Peter Bernstein emphasizes the importance of diversification in investment portfolios, stating that a few diverse holdings can stabilize returns better than many similar assets. Alternative Investment Funds (AIFs) offer access to unconventional assets like private equity and venture debt, enhancing diversification beyond traditional stocks and bonds. AIFs require a minimum investment of INR 1 crore and feature unique opportunities for higher returns due to their focus on untapped markets. Skilled fund managers guide investments, allowing customization to align with individual goals. Despite their illiquid nature, AIFs present significant advantages for investors seeking optimal diversification and robust returns.