NISM Series XIX-C · Chapter 15: Fund Monitoring, Reporting and Exit

L1 · Foundation

Foundation — Monitoring the fund and the reporting regime

Why monitoring matters in an illiquid asset class and how it differs from fund management, the nine regulatory responsibilities under Regulation 20, the six Stewardship Code principles, the transparency and periodic disclosure requirements, record maintenance, activity reports to SEBI and the Compliance Test Report.

26 min read · Worth 7% of the paper · Written from pages 425–446 of the official NISM workbook · Updated 18 September 2026

15.1 Why an AIF must be monitored

Considering the basic nature of alternative investments (long-term and illiquid), investors may assume that there is little to be done during the fund cycle once the due diligence process has been completed and the commitment to the fund has been made. THIS IS FAR FROM THE TRUTH. Ongoing fund monitoring throughout its life cycle is a necessary control mechanism.

While investment managers perform their duty of maximising returns at fund level by regularly making, monitoring, nurturing and exiting underlying investments, it is necessary for them to report the fund performance on an on-going basis to investors.

15.1.1 The scope of effective monitoring

Fund monitoring should be seen as part of a larger control system within the investment process. Because of the illiquidity of an AIF, the investor's ability to react to different situations is somewhat limited. In complex problems, a solution will require finding a consensus with the fund manager and the other co-investors, or building alliances with co-investors to exercise pressure and act jointly.

Read that carefully, because it explains the whole chapter. In a listed fund, an unhappy investor sells. In an AIF he cannot — so his only remedies are consensus and alliance, and both require information.

There are other benefits of fund monitoring as well. In the context of a co-investment strategy, monitoring is important for screening interesting investment opportunities that may arise. Lessons learned from monitoring can also be applied in the future to improve the due diligence process and the selection of future investments. So focus should be both on providing STANDARDISED FORMAL REPORTING information as well as on INFORMAL INTERACTIONS with the investors and the investment committee / board of directors of the fund.

Generally speaking, investing in and monitoring AIF investments involve MORE EFFORT AND HIGHER COSTS relative to on-market investment funds. AIF investors have to be made aware of the need to be PATIENT AND UNDERSTANDING especially during the early years of a fund's lifetime. By the same logic, investors' reaction should not be typically TOO LITTLE, TOO LATE, when things need to be addressed urgently to prevent further deterioration of the fund's outcome. So, they need to be goaded to take action in time.

Patience early; urgency when it matters. Both, not one.

The distinction that gets tested

Fund monitoring is an integral part of ensuring compliance with fund objectives, the terms of the contribution agreement and for gathering information. FUND MONITORING SHOULD NOT BE CONFUSED WITH FUND MANAGEMENT, an activity in which, in accordance with the contribution agreement, the INVESTORS HAVE NO INVOLVEMENT.

Fund monitoring is an OVERSIGHT process on overall asset allocation, portfolio composition, fund governance and performance. Investors have to also keep track of internal and external risk factors that may have a bearing on the AIF's working and outcome.

Monitoring = oversight, by investors. Management = decisions, by the manager alone.

Setting the risk profile at the start

Because of the blind-pool nature of AIF investing (ignoring co-investments), it is crucial for investors to set the risk profile of their investment AT THE TIME OF COMMITMENT. Moreover, given AIF's lack of liquidity, the investor cannot easily adjust portfolio holdings or rebalance them if the manager has to undertake actions that are in variance with fund documentation. It requires effective communication and dialogue between the manager and the investors to seek appropriate redirections.

And a genuinely two-sided observation:

There are RISKS ASSOCIATED WITH ADHERING TOO CLOSELY TO A DECLARED INVESTMENT STRATEGY, especially when market conditions change significantly, creating new opportunities. Investors have to be made aware of the need to keep this aspect in mind as well.

Rigid adherence is itself a risk. That is an unusually honest point for a compliance-heavy chapter, and worth remembering.

15.2 The regulatory framework — Regulation 20

Under Regulation 20 of the SEBI (AIF) Regulations, there is a general responsibility that the AIF shall REVIEW POLICIES AND PROCEDURES, AND THEIR IMPLEMENTATION, ON A REGULAR BASIS, or as a result of business developments, to ensure their continued appropriateness.

