Why India's AIFs are outpacing portfolio management services
Two of India's asset classes targeting the rich are growing at sharply different rates, with one growing thrice as fast as the other.
Alternative investment funds (AIFs) far outpaced portfolio management services (PMS) in FY25, data on fund commitments and assets showed, thanks to a more efficient tax structure, operational ease, and the flexibility to invest in unlisted stocks.
Also Read | Penny stock under Re 1: NBFC to foray into AIF biz with ₹50 crore initial investment
Commitments raised by Category III AIFs grew 58% from a year earlier to ₹2.3 trillion at the end of March, as per data by the Securities and Exchange Board of India (Sebi). In the same period, assets under management (AUM) of the PMS industry grew 19% to ₹4.3 trillion, according to industry body Association of Portfolio Managers in India (APMI).
Here, category III AIFs are compared with PMS schemes as both invest in listed stocks, while category I and category II AIFs invest in unlisted companies. The minimum investment for AIFs is ₹1 crore, while it is ₹50 lakh for PMS.
Also Read | Bank, NBFC investments in AIFs may get smoother
Pramod Gubbi, co-founder of Marcellus Investment Managers, said that AIFs are more cash-flow friendly for clients compared to PMS. Marcellus offers PMS for clients based in India, and has an AIF operating in GIFT IFSC for Indian clients wanting to invest in global equities.
"Although the tax on portfolio churn is similar for both AIFs and PMS, the key difference is that in a PMS, the client has to arrange and pay the tax themselves. In an AIF, the tax is paid at the fund level, directly from the returns," Gubbi said.
Also Read | Indian real estate attracts nearly ₹74K cr till Dec24 from AIFs, max among all sectors: Anarock
This means clients receive post-tax returns in an AIF and don't need to worry about setting aside money for tax payments, unlike in a PMS, he added.
A tax on churn means capital gains tax is paid every time a PMS or an AIF sells a stock. The capital gains tax is 12.5% for long-term and 20% for short-term investments.
AIFs are also easier to operate, said experts.
'In PMS, investors are required to open a separate demat account and for NRI investors a separate custody and bank account too, and each transaction is done in separate account for each client," said Aniruddha Sarkar, chief investment officer at Quest Investment Advisors. In contrast, AIFs handle everything at the fund level, and investors simply receive fund units and net asset value (NAV) statements, much like mutual funds; there is no need for individual demat or custody accounts as units are allocated by registrar and transfer agents (RTAs), he added. Also, when most of the PMS and AIFs have similar strategies, investors would prefer an AIF because of the operational ease, said Sarkar.
Others pointed to how the ability of AIFs to invest in unlisted shares gives them an edge over portfolio management services.
Sushant Bhansali, chief executive of Ambit Asset Managers, said that AIFs allow investments in unlisted stocks, up to 25% of the portfolio. In comparison, PMS generally cannot invest in unlisted stocks. Only non-discretionary PMS can invest up to 25% in unlisted stocks, but this option is not popular, Bhansali added.
'That's because in a non-discretionary PMS, the client must approve every transaction before it is executed, making the process slower and less convenient. So, most investors prefer discretionary PMS, where the fund manager makes decisions without needing client approval," he added.
According to APMI data, non-discretionary PMS accounts for just 18% ( ₹79,436 crore) of the total PMS industry AUM as of March.
However, Bhansali added that the reason AIFs appear to be growing faster could also be because the data reflects commitments raised, not actual assets under management (AUM). 'So, comparing PMS AUM with commitments raised in Category III AIFs is not an apples-to-apples comparison," he explained.
AUM means mark-to-market value of the funds invested, while commitments raised means only the initial value of the funds raised from investors, which does not reflect in the MTM value.
That said, a true like-to-like comparison is not possible because Sebi does not publish AUM data for the AIF industry.
Another reason AIFs are gaining popularity is that they can offer close-ended funds, which PMS funds cannot.
