India’s AIF Rulebook Is Building a Trust Machine

In the early years, India’s private markets could run on relationships and reputations. At today’s scale, that model doesn’t hold. A market with hundreds of managers and thousands of schemes needs trust that is engineered and built into the rules of how funds disclose, value, govern, and return capital.

No Ifs About AIFs 3.0 is the third edition of Oister Global and Crisil’s joint work on India’s AIF ecosystem. This year’s report brings two threads into one place: a regulatory timeline of how the AIF wrapper has been tightened, and a market view of what starts to matter once private markets move from a niche allocation to an institutional channel, especially benchmarking, liquidity pathways, and the growing role of secondaries.

That shift is already visible in the numbers. Commitments across Categories I–III are around Rs 15.05 lakh crore. More than 1,600 AIFs are registered with SEBI, with a large share launched in the last few years. Domestic participation in Category I and II has risen to 55.3% as of September 2025. At that scale, regulation becomes the operating system.

Regulation will need to be tightened to support the growing ecosystem

In smaller markets, allocator confidence runs on soft signals: a manager’s brand, who else is in the fund and a handful of visible outcomes. As the market expands, that model fails because there is too much surface area. More managers and more strategies create more dispersion.

This is where regulation starts doing its job. It reduces the cost of diligence, makes reporting comparable, and narrows the room for interpretation when something goes wrong. In other words, it changes how trust is produced and makes it a repeatable process.

The report’s regulatory timeline reads like a steady migration from permissive growth to institutional hygiene. It begins with the SEBI (AIF) Regulations in 2012 and builds outward in layers: risk frameworks, tax pass-through, IFSC guidelines, benchmarking, disclosure templates, valuation norms, anti-evergreening checks, and clearer compliance accountability. In a market where fund formation has accelerated, standardisation is what keeps the product legible.

The shift towards stronger governance is the real story

The important story the report uncovers is a stronger governance framework: who is accountable for what, and how that accountability is documented.

A few milestones stand out because they directly change how private-market outcomes can be trusted and interpreted.

Performance benchmarking was mandated in 2020. That is an inflection point, because it signals that credibility requires external comparability, not just internal narrative. In the same year, standardised PPM templates and annual audits were mandated, and investment committee accountability was established. Those moves are often treated as compliance chores, but they are structural. They standardise the promise made to investors and attach decisions to identifiable responsibility.

Valuation discipline tightened in 2023, including a standardised approach and explicit responsibility of the investment manager for true and fair valuation. That matters because valuation is the most sensitive interface between what is reported and what is real in private markets. Anti-evergreening due diligence followed in 2024, which is the system acknowledging that guardrails are required against cosmetic stability. Compliance was then professionalised in 2025 through a certified compliance officer requirement (NISM Series-III-C), pushing the ecosystem to an enforceable process.

The report also flags parallel transparency moves: periodic reporting, disclosure of fees, charges and litigation, enhanced reporting formats, an investor charter, and the dematerialisation of AIF units. Taken together, the direction is clear. The AIF wrapper is being shaped to behave less like a bespoke private arrangement and more like an industrial product that can scale without losing integrity.

Reforms are a necessary part of a maturing private markets ecosystem

A mature market is defined by whether the operating layer can handle volume without friction becoming a hidden tax. The report lists changes that look operational but are structural in effect: digitising PPM audit reports, aligning valuation norms with global standards, mandating professional certification, permitting co-investment schemes with safeguards, and dematerialising units to improve transparency and settlement efficiency.

It also notes the reduction in minimum investment for large value funds for accredited investors from Rs 70 crore to Rs 25 crore. That can be framed as market expansion, but it is also product design: widening participation while keeping it within an accredited framework signals what kind of growth path policymakers are willing to underwrite.

Another marker of institutional intent is RBI allowing banks to invest up to 5% of their capital in AIFs. Whether banks deploy that headroom meaningfully is an open question and should not be assumed. But the permission itself changes the ceiling on participation, and ceilings matter in markets still building depth.

The market is scaling, and the domestic bid is becoming more visible

Regulation is one stabiliser. The other is the identity of capital, especially when global liquidity tightens. The report notes domestic investor participation in Category I and II AIFs rising from 50.3% (March 2024) to 55.3% (September 2025), alongside Rs 1.14 lakh crore of additional inflows. This is a structural marker of market depth and resilience. A market with a larger domestic base is harder to destabilise purely through external cycles.

It also notes government-backed entities committing more than Rs 24,000 crore to AIFs, signalling the state’s willingness to use the AIF channel as part of capital formation priorities. As the participant base broadens and domestic pools deepen, the rulebook becomes the common language that allows different classes of capital to coexist without breaking trust.

What the Union Budget reinforces

The report also captures Union Budget 2026 signals that reinforce the same institutional direction, even if they are not AIF regulations in the narrow sense. It flags a dedicated ₹10,000 crore fund for SMEs and a ₹2,000 crore top-up to the SRI fund. It also highlights a Research Development and Innovation Fund (RDIF) of ₹1 lakh crore under the Department of Science and Technology, aimed at converting ideas into competitive technologies and products.

These measures matter because they influence pipeline quality. A stronger SME financing spine and a larger R&D funding platform tend to increase the number of enterprises and projects capable of absorbing structured capital. As that pipeline thickens, the value of standardised disclosure, valuation discipline, and clean governance rises alongside it.

How regulation helps strengthen the private markets

Private market outcomes are uneven by design. The report quantifies dispersion in performance: within the aggregate benchmark, the top half of funds by IRR generated alpha of 13.6%. Private markets reward selection, and selection is hard when information is inconsistent.

The DPI analysis makes the liquidity reality harder to ignore. The report defines DPI and emphasises its focus on realisation and cash return timing, and it shows how uneven distributions can be across schemes and how long it can take to return capital. This is where rulemaking becomes crucial. When dispersion and cash-flow timing are real, standardisation reduces the odds that investors discover the true shape of a strategy only at the moment liquidity is expected.

The direction of travel is clear

The report documents a market moving toward institutional credibility through a consistent set of levers. Comparable measurement is being strengthened through benchmarking and standardised disclosures. Accountability is being tightened through investment committee responsibility, explicit valuation ownership, anti-evergreening diligence, and professionalised compliance. And the operating layer is being upgraded through process tightening, dematerialisation, and guardrailed co-investment structures. None of this guarantees outcomes, and it shouldn’t be sold that way. What it does change is what can be built credibly at scale. In private markets, that difference is often the gap between a market that merely grows and a market that compounds.

Research Analyst

Simran Mehla

Frequently Asked Questions

Q: Why does regulation matter more now for AIFs?

A: Because the market is large and crowded enough that reputation-based trust doesn’t scale. Standardised rules make disclosures comparable, tighten accountability, and reduce unpleasant surprises.

Q: What are Category I, II and III AIFs?

A: SEBI groups AIFs into three categories based on strategy and regulatory treatment. Categories I and II broadly cover long-term private market strategies, while Category III includes more complex or trading-oriented approaches.

Q: Why is valuation such a big deal in private markets?

A: Private assets don’t have daily market prices, so valuation involves judgment. Stronger valuation norms and clear responsibility reduce subjectivity and improve trust in reported returns.

Q: What is DPI and why should investors care?

A: DPI measures how much cash has actually been returned relative to what was invested. It’s a reality check on whether returns are realised, not just marked up on paper.

Q: What are secondaries, and why are they growing?

A: Secondaries are transactions where existing stakes are sold, creating liquidity without waiting for IPOs or strategic exits. They’re growing because investors and founders want more flexible exit options.

Sources

No Ifs About AIFs 3.0