Gathering in 2025 for the IVCA CAT III Summit: A Focus on Innovation, Expansion, and Outperformance within India's Swiftly Rising Alternative Asset Sector
India's Category III Alternative Investment Funds (AIFs) Experience Rapid Growth
Category III AIFs in India have witnessed a significant surge in popularity and importance within the capital markets. The appeal lies in their sophisticated, long-short, and absolute return strategies, which have attracted investors seeking alternative investment opportunities.
As of FY25 (2024-25), there were 371 registered Category III AIFs with capital commitments totalling Rs. 2.3 lakh crore. This represents a robust 65% compound annual growth rate (CAGR) over the past three years, with 95 new funds launched in FY25 alone, marking an 86% year-on-year increase in registrations. These new entrants also saw a 58% year-on-year jump in capital commitments, outpacing the broader AIF industry's 19% growth rate.
These funds attracted over 50% of all new capital flows in the last year, with Non-Resident Indians (NRIs) contributing 54%. This trend indicates a growing global interest in India's Category III AIFs.
The asset class's size is projected to expand further, with commitments expected to triple to Rs. 7.5 lakh crore by 2028.
Investment strategies within Category III AIFs primarily focus on equity long-short and absolute return models, offering flexibility to generate alpha in both rising and falling markets. However, there is a wide dispersion in fund returns, with some managers delivering over 40% while others incur losses, reflecting the varied risk and valuation environment of these funds.
Despite their growth, the industry faces regulatory and structural challenges. Regulatory caps on leverage limit the full exploitation of certain strategies, while taxation ambiguities for equity investments through Category III AIFs persist, with no clear tax chapter tailored to these funds yet. Additionally, the funds lack structural parity with other vehicles such as Special Investment Funds (SIFs) and mutual funds, affecting flexibility and market depth.
The IVCA CAT III Summit 2025, held recently in Mumbai, played a key role in addressing these issues and promoting the asset class's development. The summit brought together over 120 industry leaders, including fund managers, limited partners, policymakers, and wealth advisors, to discuss innovation in product structures, growth strategies, market shifts shaping the asset class, and regulatory clarity, particularly regarding leverage and tax policies.
Industry leaders emphasized the need for ongoing collaboration with capital market regulators and the Finance Ministry to resolve tax and regulatory clarity issues, aiming to unlock the next wave of product innovation and global competitiveness for India's Category III AIFs.
The IVCA CAT III Summit 2025 is scheduled to take place in Mumbai on 6th August 2025. The summit will provide a timely platform for industry leaders to discuss and address the growth and development of Category III strategies among domestic and global investors. The summit will feature marquee voices from both the policy and investment community, with Shri Pradeep Ramakrishnan of the International Financial Services Centres Authority (IFSCA) and Shri Pavan Shah headlining the regulatory discussions.
3P, DSP, and Vivriti Asset Management are partners for the IVCA CAT III Summit 2025, with Nuvama joining as the Custody and Clearing Partner. IVCA, a not-for-profit, apex industry body promoting the alternate capital industry and fostering a vibrant investing ecosystem in India, is organising the summit.
Priyam Kedia, Senior Portfolio Manager at Vivriti Asset Management, will participate in the IVCA Summit to introduce semi-liquid credit funds as a new asset class. The IVCA CAT III Summit 2025 aims to decode key trends, navigate regulatory developments, and craft a forward-looking roadmap for the Category III AIFs ecosystem.
Dr. Pritesh Majumdar, Head- Legal & Compliance and Compliance Officer, DSP Asset Managers Private Limited, aims to deepen industry engagement and promote best practices in alternative investments. Rajat Tandon, President of IVCA, stated that Category III AIFs are at the forefront of India's financial evolution.
In conclusion, Category III AIFs represent the fastest-growing segment of India's alternative asset space, backed by strong capital inflows and increasing sophistication. The IVCA CAT III Summit 2025 fosters industry dialogue and policy engagement essential to realizing their full potential.
- Despite the rapid growth and popularity of Category III AIFs in India, challenges related to taxation ambiguities, regulatory caps on leverage, and infrastructural parity with other vehicles persist.
- To address these challenges and unlock the next wave of product innovation, ongoing collaboration between industry leaders and regulatory bodies like the Finance Ministry is pivotal.
- Efforts to improve the tax and regulatory landscape for Category III AIFs, such as hosting events like the IVCA CAT III Summit 2025 that facilitate dialogue and policy engagement, are crucial in fostering the asset class's future development and global competitiveness.
