Alternative investment funds (AIFs) in India continue their healthy growth and provide significant opportunities for domestic institutional investors (DIIs) to diversify their portfolios and potentially reap higher returns, highlighted a report by Crisil Intelligence.
The report noted that despite the regulatory limits in place, many DIIs, including retirement funds and insurance companies, have not leveraged the allocation. In fact, several of these have not invested in AIFs to date, highlighting substantial scope for increased participation.
It stated “The AIF landscape in India presents a significant opportunity for DIIs to diversify their portfolios and potentially reap higher returns. AIFs to continue their healthy growth in coming years”.
The recent popularity of AIFs is expected to continue to rise as high-net-worth individuals (HNIs), ultrahigh-net-worth individuals (UHNIs) and institutional investors are increasingly showing interest in nontraditional assets.
AIFs in India have seen remarkable growth, with a compound annual growth rate (CAGR) of 31.5 per cent between fiscals 2021 and 2025. They have become a significant part of the managed investment product landscape with a diversified product suite and a growing number of debt funds.
According to the report, the growth of the sector is driven by HNIs seeking diversification, increased domestic institutional participation, improving investment opportunities due to a booming startup ecosystem, and a supportive regulatory framework.
With over 1,600 AIFs registered with SEBI, the report mentioned that the sector is poised for continued expansion as high-net-worth individuals and institutions increasingly explore non-traditional assets.
The dynamic landscape of private investments in India offers a multitude of opportunities for DIIs, the report said, adding that AIFs are one of the best suited options for DIIs to participate in the private markets in India.
With their professional management, diversification benefit and regulatory oversight, AIFs are an indispensable part of the private market landscape.
India has established itself as the world’s fourth-largest equity market with a total market capitalisation of USD 5.131 trillion (Rs 446 lakh crore) as of December 2024.
Unlike other emerging markets, excluding China, India boasts a unique combination of depth and breadth across various industry sectors, making it an attractive destination for investors.
India is projected to become the world’s third-largest economy by 2030, with its GDP rising to USD 6.6 trillion from USD 3.9 trillion, marking an improvement from the 9th position in just two decades.
The country’s robust domestic fundamentals and growing equity market are expected to create fertile ground for sustained economic growth.
That, along with ongoing reforms and focus on self-reliance, will only strengthen India’s position as an attractive investment destination. The emergence of innovation-driven start-ups has invigorated India’s private markets, which, if sustained, will benefit the alternative investment fund industry.
Increased participation by domestic institutional investors can significantly enhance capital inflows and market stability, the report added.