How Many AIFs Should an HNI Actually Hold? — Portfolio Construction Basics

There's no single right number, but there is a right way to think about it — and most first-time AIF investors get the sequencing badly wrong, chasing individual fund selection before they've settled the portfolio-construction question underneath it.

Start With Total Allocation, Not Fund Count

Before asking "how many AIFs," the prior question is what proportion of total investable wealth should sit in illiquid, private-market exposure at all. Private markets — venture, private equity, structured credit — carry meaningfully longer lock-ups and less liquidity than listed equity or debt, so the starting discipline is deciding a total allocation ceiling for illiquid private-market exposure (commonly discussed in wealth-advisory practice as a modest single-digit-to-low-double-digit percentage of investable net worth for most HNIs, though this varies with individual liquidity needs and risk appetite) before working out how that allocation gets divided across individual funds.

Why Concentration in One or Two Funds Is a Real Risk

Given the ₹1 crore minimum ticket size for most AIF categories, an HNI with a moderate allocation to private markets can easily end up holding just one or two funds purely because of the ticket-size floor — not because that's the right portfolio construction, but because it's the arithmetic constraint. The risk this creates is straightforward: manager-specific risk (a single Manager's judgment, sourcing quality, and execution discipline) and vintage-year risk (covered in our companion piece) both concentrate entirely in whichever one or two funds happen to be held, with no diversification against either.

The Diversification Dimensions That Actually Matter

Genuine AIF portfolio diversification runs across several dimensions simultaneously, not just fund count: strategy (venture, growth-stage private equity, private credit, real estate, special situations each carry different risk-return and liquidity profiles); vintage year (spreading commitments across market cycles); and manager (avoiding overreliance on a single team's judgment and sourcing network). A portfolio of four funds spread across these three dimensions is meaningfully more diversified than four funds from the same manager launched in the same year pursuing similar strategies.

A Practical Range, Held Loosely

Institutional private-markets practice generally points toward somewhere in the range of eight to fifteen fund commitments for genuine diversification benefit to materialise across strategy, vintage, and manager — but this range is built for institutions deploying far larger absolute capital than most individual HNIs. For an HNI working within the ₹1 crore-per-fund reality of India's AIF minimums, a more realistic starting target is often four to six funds, built progressively over several years rather than committed to all at once, prioritising vintage-year spread over trying to hit an institutional-scale fund count from day one.

Building Toward This Progressively, Not All at Once

Given both the vintage-diversification benefit of staggered commitments and the practical reality that most HNIs aren't allocating enough capital to genuinely diversify across ten-plus funds simultaneously, the right approach is usually a multi-year commitment programme — two or three new fund commitments per year, building toward a diversified book over three to four years, rather than a single large allocation exercise trying to solve diversification in one sitting.

Where Fund-of-Funds Structures Fit In

For HNIs below the scale where direct multi-fund diversification makes practical sense, AIF fund-of-funds structures (which pool capital across several underlying AIFs) offer a genuine shortcut to diversification within a single commitment — worth evaluating specifically for investors constrained by the ₹1 crore-per-fund minimum from building direct diversification themselves.

Building a Portfolio, Not Just Picking Funds

The most common mistake in AIF investing isn't picking a bad fund — it's never stepping back to ask whether the overall private-markets book is actually diversified across strategy, vintage, and manager. We help HNIs build a genuine multi-year AIF commitment programme rather than evaluate one fund opportunity at a time in isolation.

This article is for general informational purposes and does not constitute investment advice tailored to any individual's financial circumstances.

CA Anuj Desai