A Quiet Shift in HNI Portfolios
Alternative Investment Funds have moved from the fringe to the core of how many Indian HNIs and family offices think about diversification. The pull is simple: AIFs can access opportunities, unlisted equity, structured credit, late-stage private deals, that traditional mutual funds are not built to hold.
What AIFs Offer That Mutual Funds Can't
- Access: private and unlisted opportunities outside the listed universe.
- Specialisation: focused strategies run by managers with deep domain expertise.
- Lower correlation: returns that need not move in lockstep with daily index swings.
Category II vs Category III
Cat II AIFs typically hold unlisted equity and private credit with multi-year lock-ins. Cat III AIFs run more active, listed-market strategies and may use leverage. Each suits a different objective, and neither is a substitute for a diversified core.
The Trade-Offs to Respect
AIFs carry a SEBI-mandated minimum of ₹1 crore per investor, management fees plus performance fees above a hurdle, and meaningful illiquidity. Target returns are exactly that, targets, not promises, and capital can be at risk. They make sense as a satellite for investors who can lock up capital, not as a first or only holding.
An AIF should earn its place as the satellite around a low-cost core, never replace the core itself. Suitability comes before strategy. Safal Capital Research