Best Performing AIFs Across Category I, II & III

The alternative investment industry in India has clearly emerged from its niche status. In the last ten years or so, Alternative Investment Funds (AIFs) have become an integral part of the investment universe for family offices, HNWIs, and institutional investors as part of their portfolio allocation.

Alternative investment products like private equity, venture capital, structured credit, and hedge funds are increasingly being considered as an asset allocation tool to invest alongside traditional public markets.

The alternative investment infrastructure has grown significantly in tandem with the change in investor behaviour described above. As of September 2025, the Portfolio Management Services (PMS) and AIF industry size stood at ₹23.43 Lakh Crore, with a compounded growth rate of more than 31% over the last ten years. 

Among the AIF segment, Category I AIFs: Venture capital funds have raised ₹37,361 Crore and deployed ₹29,515 Crore as of December 2025.

Category I AIFs collectively raised ₹97,988 Crore and deployed ₹47,316 Crore into early-stage businesses and SMEs.

Category II AIFs are the largest segment in terms of capital size. Category II AIFs collectively raised more than ₹4.25 Lakh Crore and deployed ₹3.84 Lakh Crore.

Category III AIFs, which follow hedge fund-like strategies, have also seen significant traction. Approximately ₹1.69 lakh crore has been raised via long-only, long-short, and quant strategies. 

Best Performing AIFs for the year 2025

Category I - Early Stage & SME Growth

Alpha AMC  VentureX SME AIF

Alpha AMC’s VentureX SME AIF is a Category I AIF focused on investing in high-growth small and medium enterprises.

The fund commenced operations in March 2025 with a target corpus of ₹1,000 crore. Since then, the fund has been steadily investing in SME opportunities. As of early 2026, the fund has committed capital of approximately ₹250 crore. Of this, the fund has already invested approximately ₹80 crore into early-stage growth companies. The SME sector has delivered high growth over the past decade. Over the past five years, the SME stocks sector has delivered a CAGR of approximately 61%. This is significantly ahead of the Nifty Smallcap TRI and the Nifty 50 TRI over the same period.

This performance differential implies that strategies that focus on SMEs can take advantage of the inefficiencies in the valuation of these firms as well as the lack of research done on them, thus the attractiveness of this segment to specialised venture investors.

TVS Shriram Growth Fund IV

TVS Shriram Growth Fund IV is a unique private equity fund model focused on processes and institutional governance. It has also received the highest fund management grade from CRISIL, indicating high investment processes, governance standards, and risk management practices.

Previous funds managed by the TVS Capital Group have generated a post-expense IRR of 16-17% with a distribution-to-paid-in ratio of 0.59.

Investing in private markets continues to be a compounding business through long-term holding periods and exit strategies. 

Singularity Fund-of-Funds

Singularity Fund-of-Funds is a diversified allocation model focused on investing in venture and growth funds. Earlier funds in this series have generated pre-carry IRRs of 20% with a TVPI close to 1.7x.

Diversification may not help in maximising returns, but it reduces concentration risk and gives access to multiple venture managers through a single structure. 

IAN Alpha Fund

IAN Alpha Fund is a SEBI-registered VC fund with a corpus size of ₹1,150 Cr. It invests in early-stage and growth-stage companies in technology, consumer, and digital sectors.

Typically, performance benchmarking of Category II funds is done through Public Market Equivalent (PME) analysis using indices such as Nifty 50 or Nifty 500 TRI. In 2025, some of the top-quartile private equity managers were able to beat public market indices in their performance as exit activity picked up in the second half of 2025.

Category III AIFs primarily operate in listed markets. These funds offer investors greater liquidity compared to Category I & II funds. Category III funds include long-only equity funds, long-short equity funds, and quantitative trading models.

Performance tracking platforms indicate that a number of Category III funds have registered impressive medium-term performance.

Shepherd’s Hill Private Investment Fund

Shepherd’s Hill manages a Category III AIF that follows a long-only, value-oriented strategy in listed equities. The fund generally looks for businesses with strong balance sheets and the ability to steadily scale earnings over time. 

Inception: April 2019
3-year return: 32.44%
Since-inception return: 19.91%

In recent years, the fund’s performance has largely been supported by its concentrated exposure to high-quality mid-cap and small-cap companies that have benefited from the broader market cycle.

Carnelian Capital – Capital Compounder Fund

Managed by Carnelian Asset Management, the Capital Compounder Fund follows a long-only equity strategy focused on businesses that enjoy durable competitive advantages and generate strong returns on capital.

Inception: May 2019
3-year return: 29.74%
Since-inception return: 22.12% 

The fund’s philosophy is centred on long-term compounding—identifying companies with predictable earnings growth and management teams that allocate capital prudently.

Prudent Equity – ACE Fund

The ACE Fund, managed by Prudent Equity, follows a bottom-up investment approach where stock selection is driven primarily by company fundamentals rather than broader sector calls.

Inception: December 2022
3-year return: 27.40%
Since-inception return: 22.80% 

The portfolio typically includes a mix of scalable mid-cap businesses and emerging large-cap companies, which has helped the fund deliver fairly consistent performance over time.

Sameeksha Capital – India Equity Fund

Sameeksha Capital’s India Equity Fund is a Category III AIF that focuses on investing in fundamentally strong Indian businesses with clear long-term earnings visibility.

Inception: February 2022
3-year return: 27.20%
Since-inception return: 22.80% 

The investment approach combines detailed bottom-up research with disciplined portfolio construction, aiming to participate in India’s long-term equity growth story.

(Source: PMSBazaar)

The broader equity market environment has also played a significant role in the performance of alternative investments. Over the last year or so, the Indian equity markets have broadly been in a phase of consolidation as the valuations have adjusted for the strong run-up in the previous periods.

At the macro level, the Union Budget 2026-27 has allocated approximately ₹12.2 lakh crores to capital expenditure in the infrastructure, manufacturing, and technology sectors. Such huge public expenditure is expected to have positive effects on the economy in the long run.

Key Risks

Despite the strong growth in the AIF industry, several risks have to be considered. One of the major risks is the liquidity risk. AIF structures have long-term lock-in periods.

Another major factor is the vintage risk. Funds raised during the bull run of 2021-2023 may face challenges in the exit cycles.

Another significant factor is the increased regulatory oversight. Exposure norms by the RBI have capped the exposure at 10% for each investor and 20% for the scheme.

Another major factor is the execution risk. AIF returns have significant correlations with the manager's skill. Capital allocation is critical in AIF.

2026 Outlook

As we look to the future, the outlook for AIF strategies remains positive.

Category I SME-focused strategies could benefit from the growth of the entrepreneurial ecosystem and capital market participation in India.

Category II private equity and structured credit strategies are likely to remain the preferred choice for long-duration alternative investments, with improved private market liquidity and exit options.

Category III strategies are likely to remain the choice for tactical alpha within the public markets, with risk management and portfolio discipline remaining crucial.

For sophisticated investors, a well-diversified portfolio of 10-15% of the portfolio assets across Categories I, II, and III could provide the right balance of private market opportunities and liquid alternative investments.

From the 2025 alternative cycle, the key learning has been the rise of the manager dependency factor in the search for alpha.

Top-performing funds across Categories I, II, and III have clearly demonstrated the power of disciplined investment processes, sectoral expertise, and robust corporate governance structures to deliver differentiated investment returns.

Category I SME-focused venture funds like Alpha AMC’s VentureX are now starting to show promising traction, while Category II private equity managers have continued to deliver long-term compounding through disciplined capital deployment and exit strategies. Category III strategies offer liquid, actively managed investment opportunities in public markets.