India's Alternative Investment Fund (AIF) industry has reached ₹17.53 lakh crore in commitments, but the sector faces structural conflicts. Wealth managers often act as both product manufacturers and distributors, which can lead to biased advice. SEBI is now implementing stricter governance rules, including a 75% investor consent threshold, to improve transparency and protect capital.
India’s Alternative Investment Fund (AIF) ecosystem has reached a significant milestone, with total commitments touching ₹17.53 lakh crore as of June 2026. This rapid growth, however, has brought scrutiny to how these funds are manufactured and sold. A primary area of concern for regulators and market observers is the dual role played by large wealth management firms, which often operate as both the creator of these investment products and the distributor selling them to clients.
This dual structure creates an inherent conflict of interest. When a wealth manager earns fees from creating a fund and commissions from distributing it, there is a risk that they may prioritize selling their in-house products over third-party alternatives. For an investor, this can lead to situations where the investment recommendation is driven more by the firm’s internal profit incentives rather than the specific financial goals or needs of the client.
To address these governance gaps, the Securities and Exchange Board of India (SEBI) is pushing for tighter regulations. The regulator has proposed a uniform 75% investor consent threshold for material decisions and transactions involving potential conflicts. Furthermore, SEBI is working to replace the older, narrower definition of associate with a more comprehensive related party framework under the Companies Act, 2013. This change is intended to make it harder for fund managers to bypass transparency requirements by routing deals through related entities.
Unlike the mutual fund industry, where investors benefit from standardized, half-yearly disclosures of distributor earnings, the AIF space lacks this level of public transparency. Currently, there is no centralized database that tracks how much capital a distributor funnels into its own funds versus independent options. This data gap makes it difficult for even sophisticated investors to determine if their financial advisor is providing objective advice.
Investors often rely heavily on their relationship managers for guidance, which makes them vulnerable to biased product placement. While a full ban on commissions is not the current regulatory path, SEBI’s focus is on ensuring that investors have more control over the decisions affecting their portfolios. By increasing the threshold for consent, the regulator aims to ensure that major financial moves within an AIF require broader agreement from the investors themselves.
The next important phase for the industry will be the official notification and implementation of these proposed SEBI guidelines. Investors and stakeholders should track how wealth management firms adjust their business models to comply with these new governance standards and whether this leads to improved disclosure practices regarding distributor commissions and in-house product sales.