Compare the fund-of-funds approach (SRI Fund) with direct equity investment (SME Growth Fund) for MSME support. What governance safeguards are needed when public money is deployed through AIFs?

Indian SMEs face a "missing middle." Access to credit has improved, but growth equity is still scarce. The RBI's U K Sinha Committee (2019) found that very few MSMEs attract equity. It recommended a government-sponsored Fund of Funds to back VC/PE investors [1]. The Self-Reliant India (SRI) Fund follows that model [2]. The new ₹10,000 crore SME Growth Fund (SGF) instead invests directly [3]. Both have merits, and which one works better depends mainly on governance.

Comparison: SRI Fund vs SGF

• Fund of funds, strengths: crowds in private capital, professional selection, low political risk.
• Fund of funds, weaknesses: slow deployment; equity still goes mostly to early-stage and Micro firms [3].
• Direct equity, strengths: precise targeting of manufacturing and regional goals; patient capital [3].
• Direct equity, weaknesses: less leverage; risk of "picking winners," crowding out private VC, and politically driven deals.

Governance safeguards for public money in AIFs

• Independent investment committee with outside experts, kept separate from the ministry. The Parliamentary Standing Committee on Industry urged a phased rollout under NSIC with independent oversight [5].
• Transparent eligibility criteria with a share reserved for Small firms. Otherwise capital may drift to Medium firms with turnover near ₹500 crore [6].
• Clear accountability: name the fund manager and set out the tenure and exit policy in advance. The Cabinet release does not specify these yet [3].
• Co-investment alongside SRI daughter funds, which brings back private leverage and market discipline [4].
• Annual outcome disclosure covering firms funded, manufacturing share, cluster share and returns, backed by independent audit.
• Conflict-of-interest and valuation norms, with arm's-length pricing of every deal.

The two models complement each other. The SRI Fund brings in private capital, while the SGF targets the underserved middle. They should run side by side with professional management that is protected from interference, plus open reporting of results. Together they can build "future champions" for Viksit Bharat @2047 while staying accountable for public money, as the Standing Committee recommends.