Mutual funds work well. For most investors, a well-chosen set of diversified equity and debt mutual funds, continued through SIPs over a long period, is a sound investment strategy. The evidence is clear and the access is easy.

But as wealth grows, the relationship between an investor and their portfolio changes. Goals become more complex. Asset sizes cross thresholds that open new product categories. Tax considerations become more significant. And the limitations of what a mutual fund can do within its SEBI-mandated framework become more visible.

This post explains the specific reasons why HNIs, affluent families, and experienced investors in India are increasingly looking at PMS, AIF, SIF, and other structured products alongside their mutual fund holdings, not as replacements, but as complementary layers in a more complete portfolio.

 

Key Takeaways

• AIF total commitments in India have grown from Rs. 70,000 crore in FY25 to Rs. 1.28 lakh crore in FY26, driven by HNIs and family offices seeking alternatives to public market volatility.

• PMS assets crossed Rs. 35 lakh crore in early 2025, reflecting growing interest in directly managed equity portfolios from investors who can meet the Rs. 50 lakh minimum.

• SIF, the newest SEBI category (effective April 1, 2025), has grown to Rs. 17,858 crore AUM as of July 2026, offering hedge-fund-style strategies at a Rs. 10 lakh minimum.

• Mutual fund alpha has narrowed. As markets grow more efficient and regulations tighten, the average actively managed mutual fund is finding it harder to consistently beat its benchmark.

• The shift is not away from mutual funds. It is toward using mutual funds as the core and allocating a portion of the portfolio to structures that offer what mutual funds cannot: customisation, alternative strategies, and private market access.

The Mutual Fund Advantage: What It Does Well

Before discussing what drives HNIs beyond mutual funds, it is worth being clear about what mutual funds do genuinely well. This is important because the move beyond mutual funds is about addition, not abandonment.

• Low minimums: You can start a SIP with Rs. 500 per month. No other regulated investment structure in India comes close.
• Liquidity: Most open-ended mutual funds can be redeemed any business day. Proceeds arrive within 1 to 3 days.
• Diversification: A single large cap fund holds 30 to 80 stocks. A beginner investor gets instant diversification.
• Regulation and transparency: SEBI mandates monthly portfolio disclosure, daily NAV, expense ratio caps, and trustee oversight.
• Tax efficiency on long-term equity: LTCG above Rs. 1.25 lakh taxed at 12.5 percent. Long-term investing is rewarded.

For most investors with portfolios under Rs. 20 to 30 lakh, a well-structured mutual fund portfolio covering equity (large cap, flexi cap, or index fund), debt, and possibly an ELSS for tax saving is sufficient. The additional structures discussed in this post are not appropriate at smaller portfolio sizes.

Reason 1: Mutual Fund Alpha Has Narrowed

As India’s equity markets have grown more efficient, institutional coverage of large cap stocks has deepened, and information has become more widely available, the gap between what an actively managed large cap fund can deliver and what a passive index fund delivers has narrowed significantly.

Multiple SEBI data releases and independent studies have shown that over rolling 5-year periods, a majority of actively managed large cap equity funds underperform their benchmark index after accounting for expenses. The IVCA-360 ONE CRISIL report referenced in industry analysis noted that mutual fund alpha has narrowed as the market has become more competitive.

For an HNI with a Rs. 2 crore equity portfolio, paying a 1.5 percent expense ratio on an actively managed fund that consistently tracks the index is a meaningful drag on returns. A Portfolio Management Service (PMS) running a concentrated, high-conviction portfolio may offer better risk-adjusted performance for that investor, with the additional tax control that comes from directly owning securities.

Reason 2: PMS Offers Direct Ownership and Tax Control

In a mutual fund, you own units of a pooled fund. The fund pays its own taxes internally, and you receive NAV returns after those costs. In a Portfolio Management Service (PMS), you own the securities directly in your own demat account. The portfolio manager makes decisions on your behalf, but the securities sit in your name.

This direct ownership creates a meaningful tax difference. Every buy and sell decision the PMS manager makes is a taxable event for you personally, not for the fund. This is a double-edged feature. On one hand, you can use capital losses in your own account to offset gains elsewhere. On the other hand, high-churn PMS strategies generate significant short-term capital gains, which are taxed at 20 percent.

The key insight: PMS gives the investor more visibility and more control over the tax consequences of portfolio management than a mutual fund can. For an investor doing tax planning across their complete financial picture, this matters.

