mywealth.fit — Alternative Assets Guide

Starting point

What are alternative assets?

Everything that isn't publicly listed equity, debt, or cash — and why they exist in portfolios

Alternative assets exist for three reasons. First, they offer returns that are not correlated with stock markets — when Nifty falls 20%, well-structured private credit or infrastructure assets may be barely affected. Second, they access return premiums unavailable in public markets — illiquidity premium, complexity premium, information advantage. Third, they allow exposure to asset classes (private companies, infrastructure, real estate income) that cannot be accessed through a stock exchange.

The critical caveat: Alternatives are designed for sophisticated investors with long time horizons, high risk capacity, and capital they will not need for 3–7+ years. They are illiquid, complex, and sometimes opaque. The minimum ticket sizes exist for a reason. Alternatives should complement a solid core portfolio — not substitute it.

Regulated alternative funds

AIF — Alternative Investment Funds

SEBI-regulated pooled vehicles. Three categories with very different risk-return profiles.

AIF Category I

AIF Cat I

Funds investing in socially or economically desirable sectors — startups, SMEs, social ventures, infrastructure. Often government-encouraged.

₹1 Cr

Min investment

3–5 yrs

Typical lock-in

Moderate-High

Risk

Very Low

Liquidity

Venture capital SME funds Infrastructure Pass-through tax

Sub-types

Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds, Angel Funds

Tax treatment

Pass-through — taxed in hands of investor at their applicable rate

SEBI registration

Mandatory. Check SEBI website before investing

Typical investors

HNIs, family offices, institutional investors

Angel Funds minimum

₹25 lakh (lower threshold for accredited investors)

Category I is the broadest. Venture capital and angel funds can offer exceptional returns but also complete capital loss. Infrastructure funds are more stable. Due diligence on fund manager track record is critical — the SEBI registration tells you the fund is regulated, not that it will make money.

AIF Category II

AIF Cat II

The largest AIF category. Private equity, debt funds, real estate funds, and fund-of-funds that don't leverage extensively.

₹1 Cr

Min investment

4–7 yrs

Typical lock-in

Moderate-High

Risk

Very Low

Liquidity

Private equity Private credit/debt Real estate Pass-through tax

Sub-types

Private equity, private debt, real estate debt, distressed assets, fund-of-funds

Private credit returns

Typically 12–18% p.a. — higher than bank FD, lower than equity, more predictable

Private equity returns

Highly variable. Top quartile PE funds 20–30%+ IRR. Bottom quartile may return less than FD

Tax treatment

Pass-through. Capital gains taxed at applicable rate in investor's hands

J-curve effect

PE/VC funds often show negative returns in early years — capital deployed before gains realized

Popular options

Kotak Alternate AIF, Motilal Oswal PE, Edelweiss ARC, IIFL Private Credit

Category II is where most serious HNI alternative investing happens. Private credit (lending to corporates at 12–18%) offers attractive risk-adjusted returns for those who understand credit risk. Private equity is longer duration and more volatile. The fund manager's track record across cycles matters enormously — look for at least one full market cycle (5–7 years).

AIF Category III

AIF Cat III

Complex strategies using leverage and derivatives. Hedge funds, long-short strategies, arbitrage, absolute return funds.

₹1 Cr

Min investment

Variable

Lock-in

Variable

Risk

Low–Med

Liquidity

Uses leverage Long-short equity Arbitrage Not pass-through

Tax treatment

NOT pass-through — fund pays tax at fund level, typically at MMR (maximum marginal rate)

Leverage

Allowed — can use borrowed money to amplify returns (and losses)

Strategies

Long-short equity, market neutral, global macro, multi-strategy, arbitrage

Redemption

Monthly/quarterly typically — more liquid than Cat I/II

Performance fee

Typically 20% of profits above hurdle rate (2 and 20 structure)

Cat III has the most complex risk profile. The tax treatment at fund level (not pass-through) significantly erodes returns. PMS (Portfolio Management Service) is often a better alternative for most HNI investors wanting active equity management — better tax treatment and more transparency.

