Secondaries Market Development in India for AIF Units — A Deeper Dive Than FAQ Part 19

A liquid secondaries market is the missing piece that would let Indian AIF investors exit early without waiting a decade for fund wind-down. It's developing — slowly, and with real structural friction still unresolved.

Why Secondaries Matter More in India Than Elsewhere

In mature private markets, a robust secondaries ecosystem gives LPs an exit route independent of the fund's own timeline — an investor needing liquidity sells their commitment to another investor rather than waiting for the GP to realise the underlying portfolio. India's AIF market has historically lacked this depth, which matters more here than in the US or Europe precisely because Indian AIFs skew toward retail-adjacent HNI capital rather than large institutions with the balance-sheet patience to hold a ten-year illiquid position without an exit option.

The Structural Frictions Holding Secondaries Back

Several factors have kept Indian AIF secondaries thin. Transfer restrictions in most PPMs require Manager consent (and sometimes a right of first refusal for existing investors) before a unit can be transferred, slowing transaction velocity. Pricing discovery is genuinely hard without a continuous market — a seller and buyer negotiating a one-off transfer have far less reference-price information than they would in a listed market, pushing most secondary transactions toward wide bid-ask spreads or reliance on the fund's own NAV (which may not reflect what a buyer is actually willing to pay for an illiquid, GP-controlled position). And tax treatment on transfer of AIF units between investors carries its own complexity that a first-time secondary seller is rarely prepared for.

GP-Led Secondaries as the More Developed Segment

Ironically, the GP-led secondaries and continuation-fund segment — where the Manager itself structures a transaction moving assets from an ageing fund into a new continuation vehicle — has developed further in India than pure LP-to-LP secondary trading, partly because SEBI's 2024 dissolution-period framework gave it an explicit regulatory home. Our companion piece on GP-led secondaries and continuation funds covers this mechanism in detail; it's worth understanding as the more institutionally mature half of India's secondaries story right now.

What a Genuine LP-to-LP Secondaries Market Would Need

For LP-to-LP secondary trading to develop real depth, several pieces need to mature together: standardised transfer documentation that reduces per-transaction legal friction; a recognised intermediary or platform layer that can match buyers and sellers with some pricing transparency; clearer market practice on valuation methodology for pricing a secondary interest (versus simply defaulting to last-reported NAV); and continued regulatory comfort from SEBI with transfer mechanics that don't undermine the Manager's ability to run the fund coherently with a changing investor base.

Where Early Movement Is Visible

Specialist secondaries-focused funds and advisory platforms have begun emerging specifically to intermediate AIF unit transfers, and family offices and wealth platforms increasingly maintain informal networks matching investors wanting liquidity with others wanting exposure to an established, already-invested portfolio (avoiding the "blind pool" risk of a new commitment). This is still a fraction of the depth seen in mature markets, but it's a meaningfully different landscape from five years ago.

What This Means for Fund Managers Today

Even short of full secondaries-market maturity, Managers can materially improve their fund's liquidity story by building clearer, less restrictive transfer mechanics into the PPM from inception — a defined consent process with reasonable timelines, rather than open-ended Manager discretion — since investors increasingly ask about secondary exit optionality as part of their initial due diligence, not as an afterthought.

Building Liquidity Optionality Into Fund Documentation Now

Whether or not India's broader secondaries market matures quickly, individual funds can be structured today to make a future secondary transfer meaningfully easier for investors. We help managers build transfer mechanics into their PPMs that anticipate this demand rather than treating it as an edge case.

This article is for general informational purposes and does not constitute regulatory or investment advice specific to any fund.

CA Anuj Desai