Private credit is increasingly becoming a core portfolio allocation for wealthy investors, with family offices and high-net-worth individuals (HNIs) continuing to allocate 5-15 per cent of their investment portfolio even as equity markets recovered after geopolitical tensions eased.
The rebound in equities did little to dent investor interest as private credit has become more of a strategic allocation rather than a tactical trade during volatile markets. Affluent investors have been using it to diversify portfolios, generate stable cash flows amid volatile markets and limited real returns from fixed-income instruments.
Direct lending
Private credit funds lend directly to companies through privately negotiated debt, typically via SEBI’s Category II Alternative Investment Funds (AIFs), which accounts for nearly three-fourths of the industry’s commitments.
The commitments for alternative investment funds (AIFs) rose 25 per cent year-on-year to ₹16.94 lakh crore as of March 2026, of which Category II AIFs accounted for ₹12.74 lakh crore.
“Appetite has matured from an opportunistic play into a permanent, structural allocation,” said Srini Srinivasan, Managing Director at Kotak Alternate Asset Managers. “The driver is a classic demand-supply mismatch: public equity valuations are full, while banks face strict regulatory limits on funding things like promoter actions and acquisitions. Private credit steps into this gap, giving investors institutional-grade, well-secured entry points.”
Nilesh Dhedhi, Managing Director & CEO, Avendus Finance and Co-Chair of the Private Credit Council at IVCA, said investor appetite had grown steadily over the last two to three years and strengthened over the past year as investors witnessed the first full cycle of fund returns. “Equity market returns have been sluggish, and macro volatility has made the return stability of the private credit asset class more attractive,” he said.
Investor interest has also broadened beyond traditional real estate lending. Dhedhi said venture debt dominated in 2020-21, followed by performing credit during 2022-24, while special situations had attracted greater investor interest over the past one to two years.
“Real estate had been the mainstay till recently, but performing credit and capex financing have grown rapidly as the need for corporate growth capital increases,” Monu Jain, Partner at Aavishkaar Capital and Co-Chair of the Private Credit Council at IVCA said. Healthcare and manufacturing have also emerged as active sectors, while venture debt continues to attract new-economy companies seeking non-dilutive growth capital.
Investors have also been looking past headline returns to evaluate underwriting quality, real collateral, security structures, and manager track record. “Preference is increasingly shifting towards senior secured and asset-backed lending, where the focus is on capital preservation, downside protection and predictable cash flows,” said Sandeep Agarwal, CEO, Modulus Alternatives.
Yield range
According to industry executives, gross yields currently range between 14 per cent and 22 per cent, depending on the underlying strategy, around 14-18 per cent for high-quality structured corporate credit and 18-22 per cent for complex special situations.
Performing credit strategies with defined cash flows have been attracting HNIs and family offices seeking predictability, while investors with higher risk tolerance continue to pursue special situations at the upper end of the return spectrum.
