CIO Speak: Indian investors vying for an ‘Alternative Flavor’

India’s economic ascent and fecund business and investment environment have engendered a new crop of wealthy and empowered individuals and families across the social strata to create tangible economic value and wealth. With this increase in wealth there has inevitably been a shift in the way wealth is being managed and invested, with investors increasingly seeking investment solutions that can optimally meet their nuanced requirements. In the backdrop of this landscape, Alternative Investment Funds (AIFs) are becoming a vehicle of choice for many investors, as evidenced by the expanding asset size of the AIF industry. Alternative Investments Funds (AIFs) in India may appear to be the new kid on the block, having been in their current form for just about a decade. Nevertheless, the significant growth and attention they are attracting cannot be overlooked.

Highlights

• Total commitments to AIFs stood at INR 11.35 Tn as of March 2024, witnessing a 5-year CAGR of 32%. Of this, CAT II funds continue to dominate having garnered ~80% of these commitments followed by CAT III funds at 13% and CAT I funds at 7%.
• In terms of the number of funds, India is home to 1,306 AIFs and ~1,532 schemes as of March 2024. Approximately 58% of these funds fall under CAT II. CAT I and III comprise ~20% each, of all the funds.
• AIFs are positioned as an optimal vehicle for manufacturers to launch new funds, especially in the case of restrictions imposed, with respect to the launch of new funds, on the mutual funds side.
• An interesting point to note is that while the number of new funds launched in CAT I and II have witnessed a decline on a y-o-y basis, correspondingly the number of CAT III funds launched have increased by 43%.