Editor: Noopur Date
India is a home to 3.7% of the global High Net Worth Individual (HNWI) population as of 2025.This population is expected to further grow by 48% up to 2028. In the backdrop of this growth, evolving risk appetite and investment preferences are rewriting India’s story.
A key focal point in this narrative is the accelerated growth of Alternative Investment Funds (AIFs). In the first six months of FY 2026, the AIF investments in India have surged by 13.7%. Explore how this crown jewel of wealthy Indian investors is set to transform the investment landscapes in the country.
All About AIFs
Privately pooled investments investing in unique assets based on the definite policy are known as Alternative Investment Funds (AIFs). These differ from mutual funds due to its focus on non-conventional, usually high risk and return assets. Unlike Portfolio Management Service (PMS), these funds emphasis less on discretion and more on the diversification of the investments. These funds are mainly categorized as follows:
Category I: Invests in early-age entities or startup through venture capital funds, SME funds, social impact funds, infrastructure funds, etc.
Category II: Private equity, debt and real estate funds excluded from the other two categories are grouped in this specific category.
Category III: These funds employ complex trading strategies and usually bear heavy risks. For example, hedge funds, derivative funds and private investments in public equity (PIPE).
SEBI mandates a minimum investment of ₹1 crore, which attracts mainly the HNWIs, UHNWIs, family offices and other institutional buyers. The feasible exposure into unique spaces like real estate, startups, impact funds, complex derivative, etc., with expertise gives an edge to investors with high risk-return appetite. In the span of past 13 years from its introduction, the asset class has entered a defining period in its journey.
What’s cooking in the AIF space?
The dynamic AIF industry is currently experiencing the following trends:
- SEBI has amended the AIF Regulations in 2024/2025 in terms of co-investment norms,accredited investors section, pari-passu management and more. Through these amendments, the transparency will increase, eventually catalysing the growth of investors.
- A clear theme of inclination towards real estate, angel funding and hedge against the volatility with Category 2 and 3 AIFs is observed in the recent period. However, market experts hint at potential shift towards private markets, specifically credit, in the upcoming years.
- The total investments made under AIFs and have substantially grown by nearly 73 times in the decade of 2015-2025. Specifically, the momentum in the past 2-3 years has fuelled unique investment avenues.
Wealthy India’s New Choice!
Apart from data-backed growth in the alternative investments space, a significant thrust is experienced through evolving investment preferences of the modern wealthy investors in India. This class includes first generation entrepreneurs, high-earning professionals, institutional investors, family offices and more. Due to substantial focus on financial literacy, the desired exposure of these investors includes a part in their portfolio with high-risk appeal and higher returns.
Over the recent years, when benchmarks have delivered muted returns, AIFs are increasingly complementing – and in some portfolios, partially substituting – traditional assets like gold and listed equities in the big portfolios. On the contrary of static possessions, AIFs are the productive investments with potential to generate a long-term value.
Risks in AIFs
The gloomy growth prospects of AIFs cannot ignore some inherent risks looming over this
investment opportunity:
- High risk: AIFs, in specially category III, are concentrated bets that bank on the high market gaps. However, the private markets, lock-ins and complex strategies increase the investment risk.
- High fees: AIFs and wealthy investors demand sophisticated assets and niche exposure which increases the cost of its management by experts. Moreover, the minimum criteria of ₹1 crore investment further complicate the investment.
- Regulations: Despite market regulator’s positive attitude towards the AIFs, its high- risk nature along with diverse exposure puts it in the focal point of the regulator forever. Therefore, a minor change in the binding rules can impact the investments.
Future of AIFs in India
Driven by structural tailwinds and evolving investor behaviours, the tale of AIFs in India is on the cusp of a transformative decade. A trend suggests global Alternates AUM being nearly 10% of the global GDP. However, India’s position at just 4%, crease a massive opportunity gap. This underpenetrated AIF industry paired with potential rise in the HNWIs and UHNWIs, is expected to double the AUM to US$247 Billion from 2024-29. Its prominence as investment avenues for portfolio diversification and long-term value creation will further drive the growth trajectory in the upcoming years.
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