AIFs In India: Rs 15 Lakh Crore Market, Category II Dominance, Strong Deployment

Summary of this article

AIF commitments surged, reaching Rs 15 lakh crore
Higher yields drive AIFs’ share gain
AUM seen rising to Rs 56 lakh crore

The Alternative Investment Fund (AIF) industry has shown strong growth between FY 2029 and FY 2025. Over the past few years, AIFs have been gaining share steadily. According to the Assessment of Mutual Fund Industry in India – December 2025 report by Crisil Intelligence, total AIF commitments grew at a compounded annual growth rate (CAGR) of 29.8 per cent between March 2019 and March 2025, reaching Rs 13.5 lakh crore as of March 31, 2025. As of September 2025, total commitments stood at around Rs 15.1 lakh crore. The report notes that the segment is expected to remain one of the fastest-growing managed product categories as high net worth individuals (HNIs), ultra-HNIs and institutional investors increasingly seek differentiated products to generate better returns.

Alternative investments are expanding the overall market by capturing shares from other asset classes, rather than mutual funds. Their relatively higher yields compared to traditional asset classes could be a major reason. They have contributed to improved firm profitability, supporting growth across the investment landscape. As per the report, assets under management (AUM) for alternative investments in the country are expected to grow at around 3 to 33 per cent between March 2025 and March 2030, reaching approximately Rs 53-56 lakh crore by March 2030.

Category II AIFs Lead the Market

Category II AIFs have remained at the forefront of the industry. They accounted for 76.4 per cent of total commitments raised as of FY 2025 and 74.4 per cent as of the first half of FY 2026, according to the report. This dominance highlights their prominence and influence within the AIF market, with Category II funds consistently forming the largest share of total commitments raised over the years.

Photo: Category II AIF constitute the majority share of total commitments raised by AIFs over the years

Investment made by AIFs as a percentage of funds raised by AIFs has seen steady growth from Fiscal 2019 to H1 Fiscal 2026

The pace of capital deployment in the case of AIFs is noteworthy as well. Investments made, defined as the amount actually invested by AIFs as a percentage of funds raised, have increased from 81.8 per cent as of March 2019 to 95.5 per cent as of March 2025. As of September 2025, investments made as a percentage of funds raised stood at 96.2 per cent, reflecting continued improvement in deployment efficiency.

AIFs in India: Growth Factors

According to the report, several factors have contributed to the growing popularity of AIFs in India. The main factors are as below:

Diversification and return potential

AIFs offer diversification beyond traditional asset classes and provide exposure to a wider range of assets and specialised investment strategies. As per the report, this makes them attractive for investors seeking diversification and the potential for higher returns compared with traditional asset classes.

Experienced managers supporting growth

Experienced and established managers bring the ability to navigate different market conditions. “Their operational expertise and consistent track records across multiple funds and business cycles have strengthened investor confidence and helped scale investments across asset classes,” says the report.

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Expanding investor base

The pool of eligible investors, including UHNIs, HNIs and institutions, has expanded steadily in recent years, supported by stronger economic growth, rising incomes and a firm equity market. The rise of first-generation startup entrepreneurs has added to the UHNI and HNI base. Greater awareness and wider availability of AIFs have increased investor interest, alongside a growing need for professional advice.

Rising domestic capital and regulatory support

Sebi’s proactive regulatory measures are expected to support a gradual shift towards higher domestic participation. In recent years, domestic institutional investors such as retirement funds and insurance companies have been allowed to invest in AIFs, providing a key growth driver for the industry, notes the report.

Demographics and financial deepening

India’s young population, rising per capita income and increasing disposable income support long-term growth in newer asset classes such as alternative investments. At the same time, improving financial penetration and credit availability are encouraging growth in startups and MSMEs, creating further opportunities for AIFs.