SIF — Specialised Investment Fund

SIF

New SEBI category (2024) — bridge between mutual funds and AIFs. Lower minimum than AIF, wider strategies than mutual funds.

₹10 L

Min investment

Variable

Lock-in

Moderate

Risk

Medium

Liquidity

New 2024 category Lower minimum than AIF Accredited investors

Launched

SEBI framework announced 2024 — still evolving

Minimum ticket

₹10 lakh (vs ₹1 crore for AIF)

Eligible strategies

Long-short equity, real estate, infrastructure, credit, derivatives

Who can invest

Accredited investors — income >₹2Cr/yr or net worth >₹7.5Cr

Managed by

SEBI-registered mutual fund AMCs (same entities, new product type)

Tax treatment

Expected to follow MF tax rules — more investor-friendly than AIF Cat III

SIF is a genuinely interesting new category — it democratises some alternative strategies for upper-HNI investors who don't meet the ₹1Cr AIF threshold. Still early days. Watch for product launches from major AMCs. The accredited investor criteria is the key gating mechanism.

Listed alternatives

REITs and InvITs — infrastructure on the exchange

The most accessible alternatives — bought and sold on NSE/BSE like stocks, but representing real estate and infrastructure assets

REITs — Real Estate Investment Trusts

REIT

Own and operate income-producing real estate. Must distribute 90% of income. Listed on exchanges — bought like stocks.

~₹300

Min (1 unit)

6–8%

Distribution yield

10–13%

Total return (hist.)

High

Liquidity

Exchange traded Regular income Interest rate sensitive Equity tax treatment

Listed Indian REITs (Apr 2026)

Embassy REIT, Mindspace REIT, Brookfield REIT, Nexus Malls REIT

Underlying assets

Commercial office space (Embassy, Mindspace, Brookfield), Retail malls (Nexus)

Distribution frequency

Quarterly — at least 90% of distributable cash flows

Tax on distributions

Partly interest (slab), partly dividend (slab), partly capital return (tax-free) — complex but manageable

Capital gains tax

LTCG 12.5% above ₹1.25L (>1 yr), STCG 20%

Risks

Occupancy rates, lease renewals, interest rate sensitivity (prices fall when rates rise), promoter quality

Demat required

Yes — traded through broker like stocks

REITs give you real estate exposure with stock-like liquidity — something you cannot get from owning physical property. The 6–8% distribution yield is real and recurring. However, Indian REITs are young (2019 onwards) and concentrated in office space — the post-COVID WFH shift is a genuine long-term risk to demand. Nexus Malls (retail) offers diversification from office.

InvITs — Infrastructure Investment Trusts

InvIT

Own and operate infrastructure assets — roads, power transmission, pipelines. Quasi-bond like income with inflation linkage.

~₹100

Min (1 unit)

7–10%

Distribution yield

9–12%

Total return (hist.)

Medium

Liquidity

Inflation-linked income Govt-backed revenue Lower volatility than equity Leverage risk

Listed InvITs (Apr 2026)

IRB InvIT, IndInfravit, Powergrid InvIT, India Grid Trust, National Highways InvIT

Underlying assets

Toll roads, power transmission lines, gas pipelines, solar parks

Revenue model

Toll collection (traffic-linked), transmission charges (CERC regulated), annuity payments from NHAI

Inflation linkage

Many contracts have escalation clauses — distribution grows with inflation

Tax on distributions

Partly interest (slab), partly dividend, partly capital return — similar to REIT

Key risks

Traffic volume risk (toll roads), regulatory risk, refinancing risk, sponsor quality

Powergrid InvIT

Backed by Powergrid Corporation (PSU) — lowest risk InvIT, most stable income

InvITs behave more like bonds than stocks — steady income, lower capital appreciation potential, more stable. The Powergrid InvIT specifically has government-regulated revenue, making it the closest thing to a high-yield bond backed by infrastructure. Good for investors seeking regular income with moderate risk and inflation protection.

