score:10
So, here's what happened.
My research organisation said I should apply for a student visa. I was totally taken aback and surprised. In fact, they mentioned that past fellows have applied for a student visa and that'd be the best. However, the student visa is an arduous process with elaborate mark sheet checking procedures.
In the meanwhile, I got a reply from the German Embassy that I can apply for a guest scientist visa. This seems much better and I will proceed my application with this. In addition, I am also eligible for a visa fee waiver (P1, point b) as I am a foreign national receiving a scholarship from public funds to stay/work in Germany. However, the German embassy confirmed that such a waiver can only be decided after the visa officer goes through my documents. I spoke about this to my research organisation and they said that I should do as the embassy suggested or in other words apply for a guest scientist visa.
Moral of the story - Don't blindly apply for a visa, read through rules/regulations and options. It could save you time as well as money.