Alternative Investment
Funds
(Detailed report )
-Vera Upadhyay
What are AIFs? Categories of
AIFs
Privately pooled investment vehicles that collect funds from investors for
investing according to a defined investment policy
These funds invest in
Category I
Global Share PE & VC Hedge Funds Real Estate & sectors that are socially
Infra Funds or economically
beneficial
$12.8T (2023) ~60% share ~25% share ~15% share
Projected to Fuels Enhances Drives urban Ex-VC Funds, SME Funds,
reach Innovation Liquidity and infra Social Venture Funds,
development
$25.8T by and and and Infrastructure Funds
2032 (7.9% Business manages
CAGR) growth risk
India’s AIF Landscape (FY25) These funds do not
Category II
receive government
AIF Focus Commitments Key incentives but focus on
Category Area Raised Contributions long-term investments
Category I VC, ₹89,083 crore Supports Ex-PE Funds, Debt
infrastructure, startups & Funds, FoF
social impact economic
development
Category II Private equity, Largest
debt financing segment; fuels
₹10.30 lakh
Category III
business These funds use
crore complex trading
growth &
funding strategies and leverage
Ex: Hedge Funds, PIPE
Hedge funds, Enhances
Funds
complex ₹2.29 lakh market
Category III
trading crore liquidity &
strategies efficiency 2
SEBI V/S IFSCA Regulated AIFs Key Drivers
Criteria SEBI-regulated AIF IFSCA-regulated AIF
IFSCA- cross border (in
Regulator SEBI (Domestic) Private credit is emerging as a
GIFT City)
Private Credit significant component of the AIF
Primarily focused on Allows global investments Expansion market, with projections indicating
Investment substantial growth in this segment
domestic investments & cross-border
Scope
within India transactions
Can raise funds in foreign
Currency INR
currencies Investors show increased interest in
Infrastructure infrastructure assets, driven by the need
Investor Base Domestic + NRIs NRIs, Foreign Investors Investments for sustainable and long-term investment
opportunities.
Major tax relaxations for
Tax Benefits Limited
NRIs and global Funds
Offers flexible structures
Must be structured as The integration of fintech solutions is
Fund Structures including open-ended Technological
trusts, LLPs, or companies enhancing the efficiency and
funds Integration accessibility of alternative investment
platforms
Strategic intent Promotes compliance Pushes Innovation
More rigid structures due Provides greater liquidity
Liquidity &
to domestic market options to attract global
Flexibility
constraints capital
3
India v/s other leading global markets (FY25) India’s AIF Market Growth
Asset Under Management ($ Billion )
Total Commitment
Luxebourg
Financial Year Raised Annual growth %
FY20 5.20 -
Singapore
FY21 7.80 50.00%
FY22 9.90 26.92%
India’s AIF Market Landscape
United States FY23 11.75 18.69%
FY24 12.60 7.23%
India FY25 (Projected) 13.49 7.06%
0 2000 4000 6000 8000 10000 12000 14000 16000
Asset Under Management ($ Billion )
CAGR comparison (India v/s leading countries FY25) Sector-Specific Investment Breakdown
40%
35%
30%
25%
20%
15%
10%
5%
0% Real estate Private credit
India Luxembourg United States Singapore
Tech and Fintech Healthcare and Fintech 4
Series1
Leading Country in investments
Returns generated by AIFs
over past years
•Strategic location (positioned in South Asia; gateway for investments
•Investors-Friendly Policies
•Technology and Innovation Hub
2.96
Singapore •Financial Center
Largest Economy 1.89
1.85
Innovation & R&D: Home to Silicon Valley, the U.S. leads in technology,
biotech, and AI investments
United Capital Markets: The U.S. has deep and liquid financial markets 1.19
States
29.46% 21.50%
Manufacturing & Trade Powerhouse: China is a global leader in 11.14% 25.84%
industrial production and exports
Foreign Direct Investment (FDI): Singapore has been China's largest
source of new investments for over a decade
CATEGORY 1 CATEGORY 1 CATEGORY 1 CATEGORY II
•Belt & Road Initiative: China’s infrastructure projects attract global
China investors looking for long-term returns. FY14 FY17 FY24 FY24
CAGR TVPI
How do AIFs help economy?
Category III AIFs (Hedge Funds, Long-Short
Strategies)
They help create
. They provide They help • Alta Cura Absolute Return Fund: 15.22% CAGR over
jobs and drive
capital to investors manage
economic
businesses for risks while three years.
development by
expansion, contributing to
supporting • Motilal Oswal Value Migration Fund OE: Consistently
restructuring, and financial market
innovation and
entrepreneurship.
long-term growth, dynamism. outperformed market benchmarks.
