A few weeks ago, a Rs 1,200 crore family took a bold step—they liquidated their entire mutual fund portfolio. In just two weeks, decades of accumulated holdings were unwound. When asked why, the family patriarch explained it in one simple line: “I’ve spent 30 years building our business. I’m not letting it die in someone else’s fund management fees.”
That statement stayed with me, because behind it lies a growing movement—one that’s redefining how India’s wealthiest families think about legacy, control, and governance.
In the past year alone, I’ve spoken to five families whose combined wealth exceeds Rs 6,800 crores. Each of them asked the same question: “How do we set up our own AIF?” At first glance, it seemed like another UHNI trend—families copying what others are doing. But the deeper I looked, the more I realised this isn’t about chasing higher returns. It’s about reclaiming ownership of how wealth is managed, protected, and passed on.
Problem with Traditional Portfolios
For ultra-wealthy families, traditional investment structures often fail to offer flexibility or alignment with their legacy goals. Mutual funds treat them like just another folio number. Real estate holdings, while tangible, often become emotional battlegrounds among heirs. Even direct equity or private portfolios come with complex tax liabilities that can erode up to 30% of wealth during succession.
In many ways, these families aren’t looking for better returns—they’re looking for better governance.
Enter the AIF: Structure Meets Strategy
This is where an Alternative Investment Fund (AIF) changes the equation. Unlike mutual funds or PMS, which primarily aim to manage money, AIFs are designed to govern capital. They give wealthy families the ability to customise their investment strategy, align it with their vision, and even embed their governance philosophy into the structure itself.
There are three categories of AIFs in India, as defined by SEBI:
• Category I AIFs: Invest in early-stage start-ups, SMEs, or social ventures.
• Category II AIFs: Include private equity, debt funds, and special situation funds.
• Category III AIFs: Engage in complex trading strategies such as hedge funds.
Each category offers flexibility, regulatory oversight, and access to opportunities that are usually out of reach for mutual fund or PMS investors—think pre-IPO deals, private credit, or venture capital rounds.
Tax Efficiency and Control
One of the biggest advantages of AIFs is their pass-through structure. When an AIF sells an asset—say, a start-up stake for Rs 100 crores—the gain directly flows to investors, taxed at their individual rates. This eliminates the “double taxation” issue that often plagues mutual funds. The result? Significant savings that can run into crores.
But the real power of an AIF goes beyond tax benefits. It lies in control and access. Families can decide where their capital flows—whether into private credit, venture capital, infrastructure, or strategic acquisitions. They can act swiftly and with conviction. Recently, I watched a family make a Rs 25 crore investment in a Series A start-up within a day. While traditional VCs were still negotiating terms, their Category I AIF executed the deal seamlessly—something impossible within a mutual fund or PMS framework.
Building legacy Through Governance
This new generation of wealth creators isn’t just seeking yield; they’re seeking continuity. They want to ensure that their business principles, investment philosophy, and long-term vision survive beyond them.
In that sense, an AIF isn’t just an investment vehicle—it’s a family institution. It blends professional governance, generational involvement, and financial structure into one long-term framework. That’s why, as of this year, more than Rs 14.2 trillion has been committed to AIFs in India—nearly 80% of it from family offices.
These families aren’t merely investors anymore. They’re becoming builders—of legacies, not just portfolios. And it raises an important question for anyone managing significant wealth today:
Would you rather leave the next generation a pile of account statements—or a thoughtfully structured institution that carries your vision forward?
(The writer is the founder of ‘Investment Options’, an insurance and investment consultancy based in Goa since 2013, with pan-India clientele)
