Consider two trends that are usually read as a contradiction.

The first is the one that generates headlines. Henley & Partners, which has tracked private wealth migration for over a decade, has steadily lowered its estimate of net millionaire departures from India: a projected 7,500 in 2022, then 6,500, then 4,300, then roughly 3,500 for 2025. Read in isolation, that is a story about people leaving.

The second set of numbers tells you who is staying. Knight Frank’s Wealth Report 2025, which defines a high-net-worth individual as someone holding more than US$10 million in assets, puts India’s HNWI population at 85,698 in 2024, up 6% from 80,686 the year before, with a forecast of 93,753 by 2028. India now ranks fourth in the world for HNWI population, behind only the United States, China and Japan, and is home to 191 billionaires.

Hold the two together and the contradiction dissolves. The population of wealthy Indians is expanding, and the rate of departure is falling. Whatever is happening when an Indian family acquires a residence abroad, a mass exit is not it.

One point of fact matters before going further, because the language around this subject is often loose. India does not permit dual citizenship, so for most resident Indian families this is about acquiring residence rights abroad rather than a second passport, with citizenship typically a generational question that arises for children born or naturalised elsewhere.

With that established, the instinct to treat a foreign residence as a verdict on India misreads what these families are doing. They are not subtracting India from their lives. They are adding optionality around it. Henley’s own reporting supports this: the bulk of departing Indian millionaires retain their businesses and second homes in the country. The base stays. What changes is the number of doors the family can open.

This is the first myth worth retiring. A second base is not an exit. For most families who hold one, it is the opposite: a way of staying invested in India while no longer being wholly dependent on it.

What the wealthy are actually buying

If they are not buying an exit, what are they paying for?

A second residence, or for the next generation an alternative citizenship, is an instrument, and like any instrument it has defined uses. This is the discipline the industry calls residence and citizenship planning, and stripped of both the romance and the alarm, it serves four functions.

The first is mobility. A travel document’s practical worth is measured by where it admits you without first asking permission. India’s passport has been climbing global rankings but still grants materially less frictionless access than the documents wealthy families increasingly want. For a household whose capital, businesses, and children already move across borders, visa friction is not an inconvenience. It is a recurring cost in time and certainty.

The second is succession and continuity. The capital that one generation built has to survive the handover to the next, and that next generation increasingly studies and works abroad. This is already visible in the money trail, not just the sentiment. Under the Reserve Bank of India’s Liberalised Remittance Scheme, outward remittances by resident Indians have grown from under US$10 billion a year half a decade ago to US$31.73 billion in FY24, before moderating to US$29.56 billion in FY25. Much of that flow goes to education and the maintenance of relatives overseas. A residence held by a child is simply the structural extension of a flow that is already happening.

The third is diversification of jurisdiction itself. An Indian UHNI family already diversifies across asset classes, currencies, and managers. The logic of not concentrating everything in one place does not stop at the portfolio. The 1986 Brinson, Hood and Beebower study in the Financial Analysts Journal taught a generation of investors that asset allocation, rather than security selection, drives most of the variation in long-term returns. The wealthiest families are now applying that same instinct one level higher, to the question of where the family itself is domiciled. A second jurisdiction spreads exposure to any single country’s rules, currency, and political weather.

The fourth is insurance. Most of what a second base protects against is a future the family hopes never arrives. It is the financial equivalent of a fire escape. You do not install one because you expect a fire. You install it so the question never has to be answered in a hurry.

Note what is absent from that list. None of the four functions requires leaving India, paying less tax in India, or thinking less of India. Each is about widening the family’s range of choices, not narrowing its commitments.

There is a useful regulatory signal here too. The framework that governs how Indian residents move money abroad has been loosening at the margin, not tightening. Budget 2025 raised the threshold above which tax is collected at source on LRS remittances from ₹7 lakh to ₹10 lakh. Budget 2026 went further on specific flows, cutting the TCS rate on remittances for education and medical purposes from 5% to 2%, effective 1 April 2026, while holding the ₹10 lakh threshold steady. The direction of regulations for cross-border planning is toward more room.