PMS in India requires a minimum investment of Rs. 50 lakh per SEBI regulations. AUM crossed Rs. 35 lakh crore in early 2025.

Fortune Wealth provides access to Portfolio Management Services through Motilal Oswal Financial Services and other leading PMS providers for eligible investors.
explore PMS for HNI investors

Reason 3: AIF Opens Private Markets

Mutual funds are primarily invested in listed securities: stocks, bonds, and some liquid alternative instruments. The private markets, including private equity, venture capital, structured credit, private real estate, and infrastructure, are largely inaccessible through conventional mutual fund structures.

Alternative Investment Funds (AIFs) provide regulated access to these private market strategies. AIF commitments in India have grown at approximately 30 percent CAGR between March 2019 and March 2025, reaching Rs. 14.18 lakh crore in total commitments as of Q1 FY26. Cumulative AIF real estate investments specifically rose from Rs. 70,000 crore in FY25 to Rs. 1.28 lakh crore in FY26, as HNIs and family offices sought yield-bearing, hard-asset-backed opportunities during periods of public market volatility.

SEBI regulates AIFs under three categories:

• Category I: Venture capital funds, SME funds, infrastructure funds, social impact funds.
• Category II: Private equity funds, private debt funds, real estate funds. Most private market strategies fall here. Pass-through taxation for Category I and II means income flows directly to investors.
• Category III: Long-short equity and derivative strategies. High-risk. Income taxed at the fund level at MMR.

The minimum AIF investment is Rs. 1 crore per investor (Rs. 25 lakh for employees or directors of the fund). This positions AIF firmly in the UHNI and institutional segment.

Fortune Wealth provides access to AIF investment options for eligible investors with a minimum commitment of Rs. 1 crore.

explore AIF investment options

Reason 4: SIF Bridges the Gap at Rs. 10 Lakh

The introduction of the Specialized Investment Fund (SIF) category by SEBI, effective April 1, 2025, addressed a specific gap: investors who wanted hedge-fund-style strategies but could not meet the PMS minimum of Rs. 50 lakh or the AIF minimum of Rs. 1 crore.

SIF allows AMCs to run long-short equity, sector rotation, active hybrid, and debt long-short strategies within the mutual fund regulatory framework, with a minimum of Rs. 10 lakh per PAN per AMC. Accredited investors are exempt from this minimum.

SIF AUM grew to approximately Rs. 17,858 crore as of July 2026, with hybrid long-short strategies accounting for roughly 72 percent of assets. The first SIF launched in September 2025. The category is new and has limited performance track record, but the rapid adoption signals that there was genuine unmet demand for this product tier.

Fortune Wealth helps HNI and sophisticated investors understand which combination of SIF, PMS, and AIF is appropriate for their portfolio size and goals.
what is a specialized investment fund

Reason 5: Concentration and Customisation

A mutual fund must follow strict SEBI diversification norms. A large cap fund cannot put more than a certain percentage in any single stock. It cannot be structured around a single thesis. It serves thousands of investors with different goals and risk tolerances, so it is necessarily a general-purpose product.

A PMS or a high-conviction SIF can be built around a more concentrated thesis. A PMS manager who has deep expertise in financial services companies can run a concentrated 15-stock portfolio in that sector without the constraints a mutual fund faces. A family office-specific mandate within a PMS can be customised further to align with the specific tax, liquidity, and ESG preferences of that family.

For investors who have built specific views about sectors, geographies, or strategies, and have the capital to make concentrated bets meaningful, customisation is a real and practical reason to use PMS or AIF over mutual funds.

Reason 6: Global Diversification

Most mainstream mutual funds in India invest primarily in Indian markets. SEBI’s domestic international fund industry cap (approximately USD 7 billion across all AMCs) limits how much Indian mutual funds can invest overseas, and this cap has been approaching exhaustion.

HNIs and UHNIs increasingly see offshore diversification as non-optional, driven by the Rupee’s structural weakening trend over multi-decade periods. GIFT City AIFs and PMS, GIFT City mutual funds, and LRS-funded foreign brokerage accounts are increasingly part of conversations that previously would have been exclusively about domestic mutual funds and direct equity.

Access to global markets, whether through GIFT City or direct LRS investing, opens return streams that are uncorrelated with the Nifty 50. For large portfolios, this diversification benefit is meaningful even if the expected return from global exposure is similar.