Private credit

Private credit and structured debt

Lending to corporates or projects at rates unavailable in public debt markets — the fastest-growing alternative category globally

Private Credit (AIF Cat II)

Private Credit

Lending to mid-market companies or projects at 12–18% returns. Senior secured or mezzanine. 3–4 year typical duration.

₹1 Cr

Min investment

12–18%

Target return

Moderate

Risk

Very Low

Liquidity

Predictable income Illiquid Credit risk Senior secured preferred

How it works

AIF pools investor capital, lends to vetted corporates or real estate developers at agreed interest rates

Security types

Senior secured (first charge on assets) — safest. Mezzanine — higher return, lower security. Junior/subordinated — highest risk.

Why borrowers pay 12–18%

Banks won't lend (credit score, sector, speed needed). Private credit fills the gap at a price.

Key Indian managers

Edelweiss, IIFL, Kotak, Piramal, Lighthouse Canton, Northern Arc

Default risk

Real. Senior secured funds have recovered 90–100% on defaults historically. Junior tranches can lose capital.

Tax treatment

Pass-through (AIF Cat II) — interest income taxed at slab rate in investor's hands

Distributions

Quarterly interest payments — creates regular income stream

Private credit is the most institutionally credible alternative for Indian HNI investors. Returns of 12–15% with quarterly income, backed by security, from established managers with multi-cycle track records — better risk-adjusted than many equity alternatives. The illiquidity is the price you pay. Always choose senior secured over mezzanine unless you understand and accept the higher risk.

Co-investment Opportunities

Co-invest

Direct participation alongside a fund in a single deal. Higher concentration, lower fees, requires strong due diligence capability.

Varies

Min investment

Higher

Potential return

Very High

Concentration risk

Very Low

Liquidity

Lower fees Single deal risk Relationship-dependent Expert access only

How it works

Fund offers existing LPs (limited partners) the right to invest additional capital directly in a specific deal alongside the fund

Fee advantage

Co-investment typically carries no management fee and reduced or no performance fee — 100% of return to investor

Why funds offer it

Deal too large for fund alone, want to deploy capital faster, reward top LPs

Due diligence needed

Very high — you are investing in a single company/project, not a diversified fund

Who can access

Existing LP relationships with fund managers — not available to general public

Co-investment is for sophisticated investors who have existing fund relationships and the capability to evaluate individual deals. The fee advantage is real but so is the concentration risk. Not recommended as a starting point — build the AIF/private credit experience first.

Allocation framework

How much should you allocate to alternatives?

A framework based on portfolio size, liquidity needs, and sophistication — not a prescription

Core investors
Portfolio ₹50L–₹2Cr

0–5%

Focus on building solid core (equity MF + debt + gold). Alternatives not needed. If curious, REITs and InvITs are the only ones worth considering at this stage.

Affluent investors
Portfolio ₹2Cr–₹10Cr

5–15%

REITs/InvITs for income diversification. One established private credit AIF (Cat II, senior secured) for yield enhancement. Keep alternatives under 15% of total.

HNI investors
Portfolio ₹10Cr–₹50Cr

15–25%

Meaningful private credit allocation (2–3 funds). REITs + InvITs for income. One Cat I (VC/PE) allocation if 7+ year horizon. Consider PMS alongside. Max 25% alternatives.

Ultra HNI / Family office
Portfolio ₹50Cr+

20–35%

Full suite — private equity, private credit, infrastructure, real estate, co-investments, global alternatives. Dedicated alternatives allocation with professional manager selection.

Ring-fencing capital: Never invest in alternatives with capital you may need within the lock-in period. Create a liquidity reserve (6–12 months expenses + near-term goals) in liquid instruments before any alternatives allocation. The illiquidity of alternatives is not a risk that can be managed — it must be accepted upfront.

