Equitable Growth for India's AIF Industry: Insights from IVCA President Rajat Tandon

IVCA on India’s AIF Landscape: Opportunity, Imbalances, and What’s Needed Next

India’s alternative investment fund (AIF) industry has come a long way in just over a decade—but the journey forward won’t be frictionless. That’s the central message from the Indian Venture and Alternate Capital Association (IVCA), which has been vocal in recent months about the structural challenges holding back the sector and what needs to change to unlock its full potential.

Why the Call for Fairer Regulation?

Rajat Tandon, President of IVCA, makes no bones about it—the playing field between mutual funds and AIFs isn’t level, and that imbalance is beginning to skew competition. “If you create a regulatory arbitrage,” he notes, “one vehicle could end up cannibalising the other.” That’s not healthy for long-term market development.

IVCA is asking regulators to ensure that AIFs aren’t left at a structural disadvantage compared to mutual funds—especially as both vehicles serve increasingly sophisticated investor bases and operate in overlapping asset classes.

AIFs: Growing Fast, But Still Far from Their Global Peers

The AIF market was formally born in 2012, when SEBI introduced a comprehensive framework to legitimise and regulate this emerging asset class. Since then, growth has been impressive: from around $14 billion seven years ago to nearly $74 billion during the pandemic—a fivefold jump.

But compare that to global benchmarks and it’s clear India still has a long runway ahead.

US venture capital clocks around $300 billion a year
India’s VC ecosystem stands at roughly $10 billion
US private equity and alternatives exceed $1.3 trillion
India’s tally: $26 billion

The takeaway is simple: India’s AIF space is nascent but promising—and attracting more capital, especially domestic long-term money, is critical.

Co-Investment: Untapped but Rising

Globally, co-investment models, where limited partners invest directly in deals alongside fund managers, are gaining traction. It helps investors diversify and exert greater control over exposures.

In India, this practice is still at an early stage. IVCA is now engaging with the government and market participants to promote co-investment mechanisms, which could be especially powerful in catalysing institutional and family office participation in growth capital and late-stage private equity.

Systematic Investment Funds vs. AIFs: A New Front?

Another concern IVCA flags is the emergence of Systematic Investment Funds (SIFs)—products that mirror the strategy of Category III AIFs but come with lower entry barriers and fewer restrictions. Without thoughtful regulation, there’s a risk SIFs could start drawing investors away from established AIF structures.

The message from IVCA: If mutual funds and similar vehicles enjoy certain advantages, those same privileges—or their equivalents—should be extended to AIFs. Otherwise, it’s not just unfair—it risks distorting product innovation and investor choice.

The Tax Puzzle: Making Category III AIFs More Attractive

One of the biggest roadblocks to Category III AIF growth is tax inefficiency. Unlike pass-through entities in other jurisdictions, Category III AIFs are currently taxed at the fund level in India, discouraging investors who might otherwise see them as flexible, high-alpha alternatives.

IVCA has been lobbying SEBI for a rethink, urging policymakers to grant pass-through status. The logic is straightforward: align India’s tax structure with global best practices to level the playing field and unlock capital.

Certification Exams: A Choke Point for Fund Managers?

Another friction point: the NISM certification exams required for fund managers operating under PMS and AIF licences.

The problem isn’t the requirement per se—it’s the structure of the exam.

Pass rates are low, and feedback suggests that the syllabus is too broad, especially for managers who specialise in Category I or II AIFs and find much of the material irrelevant. IVCA is urging SEBI to tailor the curriculum, or at the very least, offer exemptions for seasoned professionals. Otherwise, the bar may be too high for the wrong reasons.

Accredited Investors: A Slow Start, But Optimism Ahead

Despite SEBI’s efforts to open doors for accredited investors, the response so far has been underwhelming—just around 200 registrations across the country.

What’s holding things back?

Fragmented data across regulators makes eligibility hard to verify.
The registration process remains cumbersome and unintuitive.

That said, digitisation offers hope. As regulatory databases become more integrated, the process should become smoother—and participation could see a sharp rise.

For Accredited Investors: Big Potential, Bigger Responsibility

The benefits for accredited investors are clear:

Lower minimum investment thresholds
Access to more complex and customised products
More flexibility in structuring portfolios

But with those perks comes a greater assumption of self-reliance and financial sophistication. SEBI isn’t likely to offer the same level of hand-holding here—so due diligence becomes even more critical.

Looking Ahead: Long-Term Capital for Long-Term Innovation

The conversation around AIFs also dovetails with a broader economic goal: mobilising capital for innovation-heavy sectors such as health tech, climate tech, and deep tech. These verticals don’t produce returns overnight—they need patient capital, willing to stay locked in for 8–10 years or more.

For that to happen, India needs to deepen its domestic capital pool, and AIFs will have to play a bigger role.

Conclusion: The Industry Is Willing—Now Policy Needs to Keep Pace

IVCA isn’t asking for shortcuts. What it’s asking for is regulatory clarity, tax parity, smarter certification policies, and a more fluid investment framework—one that enables, rather than hinders, innovation.

If those pieces come together, India’s AIF ecosystem could evolve into one of the most dynamic and resilient parts of its financial markets—attracting not just capital, but trust