How Alternative Investments Are Shaping The Next Wave Of India’s Wealth

India’s alternate investment space, consisting of Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs), among other avenues, is in the midst of a revolution. With assets under management (AUM) reaching INR 18.87 lakh crore as of Q1 in FY25, the sector is strongly on a growth spurt. Going at this rate, forecasts indicate that aggregate assets will reach the INR 100 lakh crore mark by 2030—a five-fold jump in merely six years. This expansion is being propelled by a combination of factors, such as investor demand, regulatory overhauls, and India’s growing economic base.

Strong growth and diversified appeal

The last decade has seen PMS and AIFs compound at over 30% per annum (CAGR). Both these vehicles are increasingly becoming popular as they search for structured, high-conviction approaches with potential for superior risk-adjusted returns. In contrast to conventional mutual funds, AIFs and PMS provide more tailored approaches, especially attractive to ultra-HNIs and HNIs. The ability to invest in niche opportunities coupled with flexible portfolio-building makes them a strong bet for those wishing to explore beyond generic products.

Interest being driven by economic growth

India’s overall economic context also adds support to this upsurge. With the country’s vision of becoming a USD 35 trillion economy by 2047, financialisation of domestic savings and growing prosperity are driving demand for complex investment products. PMS and AIFs are especially well-poised to serve this new investor class with an appetite for higher yields and superior portfolio management. Elimination of indexation benefits of debt mutual funds during 2023, and declining bond yields, has encouraged most conservative investors to turn to alternative options.

Regulatory support increasing credibility

SEBI’s recent steps to enhance transparency, investor protection, and operational efficiency in the PMS and AIF space have added to investor confidence. Improved disclosures, higher compliance standards, and clearer investment frameworks have helped shift the perception of alternatives being opaque. These reforms are attracting both seasoned investors and first-timers seeking guided solutions. Performance statistics enhance the optimism. Out of 62 PMS strategies with more than 10 years of history, almost 70% have beaten their benchmark indices. This has been a major draw for investors seeking long-term alpha and risk-adjusted returns.

From niche to mainstream

As PMS and AIFs enter the mainstream, new players are entering the market and providing differentiated strategies and special services. But the growth also comes with problems. Producing alpha is becoming increasingly challenging in a well-researched and efficient market. The future success of PMS and AIF providers will rest on four pillars: consistent performance, research intensity, investor-focused service, and ethical governance.

Industry experts emphasise process over short-term performance. In fact, firms that focus on robust investment processes and consistent conviction-driven strategies, viewing alpha as a natural outcome of this disciplined approach rather than a direct product to be sold, will do well in the new age of alternative investments.

A growing role in India’s investment landscape

PMS and AIFs are fast emerging as critical instruments for portfolio diversification and wealth creation. As India advances its journey toward becoming a developed nation, alternative investments will be at the forefront in facilitating capital formation, financial inclusion, and economic growth.

Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature