The rise of alternative investment vehicles in India’s economy

For decades, traditional investments like stocks and fixed deposits dominated Indian portfolios. But in recent years, a quiet revolution has been unfolding in the financial landscape. A growing number of investors are shifting to alternative investment vehicles (AIVs), reshaping industries and unlocking new opportunities. What was once a niche strategy for ultra-high-net-worth individuals is now becoming mainstream.

What began as a cautious response to market volatility has now evolved into a broad-based transformation, ushering in the rapid rise of AIVs. The increasing flow of capital into alternative assets is reshaping industries, driving economic growth, and offering investors more sophisticated, risk-adjusted opportunities. The alternatives market in India is projected to grow fivefold to $2 trillion over the next decade, with SEBI-registered AIFs expected to account for $750 billion. High-net-worth individuals (HNIs) are playing a key role in this expansion, with their participation in AIFs projected to rise from $20 billion to $190 billion over the next decade, ultimately making up 25% of AIF assets under management (AUM)​.

What’s driving the shift?

At its core, the surge in AIVs is driven by three key factors: market volatility, India’s growing HNI population, and the need for stable, long-term returns. Equity markets have always been subject to economic cycles and external shocks, prompting investors to seek assets that offer insulation from short-term fluctuations. AIVs fill this gap by enabling diversification across varied asset classes, including private equity, venture capital, real estate investment trusts (REITs), infrastructure investment trusts (InvITs), and structured debt funds.

India’s rapidly expanding base of high-net-worth individuals has further accelerated this shift. The country is home to one of the fastest-growing HNI populations globally, with its millionaire count expected to rise significantly over the next decade. As wealth creation surges, more investors are seeking sophisticated avenues beyond traditional asset classes, making AIVs an increasingly attractive option. Additionally, many of these investors are now looking for diversified, professionally managed alternatives that offer better risk-adjusted returns while reducing exposure to equity market fluctuations.

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Beyond macroeconomic trends, sector-specific developments have also accelerated the adoption of AIVs. One of the most significant changes in the Indian investment landscape has been the financialisation of real estate. Physical real estate, which accounts for approximately 50% of household assets in India​, has traditionally been an illiquid investment with high entry barriers. Today, investors can own fractional shares of large, income-generating properties through structured vehicles like REITs and AIFs, eliminating the operational challenges associated with direct property ownership.

How AIVs are reshaping India’s investment landscape

The alternatives market is now worth $20 trillion globally, doubling in size since 2005. In India, AIVs are on a similar growth path, with SEBI-registered AIFs expected to account for $750 billion in the next decade—more than a fivefold increase. This shift signals a growing appetite among Indian investors for diversified, high-yield opportunities.

Within the real estate alternatives space, investors can now choose from a spectrum of financialised real estate investments tailored to different risk-return profiles:

• Operating real estate assets (via REITs & InvITs) provide regular yield and capital appreciation opportunities. India currently has three listed REITs focused on commercial real estate. These investment vehicles have enabled retail and institutional investors to access institutional-grade real estate leased to blue-chip tenants, ensuring stability and income visibility​
• Real estate credit funds enable structured lending, offering steady yields through debt investments in commercial, residential, and warehousing assets
• Development return funds capture full-cycle returns by investing in residential, commercial office, and warehousing developments, from land acquisition to leasing and exit, without the operational burdens of direct property ownership​.

The warehousing sector, in particular, has gained significant traction as an alternative investment class. India’s L&I stock stood at about 390 million square feet (MSF) as of June 2024 and is expected to cross about 590 MSF by 2027. This surge in demand, fueled by ecommerce and supply chain modernisation, has positioned warehousing as a lucrative, high-yielding real estate asset. 

Regulation and market maturity

India’s regulatory environment has played a crucial role in strengthening investor confidence and formalising the alternative investment space. The Securities and Exchange Board of India (SEBI) has introduced structured policies aimed at enhancing transparency, and attracting capital inflows. SEBI-registered AIFs have grown from 130 in 2015 to over 750 in 2024, demonstrating the rapid expansion of India’s alternative investment landscape​.

The success of India’s REIT and InvIT models has proven that well-structured investment vehicles can unlock capital, attract global investors, and democratise access to high-quality assets. As the regulatory environment matures, structured credit funds and private equity-backed investments are offering businesses more tailored financing solutions, while investors benefit from diversified opportunities. 

The road ahead

AIVs are set to play a bigger role in India’s financial ecosystem. As real estate gets more financialised, investors will increasingly turn to structured real estate investments for smarter capital deployment. With HNIs on the rise, their growing appetite for alternatives will accelerate this shift, making India’s investment landscape more dynamic and mature.

Sectors like infrastructure, digital assets, and industrial real estate will continue to attract alternative capital, shaping the country’s economic trajectory. For investors, the real opportunity lies in spotting high-growth assets, staying ahead of long-term trends, and building resilient portfolios that can weather market cycles. The future belongs to those who move early.

(Anshul Singhal is the Managing Director of Welspun One.)