While alternative investment fund (AIF) investments have seen massive growth over half a decade, the industry still faces three major challenges such as mis-selling, opaque valuation, and capital availability for sunrise sectors, the Indian markets regulator said. AIFs are meant for sophisticated investors and risk profiling must become a real discipline, “not a box-ticking exercise”, Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey said.
The industry can do much more to back innovation-led sectors and early-stage businesses. “If private capital stays too conservative, a core purpose of the AIF framework is lost,” Pandey said while speaking at the Indian Venture and Alternate Capital Association (IVCA) conclave.
Among other key areas that needs discipline is fair valuation. AIFs often invest in emerging business entities and illiquid assets. Valuation concerns can distort price discovery and weaken trust when investee companies move toward public markets. “Weak or opaque valuations erode confidence,” the chairman said.
Governance and Standards
When it comes to governance, the markets regulator has a few expectations from the AIF industry, including accurate and timely disclosures, consistency with disclosed fund terms, effective conflict management, and clear segregation of roles. It also expects fair and equitable treatment of investors, ethical portfolio management, and prudent investment behavior. Growth accompanied by standards is non-negotiable, Pandey said.
Sebi’s move to dematerialize AIF units improves transparency and reduces operational risks, Pandey said. On February 6, the markets regulator had issued a circular, directing that AIFs can raise funds from any investor by way of issuing units in dematerialized form.
New Reforms Ahead
Going forward, the regulator is exploring ways to leverage digital public infrastructure to streamline the accreditation process. “We are also engaging with accreditation agencies to reduce the cost of accreditation, with the objective of making the framework more accessible to eligible investors.” Sebi is exploring the ‘lodge and launch’ model for AIFs, which can accelerate fund launches, improve ease of doing business, and enable faster private capital mobilization.
As of December 2025, AIF commitments as well as investments each grew by almost 30% compound annual growth rate to ₹15.74 trillion and ₹6.45 trillion, respectively. Currently, there are more than 1,700 registered AIFs in India.