The mirror

There is a version of this conversation that treats a foreign passport or residence as a status object, the way an earlier generation treated an imported car. That version misreads it entirely.

The families who use these instruments well are not collecting passports. They are managing a single, unglamorous risk: that the one place where all of their capital, all of their family, and all of their future happens to sit could, at some point, become the wrong place to hold everything. That probability is low. It is also not zero. And for a family of sufficient means, the cost of insuring against it is modest relative to what is protected.

This is global investing for Indian investors at its most literal. Not an offshore fund or a foreign equity sleeve, but the family’s own footing, diversified.

Read correctly, the data is reassuring rather than alarming. The number of wealthy Indian families is rising. The number leaving is falling. And those who acquire a second base abroad are, for the most part, staying, building, and quietly buying themselves the option to be elsewhere if they ever need it.

A foreign address is not the exit. It is the part of the plan that ensures they never have to use it.

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A particular kind of phone call is made in Geneva several times a year. A watchmaker has finished a piece, perhaps forty exquisitely crafted versions of it. The kind of craftsmanship that will never appear in an advertisement or sit in a boutique window. Instead, a relationship manager at a private bank receives a discreet note, and a small number of clients are told, in effect, that they have been chosen. The transaction that follows looks nothing like shopping. It looks like allocation.

For a long time, the collectible passion, the watch on the wrist, the canvas on the wall, the case of Bordeaux in the cellar, sat in a separate mental drawer from one’s wealth portfolio. One was pleasure. The other was money. Over the past decade, and more sharply after 2020, the wall between those drawers has come down. The objects people buy out of love are now, increasingly, the objects they buy with intent.

From lifestyle to line item

The clearest signal is structural. Globally, some of the largest private banks no longer treat passion purchases as a personal matter to be politely ignored. They have built entire desks for it. UBS, Credit Suisse before its absorption, and Pictet have all developed advisory capabilities around what the industry calls Passion Assets: watches, fine art, wine, classic cars, and now rarer categories such as collectible sneakers. The framing is deliberate. These are now a distinct sleeve of alternative allocation, sitting alongside private equity and real assets.

Art is where this has matured furthest

The global art market recorded an estimated 59.6 billion dollars in sales in 2025*. The figure is instructive in both directions. It fell twelve percent in 2024, with the contraction concentrated at the high end, even as the next year saw a growth of four percent. The market behaved exactly as a financial asset class behaves. It corrected at the top, broadened at the base, and rewarded those who understood where they were standing within it. Wealth managers now track auction indices the way they track equity benchmarks.

The watch market tells a parallel story with sharper investment logic.

The global pre-owned luxury watch market, valued at roughly 24 billion dollars in 2023, is projected to nearly double to around 45 billion dollars by 2030*, growing at close to ten percent a year. The fastest growth is expected in Asia Pacific, with India named explicitly among the drivers. Of all the passion categories, watches remain the most genuinely investable, with the transparent reference pricing and deep liquidity that resemble a financial instrument.

The wider container is the luxury resale market itself, valued at roughly 32.47 billion dollars in 2024 and projected to reach around 50.06 billion dollars by 2030*.

A resale market of that depth is the precondition for treating any object as an asset. Without a place to sell, there is only spending. With one, there is a position.

The allocation network

There is a subtler dimension here, and it is the one that separates passion assets from ordinary luxury. The most coveted objects are not sold; they are allocated. And the allocation runs through relationships, not advertising.

Scarcity is not a marketing accident in this segment. It is the design. The art world runs on the same principle: the major galleries brief advisors and collectors ahead of significant shows, so the most important works are spoken for before the doors open.

This rewards careful reading. The value in passion assets is not only in the object. It is in the position one holds within the network that controls access to it. That position is built slowly, through relationships, reputation, and the quiet credibility of being a serious participant rather than a casual buyer.

