Wealthy investors in India are reevaluating their investment strategies, seeking higher returns and diversification beyond traditional equity mutual funds and listed stocks. This shift comes after a relatively subdued period for Indian equities, with the Nifty 50 index delivering a negative return of 7% over the last year and 6.3% in the last three years.
### Growing Interest in Private Markets and AIFs
The alternative investment funds (AIFs) sector has seen significant growth, with commitments rising from Rs 13.49 lakh crore in March 2025 to Rs 16.94 lakh crore in March 2026, marking a 25.6% increase. This trend is driven by high-net-worth individuals (HNIs) and ultra-HNIs seeking additional sources of alpha and diversification.
Manish Shah, MD and CEO at Godrej Capital, noted, "Mutual funds remain the core of the portfolio, while private markets, AIFs, and overseas assets are increasingly being used to seek additional returns and diversification."
### Private Equity and Debt Gain Traction
Category II AIFs, which focus on private equity, private debt, and real estate, dominate the industry with commitments rising 23.7% year-on-year to Rs 12.74 lakh crore. Category III AIFs, investing in listed and unlisted securities, saw commitments rise 36.9% to Rs 3.15 lakh crore.
Mayank Jha of Boston Consulting Group highlighted that while mutual funds remain important, "the role of private market participation from an alpha generation perspective is significantly increasing in India."
### Overseas Investments on the Rise
Indian HNIs and ultra-HNIs are also increasingly looking outside India for higher returns and diversification. Investment-related outward remittances rose from $2.60 billion in FY24 to $3.88 billion in FY26, a 45.5% jump. GIFT City is emerging as a route for overseas investments through AIF structures.
Why It Matters
The shift in investment strategies among India's ultra-rich reflects a broader trend towards diversification and pursuit of higher returns in a changing market landscape. As the market and opportunities expand, financial institutions and investors are adapting to meet the growing demand for alternative investment options.
What to Watch
Future developments to watch include the growth of AIFs, particularly in private equity and debt, and the increasing importance of overseas investments in Indian portfolios. The performance of these alternative investment avenues will be crucial in determining their long-term viability and appeal to HNIs and ultra-HNIs.