AIF commitments top Rs 10 trn for first time amid rising demand from HNIs

AIFs investing in private credit picked up steam after Budget presentation

The investment commitments received by Alternative Investment Funds (AIFs) have crossed Rs 10 trillion for the first time, amid a rising demand from rich investors eyeing to generate higher returns than conventional investment vehicles. As of December 2023, the investment commitments stood at Rs 10.84 trillion, up 13.6 per cent quarter on quarter (Q-o-Q) and over 40 per cent on a year on year (Y-o-Y) basis.

According to the data provided by the Securities and Exchange Board of India (Sebi), AIFs have raised around Rs 4.3 trillion, of which Rs 3.1 trillion has been in Category II, which comprises funds that dabble in debt and equity. AIFs are pooled investment products for high-net-worth individuals with a minimum ticket size of Rs 1 crore.

Following the change in taxation of debt mutual funds and market-linked debentures in the Budget 2024, AIFs that invest in private credit have gained significant traction. The AIF industry has also undergone a slew of regulatory changes in the last year, with dematerialisation for funds above the threshold, a revamp in the fee structure, benchmarking, and valuation norms, among others.

However, experts believe that the recent restriction imposed by the Reserve Bank of India (RBI) on investments from banks and non-banking financial companies (NBFCs) may slow down the pace of inflows in AIFs.

The RBI had directed banks and NBFCs to either liquidate or make provisions for their investments in AIFs with debtor links — for funds with such companies in their portfolio to which they had already lent. The decision was taken to prevent the evergreening of loans.

Markets regulator Sebi also proposed a slew of changes for the AIF industry, including allowing pledges in the infrastructure assets and ‘exclusion’ for certain investors by managers if it leads to a circumvention of regulation.