The Indian frontier

India arrives at this story from a revealing angle. The instinct is unmistakably present.

Indian collectors of art, watches, and increasingly classic cars and rare spirits are buying with growing seriousness and growing budgets. What is still emerging is the formal advisory layer around that instinct. Most Indian ultra-high net worth buyers still make their passion purchases the way they always have, through personal conviction and community signal: the trusted dealer, the closed circle of fellow collectors, the dinner conversation where a piece is mentioned before it is ever listed. The advisory relationship, for now, is more reactive than proactive. The buyer leads.

The access machinery already exists with some of the leading auction houses maintaining private collector lists and advisors and family office heads who are brought into the loop ahead of an important sale. The network is real.

What keeps it from being formalised into a service? The answer is as simple as regulatory recognition. India does not yet have a framework that classifies watches, art, or collectibles as investible assets within a recognised fund structure. Where other markets have launched platforms for fractional ownership of blue-chip art, India has no regulated equivalent. For now, the passion asset here remains a private holding, governed by private knowledge, sitting just outside the formal investment universe.

Where has the line gone?

The most important development of recent years is the disappearance of the distinction between Passion Investing and Portfolio Allocation. For the previous generation of wealth, these were different acts, in different frames of mind. After 2020, for a growing share of ultra-high net worth families, that separation has dissolved. The watch, the canvas, and the cellar are now weighed with the same attention to provenance, liquidity, and long-term value that one brings to any serious holding.

This does not mean every beautiful object is an investment, and the most sophisticated participants are the ones who know the difference. The discipline lies in holding two truths at once: that these assets are bought first for love, and that love, properly informed, can also compound.

The entire value of passion-asset participation rests on exactly the things that cannot be bought off a shelf: judgment, access, and trusted counsel. The families who navigate these well will not be the ones who spend the most. They will be the ones who bring the same rigour, the same discernment, and the same quality of counsel to the things they love as to the things they own.

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*Sources: The Art Basel and UBS Global Art Market Report 2026; Grand View Research (pre-owned luxury watch market); luxury resale market data per Arizton and industry estimates.

Aditya was travelling to Gwalior in January this year with his “finance bro” Gautam — an old college friend who now ran a family office, and they had a twenty-five stop. Not a bio-break. Not a tea break. A toll break – they spent twenty-five minutes just to cross one toll booth.

Cars were crossing the toll booth one by one. It was a slow, frustrating twenty-five minutes. At least fifty cars, just in their lane. And this wasn’t even a long weekend!

Aditya turned to Gautam and said “Bhai, look at the number of vehicles! All this cash is flowing to whoever owns this highway. I wonder if I could have a piece of that.”

Gautam replied, “Haven’t you heard of Infrastructure Investment Trust (InvIT for short). Surprised you haven’t added them to your portfolio yet — they are a great way to diversify your portfolio.”

Aditya hadn’t really looked into them. So the next two hours of their drive became a crash course on InvITs. From his finance bro with the Agra Bypass views on the side.

How InvITs work

“You see this 33-km Agra Bypass — the highway that connects two of India’s busiest national highways? That’s actually part of an InvIT,” Gautam said.

“NHAI built it years ago, and it’s been collecting tolls ever since. But for them, that can be a problem.”

“Huh? How can collecting money be a problem?” Aditya said.

“Well,” Gautam explained, “NHAI exists to keep building new highways. Toll collection is not their forte, building roads is. But once they build the road, their capital stays locked up in roads they've already finished. So they have a choice – sit on the Agra Bypass for 25 more years and collect tolls, or find a way to pull the money out now and redeploy it?

In October 2022, they did the latter. They transferred the highway into a SEBI-registered trust – NHIT – which raised money from investors and paid NHAI an upfront cheque. NHAI walked away with capital to fund new construction. Investors walked away with units that gave them a claim on the highway’s toll revenue.

But for 20 years. After that, the bypass reverts to NHAI for nothing.

