Spotlight on the Emergence of Indian Funds in 2025: A Global Investor’s Opportunity

Sophie White, Associate Director at Vistra Global Fund Solutions offers insight into the diverse investment opportunities in this fast growing economy

Strong Economic Growth and Investment Drivers

According to India’s Ministry of Finance Economic Survey, India’s GDP growth for FY 2025-26 is projected to be between 6.3% and 6.8%. Private consumption and investment remain critical factors in driving this growth. India’s business environment is increasingly shaped by its expanding start-up ecosystem, with private equity (PE) and venture capital (VC) poised to continue their upward trend in 2025.

India has established itself as a favourable market for entrepreneurs. Both domestic and international investors are directing capital into high-growth sectors like technology, fintech, healthcare, renewable energy, and consumer goods. The rise of unicorns (start-ups valued over $1 billion) has further solidified India’s position as a key hub for innovation and entrepreneurship. Major investors like Sequoia Capital, SoftBank, and Tiger Global have been active participants, fuelling the growth of India’s start-up ecosystem.

The Growth of Alternative Investment Funds (AIFs) in India

India’s financial ecosystem has witnessed significant transformation in recent years, with Alternative Investment Funds (AIFs) emerging as a critical component of the investment landscape. AIFs encompass a range of asset classes, including private equity, venture capital, real estate, infrastructure, and hedge funds, allowing global investors to diversify into high-growth sectors outside traditional equities and bonds.

As of 2023, AIFs in India saw remarkable growth, surpassing ₹7.5 lakh crore (USD 100 billion) in total Assets Under Management (AUM), reflecting a compound annual growth rate (CAGR) of over 20%. The growth is driven by regulatory clarity, tax-efficient structures, and increasing participation from both domestic and international investors. The AIF space is crucial for accessing India's burgeoning start-up ecosystem and high-growth sectors such as fintech, healthcare, and renewable energy.

Global investors, such as Blackstone and KKR, are capitalizing on India’s expanding economy and thriving entrepreneurial ecosystem. The AIF industry's Assets Under Management (AUM) grew by 36% year-on-year, reaching Rs. 11.35 lakh crore in March 2024 from Rs. 8.34 lakh crore in March 2023 as per SEBI, offering substantial opportunities for foreign capital seeking exposure to India’s high-growth sectors.

GIFT City: India’s Offshore Jurisdiction for Global Funds

GIFT City (Gujarat International Finance Tec-City) is quickly becoming India’s premier financial hub for domiciling funds, especially Alternative Investment Funds (AIFs), private equity (PE), and venture capital (VC) investments. Positioned as part of India’s vision to become a global financial centre, GIFT City offers tax incentives, a strong regulatory framework, and world-class infrastructure, making it an increasingly attractive destination for global investors seeking efficient, transparent, and competitive financial services.

India’s first International Financial Services Centre (IFSC), GIFT City, provides a favourable environment for financial services firms to domicile and manage funds. Major global players such as Deutsche Bank, HSBC, and Nomura have already established a presence in GIFT City, underscoring its growing significance.
Key features of GIFT City include:

• Tax Incentives: A 10-year tax holiday for units in IFSC, zero capital gains tax on securities listed on the International Exchange, and no stamp duty on securities transactions.
• Attractive Regulatory Framework: Operating under a simplified regulatory environment by SEBI, GIFT City offers a unique blend of offshore-like benefits within India, making it an ideal destination for global investors seeking tax efficiency and regulatory ease.

With over 30% of the AUM in GIFT City coming from foreign institutional investors (FIIs), the city is well-positioned to attract even greater foreign capital in the coming years. In 2023, AUM in the IFSC surpassed ₹50,000 crore ($6 billion), and projections suggest this could rise to ₹2 lakh crore ($25 billion) by 2027.

India’s ESG Focus: Investment in Sustainability

Environmental, Social, and Governance (ESG) principles are increasingly becoming a central focus in India’s financial markets. ESG-compliant funds are expected to experience exponential growth in 2025, with significant attention on renewable energy, clean technology, and sustainable development.

India is already home to 10 ESG-compliant funds, with SBI Magnum Equity ESG being one of the oldest. The country’s commitment to sustainability is evident in its growing renewable energy sector, which has grown by 15.8% year-on-year, accounting for 47% of India’s total installed capacity. India’s Green Hydrogen Mission aims to scale up renewable energy and reduce reliance on fossil fuels, contributing to its goal of achieving net-zero emissions by 2070.

The Securities and Exchange Board of India (SEBI) has introduced stringent regulations for ESG disclosures, mandating the top 250 listed companies to report against key performance indicators (KPIs). As global investors continue to prioritize responsible and sustainable investment strategies, India’s emphasis on ESG provides a unique opportunity for those looking to align their portfolios with global sustainability goals.

India’s Infrastructure Growth: The National Infrastructure Pipeline (NIP)

The National Infrastructure Pipeline (NIP) is one of India’s most ambitious initiatives to address the country’s infrastructure deficit and catalyse long-term economic growth. With a target of $5 trillion in investments by the end of 2025, the NIP aims to support projects across energy, transport, urban development, and railways. These infrastructure improvements are expected to further unlock investment opportunities in sectors like real estate, renewable energy, and transportation.

Prime Minister Narendra Modi emphasized the importance of infrastructure, stating, “Infrastructure is much more than cement and concrete. Infrastructure guarantees a better future. Infrastructure connects people.” This vision is being realized through the development of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), which are gaining traction as vehicles for funding infrastructure projects.

Indian-domiciled debt funds are increasingly being used to finance infrastructure development. These funds offer flexible funding solutions and attractive returns, making them an ideal option for global investors looking to capitalize on India’s infrastructure growth. With tightening global credit conditions, debt funds provide an alternative financing option that supports both India’s economic growth and investor returns.

Looking Ahead: India’s Strategic Role in a Shifting Geopolitical Landscape

Looking forward, it will be interesting to see how India's status as a global investment hub evolves in the context of shifting geopolitics. The relationship between the U.S. and China has become increasingly strained over trade, intellectual property rights, and China’s global economic influence. India, on the other hand, is increasingly seen as a natural partner for Western nations, particularly due to its alignment with many Western values, including the growth of its technology sector.

With the growing importance of technology and innovation, India could become a critical player in the Indo-Pacific region, potentially emerging as a key investment destination for global capital. As the U.S. seeks to diversify its economic ties in the face of ongoing tensions with China, India’s stable political environment, tech-savvy workforce, and favourable business conditions position it as a valuable alternative for investors seeking long-term growth opportunities in the region.
 

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