Liquidity Is the New Benchmark in India’s AIF Market

When a market is building, fundraising and deal activity are easy scoreboards. As it matures, those scoreboards become incomplete. The credibility test shifts to realisation: distributions, timelines, and liquidity pathways that work across vintages.

No Ifs About AIFs 3.0, Oister Global and Crisil’s third benchmarking report makes a strict point: once a market reaches a certain size, the defining question shifts from “can private markets generate returns?” to “can private markets reliably convert capital into realised outcomes, across vintages, without needing perfect exit windows?”

The scale is now hard to ignore. By September 2025, total commitments to AIFs (Category I–III) reached about ₹15.05 lakh crore, compounding at 30.7% CAGR between FY21 and the first half of FY26. AIFs also expanded their share of India’s managed investment product AUM from 1.4% in 2017 to 6.9% by March 2025. At that size, liquidity becomes the market’s credibility test.

Scale changed the allocator’s problem, not just the manager’s opportunity

The report shows how broad the footprint has become. By end-September 2025, the number of SEBI-registered AIFs crossed 1,600, with nearly two-thirds launched since 2021, and Categories I and II forming close to three-quarters of all registered AIFs. Category II alone had raised ₹11,205 billion by September 2025, reinforcing its role as the centre of gravity in India’s alternatives landscape.

More strategies mean more choice, but also more dispersion, more due diligence load, and a higher premium on benchmarks that let allocators compare like with like. There’s also a participation shift underway. The report notes that domestic investor participation in Category I and II AIFs rose from 50.3% in March 2024 to 55.3% in September 2025, alongside ₹1.14 lakh crore in additional inflows. A deeper domestic bid changes how the ecosystem behaves when global conditions tighten.

Returns exist, but averages hide the shape of outcomes

The benchmarking data remains supportive for private markets as a source of differentiated returns. Over seven benchmarking cycles, the aggregated benchmark (VCFs and equity funds invested exclusively in unlisted equities) generated an average alpha of 8.69% over the BSE Sensex TRI.

The more important nuance is that outcomes are not evenly distributed. The report explicitly flags significant dispersion across equity-oriented AIF strategies. And it quantifies what “dispersion” means in practice: the top 50% of funds (by IRR) generated alpha of 13.6%. The deeper point is simple: as the number of funds and strategies scales up, “category returns” become less informative than where within the distribution outcomes sit.

Real maturity shows up in distributions

One of the clearest signals of market maturity is how reliably capital comes back. The report defines DPI (Distributions to Paid-In Capital) as the realisation multiple: cumulative distributions divided by total capital contributed, with an emphasis on timely realisation. It also quantifies how long realisation can take: only about 25.35% of schemes in the aggregate benchmark had reached 1.0 DPI, taking an average 7.21 years to get there. It tells you why liquidity design matters as the market expands: cash-flow timing becomes as important to confidence as reported returns.

Liquidity pathways are becoming a system need

The report frames secondaries as a “liquidity plug,” defined as transactions where an investor transfers existing fund interests to another party, enabling early exit prior to scheduled maturity without new capital being raised by the fund. It also states plainly that as the market matures, “exit execution will become a primary driver of realised outcomes.” This is backed by India’s own momentum: secondary deal values rose to about ₹377 billion in FY25, up from ₹284 billion in FY24, and in the first half of FY26 they totalled nearly ₹361 billion.

Regulation is standardising trust

One reason the benchmarking conversation is becoming more serious is that the ecosystem is getting more standardised. The report’s regulatory timeline tracks moves such as mandated benchmarking (2020), valuation standardisation (2023), due diligence to prevent evergreening (2024), and compliance officer requirements (2025). It also summarises reforms including digitising PPM audit reports, aligning valuation norms, mandating professional certification, enabling co-investment with safeguards, dematerialising AIF units, strengthening due diligence frameworks, and lowering the minimum investment for large value funds for accredited investors from ₹70 crore to ₹25 crore. Standardisation is how markets become easier to compare, harder to game, and easier to underwrite at scale.

What the report’s data adds up to

At today’s scale, India’s AIF market is moving from a fast-growing category to a system that has to demonstrate repeatable outcomes. The report’s numbers point to three conclusions: scale is real and rising, with commitments around ₹15.05 lakh crore and steadily increasing penetration within managed investment products; averages are becoming less informative than distributions, because dispersion is material enough that outcomes depend on where within the performance spread a fund lands; and liquidity is emerging as the credibility layer, with DPI timelines and the rise of secondaries both reinforcing that exit execution increasingly determines realised outcomes. The takeaway is straightforward: the market is now being evaluated on whether it can convert private market value into realised cash outcomes at scale, across vintages, and across cycles.

Chief Brand & Investor Relations Officer

Sneha Dadrwal

Frequently Asked Questions

Q: How important is liquidity for Indian private markets?

A: Liquidity is increasingly important as the market is judged by realised outcomes, distribution timelines, and reliable liquidity pathways, not only by fundraising or valuation marks.

Q: What is DPI?

A: DPI (Distributions to Paid-In) measures cumulative distributions returned divided by total capital contributed. It captures realisation in cash terms.

Q: Why do averages matter less as the AIF universe grows?

A: Because dispersion widens across strategies, managers, and vintages, making the distribution of outcomes more informative than a single average return.

Q: How does regulation connect to liquidity and trust?

A: Standardised benchmarking, valuation norms, and compliance frameworks make outcomes easier to compare and reduce ambiguity around process and reporting.

Q: Does a long time-to-DPI point to a problem?

A: No. Private markets are structurally long-duration. The point is that timelines and distribution pathways become more important to track as the market scales.

Sources

No Ifs About AIFs 3.0