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The industry body for venture capital, Indian Venture and Alternate Capital Association (IVCA), will focus on drawing more domestic institutional capital into alternative investment funds (AIFs), even as structural bottlenecks continue to slow participation.
“Pension funds and insurance companies allocate very little to AIFs despite regulatory permission,” said Srini Srinivasan, the newly appointed chairperson of IVCA and managing director, Kotak Alternate Asset Managers Limited, in an interview with Mint.
While policies allow these institutions to invest in AIFs, execution remains a challenge, he said.
One key hurdle is structural misalignment.
For instance, the National Pension System (NPS) requires a daily net asset value (NAV), but AIFs do not provide this. This mismatch makes it difficult for pension money to flow into these funds. Srinivasan added that institutions may also lack familiarity with AIFs or may have had poor past experiences.
Recently, the NPS was allowed to invest up to 1% of its total assets in AIFs. While pension fund participation was permitted earlier as well, it was not practical to implement.
“If you are an NPS subscriber, you would have to decide which AIF to invest in. It is unclear whether most subscribers have the knowledge to make that decision,” Srinivasan said.
IVCA will also focus on improving ease of doing business for both domestic and foreign investors, Srinivasan added.
Regulatory changes have also created fresh friction in early-stage investing.
The Securities and Exchange Board of India (Sebi) in September last year made it mandatory for angel funds to raise money only from accredited investors. Accredited investors are considered as investors with high risk-taking ability and need to meet eligibility criteria such as certain net-worth and financial asset thresholds.
“From what I have been hearing, restricting angel fund investments to accredited investors has become a challenge. There are only about 2,000 such investors in India,” Srinivasan said. “The process to get accredited is also cumbersome and not friction-free, although regulators are working to simplify it.”
In India, CDSL Ventures Ltd (CVL) has been granted recognition by Sebi to act as an accreditation agency for investors. The process of accreditation in India is a cumbersome one. In certain countries, investors only need to give a self-declaration to get accredited. In others, the onus is on fund managers to collect the information to determine whether an individual can be considered an accredited investor.
Srinivasan also pointed to regulatory arbitrage emerging in long-short strategies.
On the long-short strategies now being offered in the mutual fund (MF) space, Srinivasan said that people are quitting the category III AIF industry and joining the mutual fund industry to implement the same high-risk strategy for retail investors.
Sebi introduced Specialised Investment Funds (SIFs) in February last year, which offer long-short strategies. Requiring a minimum ticket size of ₹10 lakh, they are positioned below the ₹50 lakh minimum for portfolio management services (PMS) and ₹1 crore for AIFs.
Category III AIFs also offer long-short strategies but are tax inefficient under the AIF route. The same strategy under the mutual fund route becomes tax efficient.
On concerns around private credit risk in India, Srinivasan struck a measured tone. “Private credit funds in India are closed-ended, so investors cannot withdraw money before the tenure of the fund ends. Moreover, unlike global peers, private credit AIFs cannot borrow from banks, so the systemic risk may not spread to banks.”
Globally, however, risks are surfacing.
Blue Owl Capital, one of the largest private credit firms, recently capped investor withdrawals after seeing a surge in redemption requests. Other funds have faced similar pressure.
These developments have raised concerns about weak lending standards in the private credit market, especially after a series of company failures linked to private credit loans. This has also led to questions about whether risks from private credit could spill over into the banking system.
The AIF industry continues to expand.
The total funds raised by AIFs, including Category I, II and III, have increased 1.5x to ₹6.78 trillion as of December 2025.
Srushti is a markets reporter at Mint. She writes on equity markets, and her areas of coverage range from brokers and exchanges to mutual funds and the fast-evolving alternatives space, including GIFT City, from the financial capital of India. She has an experience of over three years in journalism, and has previously worked at Moneycontrol. She has an undergraduate degree in mass communication and a postgraduate diploma in business and financial journalism from Asian College of Journalism, Chennai.Srushti prefers meeting people from the industry over making calls. Her work aims to drive impact—her story on illegal gold imports, for instance, caught the government’s attention and contributed to a policy shift. She specialises in turning complex market data into clear, engaging stories so even her grandmother could understand futures and options.Outside of the newsroom, she enjoys spending money on jewellery and watching thriller films—especially the kind that keep her awake at night. She spends 1.5 hours a day commuting in Mumbai locals, listening to horror podcasts on her way to work. She’s also very talkative—so reach out only if you have lots of time.