India’s alternative investment landscape is undergoing a quiet revolution. What was once a niche space for a select few is rapidly becoming a mainstream asset class for family offices, high-net-worth individuals (HNIs), and institutional investors. According to the recent EY–Julius Baer India report, AIF assets under management (AUM) are set to surpass ₹100 lakh crore by 2030, a fivefold increase from current levels.
This blog explores what's driving this explosive growth, the evolving role of AIFs in modern portfolios, and what it means for the future of wealth management in India.
What Are AIFs?
Alternative Investment Funds (AIFs) are pooled investment vehicles that cater to sophisticated investors. Unlike mutual funds, AIFs are not publicly marketed and are categorized into three types:
- Category I: Investments in startups, SMEs, infrastructure (early-stage, socially beneficial).
- Category II: Private equity, debt funds, real estate—no leverage or complex strategies.
- Category III: Hedge funds, long-short strategies, and other complex, high-risk vehicles.
Minimum investment is ₹1 crore, making AIFs suitable for HNIs, family offices, and institutional investors.
Underperformers: A Mixed Bag
While several PMS strategies outperformed benchmarks in May, a few large and well-known names lagged behind:
- Elever PMS posted returns below the category average.
- Axis Securities’ PMS strategies, though strong on risk management, failed to keep up with the top alpha generators.
This underperformance reflects the increased dispersion between strategies and the growing importance of stock selection, sector positioning, and agile rebalancing.
Key Growth Highlights
- Current AUM (2024): ₹12 lakh crore+
- Projected AUM by 2030: ₹100 lakh crore+
(Source: EY–Julius Baer India Wealth Report 2024) - Compound Annual Growth Rate (CAGR): ~34% over the last 10 years
- AIFs now account for ~30% of HNI investment allocations, up from less than 10% a decade ago.
What’s Driving the Surge?
The top-performing PMS strategies in May outpaced many mutual fund schemes across large-cap, mid-cap, and multi-cap categories. While PMS portfolios carry higher minimum investments (typically ₹50 lakh and above), they offer:
- Family Offices on the Rise
- The number of Indian family offices has jumped from 45 in 2018 to 300+ in 2024, with cumulative assets exceeding ₹3 lakh crore.
- These entities are increasingly allocating 25%–50% of their portfolios to AIFs for higher returns and greater portfolio control.
- Regulatory Tailwinds
- SEBI has streamlined and strengthened the AIF framework, making it more transparent and investor-friendly.
- Taxation clarity, especially for Category II AIFs, has made them more attractive for debt and hybrid strategies.
- Diversification & Access
- AIFs offer exposure to private credit, real estate, startups, pre-IPOs, and structured debt, assets that mutual funds typically can’t touch
- They provide customized, thematic strategies that align with investor goals, such as yield generation, alpha creation, or capital preservation.
- Globalization of Indian Wealth
- Indian investors are maturing and increasingly following global portfolio models that include alternatives as a core component.
- Wealth firms report that clients now prefer a mix of public and private market assets, shifting away from overdependence on equities and mutual funds.
How AIFs Compare to Other Investments
| Feature | Mutual Funds | PMS | AIFs |
|---|---|---|---|
| Minimum Investment | ₹500–₹5,000 | ₹50 lakh | ₹1 crore |
| Liquidity | High | Moderate | Low (Lock-ins up to 5 years) |
| Customization | Low | Medium | High |
| Regulatory Body | SEBI | SEBI | SEBI |
| Risk Level | Low–Medium | Medium–High | Medium–Very High |
| Access to Private Markets | No | Limited | Yes |
Trends to Watch
- Private Credit Is Booming: Investors are flocking to AIFs that provide structured private credit, especially as banks tighten lending and startups seek flexible capital.
- Thematic AIFs Rising: From real estate-backed debt to digital economy funds, thematic AIFs are gaining traction with investors looking for differentiated returns.
- Technology-Enabled Due Diligence: Platforms are emerging to simplify AIF discovery, risk analysis, and performance benchmarking bringing institutional-level insight to HNIs.
Risks and Considerations
While AIFs offer higher return potential, they also come with:
- Lower liquidity due to multi-year lock-ins
- Higher fees, including performance-linked carry
- Complex structures requiring in-depth due diligence
Investors should work with trusted advisors and platforms that provide access, transparency, and post-investment monitoring.
Conclusion: AIFs Are the Future of Smart Wealth Allocation
India’s AIF market is no longer a niche—it's a pillar of modern wealth strategy. As regulations evolve, investor maturity increases, and new opportunities open up across private markets, AIFs are poised to become a ₹100 lakh crore asset class by 2030.
For investors and wealth managers alike, the next five years represent a once-in-a-generation opportunity to rethink asset allocation and alternative investments like AIFs will be at the center of that shift.
At Punjibaazar, we empower clients to access high-quality AIFs, conduct due diligence, and build future-ready portfolios rooted in transparency, performance, and trust.