Aditya Birla Sun Life Asset Management Co. is raising a ₹2,000 crore alternative investment fund (AIF) that will target the stocks of mid- and small-cap companies, joining a growing list of asset managers targeting wealthy investors with hedge fund-style products.

The fund, ABSL Select Sector Fund, will open with a base corpus of ₹1,500 crore and a greenshoe option of ₹500 crore, executives at the Mumbai-based firm said. The fund will have a seven-year tenure, which can be extended by two years, and will follow the company's portfolio management service (PMS) strategy, according to investor documents reviewed by Mint.

The fund has a 12% annual hurdle rate, meaning in some cases performance fees apply only if returns exceed 12% per year, though there is no guaranteed return target.

“We have seen strong inflows into PMS strategies over the last few years, especially from investors looking for customized portfolios with a clear theme. We believed this strategy could be extended into an AIF structure,” said A. Balasubramanian, managing director and chief executive officer, Aditya Birla Sun Life AMC.

The fund charges annual management fees ranging from 1% to 2.5%, and some investor classes also pay a 20% performance fee on returns above 12%.

The launch comes as Category III AIFs have emerged as the country's fastest-growing private capital investment funds. Such funds had raised commitments worth ₹3.11 trillion as of 31 December 2025, which is almost a third of the total commitments for the AIF industry, according to Securities and Exchange Board of India (Sebi) data. Inflows surged 66% year-on-year in the April–June quarter of last year.

The minimum investment is ₹1 crore.

The fund will invest in mid- and small-cap companies with strong earnings visibility, with sector bets across capital goods, technology and new-age businesses. Despite its focus on smaller companies, the management said nearly 90% of the portfolio could be liquidated within a single trading day.

The fund will follow the Securities and Exchange Board of India's (Sebi) timeline of first close within 12 months, and the final close in the following 12-24 months.

“Liquidity management remains central to the strategy,” Sameer Narayan, head-alternate investment (equity), Aditya Birla Sun Life AMC said.

Other asset management companies (AMCs) like Kotak Alternate Asset Managers, ICICI Prudential AMC, WhiteOak Capital, ASK, Marcellus, InCred and 360 ONE have launched Category III AIF strategies in recent years.

“The number of sectors and companies emerging as future leaders is increasing, and we believe opportunities in the mid- and small-cap segment will continue to expand,” Balasubramanian said.

While Category III AIFs largely invest in listed equities, unlike Category I and Category II AIFs which primarily invest in unlisted companies, the former operate as hedge fund-like structures that can also allocate a limited portion of capital to unlisted or pre-IPO opportunities, something that is typically not permitted under traditional mutual fund and PMS structures.

Industry executives said Category III AIFs are gaining traction among wealthy investors looking for concentrated equity exposure with lower churn and longer holding periods than traditional mutual funds.

“The shift towards Category III AIFs is being driven by investors wanting concentrated portfolios," said Narayan.

This also comes as over the past two years smaller issue size listings have hit the market in a large way and expanded the mid-and small-cap segment.

Aditya Birla Sun Life Asset Management Co. is raising a ₹2,000 crore alternative investment fund (AIF) that will target the stocks of mid- and small-cap companies, joining a growing list of asset managers targeting wealthy investors with hedge fund-style products.

The fund, ABSL Select Sector Fund, will open with a base corpus of ₹1,500 crore and a greenshoe option of ₹500 crore, executives at the Mumbai-based firm said. The fund will have a seven-year tenure, which can be extended by two years, and will follow the company's portfolio management service (PMS) strategy, according to investor documents reviewed by Mint.

The fund has a 12% annual hurdle rate, meaning in some cases performance fees apply only if returns exceed 12% per year, though there is no guaranteed return target.

“We have seen strong inflows into PMS strategies over the last few years, especially from investors looking for customized portfolios with a clear theme. We believed this strategy could be extended into an AIF structure,” said A. Balasubramanian, managing director and chief executive officer, Aditya Birla Sun Life AMC.

The fund charges annual management fees ranging from 1% to 2.5%, and some investor classes also pay a 20% performance fee on returns above 12%.

The launch comes as Category III AIFs have emerged as the country's fastest-growing private capital investment funds. Such funds had raised commitments worth ₹3.11 trillion as of 31 December 2025, which is almost a third of the total commitments for the AIF industry, according to Securities and Exchange Board of India (Sebi) data. Inflows surged 66% year-on-year in the April–June quarter of last year.

The minimum investment is ₹1 crore.

The fund will invest in mid- and small-cap companies with strong earnings visibility, with sector bets across capital goods, technology and new-age businesses. Despite its focus on smaller companies, the management said nearly 90% of the portfolio could be liquidated within a single trading day.

The fund will follow the Securities and Exchange Board of India's (Sebi) timeline of first close within 12 months, and the final close in the following 12-24 months.

“Liquidity management remains central to the strategy,” Sameer Narayan, head-alternate investment (equity), Aditya Birla Sun Life AMC said.

Other asset management companies (AMCs) like Kotak Alternate Asset Managers, ICICI Prudential AMC, WhiteOak Capital, ASK, Marcellus, InCred and 360 ONE have launched Category III AIF strategies in recent years.

“The number of sectors and companies emerging as future leaders is increasing, and we believe opportunities in the mid- and small-cap segment will continue to expand,” Balasubramanian said.

While Category III AIFs largely invest in listed equities, unlike Category I and Category II AIFs which primarily invest in unlisted companies, the former operate as hedge fund-like structures that can also allocate a limited portion of capital to unlisted or pre-IPO opportunities, something that is typically not permitted under traditional mutual fund and PMS structures.

Industry executives said Category III AIFs are gaining traction among wealthy investors looking for concentrated equity exposure with lower churn and longer holding periods than traditional mutual funds.

“The shift towards Category III AIFs is being driven by investors wanting concentrated portfolios," said Narayan.

This also comes as over the past two years smaller issue size listings have hit the market in a large way and expanded the mid-and small-cap segment.