How are Alternative Assets the Next Big Growth Driver for India’s Wealth Managers

For decades, Indian investors relied on traditional instruments: fixed deposits, insurance, real estate, and gold. Over the last 20 years, equities and mutual funds have expanded rapidly as financialization took off. But a new chapter is now unfolding: alternative assets are becoming the next growth driver for India’s wealth managers.

From Alternative Investment Funds (AIFs) to Portfolio Management Services (PMS), private equity, venture capital, and structured products, alternatives are moving from niche to mainstream in India’s wealth landscape. For wealth managers, this shift represents a structural tailwind for profitability, stickiness, and long-term growth.

What Are Alternative Assets?

Alternative assets are investments that go beyond traditional avenues such as equities, bonds, and deposits. In the Indian wealth management landscape, they typically include PMS, which deliver tailored equity or debt strategies for wealthy clients; AIFs,, which provide exposure to private equity, venture capital, hedge funds, real estate, and credit strategies; and structured products such as market-linked debentures that allow customized risk–return outcomes. Another growing category is access to private deals, including pre-IPO opportunities and unlisted equity. While these instruments were once considered niche, they now represent a critical part of global UHNI portfolios, often accounting for 40–50% of allocations, and India is rapidly moving along the same path.

Why Alternatives Are Growing in India

Several structural drivers are fueling this shift. Rising wealth concentration means that with UHNIs and HNIs controlling over $2.7 trillion in liquid wealth today, demand is moving away from mass-market products toward more sophisticated solutions, and alternatives meet this need. There is also the quest for higher returns: traditional assets often underperform inflation-adjusted expectations, while alternatives such as private equity, venture funds, and credit AIFs offer enhanced potential. Diversification needs are another driver, as wealthy investors increasingly allocate across geographies, sectors, and asset classes, reducing dependence on listed equities. Finally, the institutionalization of the market matters; India’s regulatory framework for AIFs and PMS has matured, making alternatives safer and more credible.

Why Alternatives Matter for Wealth Managers

For wealth managers, alternatives transform the economics of the business. They deliver higher margins because AIFs and PMS generate more attractive distribution fees than mutual funds, and structured products or private deals further raise yields. Alternatives also create stickier assets since multi-year lock-ins ensure longer client relationships and more stable AUM. Importantly, they open cross-sell opportunities, because UHNI clients expect alternatives as part of a full-service offering, and managers who fail to provide access risk losing wallet share.

India’s Alternatives Market: Early but Explosive

India’s alternatives industry is still at an early stage compared to global peers, but its growth trajectory is steep. With rising inclination from UHNIs and family offices, total commitments to AIFs surged to ₹14.2 trillion as of June 2025, up from negligible levels just a decade ago. India’s private markets are also deepening, with hundreds of late-stage startups creating fertile ground for secondary deals. By 2035, alternatives could account for 20–25% of UHNI/HNI portfolios.

UHNI vs HNI Adoption

Adoption patterns also differ by client segment. UHNIs are typically early adopters, making significant allocations to alternatives and treating AIFs, private equity, and private deals as essential components of their portfolios. HNIs are more cautious, but they are increasingly open to PMS and select AIFs, especially as regulatory limits on mutual fund expense ratios compress margins. For wealth managers, this creates a pathway to gradually upgrade HNI clients into higher-value mandates over time.

Risks in Alternatives

Despite the strong growth potential, alternatives come with their own set of risks but many of these are increasingly being addressed as the market matures. Liquidity risk is one challenge, since multi-year lock-ins can frustrate clients during downturns. However, the rapid growth of secondary markets in private equity and venture capital is beginning to provide exit options and improve liquidity for investors.

Regulatory scrutiny is another factor: SEBI has tightened norms for AIFs and structured products, but this also enhances transparency and credibility, making the industry safer in the long run. Performance dispersion is wider in alternatives compared to mutual funds, which means careful manager selection is critical, but the growing track record of India’s AIFs and PMS platforms is helping investors separate consistent managers from underperformers.

Finally, concentration risk exists when portfolios lean too heavily on structured products, but wealth managers are increasingly diversifying across private equity, venture, credit, and real assets to mitigate this. In short, while risks are real, they are not insurmountable and the industry is evolving quickly with frameworks, regulation, and innovation to give investors greater confidence in the asset class.

Global Context: India Catching Up

Globally, alternatives account for 40–50% of UHNI portfolios in markets like the U.S. and Europe. In the U.S., private equity, hedge funds, and real estate dominate allocations. India is just entering its adoption curve, but rising wealth and regulatory support mirror the early stages of global patterns. This catch-up effect ensures a multi-decade runway for alternatives in India.

The Future Belongs to Alternatives

India’s wealth management industry is entering a new phase. Mutual funds and equities will remain core, but the next wave of growth will come from alternatives.

With UHNI and HNI wealth set to expand from $2.7 trillion today to $9 trillion by 2035, alternatives will play a central role in portfolio construction. For wealth managers, they are a revenue booster as well as a client-retention engine.

The winners of India’s wealth management race will be those who master alternatives, providing access, managing risk, and delivering consistent outcomes in this complex and fast-growing asset class.

Chief Brand & Investor Relations Officer

Sneha Dadrwal

Frequently Asked Questions

Q: Why are alternative assets becoming important in India now?

A: Alternatives are gaining traction because wealthy investors are seeking higher returns, better diversification, and more sophisticated products. With UHNIs and HNIs controlling over $2.7 trillion in liquid wealth, demand is shifting from mass-market instruments to bespoke strategies.

Q: How large is India’s alternatives market today?

A: As of June 2025, total commitments to AIFs surged to ₹14.2 trillion, up from negligible levels a decade ago.

Q: How do adoption patterns differ between UHNIs and HNIs?

A: UHNIs are typically early adopters, with significant allocations to AIFs, private equity, and private deals. HNIs are more cautious but are increasingly exploring PMS and select AIFs, particularly as mutual fund margins compress and regulatory frameworks strengthen.

Q: What risks exist in alternative assets?

A: Alternatives involve risks such as liquidity constraints from lock-ins, regulatory scrutiny, performance dispersion across managers, and concentration risks in structured products. However, the industry is maturing quickly — with secondary markets improving liquidity, stronger regulations enhancing transparency, and diversification across private equity, credit, and real assets helping mitigate risks.

Q: Why are alternatives important for wealth managers?

A: Alternatives not only deliver higher margins but also create stickier client relationships due to multi-year commitments. They expand wallet share, provide differentiation, and serve as both a revenue driver and a client-retention tool in an increasingly competitive market.

Sources

1. Bernstein Report
2. https://www.business-standard.com/finance/news/aif-commitments-surge-to-rs-14-trillion-funds-raised-cross-rs-5-trillion-125082501217_1.html