In addition, there are specific roles and responsibilities, the most important being those listed below:

The Manager and either the trustee or trustee company or the Board of Directors or the designated partners of the AIF shall ensure compliance by the AIF with the Code of Conduct (as specified in the FOURTH SCHEDULE to the AIF Regulations).
All AIFs shall have detailed policies and procedures, as approved JOINTLY by the Investment Manager and the trustee or trustee company or Board of Directors or designated partners of the AIF, to ensure that all the decisions of the AIF are in compliance with the provisions of the AIF Regulations, terms of the placement memorandum, agreements made with investors, other fund documents, applicable laws and internal policies. THE INVESTMENT MANAGER SHALL BE RESPONSIBLE FOR EVERY SUCH DECISION MEETING THE AFORESAID COMPLIANCE.
The Manager may constitute an Investment Committee (by whatever name called), to approve the decisions of the AIF. Such committee shall function under the conditions as may be specified by SEBI and shall be responsible for the compliance specified under (2) above — noting that this requirement does not apply when waivers are issued by SEBI to Large Value Funds meeting specified requirements or in other specific cases.
The Sponsor or Investment Manager shall appoint a custodian registered with SEBI for safekeeping of the securities/goods of the fund.
The Investment Manager and either the trustee or the trustee company or the Board of Directors or designated partners shall ensure that the ASSETS AND LIABILITIES OF EACH SCHEME of the AIF are SEGREGATED AND RING-FENCED from other schemes; and BANK ACCOUNTS AND SECURITIES ACCOUNTS of each scheme are segregated and ring-fenced.
AIFs shall INFORM SEBI in case of any material change from the information provided by them at the time of application for registration.
In case of change of Sponsor or Investment Manager, or change in control of the AIF, Sponsor or Investment Manager, PRIOR APPROVAL from SEBI shall be taken.
The Investment Manager shall NOT PROVIDE ADVISORY SERVICES to any investor other than the investors of a Co-investment scheme or clients of Co-investment Portfolio Manager as specified in the SEBI (Portfolio Managers) Regulations, 2020, for investment in securities of investee companies where the AIF managed by it makes an investment.
The Investment Manager shall appoint a COMPLIANCE OFFICER who shall be responsible for monitoring compliance... and such compliance officer shall INDEPENDENTLY REPORT ANY DEVIATION TO SEBI FORTHWITH WITHIN 7 WORKING DAYS.

Three numbers and one word to fix: Fourth Schedule for the Code of Conduct; prior approval for changes of sponsor, manager or control; and the compliance officer's 7 working days to report a deviation independently to SEBI.

15.2.1 The Stewardship Code — six principles

A framework on Stewardship Code was introduced for AIFs for MANDATORY COMPLIANCE in case of their LISTED INVESTMENTS.

Principle 1 — AIFs should formulate a comprehensive policy on the discharge of their stewardship responsibilities, publicly disclose it, review and update it periodically. Stewardship responsibilities cover performance (operational, financial, etc.), strategy, corporate governance (including board structure, remuneration, etc.), material environmental, social, and governance (ESG) opportunities or risks, capital structure, and engagement may be through detailed discussions with management, interaction with investee company boards, voting in board or shareholders meetings. The updated policy should be publicly disclosed on the entity's website.

Principle 2 — AIFs should have a clear policy on how they manage CONFLICTS OF INTEREST in fulfilling their stewardship responsibilities and publicly disclose it. The policy shall be intended to ensure that the INTEREST OF THE CLIENT/BENEFICIARY IS PLACED BEFORE THE INTEREST OF THE ENTITY. The policy should also address how matters are handled when the interests of clients or beneficiaries DIVERGE FROM EACH OTHER.

Principle 3 — AIFs should MONITOR their investee companies continuously which shall be in the form of a policy. The policy shall address the areas and extent of monitoring INCLUDING SITUATIONS THAT DO NOT REQUIRE MONITORING. The policy should also keep in mind REGULATIONS ON INSIDER TRADING while seeking information from the investee companies.

