How Family Offices in India Are Using AIFs for Wealth Diversification

Did you know that the first Indian formal family office was set up by the Bajaj family in the 1990s, recognized as “Rajshree Investments”? This marks the beginning of a quiet shift in India's financial landscape that is making new waves. The wealth scene has changed spectacularly over the last decade. The emergence of ultra–high-net-worth individuals (UHNIs) due to IPOs, startup expansions, and entrepreneurial growth has fueled the growth of family offices in India.

In the early 2000s, the concept of family offices was nascent, and in 2010, there were only 50 family offices. Now in 2025, every big giant has a family office investment arm, such as “Azim Premji’s Premji Invest,” backing 51 startups; similarly, “Burman Family Holdings” backs more than 80+ startups globally, and other popular family offices such as “Artha India Ventures” and “Anikarth Ventures”. Studies done by EY and PwC confirm that there are more than 300 family offices in India, resulting in a sixfold growth in family offices collectively managing $30bn in assets.

Historically, the money invested in fixed deposits, real estate, or any fixed asset class ensures safety, but they will not be able to create long-term wealth building in today's globalised economy. The advent of family offices is a testament to an increased need for professionalised wealth management, strategic allocation, and intergenerational planning, investing in equity, venture funds, real estate, and hedge funds. In this progression, Alternative Investment Funds (AIFs) have taken a pivotal role in diversification strategies.

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Alternative Investment Funds, launched under SEBI's 2012 rules, provide investors with exposure to alternatives outside of traditional markets. They are organised into three classes: Category I- venture capital, SME, social impact, Category II- private equity, debt, special situations, and Category III- hedge funds and intricate strategies. It was expected that by 2030 Indian Investment industry, comprising AIFs and PMS will manage more than Rs 100 lakh Crore 

Family offices are attracted to AIFs for various reasons, but the majorly ones include: 

• Diversification: Spreading out risk in different sectors, geographies, and asset classes.

• Potential of making Returns: Ability to create higher risk-adjusted returns to traditional investments. 

• Innovation Access: Exposure to emerging industries such as renewable energy, fintech, and digital infrastructure.

• Professional Management: Strong regulatory control and highly skilled fund managers add credibility.

Simply put, AIFs enable high-net-worth families to marry security with innovation, uniting their long-term vision with new growth opportunities. 

   Source: SEBI ( data as of Q1FY25)

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For many decades, the central function of family offices has been of capital preservation. The emphasis was on passing down money to the next generation with minimal risk. But with younger generations increasingly getting involved in wealth management, attitudes have changed.

Educated overseas, they are shaped by international exposure, and younger successors are more willing to pursue higher-risk, higher-return opportunities. This has resulted in a two-pronged strategy in family offices, i.e. Conservative Allocation & Aggressive Allocation. Conservative allocations favour private credit, structured debt, and real asset funds for stability. And, Aggressive Allocation includes young members who advocate for venture capital, private equity, and technology-driven investments. AIFs give the ideal middle ground to these strategies, combining both income-generating products and high-growth offerings in one umbrella.

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Rather than just riding on AIF growth, family offices are using their sectoral knowledge to create unique partnerships—sometimes even launching their own dedicated funds or pooling resources with peers to access larger, more strategic opportunities such as Private Credit, VCs, and family office investments..

Moreover, ESG-oriented and AIFs are drawing family offices that want to blend wealth creation with social and environmental objectives. This is a wider evolution of family office investment away from an exclusive focus on financial growth to sustainable and responsible investing.

Over the coming years, AIFs will shift from being voluntary diversification tools to mainstays of family office strategy. For India's high-net-worth families, they are not merely an investment choice, but a means to remain competitive in a fast-evolving global economy

  However, AIF investing is not without challenges

• Illiquidity: Lock-in periods often range from 3 to 10 years, depending on the category of AI

• Significant Entry Barriers: Minimum contribution is ₹1 crore, evaluating the eligibility & investments to  UHNIs.

• Reliance on Fund Manager: Returns depend heavily on the expertise and historical performance of fund managers.

• Compliance  & Taxation: Due to the Complex structures of investment requires professional oversight and considerable due diligence.

Despite these challenges, most family offices see AIFs as long-term wealth builders. Many are also negotiating co-investment rights with fund managers to lower costs and retain direct exposure.

Patterns identified that will keep the family office in trends are:

• Cross-Border Investments: As worldwide opportunities are growing, and families are becoming increasingly global, Indian family offices will likely be intensifying their allocations towards global assets by utilizing technology, their network of professionals, and investment vehicles.

• Adoption of GIFT City: GIFT City, i.e., Gujarat, will attract more family offices due to robust financial infrastructure, regulatory framework, and development growth.

• Digital Transformation: Technology is another major factor that adds to the convenience in managing foreign portfolios, adding real-time international market monitoring.

• Focus on ESG & Impact Investing: Indian family offices may align their strategies with global trends with increased emphasis on sustainable and impact-oriented investments.

• Succession planning: As family offices globalise, there is a need for more sophisticated management structures and succession plans to enable seamless operations and intergenerational wealth transfer across jurisdictions.

• Hybrid family offices: As size and complexity increase, single-family offices are seeing the benefit of ‘working with niche or multi-family offices to access unique opportunities.

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The Indian AIF industry is likely to surpass ₹15 lakh crore of assets under management by 2025, and family offices are a major driver of this growth. Co-investing, where families directly invest in startups or private firms with the help of AIFs and leverage institutional deal flow along with their own sectoral expertise, is a rising family office investment trend.

Furthermore, ESG-directed and impact-oriented AIFs are also drawing in families who want to integrate wealth generation with social and environmental aspirations. This demonstrates a wider trend in wealth philosophy—away from purely financial growth towards accountable and sustainable investing.

In the years to come, AIFs will transition from being voluntary diversification instruments to becoming pivotal pillars of family office strategy. To India's high-net-worth families, they are not only an investment bet, but a method by which they can get ahead in an increasingly volatile global economy.

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