AIFs vs PMS: Why India’s Rich Are Choosing Alternative Investments for Better Returns

Over the last decade, India’s wealth management landscape has been quietly transforming. Traditional routes such as mutual funds, direct equities, and fixed income now share space with sophisticated investment structures tailored to affluent investors who seek differentiated returns and deeper diversification. 

As India’s financial markets deepen and wealth pools expand, the investment choices for high-net-worth individuals (HNIs) and ultra-HNIs are evolving rapidly. 

In 2025, thousands of crores have moved into Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS), the two leading bespoke investment channels for affluent investors.

But a clear trend has emerged: AIFs are outpacing PMS in both growth and investor preference. To understand why India’s rich are tilting toward alternative investments for superior returns, we need to break down what each offers, how they differ, and why one is winning mindshare and capital faster than the other.

At a fundamental level, both PMS and AIFs serve sophisticated investors, but their structures and investment levers differ markedly.

Portfolio Management Services (PMS) is a bespoke investment solution where a professional manager builds and manages a portfolio of listed securities on behalf of an individual investor. PMS portfolios are customized to the investor’s risk profile and preferences, with capital deployed in public market assets such as equities and bonds. SEBI mandates a minimum investment of ₹50 lakh for PMS, and the investor owns the underlying securities directly. 

In contrast, Alternative Investment Funds (AIFs) are pooled investment vehicles where capital from multiple investors is aggregated and deployed across a broader spectrum of alternative asset classes ranging from private equity and venture capital to real estate, structured credit, special situations, and hedge strategies. AIFs operate under SEBI’s AIF Regulations and typically require a minimum investment of ₹1 crore. Investors in an AIF hold units of the fund, not direct ownership of the underlying assets. 

The implications of this structural difference are significant: while PMS offers individual control and transparency, AIFs provide access to asset classes and opportunities that are typically inaccessible through PMS or mutual funds.

Recent industry data highlights a broader trend: the alternative investment ecosystem in India, comprising PMS and AIFs, has crossed ₹23.4 lakh crore in assets, growing at a striking 31% CAGR over the past decade, driven by rising institutional participation and strategic allocations by affluent investors. 

Several factors explain why wealthy investors increasingly favor AIFs over PMS:

1. Access to Private Markets and Alternative Asset Classes

One of the core advantages of AIFs is their ability to invest beyond listed equities — including unlisted companies, private credit, structured deals, and sector-specific strategies, which often carry higher risk-adjusted return potential due to inefficiencies and lower competition. By contrast, PMS strategies are largely tethered to public markets, which can limit alpha potential in certain cycles.

2. Diversification Beyond Public Market Beta

While PMS can concentrate a portfolio of listed shares to outperform the market index, AIFs offer true diversification. Exposure to unlisted growth companies, credit opportunities, and specialised strategies provides investors with risk-adjusted return potential that is less correlated with public markets, making them appealing in volatile environments or when traditional equity markets plateau. 

3. Operational Simplicity and Post-Tax Returns

AIFs often appeal to investors because the taxation and operational aspects occur at the fund level. The fund manages compliance, custodial requirements, and tax obligations, delivering post-tax returns to investors via units — providing operational ease compared with PMS, where individual investors must manage tax reporting and custody arrangements for each security. 

4. Structured Capital Deployment and Fund Focus

Because AIFs are pooled, fund managers can deploy capital strategically across an investment thesis, with the strength of team research and scale, especially for sector or strategy-specific funds. PMS customization, while beneficial for individual goals, can limit concentrated exposure to niche opportunities that require larger capital blocks or collective bargaining power.

PMS is not losing relevance, but Its role is evolving

Portfolio Management Services remain an important tool for investors seeking personalized, transparent, and direct ownership of listed securities. PMS can deliver strong equity market performance, particularly in favourable cycles or when driven by deep research expertise. It caters to those who want visibility into every position, flexible liquidity, and alignment with individual financial goals. 

However, PMS’s core linkage to public markets means its return potential is often bound by overall market performance and valuation cycles. In contrast, AIF strategies can generate differentiated alpha through early stage participation, structural credit opportunities, or special situations areas where traditional public investors may not have access.

Alpha AMC’s VentureX: A Case of AIF Execution in Action

The broader shift toward AIFs can be seen in the growth of funds like Alpha AMC’s VentureX AIF, a Category I fund focusing on SME and pre-IPO opportunities. VentureX’s first year exemplified how a structured AIF can combine disciplined investment frameworks with alternative exposures, delivering differentiated outcomes in a segment that lies outside standard PMS reach.

For instance, in April 2025 VentureX delivered a 15.8% return for the month, outpacing many traditional equity strategies and showcasing how alternative strategies can generate alpha in niche segments. 

Such performance highlights a key difference: while a PMS might aim to outperform an equity benchmark, AIFs like VentureX seek returns derived from market inefficiencies and private market access, areas unavailable to typical PMS portfolios.

For wealthy investors today, the choice between PMS and AIF is less about one being universally “better” and more about alignment with financial goals, risk appetite, and investment horizon:

PMS is more suitable for those who want liquidity, direct ownership, and public market exposure with customization.

AIFs, especially Category I and II vehicles, attract investors who can tolerate longer lock-ins in exchange for access to alternate asset classes, less correlation with listed markets, and structural alpha potential.

Many affluent investors are not choosing one exclusively; instead, they are allocating across both PMS and AIFs using PMS for liquidity and listed exposure, and AIFs for diversification and long-term return enhancement.

For long-term value creation, AIFs have become the preferred route for affluent investors seeking to harness the full spectrum of India’s investment opportunity set. 

As India’s wealth base expands and financial sophistication deepens, the growth of AIFs reflects a maturing market. Investors are increasingly seeking structures that transcend conventional investment approaches, offering exposure to private markets, early stage growth, and differentiated risk/return profiles.

In this context, AIFs represent a strategic evolution not a replacement of traditional long-only solutions like PMS. For high-net-worth individuals and family offices with a long horizon and diversified objectives, AIFs offer a complementary pathway to balance the liquidity and transparency of public markets with the transformative potential of alternative strategies.