What This Means for the Right Portfolio Structure

The shift beyond mutual funds is not a rejection of mutual funds. It is the recognition that as portfolio size and complexity grows, a one-product approach leaves value on the table.

A practically sensible structure for an affluent investor with Rs. 2 to 5 crore in investable assets might look like this:

Layer	Product	Purpose	Allocation
Core equity	Diversified mutual funds or index funds	Broad equity exposure. Low cost. High liquidity.	40 to 50 percent
Core debt	Short-duration debt funds, bonds, liquid funds	Stability, liquidity buffer, income.	20 to 25 percent
Enhanced equity	PMS or equity SIF	Higher conviction, customised, or long-short strategies.	10 to 20 percent
Alternatives	AIF (private equity, structured credit, real estate)	Private market exposure, uncorrelated return streams.	10 to 15 percent
Global	GIFT City fund or direct LRS investment	Currency and geographic diversification.	5 to 10 percent

This is illustrative. The right allocation depends on your specific goals, time horizon, liquidity needs, tax situation, and risk profile. No single allocation framework works for every investor.

Frequently Asked Questions

What is the minimum investment for PMS in India?

The minimum investment for Portfolio Management Services (PMS) in India is Rs. 50 lakh per investor, as mandated by SEBI. This threshold ensures PMS remains targeted at investors who are financially capable of understanding and bearing the risks of a directly managed equity portfolio. PMS AUM crossed Rs. 35 lakh crore in early 2025. The minimum applies per client per PMS provider.

What is the minimum investment for AIF in India?

The general minimum investment for Alternative Investment Funds (AIF) in India is Rs. 1 crore per investor. An exception applies for employees or directors of the AIF or its manager, who can invest a minimum of Rs. 25 lakh. SEBI’s AIF regulations mandate this threshold to ensure that only investors with the financial sophistication and capital to absorb potential losses and lock-in periods participate in AIF strategies. For GIFT City-domiciled AIFs, the minimum was reduced to USD 75,000 in February 2025.

Why do HNIs choose PMS over mutual funds?

HNIs choose PMS over mutual funds for several reasons: direct ownership of securities in their own demat account gives tax control that mutual funds do not; PMS can run more concentrated, high-conviction portfolios unconstrained by the diversification norms mutual funds must follow; PMS provides better customisation for specific sector views or family-specific requirements; and for large portfolios, the expense ratio on a mutual fund versus a PMS management fee may be comparable while PMS offers more tailored exposure.

Is AIF better than mutual fund for long-term wealth creation?

Not universally. AIFs and mutual funds serve different purposes and different investor profiles. Category I and II AIFs invest in private markets (venture capital, private equity, infrastructure, private credit) that mutual funds cannot access. This provides genuine portfolio diversification and access to uncorrelated return streams. However, AIFs have lock-in periods typically of 3 to 7 years, require Rs. 1 crore minimum investment, and carry higher risk than a diversified equity mutual fund. For most retail investors, mutual funds remain the right primary vehicle. AIFs add value as a layer within a larger, diversified portfolio.

What is the difference between PMS, AIF, and SIF?

PMS (Portfolio Management Services) requires Rs. 50 lakh minimum and gives direct ownership of securities in the investor’s own demat account. AIF (Alternative Investment Fund) requires Rs. 1 crore minimum and invests in pooled private market strategies including private equity, venture capital, structured credit, and real estate. SIF (Specialized Investment Fund), introduced April 1, 2025, requires Rs. 10 lakh minimum, operates under the mutual fund regulatory framework, and allows long-short equity, debt, and hybrid strategies not available in conventional mutual funds. All three are SEBI-regulated.

Can I invest in both mutual funds and PMS at the same time?

Yes. There is no restriction on holding mutual funds and PMS simultaneously. In practice, most HNIs who use PMS continue to hold mutual funds, often as the core liquid equity component. They use PMS as a satellite allocation with a more concentrated or differentiated strategy. The two structures complement each other: mutual funds for broad market exposure and liquidity, PMS for specific strategies and direct ownership benefits.

Do I need to stop my SIPs when I move into PMS or AIF?

No. Moving into PMS or AIF does not require stopping existing SIPs. SIPs in mutual funds and a separate PMS or AIF allocation can coexist within the same overall portfolio. Many HNIs continue their existing SIP commitments (which may be earmarked for specific long-term goals like retirement or a child’s education) while adding PMS or AIF exposure with separate capital. The decision to stop a SIP should be based on your goals and financial plan, not on the existence of a PMS or AIF allocation.

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