The Booming AIF Industry in India

Today, savvy and mature investors in India have a wide variety of investment vehicles to choose from, and one of the most promising options in the ecosystem is the AIF or Alternative Investment Fund. Considered as an alternative route of investment, as the name suggests, an AIF is a privately pooled investment vehicle, which has its origin in India or is incorporated in the country, with the aim of collecting assets from professional investors belonging to both domestic and global cadres. The corpus thus collected is then invested in alignment with the pre-defined investment policy, with the aim of generating robust returns for the investors.

The AIF Ecosystem

According to a recent report by Statista^[1], India is home to around 885 registered cumulative alternative investment funds, as of 2022. The Indian AIF industry was incepted in 2012 and, since then, the overall assets under management, in AIFs, has grown to 6.94 lakh crore rupees in 2022^[2]. Between 2021 and 2022, the AUM in the ecosystem witnessed a stellar growth of 42.5% on-year, across the three categories of AIFs, indicating the tremendous appetite for the investment vehicle.

AIFs can be formed or incorporated as either a corporation, trust or other legal entity, such as a limited liability partnership, and the entity is not governed by the 1996 or 1999 laws of the Securities and Exchanges Board of India. AIFs are classified as Category I, Category II and Category III and these include Angel funds, Venture Capital Funds, Infrastructure Funds and Social Venture Funds, PE Funds, Debt Funds and Real Estate funds and Hedge Funds, Long-only funds and Long-short funds, respectively.

Factors Bolstering AIFs

A large part of the credit, for the stupendous performance and growth of Indian AIFs, goes to the consistently burgeoning class of high and ultra high net-worth individuals in the country. Given their focus on the sustainability and growth of the accumulated wealth, these segments are keen on availing the manifold investment opportunities offered by AIFs and this has, consequently, led to the strong growth being witnessed by the Indian AIF ecosystem. Through the years, the industry has evolved rapidly, in a concerted attempt to meet the evolving needs of savvy global investors and can now be considered en-route to offering tough competition to developed economies. Between 2017 and 2022, the AIF industry in India witnessed a stunning growth of 7X^[3], and this just acts as an indicator of the robust growth that the ecosystem is expected to witness in the years ahead.

Outlook on AIFs in India

India has always been considered as the land of opportunities. With an increased push from the industry, more people are now gaining awareness about alternative investment and those with a sizeable corpus to spare are flocking to the market in the quest for better diversification and enhanced return strategies. The quickening pace of the Indian economy is also offering impetus to the steadily widening range of investable asset classes and, given the influx of new-age alternates, an enabling regulatory environment, solid returns from newer investment avenues and trustworthy disclosures, the industry is primed for a superlative run. In fact, reports expect PMS and AIF assets to expand rapidly, growing to 30 lakh crore rupees by 2025^[1]. This would mean a 2.5X growth, from its current market size of 12 lakh crore rupees.

The growth in the AIF ecosystem is also in line with the rising aspirations of a wealthy India. With the number of the country’s wealthy growing at a fast pace, given the strong entrepreneurial opportunities within India, the AIF industry is now witnessing a new cadre of investors keen on diversified strategies and new opportunities. For the ecosystem to continue on its victory path, all that is now required is a consistent interface with regulators and strong industry associations capable of bolstering the industry as a whole, while also boosting awareness and acceptance.

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