'Some investors prefer to commit their money for a fixed period, especially when they have a specific financial goal in mind. In such cases, a close-ended fund structure works well," said a fund manager on the condition of anonymity. This flexibility makes close-ended AIFs more attractive to certain investors.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
36 minutes ago
- Time of India
How India is gearing up to clip the wings of Pakistan's 'made-in-China' 5th-gen fighter jet threat
India is accelerating the development of its Advanced Medium Combat Aircraft (AMCA) stealth fighter, opening the project to private companies due to delays and fighter jet shortages. This move aims to counter China's stealth capabilities and address the IAF's need for advanced aircraft. Tired of too many ads? Remove Ads Why stealth fighters are urgent Tired of too many ads? Remove Ads What about the F-35 offer? Private players now in the game Tired of too many ads? Remove Ads Why the IAF chief criticised HAL Around three weeks after a tense military face-off with Pakistan, India has fast-tracked the development of its fifth-generation stealth fighter jet, the Advanced Medium Combat Aircraft (AMCA).In a significant shift, the government has opened up the AMCA project to private Indian companies, breaking the long-standing norm that only state-run Hindustan Aeronautics Ltd (HAL) could manufacture fighter currently lacks any stealth aircraft, while China's radar-evading J-20 jets are already operational and its sixth-generation J-36 is under development. According to claims in Pakistan's local media, the country may acquire up to 40 J-35 stealth jets from China as early as Indian Air Force (IAF) is facing a fighter jet shortage. It has just 31 squadrons, far below the sanctioned strength of 42. The delayed replacement of ageing MiG-21s with Tejas aircraft has only worsened the with the addition of 36 Rafale jets from France, India trails its neighbours. In case of a two-front conflict, stealth jets will be key to striking deep into enemy territory without being push for AMCA also gained urgency after US President Donald Trump said the US may offer India its F-35 stealth jets, among the most advanced with each F-35 costing Rs 660–825 crore (USD 80–100 million), India sees AMCA as a more cost-effective and strategic alternative if the timeline is Minister Rajnath Singh approved the AMCA prototype on 27 May, calling it a major step toward defence is already busy with several major orders. It's producing 180 Tejas Mark-1A jets in a Rs 1.2 lakh crore deal and is lined up to build 108 Tejas Mark-2 jets and other ease the load, the Defence Ministry hopes HAL will collaborate with private firms for AMCA. But for the first time, private players will also be allowed to bid independently, jointly with other Indian firms, or with foreign companies, provided they meet defence Aeronautical Development Agency (ADA), which is designing AMCA under DRDO, will soon invite these companies to submit private sector is already expanding its role. Tata Group, for instance, is building C-295 aircraft with Airbus in Gujarat and setting up India's first private helicopter assembly line in this year, IAF Chief Air Marshal AP Singh strongly criticised HAL for delays in the Tejas programme.'Tejas was conceptualised in 1984, its first flight took place in 2001, and induction began only in 2016. Even today, in 2025, I don't have the first 40 aircraft,' he said at a Delhi defence the IAF operates just two squadrons of Tejas Mark-1 jets. The upgraded Mark-1A version has also been delayed. HAL had committed to deliver 16 jets in 2024–25 under a Rs 46,898 crore contract signed in 2021. Now, only 2–3 are expected this year, mainly because GE (USA) delayed engine has now promised to deliver 99 F404 engines by March 2025. HAL and GE are also finalising a Rs 8,300 crore (USD 1 billion) deal to co-produce the more powerful F414 engines in India with 80% technology transfer. These will be used for Tejas setbacks, the Indian government has placed a fresh order for 97 more Tejas Mark-1A fighters worth Rs 67,000 from TOI
Time of India
37 minutes ago
- Time of India
AI is a generational shift, with impact far greater than internet: Sunil Mittal
Artificial intelligence is a generational shift, with its impact far greater than the internet, that touches almost every aspect of our lives, said Sunil Bharti Mittal , chairman, Bharti Enterprises . Speaking at the CII Annual Business Summit 2025 , the former CII president said a significant impact of AI in India is its effect on employment, particularly given India's large, young workforce. Mittal said AI will create difficulties in areas like software engineering, noting that now even a layman can speak to a machine to write code. 'India has the largest workforce, the youngest developing in the world. There are 20 million children in the age group six to sixteen. In ten year's time, they will be sixteen to twenty-six, each wanting a job. AI will create difficulties in that area. Some parts are clearly visible today,' Mittal said. However, Mittal said AI will also create new opportunities and more jobs. 'Using AI will become absolutely important for everyone, especially in emerging countries like India,' the executive said. Mittal said that while Indian industry is committed to national progress, an enabling environment from the government is essential to remove bottlenecks and accelerate India's development journey. He presented an industry wish list to the government, including key asks on Ease of Doing Business, GST reforms, and corporate taxation. Mittal highlighted the demographic advantage India holds as other developed nations ages and immigration barriers rise. 'Industry and academia must go beyond surface-level collaboration and jointly build a globally competitive, job-ready workforce. Emerging fields such as AI, green energy, space communication, and next-gen telecom demand urgent attention,' he said. Mittal also expressed concern over India spending less than 1% of its GDP on research and development, asking the industry to step up and invest aggressively in deep tech and innovation. 'Our large domestic market gives us scale, but we need intellectual leadership too. Only then can the government scale its R&D efforts with confidence,' Mittal said. The executive also called for a trade reset, advocating for a fundamental shift in India's approach to trade and exports. 'We must diversify our export basket and focus on products and services that are needed globally. No raw material should leave our shores without value addition,' Mittal said.
