🤝 Family Office Strategies with LAS & AIFs: A 2025 InvestoEdge Guide

Summary: Indian family offices are increasingly combining Loan-Against-Securities (LAS) for on-demand liquidity with Alternative Investment Funds (AIFs) for alpha generation and diversification. In this guide, we explore optimum structures, case studies, tax considerations, and practical steps for integrating LAS & AIFs into your family-office playbook. ¹²

Table of Contents

1. Overview: Family Offices in India

Family offices in India oversee ₹2–3 trillion in AUM, focusing on preserving wealth across generations while participating in high-growth opportunities.³ Prominent offices like PremjiInvest are now boosting allocations to private markets via Category III AIFs, seeing AIFs as a “new growth engine.”⁴

Key objectives include:

• Long-term capital appreciation through private equity and credit.
• Maintaining liquidity buffers for strategic deployments.
• Optimizing tax efficiency and governance structures.

2. AIF Allocation & Structures

Family offices typically allocate 20–40% of their portfolio to AIFs across categories:⁵

• Category I AIFs: Infrastructure, SME, Social Venture for concessional entry.
• Category II AIFs: Private equity and credit funds targeting 12–18% IRRs. SEBI mandates ≥50% corpus in unlisted securities. ¹⁵
• Category III AIFs: Hedge funds, complex strategies for absolute-return targets.

Structuring tips:⁶

1. Diversify across AIF categories—limit any single fund to ≤25% of AIF allocation.
2. Co-investment vehicles (SPVs) for direct deals alongside AIF managers.¹
3. Use feeder-fund structures in Mauritius/UAE for NRI tax benefits. ⁹

3. LAS for Liquidity & Leverage

Loan-Against-Securities allows family offices to unlock up to 75% LTV on debt funds and 50% on equities at rates starting 11% p.a., with disbursal in under 3 hours.⁷ LAS preserves strategic holdings while funding opportunistic investments or paying taxes.

Benefits include:¹¹

• On-Demand Liquidity: Avoid fire-sales during market dips.
• Cost-Effective Funding: LAS often undercuts NBFC overdrafts at 14–16%.⁶
• Structured Leverage: Tiered collateral pools—blue-chips first, then alternatives.

4. Integrating LAS & AIFs

A seamless workflow allows family offices to pledge AIF units as LAS collateral, creating a self-liquidating mechanism:⁸

1. Subscribe to AIF; hold units in demat.
2. Pledge units for LAS to fund new AIF tranches or co-investments.
3. Use AIF distributions/exit proceeds to repay LAS early and recycle capital.

This “circular financing” boosts IRR by 1–2% annually through leverage, without permanent dilution of core positions.

5. Tax & Regulatory Considerations

Key points:¹⁰

• LTCG on AIF units taxed at 10% (after 36 months) for Category III; 12.5% for Category I/II. ¹²
• Interest on LAS for business/investment is tax-deductible under Section 36(1)(iii).¹³
• Category I/II AIFs domiciled in SEBI ‘tax pass-through’ list avoid DDT on dividends. ¹⁴

6. Case Study: PremjiInvest-Style Deployment

PremjiInvest, managing $10 billion, increased Category III AIF allocation by 15% in 2024, funding growth in AI startups. They structured a 70:30 blend of LAS (on blue-chip equities) and AIF co-investments, boosting net IRR by 180 bp while maintaining liquidity. ¹³

7. Risk Management

Effective controls:²⁰

• Automated margin-call alerts at 85% LTV.
• Stop-loss triggers on AIF unit NAV dips > 10%.
• Quarterly covenant reviews—limit LAS tenure to <12 months.

8. Frequently Asked Questions

References

1. BTG Advaya – Family Offices at GIFT IFSC & AIFs
2. Deccan Herald – Family Offices Find Growth in AIFs
3. PwC India – Family Offices in India Report
4. WealthBriefing – PremjiInvest Increases AI Exposure
5. Business Standard – How Indian Family Offices Invest
6. Tata Capital – Common Mistakes in LAS
7. PL India Blog – Understanding Loans Against Securities
8. 360 ONE – Lending Solutions for Family Offices
9. SundaramAlternates – Family Office Report 2024
10. Lexology – AIF Master Circular May 2024
11. RurashFin – Traditional vs Alternative Investments
12. Chambers – AIF Regulations & Trust Forms
13. PwC – Family Office Services & Tax Advisory
14. Treelife – Understanding AIFs in India
15. Lexology – Unlisted Securities Requirement for Category II AIFs
16. Tata Capital – LAS Risk Management Tips