Private equity (PE) is an alternative investment class where capital is invested directly into private companies or used to buy out public companies and take them private. As an investor, private equity offers the potential for high returns by backing companies with strong growth or turnaround potential. PE firms manage these investments, working to grow the value of the business over several years before exiting through a sale, IPO, or merger.
Private equity has historically offered higher returns than traditional public markets. It provides access to opportunities in:
Private markets not available to retail investors
High-growth businesses
Undervalued or distressed companies with turnaround potential
It also adds portfolio diversification and reduces exposure to public market volatility.
PE investments are illiquid (your money is locked up for years), and outcomes depend heavily on the performance of the businesses. Risks include:
Market downturns affecting exit valuations
Operational failures at portfolio companies
Limited transparency compared to public stocks
Thorough due diligence and backing experienced fund managers are key.
You can invest in private equity through several channels:
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Private Equity Funds: These are pooled investment vehicles managed by professional fund managers. Most require investors to be accredited or institutional.
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Fund-of-Funds: These invest in multiple PE funds and offer diversification.
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Direct or Co-Investments: You may invest directly into companies alongside PE firms, though this is usually reserved for large investors.
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Alternative Investment Platforms: Some regulated platforms offer curated PE opportunities to Indian high-net-worth individuals (HNIs)
The minimum investment requirement of ₹1 crore is a standard guideline, but fund managers, directors, and employees of the AIF can invest smaller amounts, as low as ₹25 lakh.
Returns vary by strategy and market conditions, but top-performing private equity funds have historically delivered annualized net returns of 15%–20%. However, returns are not guaranteed, and underperforming funds may deliver below-market or even negative returns and hence selection of right investment option is important.