How you pick from India’s investment stack

India’s capital market rules have evolved into a clear, four-layer “investment stack”. Each layer is designed for a different stage in an investor’s journey – starting with widely accessible mutual funds and progressing to high ticket alternative funds. Understanding where each product fits can help investors align their choices with goals, budgets and time horizon.

Until a few years ago Indian investors faced a steep jump: from Rs 500 mutual-fund SIPs straight to Rs 50 lakh PMS mandates. That gulf left many emerging high-net-worth individuals without a suitable investment avenue. Regulatory developments such as–Portfolio Management Services (PMS) reforms in 2020 and the launch of Specialized Investment Fund (SIFs) in 2025–have filled the gaps. The result is a smooth continuum of professionally managed vehicles, each with clearly stated minimums, risk controls and disclosure norms.

Mutual funds are collective investment schemes governed by the SEBI (Mutual Fund) Regulations, 1996. Investors buy units that represent a slice of a diversified portfolio. Ticket sizes are small (many funds allow Rs 100 SIPs), making them India’s preferred starter product. Key advantages include daily dealing, transparent net-asset values (NAVs) and a capped expense ratio. Investors can put in money through a one-time (lump-sum) payment or small, regular instalments known as Systematic Investment Plans (SIPs). Mutual funds also offer Systematic Withdrawal Plans (SWPs), allowing investors to withdraw a fixed amount at regular intervals, and Systematic Transfer plan (STPs), which let investors move money periodically from one fund to another – often from a debt fund to an equity fund – based on their financial goals. Funds come in different flavours—equity, debt, hybrid, index, sector—so you can match risk and return to your comfort level.

Specialised Investment Funds - Introduced in December 2024, SIFs sit midway between MFs and PMS. Experienced asset-management companies (AMCs) may launch them. SIF may pursue long-short, market-neutral, or other advanced strategies as defined in the circular, and can take aggregate unedged exposure of up to 25%. Cost is like MF and no performance fee. Close-ended SIFs must list on an exchange to give investors an exit.

Portfolio Management Services – is not a pooled vehicle; instead, the portfolio sits in the client’s own demat account while a SEBI-registered manager executes trades. Discretionary PMS (the dominant format) lets the manager make all buy/sell calls within a stated mandate. The statutory minimum investment is Rs 50 lakh aggregated across all PMS accounts held by the investor with a portfolio manager. Because the securities belong directly to the client, PMS offers: full visibility into holdings, T+2 liquidity (subject to market depth), scope for tax harvesting (usually for non-discretionary) – realising losses to offset gains.

Alternative Investment Funds – AIFs are pooled vehicles set up as trusts, managed by investment managers who can be in the form of companies or LLPs under the SEBI (AIF) Regulations, 2012. The minimum commitment is Rs 1 crore, though employees may enter at Rs 25 lakh, and Accredited Investors can negotiate lower amounts. AIFs consist of three categories:

Choosing the right fit

Minimum investment (Ticket size): Start with mutual funds or SIFs if your investable amount is below Rs 50 lakh.

Liquidity horizon: Consider how soon you might need your money. For short-term goals or emergency funds, open-ended mutual funds or liquid PMS strategies are more appropriate. Products like AIFs, which may lock up your capital for several years, are better suited for long-term commitments.

Fee structure: Pay close attention to costs. Performance fees, which can be as high as 20%, may significantly impact your returns. Check that any performance fee is linked to a clear hurdle rate and that a permanent high-water mark is in place to protect your interests.

Reporting and transparency: Think about how often you want updates on your investments. Mutual funds typically provide daily NAV disclosures, SIFs report at least weekly, and PMS and AIFs provide periodic statements–often quarterly or as specified by the fund. Choose a product that matches your need for information and oversight.
Professional Guidance: Taxation, estate planning and risk appetite differ for every individual. Consulting a qualified financial adviser can help you align investment products with your personal financial situation and long-term goals.

India’s investment stack now let’s capital graduate smoothly:

Rs 100–10 lakh: Mutual funds for core compounding.

Rs 10 lakh–50 lakh: SIFs for advanced but regulated strategies.

Rs 50 lakh–1 crore: PMS for bespoke, transparent portfolios.

Rs 1 crore +: AIFs for private-market and hedge-fund style exposure.

For many households, a combination of diversified mutual funds and, where appropriate, a single SIF can address most long-term financial goals. PMS and AIFs may be considered as portfolio size, investment horizon, and risk appetite increase and the need for more tailored or alternative strategies arises.

(The writer is Head of Passive Research, MOAMC)