India's Wealthy Investors Turn to Alternative Assets for Better Returns

Shift in Investment Landscape

India's alternative investment landscape is undergoing a significant change, with wealthy investors seeking better returns through alternative assets such as Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS). According to a recent report by IVCA-360 ONE CRISIL, the decline in returns from traditional mutual funds has led to a decline in their popularity among high net worth individuals (HNIs) and ultra-HNIs.

What are AIFs and PMS?

AIFs and PMS are alternative investment options that offer higher flexibility and potentially better returns than traditional mutual funds. Category III AIFs and PMS are particularly popular among HNIs and family offices, as they provide more flexible investment strategies and better risk management.

Why are AIFs and PMS gaining popularity?

Several factors contribute to the growing popularity of AIFs and PMS:

• Equity-linked AIF strategies have consistently outperformed traditional mutual funds, with higher returns and lower risk.
• PMS platforms offer more concentrated and high-conviction equity exposure, which appeals to HNIs and family offices.
• Regulatory reforms have made AIF structures cleaner, more transparent, and more appealing to mainstream investors.

Key Findings from the Report

The report highlights the following key findings:

• Domestic investors now dominate the alternative investment landscape, with a significant increase in domestic LP share from 50.3% to 52.7% between March 2024 and March 2025.
• HNIs, ultra-HNIs, and family offices are driving the growth of AIFs and PMS, with a significant increase in incremental domestic commitments.
• Government entities such as SIDBI, NIIF, and NABARD are also contributing to the growth of AIFs, with a total commitment of ₹24,293 crore.

Regulatory Reforms and Market Trends

The report also highlights the impact of regulatory reforms and market trends on the alternative investment landscape:

• Dematerialisation of AIF units has brought operational parity with listed securities.
• Standardised valuation norms have created comparability across PMS, MFs, and AIFs.
• India's public market cycle is providing strong tailwinds, with an average of one IPO per day for two consecutive fiscal years.

Conclusion

In conclusion, India's wealthy investors are turning to alternative assets such as AIFs and PMS in search of better returns. The growth of AIFs and PMS is driven by a combination of factors, including regulatory reforms, market trends, and increasing demand from domestic investors. As the alternative investment landscape continues to evolve, it is likely that AIFs and PMS will play an increasingly important role in the investment portfolios of HNIs and family offices.