Beyond FDs: The Best Alternative Investments in India for NRIs This Year (AIFs, PMS & More)

Most NRIs don’t make bad decisions. They make monetary decisions that feel comfortable. FD’s protect the nominal rupee value. They do not protect global purchasing power.

Money earned abroad is sent home and parked where generations before them parked it. Parents approve. Bank managers reassure. Statements arrive on time. There’s no volatility, no drama, no uncomfortable conversations.

From afar, these choices look prudent, stable, low stress and safe. The problem only shows up later when returns are translated back into dollars, dirhams, or pounds. At that point, the outcome feels oddly disappointing.

RBI data shows that between 2010 and 2025, NRI bank deposits (NRE, NRO, FCNR) grew from $55 billion to $165–170 billion, making bank FDs and short-term debt the dominant allocation, well ahead of residential real estate at an estimated $25 billion.

                                
     (Source: RBI, Times of India)

The biggest risk for an NRI investor is not volatility or a bad year in equities. It’s being invested in an economy with a depreciating currency and not demanding enough return.

Ask most NRIs what worries them about investing in India, and you’ll hear the same answers: equity volatility, governance issues, political risk, or “what if there’s a bad year.” Over the past 20 years, the Indian rupee has depreciated by roughly 3.6–3.8% per annum, moving from around ₹44 to over ₹91 per dollar, quietly eroding nearly half of NRI capital in global terms. NRIs have lost half their capital in a slow, grinding way to currency depreciation.Every rupee-denominated return must first overcome this drag before it can be called real wealth creation. Most portfolios never demand that.IGNORANCE IS BLISS. CURRENCY MATH ISN’T

A 6.5% FD looks respectable. Subtract 3.6–3.8% currency depreciation, and the real USD return drops to 2–3% before tax. In years where the rupee weakens faster, that number can approach zero. 

That’s not low risk. It’s low ambition disguised as prudence.

FDs don’t destroy wealth overnight; they simply prevent meaningful compounding for globally exposed investors.

Illustrative INR Returns across asset classes vs USD-Equivalent Outcomes (2005-2025)
(Long-term averages shown for comparison; not projections)

(A 3.5–4% annual currency drag compounds to a 40–50% erosion of global purchasing power over 20 years.)

Over the same period, the US dollar strengthened against most emerging market currencies, but India’s depreciation has been more persistent than peers like China and South Korea, largely due to higher inflation differentials and a structural current account deficit

A common assumption many NRIs make is that “the rupee will eventually strengthen.” Short-term trends might support just that. In the long term, history says otherwise.

India maintains a constant current account deficit. The country imports oil, energy, electronics, and machinery. The inflation level in India remains 2% to 3% over the inflation level of developed markets.

These are structural features of a developing economy and imply sustained currency pressure over time.This does not make India unattractive. It simply means returns must be high enough to justify the currency reality.

THE ROLE OF AIFs IN A FOREIGN INVESTOR'S PORTFOLIO

Alternate investment funds (AIF’s) are deemed as too risky or return enhancers; both views miss the point. Each AIF category serves a distinct purpose. Understanding this distinction, especially for NRIs, is very important from a liquidity standpoint.

Alternative Investment Funds are often talked about as if they were one homogenous category. That's a mistake.

Each category of AIFs plays a very different role.

• Category I AIFS: Long-Duration, Intent-Driven

Category I AIFs have often been misrepresented because they are assessed through the wrong criteria.

They are neither yield products, cash substitutes, nor short-term return enhancers.

Category I AIF returns don’t show up neatly year after year. Outcomes are driven by what is backed and how long it is held, not by short-term market moves. Private-market data suggests that 50–70% of a fund’s total returns often come in the last few years of a 7–10 year life, typically when investments finally exit rather than through steady mark-to-market gains.

This is very different from listed equities, where prices move every day, or fixed income, where returns are steady but limited. For patient capital, that uneven payoff is the trade-off for more asymmetric outcomes.

• AlphaAMC’s Perspective on Long-Duration Capital

In alternative investing, structure matters, but manager judgment matters more.

AlphaAMC operates in the Category I AIF space with a clear bias toward long-duration, intent-driven capital. The focus is not on engineering short-term outcomes, but on backing businesses aligned with India’s structural growth, SMEs, emerging enterprises, and early-stage platforms that sit outside public markets.

It is capital deployed with patience, where outcomes are expected to be uneven, delayed, and selective. Returns are driven by selection quality, governance discipline, and time, rather than market cycles or sentiment. 

Category I AIFs are most effective when used as satellite allocations, capital that does not require near-term visibility but seeks asymmetric upside from long-term growth engines. AlphaAMC’s approach reflects this reality, with an emphasis on governance, downside awareness, and alignment over narrative-led investing. It is not a substitute for core equity or income strategies, but a deliberate complement for patient capital.

• Category II AIFs: Cash Flow Over Narratives

Category II AIFs, especially private credit and special situations, are among the most relevant alternatives available to NRIs as they move beyond FDs.

