The rise of family offices in India: PMS & AIF at the core

There is a quiet shift happening in how India's wealthy families manage their money. It is not loud. It does not make front pages. But if you pay attention to conversations happening in South Mumbai boardrooms or in the corridors of Bengaluru's new-money tech circles, you start to notice it.

Family offices are no longer a Western concept that rich Indians read about in the Financial Times. They are here, they are growing, and they are doing things differently than old-school wealth managers ever did.

What actually is a family office?

Strip away the jargon, and a family office is simply a private setup that manages the wealth of one or a few ultra-rich families. It handles investments, taxes, succession, philanthropy, and sometimes even the family's art collection or the kids' trusts.

A single-family office (SFO) serves one family. A multi-family office (MFO) pools together several families who each benefit from shared infrastructure and lower costs.

India now has over 300 family offices, a number that has roughly doubled in the past five years. Most are concentrated in Mumbai, Delhi, and Bengaluru. A good chunk have been set up by first-generation entrepreneurs who sold their companies or listed them and suddenly found themselves sitting on a few hundred crores with no real plan for what comes next.

Why is this happening now?

A few things came together at the same time.

The startup ecosystem created a fresh wave of liquidity events. Founders who exited or took their companies public between 2018 and 2022 found themselves with capital that needed a home. Traditional FDs and mutual funds did not feel right for that kind of wealth. Neither did leaving everything in equity markets without any structure around it.

At the same time, Indian markets matured enough to actually offer alternatives. Portfolio Management Services (PMS) and Alternative Investment Funds (AIF) became real options, not just theoretical ones.

And then there is the generational factor. The second generation, educated abroad and used to global standards, came back and wanted professional structures. They did not want an uncle's CA managing a portfolio over WhatsApp.

PMS: the workhorse of family office portfolios

Portfolio Management Services let a professional fund manager handle a client's equity portfolio on a discretionary or non-discretionary basis. The SEBI minimum ticket size is Rs. 50 lakh, though most serious family offices operate at much higher levels.

What family offices like about PMS is control. Unlike mutual funds, a PMS account holds stocks directly in the client's name. You can see exactly what you own. You can have conversations with the manager. You can push back on allocation decisions if you disagree.

The flip side is that PMS comes with higher fees and more tax friction. Every rebalancing trade is a taxable event. Family offices that use PMS have to work closely with their tax teams to manage this.

Still, for the equity portion of a family's portfolio, PMS remains the preferred structure. It is transparent, customisable, and well-regulated.

AIF: where the more interesting bets go

If PMS is the workhorse, AIFs are where family offices place their more unconventional allocations.

AIFs are SEBI-registered pooled vehicles that can invest in assets that mutual funds cannot touch:

• Private equity and venture capital
• Real estate and infrastructure play
• Special situations and distressed assets
• Long-short and hedge-style strategies
• Private credit and structured debt

They come in three categories. Category I covers social and infrastructure funds. Category II covers PE and debt funds. Category III covers complex trading strategies.

The minimum AIF investment is Rs. 1 crore, though fund managers typically want significantly more from anchor investors.

Family offices are drawn to AIFs for a few reasons. Diversification beyond listed equity is genuinely useful since not everything needs to move with the Sensex. Returns from good PE or credit funds over a 7 to 10-year horizon can be compelling. And some AIFs give family offices access to deals and managers they could not otherwise reach.

The risk is illiquidity. You cannot exit quickly. If a family has a cash crunch, that money is locked. Family offices have to plan around this carefully, keeping sufficient liquidity before committing to a multi-year fund.

The tax picture matters more than people admit

One reason PMS and AIF have become central to family office portfolios is that the regulatory and tax treatment around them is now well-defined. Pass-through taxation in most AIF categories means the fund itself does not pay tax. The investor does, based on their own bracket and holding period.

This is useful for families thinking across generations. A private family trust holding AIF units, combined with sensible succession documents, can meaningfully reduce the tax drag on wealth transfers.

Most family offices now work with dedicated tax counsel rather than generalist CAs. That shift alone says something about how much has changed over the last decade.

The governance question nobody likes talking about

Here is where family offices get complicated. The investment side is honestly the easier part.

The hard part is governance:

• Who makes the final call on allocations?
• What happens when the founder is no longer in the picture?
• What if two siblings disagree on risk appetite?
• What does the next generation actually want from this money?

Family offices that work well have answered these questions in writing before a crisis forces the conversation. An investment policy statement, a family charter, a clear decision-making structure. The ones still figuring this out tend to run into problems, not necessarily with the investments, but with the relationships around the money.

Conclusion

India's family office ecosystem is still young. It is growing fast and not all of it is well-structured yet. But the direction is clear.

Wealthy Indian families are moving away from ad hoc wealth management toward something more deliberate. PMS gives them equity exposure with transparency and customisation. AIFs give them access to private markets, credit strategies, and returns that do not move in step with public indices.

The families that get this right are not just building portfolios. They are building systems that are tax-efficient, properly governed, and designed to outlast the generation that built the original wealth. That is a different ambition than simply making money, and it is why this space is worth watching closely.