That’s how most InvITs in India work, especially the ones built around highways. Someone builds the infrastructure, gets it running, and then sells it into a trust so they can pull their capital out and go build the next thing.

You’ll also find InvITs holding power transmission lines, warehouses, and telecom towers – the asset changes, but the basic idea is the same: pooled investor money earning a slice of cash flow from running infrastructure. You buy units in that trust, and you get a slice of the cash flow it throws off.”

“So that’s it? Is it that simple?” Aditya asked Gautam.

“This is a structured finance deal buddy, if only it was this simple, everyone would be doing it,” he said. “There are a lot of moving parts – there’s a sponsor that sets up the trust, transfers initial assets to it, and provides expertise. Then there are investors like us who put in the money, investment managers who run that money, and a trustee who holds InvIT assets for unitholders, protects investor interests and ensures compliance. All the projects are run by a project manager via Special Purpose Vehicles, and an independent valuer values the projects every six months.”

“And why is this valuation needed?” Aditya asked.

Returns in an InvIT

“So where were we?” Gautam continued. “Ah yes, valuation. You see, just like you have a NAV in a mutual fund, you have the same NAV in an InvIT as well. However, a MF NAV and an InvIT NAV are not exactly the same.”

Mutual fund NAVs are straightforward. The closing price of underlying securities is tallied to arrive at the daily NAV of MF schemes. It’s a relatively simple process and requires no subjectivity. It is generally considered a good representation of the underlying value of the scheme.

On the other hand, InvITs’ NAV is calculated quite differently. Every six months, the InvIT trustee appoints a valuation agency to arrive at the value of the underlying assets in the InvITs. However, different valuation agencies use different methods and assumptions to arrive at the value of the same asset.

This makes the InvIT’s NAV subjective and open to interpretation compared to other kinds of NAVs, such as those used by MFs and ETFs.

Source: Mint

By now, Gautam, had intrigued Aditya enough about the potential of InvITs. So he went on to ask him about returns.

“There’s one rule that holds across every InvIT – by SEBI mandate, at least 90% of the trust’s Net Distributable Cash Flow (NDCF) has to be paid to investors. NDCF is basically what’s left after the trust pays its operating costs, debt servicing, taxes, and reserves for maintenance. Whatever remains, 90% of it lands in your bank account every quarter.”

So Aditya enquired, “Is it like a coupon payment that I receive on my bonds or like dividends on my stocks.”

Gautam clarified, “Now here’s where most people get it wrong. That cash that comes to you isn’t a single thing. It’s a mix of three components – interest, dividend, and return of capital. SEBI requires the trust to disclose the breakup of this every six months.”

He pulled up an example on his phone:

Total distribution: ₹2.00 per unit
-Interest: ₹1.20
-Return of capital: ₹0.50
-Dividend: ₹0.30

“See this? The interest is the SPV paying back the loan the trust gave it. The dividend is a slice of the SPV’s profit. And the return of capital? That’s literally a part of your original investment being handed back to you, because the asset has a finite life. By the time the 20-year window ends, you’d have got most (or some) of your principal back through these payouts.”

“So what looks like an 11-12% yield isn’t entirely income generated by the assets. A part of it is just your own money coming back – a return of your capital. This is the single biggest reason InvIT yields shouldn’t be compared head-to-head with FD or bonds. You’re not comparing apples to apples.”

“In FDs and bonds, you are promised the principal back on maturity whereas an InvIT NAV will keep going down as and when a project’s term ends and, given no new assets are added, an InvIT NAV will eventually go to zero at some point.”

“Each component is taxed differently though,” Gautam continued. “Here, look:”

Gautam explained to Aditya that many investors don’t understand how this taxation works, especially when it comes to the ‘return of capital component.’

He explained, “The taxation of Return of Capital (RoC) sounds like a free lunch – no tax today. But when you sell the unit, your buying cost is treated as lower by the RoC amount you’ve already received, so your capital gain is higher. The tax is just deferred, not avoided.”

