India’s alternative investment industry, which comprises portfolio management services (PMS) and alternative investment funds (AIFs), is all set to outpace the mutual fund industry in the coming future, according to latest data by PMS Bazaar.
In the last five year (June FY19 to June FY24), the industry has witnessed a compounded annualised growth rate (CAGR) of 26 per cent with assets under management (AUM) reaching up to Rs 13.74 lakh crore as of June FY24. This is more than double that of the mutual fund industry, which recorded a CAGR of 13 per cent, with an AUM of Rs 46.63 lakh crore as of August 2023.
This surge can be attributed to several factors. Rising income levels have broadened the accessibility to alternative investments, catering to a diverse range of high net-worth individuals (HNIs) and Ultra HNIs. Additionally, the proliferation of comprehensive information about alternate investments and the appeal of diversification and higher returns has driven the rapid expansion of the industry.
India’s International Financial Services Centre (IFSC) at the Gift City has also seen significant traction in the alternative space. As a global financial hub, Gift City has facilitated international investments, attracting a multitude of investors and businesses, further enhancing India’s stature in the alternative investment landscape.
Vikaas M Sachdeva, managing director and CEO, Sundaram Alternates said: “Gift City stands as a testament to India’s commitment to becoming a global financial powerhouse. Its strategic initiatives have not only attracted international investors, but have also provided domestic investors with unprecedented opportunities. As Gift City thrives, so does India's position in the world of alternative investments.”
Among alternative investments, AIFs have emerged as trailblazers, boasting a CAGR of 36 per cent in the last five years. Category II AIFs, including venture capital, private equity, real estate funds, and private credit, have experienced exponential growth, fuelled by heightened interest from HNIs and UHNIs.
Despite regulatory changes, including an increase in the minimum investment requirement, the PMS industry has also exhibited resilience, demonstrating a robust CAGR of 16 per cent. As of July 2023, the PMS industry’s AUM stood at Rs 5.29 lakh crore (excluding Employees’ Provident Fund Organisation (EPFO)/Provident Fund/Advisory figures).
According to the study by PMS Bazaar, the PMS and AIFs industry is expected to continue its growth at a rapid pace in the coming years. Further, the recent changes in the tax rules in debt mutual funds (where the indexation benefit of long-term capital gains (LTCG) was removed) and insurance (where maturity proceeds on life insurance policies having premiums exceeding Rs 5 lakh are to be taxed) are likely to play a vital role in propelling the growth in the alternative assets industry.
Also, as HNI investors become more aware of the potential of alternate investments in diversification across asset classes and wealth creation, the demand for such products is expected to increase.
Pallavarajan R, founder and director, PMS Bazaar said: “India’s rising affluence is driving HNIs to alternative investments (PMS’ and AIFs), which offer lucrative opportunities, customised solutions, and transparent structures. AUM in these products has grown more than three times in five years, twice as fast as in mutual funds. If the same pace of investments continues, in a favourable market, we anticipate the PMS and AIF industry to grow to Rs 43.64 lakh crore by 2028. We believe that alternative products are becoming an essential part of the investment portfolios of India’s wealthy.”
Sunil Rohokale, managing director and CEO, ASK Group said, “India is at the cusp of a new credit cycle fuelled by private sector investment on the back of strong earnings growth within India Inc. This is further supported by robust economic activity across all major sectors driven by strong economic growth, government infrastructure spending as well as policy support, and a favourable demographic outlook. The opportunity for alternates is untapped and is at a very nascent stage, with the potential to grow beyond $300 billion. Investors will favour reputed, well-established, and institutionalised players with a good track record to be a part of their growth journey.”