AIF investments top Rs 4 trillion, commitments cross Rs 11 trillion

Biggest deployment made in real estate sector followed by IT and financials

Investments made by alternative investment funds (AIFs) breached the Rs 4 trillion mark by March 2024, while commitments from wealthy investors topped Rs 11 trillion for the first time, according to data provided by the Securities and Exchange Board of India (Sebi).

The real estate sector attracted the highest investments, totalling over Rs 68,500 crore, followed by the information technology sector with deployments of Rs 25,000 crore.

Domestic investors dominated AIF investments, raising over Rs 2.83 trillion by March 2024.

Foreign portfolio investors followed with Rs 18,400 crore, closely trailed by non-resident Indians at Rs 15,100 crore.

This marks the first time that the market regulator has disclosed granular details of the funds raised and sector allocations.

 

According to the data, equity and equity-linked investments totalled Rs 2.55 trillion, while debt instruments accounted for Rs 1.16 trillion. However, the majority of investments remain in unlisted securities.

Startups received investments exceeding Rs 16,000 crore from AIFs, with the highest allocations coming from Category II AIFs.

Despite the surge in commitments, industry officials said that not all commitments may materialise into actual fundraises due to restrictions imposed by the Reserve Bank of India (RBI) in December last year. Several banks may not be able to meet drawdown calls for these commitments.

Investments in AIFs are typically made in tranches; investment managers call for funds from committed entities when suitable investment opportunities arise.

Commitments saw a modest 4.7 per cent quarter-on-quarter increase in the January-March 2024 quarter, compared to a 13 per cent increase in the preceding quarter.

AIFs are specialised investment products structured as pooled investments, with higher entry barriers allowing only institutions, high networth individuals (HNIs), and accredited investors to park money.

AIFs invest in startups, infrastructure, stressed assets, private credit, housing projects, and various other alternative investment segments.

Industry experts highlighted that family offices and HNIs have stepped up their investments in this niche product, driving growth in the ecosystem.

In March, the RBI provided some relief for non-banking financial companies (NBFCs), mandating them to provision only to the extent of their investments in AIFs linked to debtor firms.

This means that if an AIF invests in a company to which an NBFC has already lent, the NBFC is required to make provisions accordingly. Previously, they were required to fully provision for their total investment in AIFs.

Additionally, the RBI has excluded investments in equity shares of debtor companies from the definition of downstream investments, allowing AIF schemes to invest even if they hold equity in debtor companies.

These restrictions were imposed after the market watchdog raised concerns about transactions and structures used to renew loans and circumvent regulations.