In recent years, Alternate Investment Funds have become more widely discussed among investors in India. As investment options expand beyond traditional equity and debt, many investors come across alternative strategies while exploring ways to diversify their portfolios. 

However, familiarity with the term does not always mean clarity about how an alternate investment fund actually functions.

AIFs differ from mutual funds and listed investments. In many cases, value is created gradually through business growth, asset development, or specialised investment strategies rather than through daily price changes in the market. Because of this difference, expectations formed from stock market investing are often applied incorrectly. 

This leads to several common myths, especially among investors searching for the best AIF in India without first understanding the underlying structure.

Myth 1: AIFs Are Meant to Deliver Higher Returns

It is often assumed that AIFs exist mainly to generate higher returns than traditional investments. This belief comes from the visibility of certain successful private equity or venture investments.

The reality

Top AIFs in India offer access to different sources of return, not inherently higher returns.

Performance dispersion across AIF managers is significantly wider than in traditional funds. In private markets, especially:

  • Entry valuation determines a large part of the eventual outcomes
  • Capital deployment may occur over several years
  • Returns are often back-ended rather than linear
  • Unsuccessful investments may take longer to be written down

Research across private equity and hedge fund performance shows that top-quartile managers can materially outperform, while lower-quartile managers may underperform public markets.

The asset class, therefore, amplifies the importance of manager selection.

Myth 2: AIFs Are Only for Very Wealthy Investors

Historically, alternative investments required institutional-scale capital and long lock-in periods, making them inaccessible to most investors.

The reality

Suitability of AIF depends more on financial planning than on wealth itself.

Alternative investments generally involve lower liquidity and longer investment horizons. For investors whose core portfolios already provide stability and liquidity, AIFs may serve as an additional allocation that introduces different sources of return. 

Platforms such as PMS AIF WORLD have made comparison easier by presenting different strategies and structures in an organized manner, helping investors understand where such investments may fit.

Myth 3: AIFs Are More Risky Than Traditional Investments

The absence of daily price movements sometimes creates the impression that AIFs are riskier. 

The reality

In listed markets, risk is visible through price volatility. In alternative investments, risk appears in other forms:

  • Liquidity risk due to longer holding periods
  • Execution risk linked to business or project outcomes
  • Manager risk due to concentrated decision-making
  • Valuation risk arising from periodic rather than continuous pricing

When compared with the top PMS in India, it becomes clear that risk is not necessarily higher, but different in nature.

Myth 4: AIFs Always Provide Diversification

Since AIFs invest outside public markets, they are often expected to reduce portfolio risk automatically.

The reality

Diversification depends on underlying economic drivers, not investment labels.

Private equity investments continue to be affected by the pace of economic growth. Real estate performance is influenced by demand conditions as well as interest rate movements, while credit strategies tend to respond to changes in the wider financial environment. 

In periods of economic stress, assets that normally behave differently may begin to move together. 

Therefore, investors evaluating the best AIF in India are increasingly focusing on how returns are generated, instead of relying only on the investment category as an indicator of diversification or performance.

Myth 5: Illiquidity Makes AIFs Unattractive

Investors accustomed to daily liquidity perceive lock-in periods as a limitation.

The reality

Illiquidity in alternative investments is often intentional. Many investment strategies require time for outcomes to develop.

These may involve improving business operations, completing asset development, or exiting investments through negotiated transactions rather than through open markets. 

If investors were allowed frequent liquidity, investments might have to be sold earlier than planned, which could weaken long-term execution. In this context, limited liquidity enables managers to focus on value creation without constant short-term market influence.

At the same time, illiquidity creates certain practical considerations. 

Capital is commonly invested in phases instead of at once; the timing of exits remains uncertain, and portfolio rebalancing becomes slower. 

For this reason, illiquidity should be accepted only when it is accompanied by sufficient return potential or a clear diversification advantage. Otherwise, the loss of liquidity may not be justified from an investment standpoint.

Wrapping Up

Alternative Investment Funds form a part of the capital market where investment outcomes depend on access to opportunities and the gradual execution of investment strategies. 

They are not alternatives to traditional investments in a strict sense, but may be used alongside them to improve portfolio balance when investment objectives are clearly defined.

For investors examining the top AIF in India, attention is increasingly shifting from return comparison to an understanding of investment structure, risk, and the sources of return. 

In this context, platforms such as PMS AIF WORLD contribute by organizing information, enabling clearer comparison across strategies, and supporting more informed investment decisions within the alternative investment space.