Understanding the Growth of Debt AIFs: Opportunities and Strategies
Dipen Ruparelia, Head of Products at Vivriti Asset Management, discusses the growing acceptance of Debt AIFs, their strategies, and the benefits for investors and distributors.
Debt AifsPerforming CreditVenture DebtReal Estate FundsAccredited InvestorsReal EstateJul 11, 2025
Some of the broad debt AIF strategies offered by AIF managers in India include:
1. Performing Credit : This strategy involves making debt investments in mid-market operating companies for growth purposes.
2. Venture Debt : A facility provided to early-stage, high-growth companies already backed by venture capital firms. Venture debt deals often include an equity component, such as warrants, preference shares, rights, or options.
3. Real Estate : Real estate funds focus on various sectors like commercial office, residential, retail, industrial, and hospitality. These funds complement traditional sources of capital for developers.
4. Distressed/Special Situations Debt : These funds target more complex and sophisticated deals, aiming to turn around struggling companies.
Vivriti AMC is a leader in the performing credit space. The opportunities in this sector are significant, as entities typically repay debt through operational cashflows. While banks meet standard funding needs, private credit AIFs can offer structured solutions for specific requirements such as working capital correction, last-mile capex, and product development financing. Over the next decade, investment in infrastructure, climate, green transition, and agriculture will require a substantial debt investment of Rs.250 lakh crore. Private credit funds can fill the gap left by banks and NBFCs, which have pivoted to retail in recent years.
Investing in performing credit funds offers several benefits:
- Higher perceived risk allows experienced fund managers to lock in higher spreads over actual risk.
- Investors can expect post-expenses, pre-tax returns of 12-13% in the debt AIF space.
- AIFs provide flexible deal structuring with the right covenants and regular monitoring.
- Granular exposure limits the average single entity to 3-4% of the fund size.
AIFs have grown faster than mutual funds and PMS in the last five years, with commitments raised in AIFs increasing by a CAGR of 31% compared to 25% in mutual funds and 11% in PMS. Factors contributing to this growth include superior risk-adjusted returns, low correlation to public markets, a progressive regulatory environment, and asset diversification. Economic uncertainties during the Covid pandemic and ongoing geopolitical tensions have also increased the volatility of public markets, making AIFs more attractive.
Vivriti Debt++ is an initiative launched to serve the distribution community with a go-to source for the latest news and developments on debt AIFs. The tab will include knowledge-building articles about the debt AIF space and SEBI’s Accredited Investors (AI) Framework. This framework allows investors to invest with ticket sizes as low as Rs.10 lakh, subject to obtaining an AI certificate.
Wealth managers can benefit from the growth of AIFs. Data suggests that over 20% of commitments raised by AIFs come from individuals with a ticket size of less than Rs.2 crore. There are 50+ wealth partners/distributors, each with aggregate commitments of Rs.25 crore or higher in the debt AIF space. Distributors can offer a diverse range of products, grow with clients using the AI framework, and benefit from fair compensation for higher client onboarding efforts.
SEBI has introduced the concept of accredited investors in India. Accredited investors are individuals or entities recognized by financial authorities as having the financial knowledge and capacity to invest in sophisticated and potentially riskier products. In the AI framework, investors can invest with ticket sizes lower than the stipulated minimum amount in AIFs. If you meet the eligibility criteria, you can secure an AI certificate and invest with ticket sizes starting as low as Rs.10 lakh in Vivriti AIFs.
The benefits of getting the AI certification include access to private market investment opportunities, lower investment ticket sizes, higher potential returns, and portfolio diversification.
MFDs/RIAs can help their clients become accredited investors by leveraging Vivriti AMC's Accredited Investor Digital Onboarding Platform. This platform simplifies the certification process, ensuring a seamless and efficient experience. With the investor's consent, the platform collects necessary data, prepares a draft format, and shares it with the investor for review and approval. Once approved, the data is shared with an accredited agency, and an accreditation certificate is received post-payment.
The platform simplifies what can otherwise be a complex process, ensuring that clients are certified as accredited investors conveniently and securely.
Frequently Asked Questions
What are the main strategies offered by Indian debt AIFs?
The main strategies include performing credit, venture debt, real estate, and distressed/special situations debt. Each strategy targets different sectors and risk profiles.
Why are performing credit funds considered lucrative?
Performing credit funds are lucrative because they invest in mid-market operating companies that repay debt through operational cashflows. This allows for higher perceived risk and higher spreads over actual risk.
What are the benefits of investing in debt AIFs?
Benefits include higher risk-adjusted returns, low correlation to public markets, flexible deal structuring, and granular exposure. Investors can expect post-expenses, pre-tax returns of 12-13%.
What is the rationale behind the ‘Vivriti Debt ++’ initiative?
The ‘Vivriti Debt ++’ initiative aims to serve the distribution community with a go-to source for the latest news and developments on debt AIFs, including knowledge-building articles and SEBI’s Accredited Investors (AI) Framework.
How can MFDs/RIAs help their clients become accredited investors?
MFDs/RIAs can help their clients become accredited investors by leveraging Vivriti AMC's Accredited Investor Digital Onboarding Platform, which simplifies the certification process and ensures a seamless and efficient experience.
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