Time of India
37 minutes ago
- Time of India
Global airlines to address trade war, net-zero uncertainties at annual summit
An unpredictable trade war and daunting environmental targets are on the agenda for global airline bosses at an annual summit in India, as the industry addresses concerns that geopolitical uncertainty will dent strong travel demand and raise costs. More people are flying than ever before after a full post-pandemic passenger market recovery, but airlines globally are facing rising cost pressures, extended plane delivery delays, supply chain bottlenecks and a setback in recently strong fares. On top of this, U.S. President Donald Trump's evolving trade war has upended the aerospace industry's decades-old tariff-free status and added a new layer of volatility, analysts say. While carriers in Europe and Asia report strong demand for flying, the U.S. sector has been hit by a recent slump in travel demand, with carriers struggling to forecast passenger behaviour and operational costs. "You can't say that a fall-off in consumer confidence and higher inflation are not going to mean less money in the wallet for people to spend," Aengus Kelly, CEO of AerCap, the world's largest aircraft leasing company, told Reuters. Live Events For now, airlines are filling planes but there are questions over the widely watched yield - or average fare per seat sold - they are able to charge as they tweak fares to fill cabins. Many, however, are also being cushioned from the worst effects of demand by a fall in fuel prices and a decline in the U.S. dollar's value. "Those tailwinds have insulated airlines, to date, from the worst effects" of demand, Kelly said. The influential International Air Transport Association (IATA), which represents more than 300 airlines and over 80% of global air traffic, will hold its annual three-day meeting from Sunday in New Delhi. The summit, hosted by India's largest carrier IndiGo , comes as the world's third-largest air passenger market rapidly expands its aviation industry, and as air travel growth in Asia is expected to outstrip Europe and North America for the next few decades. India's recent hostilities with neighbour Pakistan, which is causing Indian airlines to take large, expensive detours around Pakistani airspace, highlight how conflict zones are an increasing burden on airline operations and profitability. IATA said in February that accidents and incidents related to conflict zones are a top concern for aviation safety requiring urgent global coordination. Aviation safety will also be in focus after a spate of air accidents in Kazakhstan, South Korea and North America over the past six months, and rising concerns about air traffic control systems in the United States. NET-ZERO DOUBTS IATA has increasingly been warning that airlines will struggle to meet their sustainability goals, and that it is not clear how the transition to sustainable aviation fuel (SAF) and new technologies will be financed. The broader aviation sector agreed in 2021 to target net-zero emissions in 2050 based mainly on a gradual switch to SAF, which is made from waste oil and biomass and costs more than conventional jet fuel. IATA Director General Willie Walsh has in recent weeks said the industry will need to re-evaluate the commitment, though no change to industry goals is expected at the New Delhi event. Airlines are at odds with energy companies over scarce supplies of SAF, while also pointing the finger at Airbus and Boeing over delays in delivering more fuel-efficient jets. Governments are also likely to get some flak when Walsh delivers an often punchy address to airline bosses on Monday. "Demand for SAF continues to outstrip supply and costs remain prohibitively high. Regulatory frameworks to encourage SAF production are still underdeveloped, inconsistent, or insufficient," said Subhas Menon, director general of the Association of Asia Pacific Airlines.