“For example, if you bought units at ₹100 and received ₹2 as RoC, your new cost becomes ₹98. So when you sell at ₹110, your taxable gain is ₹12 (not ₹10). The ₹2 you didn’t pay tax on earlier gets captured as a higher capital gain at the time of sale. In short, RoC is tax-deferred, not tax-free – the tax is just postponed to when you sell.”

Evaluating an InvIT

Now Aditya’s interest was piqued. “So how do I go about analysing an InvIT?”, he asked.

“You look at 3-4 areas”, Gautam said.

First, the numbers – What’s the gap between market price and NAV? Is the InvIT trading at a premium or discount? Do a peer analysis. Look at the asset type too; different categories naturally offer different yield ranges.

Next, look at the InvIT portfolio – do they have a pipeline for adding new assets? How much have they distributed in the past, and what is the mix of distribution?

“Then, look at the sponsor. This is who you’re really trusting. NHAI as sponsor is a different bet from a private developer with a thin balance sheet. Look at their track record, their other businesses, and their incentive to keep the trust healthy.”

“The nature of the project also matters a lot. Take a road InvIT, for instance – its distributions can be volatile since they depend on how traffic grows in that area. A transmission InvIT, on the other hand, tends to be more stable because its cash flows are extremely predictable.”

The shelf-life question

As Aditya plugged in his phone to charge, he asked Gautam about something that had been bothering him. “If the assets revert to NHAI after 20 years, won’t the InvIT just become an empty shell eventually?”

“Sharp question,” Gautam said. “There’s a number you should track called the Residual Concession Life (RCL). It’s the average remaining life of all assets in the trust. If the trust keeps adding new assets, RCL stays steady or could improve. If they stop, RCL shrinks every year, NAV slowly approaches zero, and so does your unit price.”

“So a 12% yield on a trust with shrinking RCL and no new asset additions is not the same as 12% on one with 18 years of RCL and active asset additions. The first is mostly handing your money back. The second is growing its portfolio and cash flow.”

Are InvITs worth investing in?

“Why bother investing then?” Aditya asked. “With all these caveats, are InvITs even worth it?”

“For the right portfolio, yes. Three reasons. One, they’re typically AAA-rated assets with steady cash flows, which is hard to find elsewhere with this kind of regulatory protection. Two, they diversify your portfolio away from pure equity and debt. And three, they give you steady quarterly cash flows, useful if you value regular income. That said, yield varies for different types of projects.

“Just go in with eyes open. Know what you’re buying, what the yield is actually made of, and what happens at the end of the road.”

Just when the duo was about to reach Gwalior, Gautam, however, cautioned, that there are a few things to watch out for.

“Don’t rush into such investments. InvITs have very low daily turnover – we’re talking about an average of just ₹25 crore a day, which is negligible compared to equity markets. Their prices can also be sensitive to interest rate changes. And overall, they’re not the easiest investment to analyse, since the feasibility and growth of the underlying projects depend on a whole host of factors.”

They were almost in Gwalior. As they crossed the last toll plaza, Aditya looked at the long line of cars behind them. And for the first time, he wasn’t thinking about the 10-minute wait. He was thinking about who was getting paid for those tolls. And how rather he should be on the other side of that toll booth.

With inputs from Siddhant Jain, Product Manager-Credit at Ionic Asset.

Characters are hypothetical.

Ramesh Mehta* spent forty minutes in his wealth manager’s office last October before anyone mentioned the actual question.

They had covered markets. The RBI. His daughter’s upcoming wedding and whether he should liquidate anything to fund it. Then his relationship manager pulled up a single slide - a pie chart of Ramesh’s current holdings - and asked something no one had asked him in eleven years of investing.

“How did this come to look the way it does?”

Ramesh, 57, a textile exporter from Surat with a net worth just north of Rs 18 crore, looked at the chart for a long moment. Sixty-one percent real estate. Twenty-two percent equity, split across nine funds. The rest in fixed deposits and gold.

