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Entering a new phase of growth, assets managed by the Indian alternative investment industry, comprising Portfolio Management Services (PMSes) and Alternative Investment Funds (AIFs), is set to cross Rs.100 lakh crore mark by 2030, as per PMS Bazaar estimates.

The PMS and AIF sectors have been growing at an impressive compound annual growth rate (CAGR) of about 33% in the last 10 years (from FY14 to FY25*). As of FY25 (data up to Q1FY25), the combined assets of PMS and AIFs have reached Rs.18.87 lakh crore - comprising Rs.7.08 lakh crore in PMSes (excludes EPFO contribution and advisory) and Rs.11.79 lakh crore in AIFs, with Category-II AIFs holding the lion’s share.

If this growth trajectory continues, the overall industry is projected to surpass Rs.100 lakh crore by 2030, marking an over 5-fold increase in just 6 years. The potential for growth in the longer term depends on sustained growth, economic conditions, and investor interest, according to PMS Bazaar estimates.

India's rapid economic growth, fuelled by government initiatives, domestic market expansion, and infrastructure investments, has created an environment ripe for alternative investments. As India aspires to have $35 trillion economy size by 2047 and enters its next phase of rapid development, PMSes and AIFs are increasingly becoming the vehicle of choice for HNIs and UHNIs, seeking more personalized and higher-yielding investment options.

Recent regulatory changes aimed to enhance investors’ protection are expected to further drive HNIs towards alternative investments. Performance of alternates also have been decent, with long-term alpha creation. For instance, within the PMS Bazaar universe, of the 62 PMS strategies that have completed a decade, about 70% have delivered strong long-term performance, outperforming benchmark indices.

In addition, SEBI has been strengthening regulations for both PMSes and AIFs, ensuring that these products become more efficient and investor-friendly, thereby enhancing their appeal in the market.

R. Pallavarajan, Founder & Director, PMS Bazaar, commented, “The growth of PMSes and AIFs reflects a fundamental shift in how India’s affluent investors approach their portfolios. The demand for tailored, high-return alternatives is expected to grow substantially in the coming years. These investment vehicles are pivotal in propelling India's economic growth, social progress, and governance, aligning with the government's growth vision as well. Key factors driving this growth include investors’ increasing need diversification, and the expanding affluent population.”

Rise of Alternative Investments -The rise of PMS and AIFs in India is driven by factors such as increasing affluence, rising financial literacy, regulatory support, a thriving growth ecosystem, and a demand for diversification to mitigate risks, especially volatile markets, creating an ideal environment for their growth among HNIs and UHNIs. These trends position India as a global financial hub with lucrative investment opportunities.

Naveen Kulkarni, CIO, EVP, Axis Securities says “The traditional equities industry, dominated by mutual funds, is experiencing a significant shift towards alternative investment structures such as Portfolio Management Services (PMS) and Alternative Investment Funds (AIF). These alternatives are gaining traction due to their potential for better risk-adjusted returns, especially in the post-COVID landscape. Projections suggest that it could see a 3-4x increase in the coming years. This trend underscores that alternatives are not just the future - they are rapidly becoming the present.”

The Future of Investment

As India continues its strong economic trajectory, the demand for alternative investments, such as PMS and AIFs, is expected to rise significantly. These investment vehicles are increasingly seen as essential tools for high-net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs) looking to achieve superior returns, greater diversification, and personalized portfolio management.

With buoyant economic conditions, robust government policies, and an evolving financial ecosystem, the future of PMS and AIFs in India appears exceptionally promising. As India moves towards becoming a developed nation by 2047, the growth prospects for these alternative investment products will play a pivotal role in shaping the country’s financial landscape.

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