Private credit: This is direct lending to business entities using structured instruments, often with security or collateral backing. Returns are based on contractual cash flows, rather than market sentiment.

Typical structures target:

• 12–15% yields INR

• Quarterly or accruals payment

• Defined exit timelines: 3–5 years

This translates to 8-11% USD-equivalent returns after currency adjustment, often with lower volatility compared to equities.

• Borrower defaults

• Poor collateral enforcement

• Aggressive underwriting

Credit risk doesn't announce itself early. That's why manager selection matters more here than almost anywhere else. This is not “safe debt.” It is an intentional risk taken for a defined purpose.

• Category III AIFs are long-short equity, arbitrage, and tactical strategies
  
  

Some of these firms manage risk exceptionally well. Many don't. These only make sense for NRIs if:

• Drawdowns are at their minimum.

• The performance of the strategy persists over various market regimes.

• Leverage is used conservatively.

Otherwise, the complexity would increase unnecessarily without the solution of the actual problem: currency-adjusted compounding.

Traditional fixed-income instruments have always been designed for local savings, where stability was the objective, not for international earners, where exchange rate risks need to be managed.

This doesn’t mean that these products are bad. It makes them structurally mismatched for NRI investors.

After tax and currency adjustment, many fixed-income products act more as wealth preservers than wealth builders for NRIs. This leads to a structural gap.

But this gap cannot be fulfilled by pursuing higher rates of returns in FDs or switching between similar debt funds. It is this deficit that is filled in by PMSs, AIFs, and other alternative routes.

PMS: FOCUS, DISCIPLINE, & ACCOUNTABILITY

The trouble with Portfolio Management Services is often the result of investors coming with the wrong expectations. Typically, many come looking for the most successful of last year or for the smooth experience they got with a mutual fund. This usually leads to trouble.

The true worth of a good PMS is in its concentration with discipline.

An efficient PMS will have the following:

• 15–25 stocks

• Clear position-sizing rules

• Willingness to hold cash

Returns are not smooth. Drawdowns occur. There will always be some years that underperform. 

However, over a complete market cycle, disciplined PMS strategies have been proven to generate returns in the range of 12-15% in INR, which is equivalent to a return of approximately 7-10% in US dollars, a level that is sufficient to beat currency drag.

For NRIs, PMS is more effective if:

• The manager has experienced at least one bear market

• “Risk control is more important than storytelling”

• Performance is measured in cycles, not in years

Properly utilised, PMS is an essential growth catalyst. Poorly utilised, PMS is a costly learning experience.

REAL ESTATE: A KNOWN BUT MISCHARACTERISED INDUSTRY

The residential segment of real estate continues to attract NRI investments because they perceive the sector as tangible. In several prime urban micro-markets, developers report that NRIs account for a meaningful share of residential demand, in some cases exceeding 15–20% of sales.

After adjusting for maintenance, vacancies, taxes, transaction costs, and currency, real returns are often disappointing. Nonresidential properties paint a contrasting picture.

REITs and institutional-level assets provide:

• 6-9% yields

• Professionally managed properties 

• In niche assets (warehousing, data centres, MNC-owned campuses), leases may include:

1. CPI-linked escalations

2. Step-ups tied to global benchmarks
   
   

They aren't thrilling. However, they align with the way NRIs spend money.

OTHER INVESTMENT PATHWAYS NRI’S SHOULD CONSIDER

Beyond PMS and AIFs, NRIs increasingly use:

• Index funds and ETFs for low-cost diversified growth.

• International diversification to reduce single-currency exposure.

• Hybrid strategies combining equity growth with structured cash flows.

Strong portfolios don’t rely on one product. They rely on clarity of role.

The first kind of money is growth capital: this is money that will multiply rapidly in rupees, so even when it depreciates in value, it will still be adding to the wealth. This includes equities for the long term.

The second is cash flow capital allocations that help mitigate market timing risk. Private credit and commercial real estate investments fall under this category.

The third role is patient capital money, which does not require any liquidity or feedback in invested long-duration opportunities such as Category I AIFs.

What strong portfolios avoid is unassigned money sitting in low-yield rupee instruments. The edge isn’t aggressive allocation. It’s clarity and respect for currency math.

CONCLUSION: THE DECISION MOST PEOPLE POSTPONE

"Every investment decision is essentially a time decision."

The difficult decisions an NRI delays making are not due to a lack of understanding of the trade-offs, but due to the fact that the cost of delay does not immediately become apparent. There are no alerts for currency erosion. There are no panic buttons for suboptimal allocation.

The coming years are likely to widen this divergence as capital and opportunities continue to grow. But the above in itself would not necessarily improve the lot of people who would be stuck to what they know.

"The line between a portfolio that exists and one that performs can only be defined in terms of one question: Was the capital allocated thoughtfully, with an understanding of risk, of currencies, of time?"

There’s no such thing as a perfect structure. There is only alignment.

And the sooner the alignment occurs, the less the future needs to compensate for.