“I suppose,” he said finally, “it just happened.”

It just happened.

Across India’s fastest-growing HNI wealth segment, that phrase - or some version of it - is becoming one of the most expensive sentences in personal finance.

India’s high-net-worth population is expected to grow 9.4% by 2028, accounting for 3.7% of wealthy individuals globally^. The products available to them have never been more numerous: PMS strategies, alternative investment funds, international equity wrappers, structured credit, REITs, SIFs. The infrastructure of Indian wealth management has expanded dramatically. The one conversation that should anchor all of it, how should your money actually be divided, and why, is still the one most often skipped.

The result is a generation of HNI portfolios that were assembled rather than designed. And the difference, over a twenty-year horizon, is enormous.

Asset allocation - the percentage split between equity, debt, real estate, and alternatives - is the single most consequential decision in a long-term portfolio. Not fund selection. Not manager quality. Not market timing. Decades of research across global markets confirm that the asset class split explains the overwhelming majority of long-term portfolio outcomes#.

Whether you hold 60% in equity or 40% matters more than which funds sit inside that equity bucket.

Most HNI clients spend significant time on the second question. Almost none spend adequate time on the first.

Consistently, across client conversations, at first meeting, fewer than one in five can articulate why their portfolio is divided the way it is.

They can name every fund they own. They cannot explain why they hold 65% equity versus 50%. They do not experience it as a decision they made. They experience it as where they ended up.

What emerges instead are portfolios shaped by biography. A fixed deposit opened during a liquidity crisis, never unwound. Equity funds accumulated across three separate bull markets, each added for a different reason, none reviewed together. Property bought as a home that became an investment that became, quietly, the dominant asset in the portfolio.

Every piece has a story. The portfolio as a whole has none.

The consequences show up in specific, recurring ways.

The most visible is illiquidity at the wrong moment. HNI clients with large real estate exposure routinely find themselves unable to move when an opportunity arrives - a private credit deal, a meaningful correction in equity markets, a business acquisition. The wealth exists. It is simply not accessible. The allocation that made sense during two decades of property appreciation becomes a structural constraint precisely when flexibility matters most.

The subtler problem is false diversification. Many HNI investors believe they are well-covered because they own many things. In practice, several of those things move together. A portfolio holding five Indian equity mutual funds, direct stocks in three large-cap companies, and a real estate investment in a city whose economy tracks the equity market is not diversified. It is concentrated, with extra steps.

A third pattern cuts across both: clients who built wealth through equity-heavy, high-growth portfolios and never adjusted as their lives changed. The allocation that was right at 40 is still running, largely unchanged, at 58. The risk appetite has shifted. The income need has shifted. The portfolio has not.

The corrective, practitioners say, is less technical than it sounds.

A deliberate allocation conversation starts with the client, not the market. What does income look like over the next five years? What is the genuine liquidity horizon? Is this portfolio primarily for growth, preservation, income, or legacy? And, the question most avoided, how does the client actually behave when markets fall hard?

The output is not just a revised percentage split. It is a rationale: a brief that explains why each major block of the portfolio exists, what it is meant to do, and under what circumstances it should change.

Back in Surat, Ramesh Mehta spent three weeks after that October meeting working through what a deliberate allocation would look like for him. He is now reducing his real estate exposure from 61% to closer to 40% over three years, freeing up capital for liquid, income-generating assets as he moves into a phase of life where preservation matters more than appreciation.

He is not dramatically restructuring. He is simply, for the first time, deciding.

“I always thought the allocation would sort itself out,” he says. “I did not understand that it already had. Just not in the way I would have chosen.”

* Ramesh Mehta is a composite fictional character created for illustrative purposes. Any resemblance to a specific individual is coincidental.

^ Source: Knight Frank’s The Wealth Report 2025

# Asset allocation’s dominance over fund selection and market timing has been documented consistently since Brinson, Hood and Beebower’s landmark 1986 study, and the finding has held across geographies and market cycles

When Rahul* got a lump sum payout of a few lakh rupees, he chose to park it in Specialised Investment Funds (SIFs) instead of his usual choice, mutual funds.

