AIF reset: greater flexibility, more risk for retail investors

New norms expand private-market access but deepen concentration and liquidity trade-offs

- Anagh Pal [e-mail]

India's alternative investment fund (AIF) framework has seen sweeping reforms in the past six months with changes in September and February altering how accredited investors participate in the private markets.

The changes—from co-investment vehicles and accredited investor (Al)-only schemes to longer fund tenures and low entry barriers for social funds—aim to deepen the private capital markets. But greater flexibility brings added complexity, concentration risks, and liquidity trade-offs that investors must assess carefully.

Rajan Arora, an entrepreneur, allocates 10-20% of his portfolio to AIFs. Unlike mutual funds primarily investing in listed equities and bonds, AIFs can invest in private equity, venture capital, real estate, and hedge funds.

“My allocation to AIFs was driven by one simple realization that traditional instruments capture broad market beta, but they rarely provide access to early-stage alpha. AIFs, particularly Category I and II funds, give access to growth-stage private companies before they become mainstream,” said Arora.

CIVs raise concentration

To enable greater flexibility and conviction bets, the Securities and Exchange Board of India (Sebi) in September 2025 allowed Category I and II AIFs to launch separate co-investment vehicles (CIVs) for individual companies. Accredited investors can now invest directly in specific companies alongside the main AIF instead of only through diversified exposure.

“Each CIV is ring-fenced (separate bank and demat accounts), follows the same or better terms as the main AIF investment, and exits at the same time as the AIF. This improves transparency, governance, and alignment,” said Rajesh Singla, chief executive officer (CEO) and fund manager, Alpha AIF.