Top 5 Category II AIFs in India Delivering Superior Risk-Adjusted Returns

02 January 2026

In recent years, the Indian investment landscape has seen a significant shift , shift among sophisticated investors, family offices, high net worth individuals and institutional distributors increasingly moving away from traditional portfolio anchors such as simple stocks, bonds, or mutual funds towards alternative investment solutions that provide diversification and risk-adjusted returns. 

This shift is no accident: it reflects a maturing investment ecosystem where lower correlation with public markets, access to private opportunities and mitigating structured risks have become key elements of long-term wealth strategies.

At the heart of the development is Alternative Investment Funds (AIFs), privately held investment vehicles regulated by the Securities and Exchange Board of India (SEBI) that enable The deployment of sophisticated capital , capital from private equity and credit to real , real estate and private equity positions. 

While mutual funds captured household savings and PMS focused on concentrated equity stakes, secondary alternative investment funds (AIFs) became the vehicle of choice for investors seeking calculated risk, downside protection and non-linear alpha, especially in an economy where listed market valuations often outpace fundamentals.

Category II AIFs sit at the heart of India’s alternative investment ecosystem. They don’t chase momentum. They don’t rely on leverage-heavy trading strategies. Instead, they focus on private equity, structured credit, real assets, and special situations, where returns are driven by cash flows, asset quality, and disciplined underwriting.

As assets under management in India’s AIF industry cross ₹13 trillion, Category II funds account for the largest share both in terms of capital raised and institutional participation. Their appeal lies in risk-adjusted returns, not headline IRRs.

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