New Delhi, May 22 -- Household assets managed by alternative investment funds (AIFs), including private equity and venture capital vehicles, surged more than 2,000 times in 2023-24 from the year before, according to a study by the Securities and Exchange Board of India (SEBI). But that doesn't really offer a complete picture. Here's why.

According to the study, titled Household Savings through Indian Securities Market, undertaken by SEBI in consultation with the Reserve Bank of India (RBI) and the Ministry of Statistics and Program Implementation (MosPI), household assets with AIFs increased from only Rs 63 crore in FY23 to Rs 1.33 trillion in FY24. That's an increase of 2,120 times, or 212,000%, to be exact. In FY25, the assets with AIFs rose to Rs 1.55 trillion, the study showed. That's a modest increase of 16.4%, back-of-the-envelope calculations show.

The study didn't explain the reason for the sharp rise in household assets managed by AIFs in FY24. So, VCCircle reached out to regulatory sources who did not want to be identified. And this is what we have learnt.

One of the persons, a regulatory expert who spoke on the condition of anonymity, said that the sudden jump could be explained by the market regulator mandating in June 2023 the dematerialisation of all AIF units.

AIFs were asked to dematerialise units already issued by October that year for schemes with a corpus of more than Rs 500 crore and by April 2024 for those with a lower corpus. They were asked to issue only demat units from November 2023 for larger corpus and from May 2024 for lower corpus. Funds whose tenures were ending on or before April 2024 were exempted from this requirement.

Before the demat exercise, the data on AIF holdings was captured in the filings that the fund managers made. The study has not included data from these filings for FY23 and therefore a much lower number has been recorded.

This also explains why the rise in assets during FY25 wasn't abnormally high and broadly matched the increase in household assets in other securities such as mutual funds, equity, and debt.

AIFs, a pool of investments that came to be first regulated in 2012 through the SEBI (Alternative Investment Funds) Regulations, are meant for people with higher risk appetite. Therefore, there are minimum investment thresholds, which fall between Rs 1 crore and Rs 25 crore for regular investors and Rs 25 lakh for those employed and associated with the funds.

The broader picture

SEBI said that the study was undertaken to get a clearer picture of how households were channelling their savings. The study included several investor categories such as individual investors, Hindu Undivided Families (HUFs), and non-profit institutions serving households (NPISHs), which included association of persons, trusts, body of individuals, non-government organizations, charities and so on.

The capital markets regulator said that the reports published by the RBI and the statistics ministry had failed to include certain categories of financial assets. To rectify those shortcomings, SEBI revised the methodology.

The study noted that the national savings data published by the RBI and the ministry relied broadly on estimations for savings via the securities market. Moreover, the share of households in the preferential issuances of equity, private placement of debt and new-age instruments like real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) were not included. Further, investments via secondary markets were also not considered, it noted.

With the inclusion of these data points, the share of household savings to GDP increased by 47 basis points to 21.7% in FY25 versus 21.23% in the same year using the older methodology. Similarly, net household financial savings improved to 7.10% of GDP, up from the former estimate of 6.63%.

Household savings includes both financial assets and physical assets.

Another interesting aspect is that the share of financial assets in the total household savings pie has fallen to the levels seen a decade before.

In FY25, the share of financial assets to the total household savings was 33%, which was last seen in FY13.

This share had steadily increased from 36% in FY14 to 52% in FY21, before falling to 36% in FY22 and 27% in FY23 and then recovering slightly to 28% in FY24.

While the share of physical assets still dominates in household savings, there is no denying the large increase in money going into the securities market from household savings.

Household savings via the securities market has increased more than twofold to Rs 6.9 trillion in FY25 from Rs 2.6 trillion in FY23.

The study was conducted by Dr Prabhas Kumar Rath, Shyni Sunil and Kalyani H, chief general manager, deputy general manager and manager, respectively, in SEBI's Department of Economic and Policy Analysis.

They were helped by V Anantha Nageswaran, chief economic advisor to the Government of India; officials from the RBI and the statistics ministry; SEBI executive director Sunil Kadam; former SEBI executive director Pramod Rao; and former whole-time members Ananth Narayan G and MS Sahoo.

Published by HT Digital Content Services with permission from VC Circle.