Stories
Inside the Growing Conflict of Interest Within India's AIF Ecosystem
- •Alternative Investment Funds in India have grown significantly, with commitments reaching ₹17.53 lakh crore and deployment at ₹7.11 lakh crore.
- •A key conflict of interest arises because many large fund managers also own wealth desks that sell these products to clients, keeping both the shop and the shelf under one roof.
- •SEBI introduced reforms in 2023 requiring direct plans without distribution fees and capping upfront commissions to address mis-selling risks.
- •Industry defenders argue that AIFs are privately placed products with a ₹1 crore minimum ticket size sold to sophisticated investors, making mis-selling commercially unlikely.
- •Experts suggest transparency is the solution, advocating for the publication of aggregate half-yearly distribution payouts and mandatory disclosures on in-house fund placements.
Key Questions Answered
Many of the largest fund managers also own the wealth management desks that sell those same investment products to clients, creating an inherent conflict where the same corporate house profits from both manufacturing and distributing the fund.
SEBI mandated that every AIF scheme must offer a direct plan without any distribution fees. For Category III funds, managers can pay distributors only through equal trails out of their own fees, while Category I and II funds are allowed up to one-third upfront with the remainder spread across the fund's life.
SEBI proposed a uniform approval threshold of 75 percent of investors by value for all matters requiring investor consent, replacing the older framework that used mixed thresholds of two-thirds and 75 percent.
