Domestic institutions are emerging as a critical catalyst for unlocking the next phase of growth for India’s private markets — and, by extension, the broader economy.
Private markets — where capital is raised and invested outside the stock and bond markets — have staged a remarkable transformation in India over the past decade, surging on the back of growing wealth, shifting investor preferences, and supportive policies, which are expected to sustain growth for years to come.
Private market investments almost quadrupled to ₹4.68 trillion in 2024 from ₹1.26 trillion in 2015 and had hit a peak of ₹5.67 trillion in 2021 amid heightened risk aversion during the pandemic.
Despite external headwinds such as US tariffs, deal values in the first nine months of 2025 remained resilient, dipping only 5.3 per cent year-on-year, underpinned by consumption-led growth and proactive government policies.
AIFs Driving the Private Market Momentum
A crucial component of this growth is the rise of alternative investment funds (AIFs), which have crested the wave on their superior risk-return profiles, portfolio diversification, rising investor awareness, and a supportive regulatory environment.
As of September 2025, over 1,600 AIFs were registered in India, with more than 60 per cent registering in the past four and a half years, reflecting accelerating adoption across investor segments.
Category I and II AIFs have steadily increased their share of total private market investment from 4.6 per cent in 2015 to 16.4 per cent in the first nine months of 2025.
Category I AIFs invest in start-ups, early-stage ventures, social enterprises, MSMEs, infrastructure, and other sectors considered socially or economically desirable by policymakers.
Category II AIFs deploy capital across a broad spectrum, including unlisted and listed securities, debt instruments, real estate, infrastructure, and distressed assets.
Total commitments to AIFs clocked a compound annual growth rate of 31.5 per cent between FY21 and FY25, underscoring strong and sustained investor appetite. Small wonder, AIFs are among the fastest-growing managed products in the financial sector today.
Investor Base: HNIs, Family Offices & the Institutional Shift
High-net-worth individuals (HNIs) and family offices remain the dominant investors in AIFs, seeking alpha generation and diversification opportunities in India’s vibrant private markets and start-up ecosystem.
According to the Hurun Global Rich List 2025, India ranks third globally in billionaire count with 284 individuals, of which 175 have seen their wealth increase over the past year.
However, the bigger structural shift is being driven by rising government-backed institutional participation, which is lending credibility, scale, and momentum to the AIF ecosystem</span>.
AIFs provide an ideal gateway for domestic institutional investors (DIIs) to access private markets, owing to their professional management, diversification benefits, and regulatory oversight.
Domestic Institutions: The Next Growth Trigger
As DIIs gradually relax investment guidelines, even partial participation could unlock the next phase of growth in AIFs and private markets, bringing in long-term patient capital essential for:
Supporting entrepreneurs
Fostering innovation
Delivering superior risk-adjusted returns over time
Currently, DIIs contribute a relatively small portion of annual investments into alternative assets. However, this is set to change with stronger regulatory backing and industry-led initiatives.
Domestic institutions have already committed ₹24,293 crore to various initiatives, including the Research, Development and Innovation Scheme, which aims to catalyse private R&D investment with an outlay of ₹1 trillion over the next six years.
Nation-Building Through Private Capital
The convergence of rising domestic wealth, increasing institutional participation, innovative investment strategies, and robust regulatory support will:
Accelerate growth in AIFs and private markets
Enhance portfolio diversification and long-term returns
Play a pivotal role in nation-building, supporting India’s entrepreneurial ecosystem and economic ambitions
Expert Lens
For deeper perspectives on AIFs, private markets, and structured investment strategies, follow insights from Ranjit Jha (CEO) and explore research-led content from Rurash Financials