clearly separate the treatment of retail investors from that of professional investors.