How HNIs and ultra HNIs deploy wealth amid market volatility; expert on the rise of AIFs, PMS

India’s wealth story is entering a more mature phase. Over the past decade—and especially through 2025—HNIs and ultra-HNIs have quietly but decisively changed the way they invest. As markets became faster, louder and more volatile, wealthy investors chose a different path: they slowed down, diversified more deeply and prioritised structure over speculation.

“The biggest myth is that HNIs invest like retail investors, just with more money,” says Alok Jain, Founder of Weekend Investing. “In reality, the mindset is completely different. The first difference is patience. Large investors are not in a hurry.”

Where to invest

This patience shows up most clearly in time horizons. Retail investors often chase the best-performing stock or fund of the year, exiting within months if returns disappoint. Industry data shows the average mutual fund holding period is just over two years. HNIs, by contrast, think in full market cycles. “They understand that equity investing works over five, seven or ten years. In markets, rushing rarely gets you anywhere,” Jain said in a recent video on YouTube.

Handling risk

Risk perception also shifts as wealth grows. Younger or smaller investors can afford volatility because they have time to recover. For an HNI or ultra-HNI, a sharp drawdown is not merely a paper loss—it can undo years, even decades, of compounding. “When you’ve spent most of your working life building wealth, capital protection becomes more important than maximising returns,” Jain explains. “Everyone likes higher returns—but at what cost?”

As a result, the focus moves away from headline performance toward risk-adjusted returns. Instead of chasing the highest return product, wealthy investors prefer strategies that protect capital while allowing steady compounding. “People don’t become HNIs by accident,” Jain said. “They understand diversification, asset allocation and the power of compounding. They avoid rash decisions.”

Alternative Investment Funds

This disciplined approach has steadily pushed HNIs toward institutional-style investing. In equities, Alternative Investment Funds (AIFs) have emerged as a preferred structure. AIFs pool investor capital into professionally managed vehicles supported by trustees, fund accountants, legal oversight and compliance frameworks—features that appeal to investors who value governance and transparency as much as returns.

Among these, Category III AIFs have seen the fastest adoption. These funds can invest across listed equities, derivatives and long–short strategies, offering hedge-fund-like flexibility. A key attraction is operational simplicity. “In a pooled structure, everyone gets the same outcome,” Jain noted. “You’re not dealing with different entry points, execution gaps or behavioural mistakes.”

By comparison, Portfolio Management Services (PMS) offer customised portfolios held in an investor’s own demat account, managed through a power of attorney. While this allows individual ownership, returns can vary widely depending on timing, execution and portfolio churn.

AIFs differ in structure and scope. Regulated by SEBI under the AIF Regulations, 2012, they provide access beyond traditional equities and bonds, including private equity, real estate, venture capital and hedge-fund strategies. Category I focuses on start-ups and infrastructure, Category II on private equity and debt, while Category III allows leverage and complex listed-market strategies. With a minimum investment of ₹1 crore, AIFs are designed primarily for HNIs and institutions.

Tax efficiency

Tax efficiency further strengthens the case. Category III AIFs handle taxation at the fund level, meaning investors receive post-tax returns without the year-end complexity seen in PMS or direct stock investing. Smallcase strategies, meanwhile, require self-execution and investor-level tax management.

Structural safeguards also play a role. Category III AIFs typically require sponsors to commit capital, ensuring skin in the game, and are often set up as trusts with independent trustees. “That institutional oversight builds confidence,” Jain says. “It’s very different from structures where everything sits under one individual’s control.”

The growth numbers reflect this shift. While mutual funds and PMS have expanded steadily, AIFs—especially Category III—have grown much faster, driven largely by fresh inflows rather than market gains alone. This signals a clear preference among HNIs for structured, professionally managed alternatives.