Compared to mutual funds that have been around for decades, SIFs, as a concept, were only a few months old. Nevertheless, investing in them was not a difficult decision for him.

“With a full-time job, I didn’t want to get into F&O or derivatives myself. I knew what they meant, but I did not want to do it myself,” said Rahul. “I decided to invest in SIFs because it’s managed by experts.”

Did you know: The market regulator's data show that 93% of individual traders lost money in Futures and Options between FY22 and FY24.

Many high-net-worth individuals like Rahul*, who have a portfolio of at least one crore rupees, are choosing to allocate part of their portfolios to the newly launched Specialised Investment Funds.

How SIFs Stack Up Against Long-Short AIFs

Affluent Indian investors are finding a solution in SIFs that was missing in the MF, PMS and AIF space. Let us first understand how SIFs score over Category III AIFs on the taxation front.

When an AIF trades in derivatives (F&O), its profits are taxed as business income, and 42% tax is deducted by the fund on every such transaction. On the other hand, SIFs are taxed just like mutual funds when investors redeem their units. As a result, SIFs are not taxed on every transaction and are taxed at a lower rate at the time of redemption.

Due to this, purely from a tax implication perspective, our calculations show that a long-short AIF that actively uses derivatives needs to generate an alpha of around 4% to beat SIFs on a post-tax basis (assuming SIF delivers 8% CAGR pre-tax).

Data Focus: Assets managed by SIFs have more than doubled to Rs 4,892 crore in December 2025 from Rs 2,101 crore in October, as per AMFI data.

Secondly, SIF fees and expense ratios are easier to calculate compared to AIFs. AIFs are allowed to charge performance-based fees over and above a fixed annual fee. SIFs are more straightforward, with a fixed expense ratio (maximum 2–2.5% depending on the category). This gives investors more clarity on what they are paying and the post-tax and post-fee returns they are likely to earn.

Category III AIFs running long-short and absolute return strategies are likely to face competition from SIFs. These AIFs deploy various strategies that use derivatives and due to the structural tax advantage of SIFs, these AIF strategies will need to outperform SIFs by a wide margin to match their post-tax returns.

Fun fact: Minimum ticket sizes vary widely. Mutual funds can start from as low as Rs 100, while SIFs require Rs 10 lakh, PMS Rs 50 lakh and AIFs Rs 1 crore, though an AI licence can reduce the minimum for PMS, AIFs and SIFs.

How SIFs Complement Mutual Funds

Mutual funds are designed for the masses, and the regulator has placed strict restrictions on what they can and cannot do. This works well for most Indians, but HNIs may want to diversify beyond MFs and add different strategies to their portfolios.

Rahul* had full faith in his mutual fund manager’s stock-picking abilities, but the MF CIO could not take short positions within a mutual fund. So when the same manager launched an SIF, he decided to invest Rs 15 lakh initially.

SIFs can take up to 25% naked short exposure. While mutual fund schemes can use derivatives, they are allowed to do so only for hedging and cannot take naked short positions. Rahul said he is testing the waters for now and plans to invest more after tracking the performance of various SIF schemes.

Apart from the shorting feature that differentiates SIFs from traditional mutual funds, certain hybrid SIFs are positioning themselves as alternatives to pure debt mutual funds and arbitrage funds over a 2- to 3-year horizon.

Debt mutual funds are taxed at the slab rate, whereas hybrid SIFs are taxed at a lower capital gains rate. Such SIFs are taxed at 12.5% after 24 months. However, some hybrid funds are listed and hence taxed at 12.5% after 12 months.

Perspective: Arbitrage yields have also fallen lately, and many investors do not find current yields attractive.