5
Factors contributing to India’s AIF growth
Increased Growth in Strong
Regulatory
Institutional & Private Credit Emerging Performance
Support & Tax
HNI Expansion Sectors & Returns
Benefits
Participation
consistently
Category II AIFs, Fintech, healthcare, outperformed
Family offices and ultra- including private equity SEBI’s Alternative and real estate have
HNIs prefer AIFs over and debt funds, have Investment Funds
traditional
attracted significant investment options,
traditional equity and seen significant growth, Regulations, 2012,
bonds, especially with private credit provided a structured AIF investments, with Category II
during periods of investments framework, boosting driving innovation AIFs delivering
economic uncertainty contributing 40% of investor confidence and economic 21.5% IRR over the
the segment expansion. last decade
Mid-market corporates Startup ecosystem
High Net-Worth support: AIF- Hedge funds and
prefer debt IFSCA regulations in
Individuals (HNIs) and backed startups like long-short strategies
investments from GIFT City allow global
institutional investors
Private Credit AIFs investments and cross- Dunzo, Lenskart, in Category III AIFs
are shifting towards
due to tailored border transactions, and CureFit have have enhanced
AIFs due to their low
financing solutions, as further expanding thrived due to market liquidity and
correlation with
banks prioritize lending India’s AIF market.
public markets venture capital efficiency.
to large corporations
funding.
6
How AIFs Influence the Global Economy
Global economy
Private Capital Mobilization in Infra, Fintech, Renewables
AIF-like structures globally have been increasingly used to fund infrastructure, tech, and ESG-focused
projects.
Example: Brookfield Asset Management: $ 30B+ invested in infrastructure globally (energy, digital infra,
etc.).
TPG Rise Fund: A $15B+ global impact fund investing in renewable energy, climate tech,
education, and healthcare
Indian economy
NIIF (National Infrastructure Investment Fund) – India’s sovereign-backed AIF ($4.3 billion corpus)
Co-invested in Ayana Renewable Energy, an affordable solar developer
Helped fund Mumbai Metro Line 4 & 6, roads in Andhra Pradesh, and Madhya Pradesh
Kotak Infrastructure Fund – Backed toll roads, logistics, and port infra
Stride Ventures – A Category II AIF focused on debt financing for startups like Sugar Cosmetics and
BluSmart Mobility
7
How AIFs Contribute To Renewable Energy? Important Projects funded by AIFs
Infrastructure Development:
AIFs invest in large-scale Debt Refinancing: Some AIFs
renewable energy projects focus on refinancing clean Agriculture & Startup Ecosystem Real Estate
Infrastructure Development
such as solar farms, wind energy debt, ensuring liquidity Under the Funds of
power plants, and and stability in the sector. AIFs have funded post- Funds 2.0 initiative, The SWAMIH Fund, a
hydroelectric facilities harvest management over 120 AIFs have government-backed
projects, including cold received backing, AIF, has injected over
storage, warehouses, supporting startups like INR 35,000 crore into
and logistics facilities to Dunzo, Lenskart, stalled real estate
improve agricultural CureFit, and boAt. projects, helping
Private Equity & Venture supply chains complete thousands of
Green Bonds & Sustainable
Capital: These funds support housing units.
Financing: AIFs often utilize
startups and innovative
green bonds to raise funds for
companies working on
eco-friendly projects,
renewable energy solutions,
contributing to India's clean
fostering technological
energy goals
advancements
Luxembourg
1) holds 26% of net assets in the
Emerging Markets and their Funds European investment fund
industry
Emerging Markets Emerging Africa & Asia Africa Investment 2) leads in ELTIFs, with 53 funds
Infrastructure Fund II Infrastructure Fund Forum (AIF) Projects domiciled in the country.
• A.P. Moller Capital - Investment Size: Pipeline of investment-
Emerging Markets $27.5 billion ready projects across
Infrastructure Fund energy, agribusiness, Ireland
Impact: 96 completed
II projects, benefiting infrastructure, and 1) Ireland holds 19% of net
154.1 million people healthcare. assets in the European
• Targeting $1 Billion
Key projects like Investor Base: investment fund industry
in transport and
Kinguele Hydro Private equity firms, 2) : dominates the ETF UCITS
renewable energy
(Gabon) , Electricity sovereign wealth market
for All (Côte d’Ivoire) funds, and
development 8
financial institutions
Key Insights
India’s AIF market is experiencing strong growth, with total commitments projected to reach ₹13.49 lakh crore in FY25,
with a CAGR of 7.06% projected for FY25
India's AIF ecosystem, while smaller than markets like the U.S. and Luxembourg, is rapidly growing due to policy enhancements
investor-friendly regulations, and a strong startup ecosystem.
SEBI and IFSCA regulations have shaped India's domestic and global AIF landscape, with GIFT City offering tax benefits
and investment flexibility to foreign funds
Private credit expansion is increasingly favored by mid-market corporates. Real
Private Estate
Credit
In India, sovereign-backed AIFs like NIIF and Kotak Infrastructure Fund contribute to major projects PE/VC
like metro expansions and renewable energy development.
We often talk about Category II because of its size, but it’s Category III that provides market dynamism, and
Category I that seeds tomorrow’s unicorns. India’s AIF Market
9
THANK YOU