Due diligence framework

How to assess an alternative investment

Eight questions to ask before committing capital to any alternative fund or instrument

1

Track record across market cycles: Has the fund manager navigated at least one full market cycle (5–7 years)? How did they perform in 2008, 2016, 2020? Point-in-time returns are easy to manufacture — cycle performance is harder to fake.

2

What is the actual source of return? Illiquidity premium? Credit spread? Skill? If the fund cannot clearly articulate where the return comes from, be wary. "We know good deals" is not a strategy.

3

What happens if things go wrong? For private credit — what is the security? First charge on what assets? What is the recovery history on defaults? For PE — what is the downside scenario? For REITs — what if occupancy falls 20%?

4

Fee structure: Management fee (typically 1.5–2% p.a.) + performance fee (typically 20% above hurdle). Total fee drag over a 5-year fund can be 12–15% of gross return. Is the net-of-fee return still attractive?

5

SEBI registration and compliance: Verify on SEBI website. Not all AIFs are equal — registration means regulated, not endorsed. Check for past SEBI orders or enforcement actions on the manager.

6

Liquidity and exit options: When can you exit? Secondary market? Can the fund extend its life? What happens if you need capital mid-tenure? Never invest on the assumption you can exit early.

7

Concentration: How diversified is the fund across borrowers/companies/assets? A 10-company PE fund where one company is 30% of NAV has significant concentration risk regardless of the overall fund size.

8

Alignment of interests: Does the manager have meaningful personal capital in the fund? Is the performance fee structured to incentivise long-term performance or short-term AUM growth? Skin in the game matters.

Quick reference

Side-by-side comparison

Instrument	Min ticket	Target return	Liquidity	Lock-in	Tax	Best for	Accessible to ₹2Cr portfolio?
AIF Cat I (VC/Angel)	₹25L–₹1Cr	High/variable	Very low	3–7 yrs	Pass-through	Growth/innovation bet	~
AIF Cat II (Private credit)	₹1 Cr	12–18%	Very low	3–5 yrs	Pass-through	Yield enhancement	~
AIF Cat II (PE)	₹1 Cr	18–25%+	Very low	5–7 yrs	Pass-through	Long-term wealth	~
AIF Cat III (Hedge)	₹1 Cr	12–20%	Low–Med	Variable	Fund-level (MMR)	Absolute return	✕
SIF	₹10 L	Varies	Med	Variable	MF rules (expected)	Diversified strategies	✓
REIT	~₹300	10–13%	High	None	Equity (listed)	Real estate income	✓
InvIT	~₹100	9–12%	Medium	None	Equity (listed)	Infrastructure income	✓
Private credit (direct)	₹1 Cr+	12–18%	Very low	3–4 yrs	At slab (interest)	Income + capital preservation	~
Co-investment	Varies	Higher	Very low	Deal-dependent	Deal-dependent	Sophisticated LP access	✕
PMS (Portfolio Mgmt Service)	₹50L	12–18%	Medium	None (but 30-day exit load common)	Securities taxed at investor level — better than Cat III AIF	Personalised equity portfolio	~
Unlisted / Pre-IPO equity	₹2–5L	Very high / zero	Very low	Till IPO or M&A	Unlisted share capital gains rules	High-risk growth bet	~
Gold (SGB)	1g (~₹7K)	10–13%	Low (8yr to maturity)	8 years	Zero tax at maturity + 2.5% interest at slab	Inflation hedge + income	✓
Startup / Angel investing	₹5–25L	0% or 100x	Zero for years	5–10 years	Unlisted STCG/LTCG on sale	Highest risk, innovation bet	✕

✓ = accessible · ~ = border case · ✕ = typically not appropriate. Returns are targets/historical averages — not guaranteed.

Alternative assets — beyond stocks and bonds

What are alternative assets?

AIF — Alternative Investment Funds

REITs and InvITs — infrastructure on the exchange

Private credit and structured debt

How much should you allocate to alternatives?

How to assess an alternative investment

Side-by-side comparison