We feel SIFs could be a good addition to an HNI’s existing portfolio. Not only are SIFs more tax-efficient than Category III long-short AIFs and PMSes, but they are also available at a lower ticket size of Rs 10 lakh. SIFs can also take naked short positions that are otherwise not available in MFs. In that way, they offer the best of both worlds.

Having said this, we recommend taking the advice of a qualified professional to select the right kind of SIF scheme as per your risk appetite and goals.

*Rahul is a fictional character

There are some privileges that are extended only to the affluent class.

An accredited investor (AI) license is one of them.

1. It gives high-net-worth individuals access to exclusive investment opportunities.

2. It allows them to put up a lower amount in funds with high minimum ticket size.

3. And are given regulatory relaxations in certain products or services falling under the purview of SEBI.

The number of AI registrations has crossed 1,300, up nearly 5x from 298 in March 2025*

Various regulatory actions to boost AI license adoption—such as making the license mandatory for angel funds and co-investments, among other things has driven the rise in registrations. (see infographic)

What’s off-limits without AI

Below are investment opportunities available only to Accredited Investors:

1) Large Value Funds (LVFs) under AIFs: These forms of investments are suited for high-net-worth individuals and ultra-high net individuals with a high-risk appetite. Unlike the regular AIFs, they can take riskier bets.

AIF LVFs have a minimum ticket size of Rs 25 crore, down from Rs 70 crore earlier. They can also take higher risk exposure compared to common AIFs. (See infographic)

2) PMS investments by an Large Value (LV): Similar to this, a large value accredited investor in a PMS can avail discretionary/non-discretionary or advisory services and allocate up to 100% in unlisted securities (vs 25% in common PMSses).

Such clients’ needs to be accredited and enter into an agreement of at least Rs 10 crore.

3) Co-Investment Vehicles (CIVs): Such vehicles allow investors in the Category 1 and category 2 AIFs to put in extra money in some companies the fund invests.

The money is routed through a Collective Investment Vehicle (CIV) scheme that is created for a specific investee company under the same umbrella AIF.

They are open only to existing investors who hold Accredited Investor (AI) status.

4) Angel Funds: Only angel investors can invest in angel funds, which invests in early startup companies. The change was recently made in the circular dated September 10, 2025, which sets out the revised framework for Angel Funds.

5) AI only Funds: The markets regulator announced the rules for a new category of alternative investment funds that will take investments only from accredited investors. Such funds will be subjected to less compliance than a typical AIF.

Reducing ticket size

Quite a few investment products have high minimum investment limit. It’s done to safeguard the interests of small investors from the high risks associated with these sophisticated products.

HNI/UHNI investors with a higher risk appetite can diversify their investments through the lower investment thresholds pursuant to the Accredited Investor certification route.

For instance, an investor having Rs 1 crore investable amount can invest in only one AIF since they have a one crore rupees minimum commitment.

If the investor has an AI license, they can spread the amount across 4 AIFs, putting Rs 25 lakh in each AIF (subject to the AIFs accepting Rs 25 lakh instead of Rs 1 crore for AI license holders).

Should you get accredited?

Accredited investor is a globally accepted concept although its implementation and rules vary across countries.

In developed markets like US, accreditation is mandatory for investing in venture capital, private equity and hedge funds. Sebi also indicated in its consultation paper on AI only AIFs that it wants to slowly move in that direction.

Requirements

Accredited investors are still a nascent concept in India. There are around 1,500 accredited investors in the country. The markets regulator is trying to find ways to improve the number of accredited investors.

To qualify for the AI license, an individual, HUF, Family Trusts or Sole Proprietorships must fulfill one of the three criteria.

1. On the income criteria, they need to have at least Rs 2 crore annual income.

OR

2. They need to have a net worth of Rs 7.5 crore with at least 3.75 crore in financial assets.

OR

3. Have a combined annual income of at least Rs 1 crore and net worth of Rs 5 crore but with at least ₹2.5 Cr in financial assets.

Visit this link to apply for accreditation: Here

*Accredited investor registrations data source: NDML | CVL

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