GIFT IFSC sees sharp dip in new AIF setups in 2025, even as investor numbers climb

Gift City

• AIFs kept 65% of investments in private markets despite rising listed exposure
• Category III AIFs led listed investment growth, notably in REITs and InvITs.
• Domestic capital flows surged 40% YoY, while foreign inflows grew 14% YoY

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India’s GIFT IFSC saw a sharp slowdown in new Alternative Investment Fund (AIF) registrations in 2025, with launches dropping over 40% year-on-year to just 57 from 106 in 2024, even as the broader mainland AIF ecosystem continued its robust expansion.

According to the December 2025 edition of the AltLens report, compiled by Eleveight Research for Nuvama Asset Services and BDO India, the cumulative total of registered AIFs in GIFT IFSC reached 256 by December 10, 2025, with Category III funds leading at 61% share. Despite the dip in new setups, investor participation across IFSC schemes grew sharply to 4,733, signaling sustained trust and broadening engagement in the international hub.

The registration slowdown stands in stark contrast to the mainland SEBI-regulated AIF landscape, where registrations hit 1,710 (a nearly 19-fold increase from 16 in 2012), with annual launches consistently exceeding 150 since 2022 and a 20% rise in 2025 alone. Category II anchored the majority (942 registrations), Category III posted the fastest long-term growth (32% CAGR over the decade), and Category I surged 48% in the past year.

This divergence highlights maturation dynamics in GIFT IFSC, possibly due to post-2024 consolidation after rapid earlier growth, regulatory adjustments (including the 2025 Fund Management Regulations), scrutiny on structures like family offices, or a shift toward deeper commitments rather than breadth. Mainland momentum remained strong, with total commitments ballooning from Rs 27,484 crore in 2015 to over Rs 15 lakh crore by September 2025 (49% CAGR), far outpacing mutual funds (~20% CAGR) and PMS (~15% CAGR).

Within portfolios, unlisted assets continued to dominate at approximately 65% of total deployed investments (Rs 3.76 lakh crore out of Rs 5.75 lakh crore), up 23% YoY and led by Category II. Listed holdings rose sharply to INR 1.99 lakh crore (35% share), with a 49% YoY surge driven almost entirely by Category III AIFs (capturing an estimated 81 to 87% of listed allocations). This growth proved largely additive — layered atop existing private-market exposure—rather than a structural reallocation away from unlisted opportunities.

Category III strategies (hedge-like, systematic, or quant-driven) were the clear engine: within listed instruments, allocations to REITs, InvITs, and AIF units exploded 184% YoY, rising from negligible levels to a more material ~13.7% share. Direct equity and equity-linked holdings retained dominance at 68% (up 31% YoY), reflecting demand for yield-generating and structured products amid uneven equity performance and subdued primary market activity in 2025.

Enterprise deployments stayed robust in private domains: startups maintained a 90% share of allocations (up 19% YoY), while MSMEs saw explosive momentum — small enterprises +315% YoY, micro +76%, medium +71%.

Emerging strategies underscored sector maturation. Private credit (AUM INR 2–2.5 lakh crore, ~0.6% of GDP) is rapidly filling bank gaps, with 39% of deals tied to refinancing and working capital. Quant strategies (AUM ~INR 2,300 crore) are carving a niche amid rising institutional adoption.

Domestic capital flows powered the growth engine, rising 40% YoY to Rs 4.7 lakh crore, while foreign inflows grew more modestly at 14% YoY to Rs 2.5 lakh crore. FPI allocations contracted sharply (87% YoY), likely due to lower Category II commitments amid global headwinds.

SEBI’s 2025 reforms, including frameworks for accredited investor-only schemes, large value funds, dedicated co-investment vehicles, and angel fund simplifications, have reduced friction, enhanced flexibility, and aligned compliance with investor sophistication.

For early 2026, these trends carry clear implications: AIFs are injecting targeted liquidity into listed yield plays (REITs, InvITs) while preserving a strong private-market core, delivering a balanced mix of stability, income, and alpha in a volatile environment. With domestic confidence surging and regulatory support deepening, India’s AIF sector — now a central portfolio pillar — appears poised for continued momentum, even as the GIFT IFSC navigates its consolidation phase and global factors temper foreign participation. The data affirms a sector that has evolved from niche to indispensable, fueling India’s growth story through diversified, resilient capital deployment.