Category 3 AIFs rise 35% year-on, ahead of the overall industry’s 24% growth

The latest market report highlights that Category III Alternative Investment Funds continued to outpace the rest of the AIF industry in the June quarter, with commitments rising 35.3 percent year-on-year to Rs 3.37 lakh crore despite a tough period for Indian stocks.

Indian equity markets had a tough first half of 2026. The Sensex declined around 10 percent. The Nifty eased nearly 9 percent. Geopolitical tensions, elevated crude prices, and heavy foreign selling weighed on sentiment. IT stocks were hit especially hard. Many large-cap stocks delivered flat or negative returns.

Yet one corner of the alternative investment space kept growing strongly.

Category III Alternative Investment Funds: the segment that runs sophisticated listed-market strategies, posted sharp upside in the June quarter.

These funds can go long, go short, or use limited leverage. They sit closer to hedge funds than traditional private equity vehicles.

New SEBI data reveals commitments in Category III rose 35.3 percent year-on-year to Rs 3.37 lakh crore. That is well ahead of the overall AIF industry’s roughly 24 percent expansion.

Funds boosted advanced 35.2 percent to Rs 2.17 lakh crore. Investments made touched Rs 2.31 lakh crore. Here is the striking detail.

The amount invested is elevated than the capital boosted. This rarely happens in other AIF categories. Many Category III schemes are more liquid. Managers can recycle capital. Some can use modest leverage. Money stays active even after it is boosted.

Almost all of this capital is domestic.

Indian HNIs and family offices are the main drivers. Foreign inflows stay very small.

Where does the money go?

Mostly into listed securities. Nearly Rs 1.86 lakh crore sits in listed stocks and related instruments. Unlisted exposure is just over Rs 11,500 crore.

These funds are not chasing private startups or real estate. They focus on public markets with flexible strategies.

Their share of the total AIF pie is additionally rising. Category III now makes up around 19 percent of all AIF commitments, up from roughly 17.6 percent a year earlier.

The timing is interesting.

While the broader market struggled with sideways movement and volatility in the first half of 2026, market participants still poured money into strategies that can handle both rising and falling markets.

The overall industry crossed a milestone. Total investments by all AIFs went past Rs 7 lakh crore for the first time. Yet the pace and style of expansion keep differ sharply between the three categories.

Other Categories Show Mixed Trends

Category I and Category II painted a more mixed picture in the June quarter.

Category I stays the smallest of the three segments. Total commitments stood at ₹1.13 lakh crore.

One sub-segment stood out sharply. Special Situation Funds saw a firm jump. Commitments rose nearly 50 percent from the previous quarter to ₹10,232 crore. Funds boosted more than doubled. Investments nearly tripled to ₹6,869 crore. These funds focus on stressed assets and special situations. Capital appears to be flowing into opportunities created by the current credit cycle.

Venture Capital and Angel Funds keep form the bulk of Category I. Their expansion stayed steady rather than explosive.

Category II stays the clear heavyweight. Commitments touched ₹13.03 lakh crore. It is still much larger than Category III. Expansion, that stated, was more moderate compared to the faster pace noted in Category III.

Most of Category II money stays in unlisted securities. Private equity, private credit and real assets dominate this segment. Real Estate keeps be its biggest sector exposure. That is why the sharp dip in Real Estate investments affected this category more than others.

Across all AIFs, one number stands out for its small size. Total investments in Start-ups and MSMEs touched only around ₹21,600 crore. That is roughly 3 percent of the industry’s total investments. Category III contributes almost nothing to this figure. Even after years of expansion, very little alternative capital is reaching early-stage firms and smaller enterprises.

Domestic money dominates across categories. Foreign inflows stay limited in most segments.