How AIFs Are Reshaping India’s Investment Engine

Ten years ago, Alternative Investment Funds (AIFs) were a niche part of India’s financial system. Today, they’re starting to sit in the middle of how serious capital is raised, allocated, and benchmarked. Category I and II AIF investments have gone from about 5% of total private-market investments in 2015 to around 16% in the first nine months of 2025. In other words, roughly one rupee in six going into India’s private markets is now routed through an AIF.

The report’s underlying point is simple: AIFs are no longer a side product. They’re becoming a core engine of India’s private-market and managed-product stack. The more interesting question is what that engine is actually doing.

From fringe product to meaningful pool of capital

On scale, the story is straightforward. Total AIF commitments have compounded at about 31–32% a year between FY21 and FY25, reaching roughly ₹13.5 lakh crore by March 2025. Over the same period, AIFs’ share of total “managed investment” AUM (mutual funds, life insurance, retirement funds, PMS, AIFs) has risen from barely 1–2% in 2017 to almost 7% in 2025.

The industry has also broadened. More than 1,600 AIFs are now registered with SEBI, with about 61% of them approved in just the last four and a half years. Category I and II vehicles make up roughly three-quarters of the total.

On a macro lens, those commitments now represent a little over 4% of India’s estimated FY25 GDP. That’s still small compared to mutual funds, insurance and retirement pools, but it’s no longer trivial. AIFs are now large enough to matter for sector funding.

What investors are really buying when they buy AIFs

AIFs are, by design, the main way Indian investors access non-traditional assets: venture capital, private equity, private credit, real estate, infrastructure, and hedge-style strategies.

As of September 2024, equity-oriented strategies dominate the landscape. Venture funds, unlisted equity funds, hybrid listed+unlisted equity vehicles under Category II, and long-only / long–short Category III strategies together account for about three-quarters of the AIF valuation captured in the Crisil benchmarks.

That equity-heavy mix is exactly what you’d expect in an economy growing faster than most of the world and still under-represented in global benchmarks.

But the more interesting shift is in credit. Debt AIFs’ share of the benchmarked universe has risen from about 9% in March 2022 to roughly 13% by September 2024, and more than half of those debt funds had their first close between April 2021 and September 2023.

Put simply: when investors allocate to AIFs today, most of their rupees still end up in growth and venture-style equity strategies. But a growing chunk is migrating into private debt, structured credit and income strategies that sit in parts of the capital stack banks no longer dominate.

Where AIFs are filling real gaps in India’s capital stack

Venture and growth AIFs are the primary organised channel into India’s start-up and pre-IPO ecosystem. They intermediate capital into companies that are either too early or too complex for public markets and too risky for banks, and they concentrate selection risk with professional managers rather than scattered angel money.

The NBFC liquidity crisis in late 2018 created a visible funding gap for many borrowers. The data shows debt AIFs taking off precisely in the years that followed, with their share of AIF valuations rising and a majority of funds reaching first close between 2021 and 2023. That’s not an accident. Private credit AIFs are increasingly the place where complex, collateral-heavy, or bespoke financing gets done when bank balance sheets are cautious or constrained.

Real estate and infrastructure AIFs, alongside REITs/InvITs and credit funds, are part of the broader shift from “loan-only” infra finance to capital structures that mix equity, quasi-equity and project-level debt. For sponsors, this diversifies away from pure bank reliance. For investors, it opens up exposures that sit between equity volatility and plain-vanilla bonds.

Category III AIFs, particularly long–short funds, add a way to express relative-value and hedged views that traditional mutual funds largely avoid. At sensible scale, they can deepen market efficiency; at excessive leverage, they can do the opposite. The jury is still out on how India manages that balance.

None of this is exotic in a global context. What’s new is the speed with which these functions have shifted into regulated AIF wrappers in India, rather than staying in opaque club deals or informal credit.

Domestic capital is finally leaning in

For years, the standard story was: “India risk, offshore money.” The recent data suggests that balance is starting to tilt.

SEBI data shows the share of domestic investors in Category I and II AIF gross funds raised climbing from about 50% in March 2024 to nearly 53% by June 2025, implying more than ₹72,000 crore of incremental commitments from Indian investors over that period. On top of that, government-backed domestic institutions have put about ₹24,300 crore across SIDBI, SRI Fund, NIIF, EDF, NABARD, TDB, and BIRAC programmes.

So the marginal rupee into AIFs is no longer mostly foreign. It’s increasingly:

• Indian HNIs and family offices looking for diversification.
• Domestic institutions experimenting with AIFs as a way to access private markets without building those capabilities entirely in-house.

That’s healthy in one sense: it deepens local risk-bearing capacity and reduces dependence on global allocations that can reverse with sentiment. It also raises the stakes on governance, given that more of the downside is now borne at home.

What this means for India’s investment engine

The useful way to think about AIFs now is as a fourth pillar sitting alongside mutual funds, insurance and retirement products in India’s financial architecture. They are already shaping who gets funded, on what terms, and with whose money.

Whether that influence turns out to be a long-term positive depends on how managers underwrite in a tougher environment, how they treat domestic LPs when deals go wrong, and how promptly regulators respond to new developments. For now, the direction of travel is clear: more scale, more domestic capital, broader strategy mix, and a deeper role in India’s private markets.

Chief Brand & Investor Relations Officer

Sneha Dadrwal

Frequently Asked Questions

Q: How big is the AIF industry today in India?

A: By March 2025, total AIF commitments were around ₹13.5 lakh crore, growing at roughly 31–32% CAGR over FY21–FY25.

Q: Which strategies dominate AIF portfolios right now?

A: Equity-oriented strategies (venture, growth, unlisted equity and long-only / long–short funds) still account for roughly three-quarters of the benchmarked AIF universe.

Q: Are debt AIFs now meaningful, or still marginal?

A: Debt AIFs have grown from about 9% to roughly 13% of benchmarked AIF valuations since 2022, with most funds raised in the 2021–2023 window, so they’re now a visible part of the mix.

Q: Is this mostly foreign capital, or domestic money?

A: Domestic participation in Category I and II AIFs has edged above 50% of gross funds raised, helped by HNIs, family offices and government-backed fund-of-funds commitments.

Q: Have AIFs actually outperformed public-market options so far?

A: Crisil benchmarks show both venture and debt AIFs outperforming relevant equity and bond indices over recent half-year periods, but the time frame is short and realised performance still needs a full-cycle test.

Sources

IVCA, 360 ONE, and CRISIL Intelligence, Unlocking Domestic Capital: Key to India’s AIF Growth (December 2025).