Truth About AIFs: Debunking Myths, Tapping Potential

AIFs emerge as a promising avenue for asset diversification, as well as for wealth creation

- AMIT KOTHARI

Alternative investment funds (AIFs) have achieved a significant milestone, crossing an estimated ₹5 trillion in funds raised, with investment commitments surpassing nearly ₹12 trillion as of September. Despite this growth, AIFs represent just about 5% of India's GDP, a stark contrast to around 50% in the US and 10% in the UK, underlining immense growth potential. Compared to mutual funds (MFs), with assets under management (AUM) of around ₹67 trillion, AIFs have a long way to go. However, the sector's growth is hindered by myths that stem from anecdotal evidence, oversimplification, or misrepresentation. Let's debunk these misconceptions:

Myth #1: AIFs are for the wealthy or institutions: While alternatives like private equity and venture capital were once exclusive to institutional investors, this has changed. Today, individual investors can participate in AIFs through staggered investment plans over two to three years or direct investments in startups. Factors such as India's rising number of millionaires, innovative business ideas, and the need for portfolio diversification with better risk-adjusted returns are driving AIF adoption. Professional fund management, regulatory reforms, and enhanced transparency further bolster this trend.