Introduction
For HNIs, investing is not just about returns; it is about strategic choice. Alternative Investment Funds (AIFs) are drawing higher attention to niche asset access and tailored strategies. While mutual funds are dominating thanks to transparency & liquidity. Let’s explore which fits better for wealthy investors in today’s evolving market.
Are wealthy investors best suited with mutual funds or should they explore AIFs for higher returns on investments?
Let’s break down what AIFs and mutual funds are, their key differences, who can invest, and which option may work best for you.
What Are AIFs?
Alternative Investment Funds (AIFs) are regulated under SEBI’s AIF framework, 2012. AIFs are funds that pool capital from accredited investors for investment in non-traditional assets such as private equity, venture capital, real estate, & long-short strategies.
As of March 2025, alternative investment commitments in India rose to ₹13.5 lakh crore, an increase of more than ₹1.7 lakh crore from a year earlier. Another data set indicates AIF investment increased 32% to ₹5.38 trillion as of March 2025.
What Are Mutual Funds?
Individuals contribute to pooled money in mutual funds as an investment. Fund managers then use their funds to invest in financial instruments like stocks, equities, commodities, and bonds. Mutual funds are professionally managed funds in which each investor owns a percentage of the fund’s holdings, denoted by units proportional to their investment amount.
- The portfolio manager aims to help investors earn an income or generate capital gains after taking into account their investment objectives and risk appetite.
- Mutual funds are also strictly regulated by SEBI (or the Securities and Exchange Board of India) to protect investors and ensure the process remains safe and transparent.
AIF vs Mutual Funds
| Features | AIFs | Mutual Funds |
| Asset Focus | Private equity, VCs, long-short strategies | Equities, debt, hybrid instruments |
| AUM & Growth | ₹13.5 lakh cr commitments; ₹5.4 trn invested | Massive footprint; transparent growth |
| Performance | Long-short AIFs: 8.68% (FY 2025); long-only varying | 15% annualized returns; broad investor trust |
| Liquidity | Limited lock-ins common | High daily NAV, flexible redemptions |
| Transperacy | Moderate–lower reporting detail | High regular disclosures, investor protections |
| Investors Base | HNIs, family offices, institutional investors | Retail + institutional investors |
Who can invest in alternative investment funds?
Since AIFs and mutual funds are two different financial instruments, they also cater to different kinds of investors. SEBI has laid down certain guidelines that investors must follow before investing in AIFs. Let us understand the ideal profile of an AIF investor:
- The investor can be an Indian national, and if not (a non-resident Indian or a foreigner), they can only invest in equity.
- A minimum amount of Rs. 1 crore must be invested in an AIF by an investor.
- If an individual happens to be either an employee, fund manager or at the director level, then the minimum amount for them is Rs. 25 lakhs.
- An AIF must have a minimum corpus of Rs. 20 crore to make all individual investors eligible to invest.
- The maximum number of investors in an AIF scheme cannot be more than 1000.
Who can invest in Mutual Funds?
The criteria for investing in mutual funds are not as stringent as AIFs. As defined by SEBI, here are some of the rules and regulations regarding mutual funds:
- All Indian citizens and non-resident Indians can invest in mutual funds. Foreigners can not make use of SIPs or STPs.
- Different mutual funds have different minimum investment amounts, but you can easily find mutual funds that let you invest with a minimum amount of Rs. 500.
Are Mutual Funds similar to Alternative Investments?
No, they invest in traditional asset classes. AIFs are “alternative” due to exposure to niche, less-correlated assets like infrastructure, private equity, and hedge strategies.
Should I Invest in AIF or MF?
- Diversification
Both AIFs and mutual funds offer ample diversification to minimise risks and maximise gains. As both deploy funds in multiple asset classes, they help spread risk and reduce the impact of any single asset’s poor performance. - High ROI
AIF products are not directly linked to the stock market. Hence, they do not see massive fluctuations, making them relatively low-risk investments. Mutual funds, on the other hand, are subject to market risks, making them riskier. - Ownership
These financial instruments give you direct ownership in proportion to your investment amount and tax benefits in the long run.. - Lock-In Periods
- Mutual funds can broadly be divided into the following types: Closed-ended funds have a lock-in period of three to five years, during which investors are not allowed to redeem their investments. Open-ended funds have a lock-in period of three years. Other mutual funds do not have such strict lock-in periods.
In the case of alternative investment funds, a lock-in period of three years is prevalent.
- Ease vs Effort
Mutual funds do not have an entry barrier as they can be as low as Rs. 500, making them extremely affordable. AIFs, on the other hand, require a significant investment of Rs. 1 crore, making them accessible to HNIs.
Conclusion
AIFs and mutual funds both have their respective roles in the space of wealth creation. While mutual funds provide accessibility, liquidity, simplicity, and thus, a diverse investor base, AIFs is where you get one-time, exclusive, higher returns for high-net-worth investors and sophisticated investors. Your choice will ultimately depend on your capital, risk tolerance and long-term goals.
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