AIFs are designed for those who can handle higher volatility and illiquidity in pursuit of potentially outsized returns. Mutual Funds, on the other hand, are built for broad-based participation, offering regulated, transparent, and lower-risk access to capital markets.
AIFs are privately pooled investment vehicles that collect funds from high net-worth individuals (HNIs) or institutional investors to invest in alternative asset classes such as private equity, hedge funds, venture capital, or structured credit.
When it comes to building wealth, investors often face the choice between Alternative Investment Funds (AIFs) and Mutual Funds. While both are pooled investment vehicles, they differ significantly in structure, accessibility, risk, and transparency.
CA Nitin Kaushik, in a post on social media platform X, noted that atech professional with a net worth in crores was pitched a flashy Alternative Investment Fund (AIF) by a private wealth manager — think pre-IPO startups, exclusive access, high alpha. Impressed by the exclusivity, he parked ₹1 crore into the AIF.
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Four years later? That portfolio is down 6%.
On the side, he had a humble Rs 25,000/month SIP running in mutual funds. No fanfare, just steady investing.
That SIP? It’s up 65% — liquid, transparent, and spread across well-researched, diversified assets.
— CA Nitin Kaushik (@Finance_Bareek) April 22, 20251 Cr Gone. 25K Grew. Welcome to the Irony of Investing.
Met a tech professional. Net worth in crores.
Invested ₹1 Cr in a flashy AIF pitched by a private wealth manager.
“Pre-IPO startups, exclusive access, high alpha” — the works.4 years later?
Portfolio down 6%.Meanwhile,…
Mutual funds are regulated investment schemes open to the general public. Managed by professional fund managers, they pool money from retail and institutional investors to invest in equities, debt, or a mix of both. With minimum investments as low as ₹500, mutual funds are known for their liquidity, diversification, and transparency. Daily Net Asset Value (NAV) updates and regular portfolio disclosures offer investors a clear view of their holdings. Mutual funds are governed by SEBI under a strict regulatory framework, keeping investor interest at the center.
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AIFs, on the other hand, are exclusive investment vehicles aimed at high net-worth individuals (HNIs) and institutional investors. With a minimum entry of Rs 1 crore, AIFs invest in complex assets like private equity, venture capital, hedge strategies, and pre-IPO companies. They are often pitched as offering "exclusive access" and "high alpha," but come with higher risk, limited liquidity, and higher costs. Most AIFs follow a 2-and-20 fee model — 2% management fee plus 20% on profits above a benchmark — and often have multi-year lock-in periods.
In practice, while AIFs can deliver high returns, they are also prone to underperformance due to illiquidity and concentrated bets. Meanwhile, mutual funds have consistently shown strong, risk-adjusted returns over time, especially for long-term investors.
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AIF vs Mutual Funds: Key Differences
| Feature | AIF | Mutual Funds |
|---|---|---|
| Minimum Investment | Rs 1 crore | As low as Rs 500 |
| Liquidity | Locked-in / illiquid | High liquidity |
| Transparency | Limited | Regulated, high disclosure norms |
| Fees | High (2/20 model, performance fee) | Lower expense ratio |
| Diversification | Often concentrated | Broadly diversified |
| Performance | Uncertain, high-risk bets | Market-linked, historically consistent |
Performance Comparison: AIFs vs. Mutual Funds
| Investment Type | 3-Year CAGR (%) | 5-Year CAGR (%) |
|---|---|---|
| Top Performing AIFs (e.g., Aequitas Equity Scheme 1) | Up to 70% | Up to 34.3% (e.g., Abakkus Emerging Opportunities Fund 1) |
| Top Performing Mutual Funds (e.g., Nippon India Growth Fund) | Up to 24.06% | Up to 33.78% (e.g., Nippon India Growth Fund) |
While AIFs can offer impressive returns, especially in niche or alternative asset classes, they come with higher risks, limited liquidity, and are suitable for investors with a higher risk appetite and longer investment horizon. On the other hand, mutual funds provide a more accessible, transparent, and diversified investment avenue suitable for a broader investor base.
Investors should align their investment choices with their financial goals, risk tolerance, and investment horizon.
Published on: Apr 22, 2025 2:41 PM IST
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