Long-only strategies still dominate the segment, with 70 per cent of over 500 schemes based on the strategy. Long-short strategies account for 26 per cent of the schemes, and others include debt and PIPE.
Amid rising interest from domestic investors, the number of Category III Alternative Investment Funds (AIFs) has surged, with new launches in the category accounting for 47 per cent of total launches in the current financial year, up from a mere 16 per cent in FY23.
Category III AIFs include hedge funds, quant funds, and those using complex trading strategies. While they are primarily focused on listed entities, there has been growing diversification, with a small percentage allocated to unlisted securities.
According to a report by the industry association IVCA, the diversity of strategies — long-short, quant, thematic — makes them an attractive offering for HNIs, family offices, and institutional investors.
The IVCA Eleveight Category III AIF Report 2025 notes that concerns about valuation froth, geopolitical contagion risks, and global capital flows have prompted a ‘recalibration’ in investor expectations.
“Among HNIs, family offices, and institutional allocators, the narrative has clearly shifted — from chasing benchmark outperformance to pursuing stability and capital preservation. This is precisely where absolute return strategies are gaining traction,” notes the report.
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Long-only strategies still dominate the segment, with 70 per cent of over 500 schemes based on the strategy. Long-short strategies account for 26 per cent of the schemes, and others include debt and PIPE.
The report notes an increase in funds using quant strategies.
Of the Rs 1.11 trillion raised across all AIF categories in FY25, Category III alone accounted for Rs 55,485 crore. Further, 54 per cent of the funds raised from NRIs went into this segment. As of March, total commitments in the category stood at Rs 2.29 trillion.
“Category III AIFs continue to be driven primarily by individual capital — especially UHNIs and family offices. Institutional interest remains marginal, likely due to allocation rigidity and perceived complexity of the product category,” notes the report.
However, the segment may face some competition from Specialised Investment Funds (SIFs), which offer sophisticated strategies at a lower entry threshold of Rs 10 lakh.
In GIFT City too, this category alone had 135 funds as of March, compared to 78 combined from Category I and II AIFs.
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