That last clause is a real tension worth noticing: monitoring requires information, and information about a listed company can make you an insider.

Principle 4 — AIFs should have a clear policy on INTERVENTION in their investee companies. Institutional investors should also have a clear policy for COLLABORATION with other institutional investors where required... The mechanisms for intervention may include meetings/discussions with the management for constructive resolution of the issue and in case of escalation thereof, meetings with the boards, collaboration with other investors, voting against decisions.

Principle 5 — AIFs should have a clear policy on VOTING and disclosure of voting activity. It is critical that the institutional investors take their OWN VOTING DECISIONS in the investee company after in-depth analysis RATHER THAN BLINDLY SUPPORTING THE MANAGEMENT DECISIONS.

Principle 6 — AIFs should REPORT PERIODICALLY on their stewardship activities. Institutional investors shall report to their clients/beneficiaries periodically on how they have fulfilled their stewardship responsibilities as per their policy in an easy-to-understand format. It may also be placed on their website.

Memory hook for the six: Policy, Conflicts, Monitor, Intervene, Vote, Report. Chapter 7 gave five principles; here a sixth — periodic reporting on stewardship activities — completes the set.

15.2.2 Transparency and periodic disclosure — Regulation 22

Under Regulation 22 of the SEBI (AIF) Regulations, all AIFs shall ensure transparency and disclosure of information to investors on the following:

financial, risk management, operational, portfolio, and transactional information regarding fund investments
any fees ascribed to the Manager or Sponsor; and any fees charged to the AIF or any investee company by an ASSOCIATE of the Manager or Sponsor
any inquiries/legal actions by legal or regulatory bodies in any jurisdiction, AS AND WHEN OCCURRED
any material liability arising during the AIF's tenure, AS AND WHEN OCCURRED
any breach of a provision of the placement memorandum or agreement made with the investor or any other fund documents, AS AND WHEN OCCURRED
CHANGE IN CONTROL of the Sponsor or Manager or Investee Company
any significant change in the KEY INVESTMENT TEAM
AIFs shall provide, when required by SEBI, information for SYSTEMIC RISK purposes (including the identification, analysis and mitigation of systemic risks)

The workbook defines the last term in a footnote: systemic risk refers to business practices that may lead to a wider financial risk for an AIF much beyond a particular investment risk. For e.g. if an AIF is heavily invested in a particular sector and there are sectoral issues, a larger part of the AIF portfolio may face a risk of erosion in value.

Note precisely what is reportable about an investee company: CHANGE IN CONTROL — not every change in its board of directors. The chapter's own sample question is built on that distinction.

The reporting frequencies

AIFs (except Category III AIFs) shall provide AT LEAST ON AN ANNUAL BASIS, WITHIN 180 DAYS FROM THE YEAR END, reports to investors including the following information. However, CATEGORY III AIFs shall provide QUARTERLY report to its investors on the below mentioned information WITHIN 60 DAYS OF END OF THE QUARTER.

A. Financial information of investee companies

B. Material risks and how they are managed including:

concentration risk at FUND level
foreign exchange risk at FUND level
leverage risk at FUND AND INVESTEE COMPANY levels
realisation risk (i.e. change in exit environment) at FUND AND INVESTEE COMPANY levels
strategy risk (i.e. change in or divergence from business strategy) at INVESTEE COMPANY level
reputation risk at INVESTEE COMPANY level
extra financial risks, including environmental, social and corporate governance risks, at FUND AND INVESTEE COMPANY level

The levels are examinable. Concentration and foreign exchange risk are FUND-level only. Strategy and reputation risk are INVESTEE COMPANY-level only. Leverage, realisation and ESG risks are at BOTH levels.

15.2.3 Maintenance of records — Regulation 27

Under Regulation 27 of the SEBI (AIF) Regulations, the Manager or Sponsor shall maintain the following records:

the assets under the scheme/fund
valuation policies and practices
investment strategies
particulars of investors and their contribution
RATIONALE FOR INVESTMENTS MADE

All the above records are required to be maintained for a period of FIVE YEARS AFTER THE WINDING UP OF THE FUND.

Five items, and five years after winding up — not five years from the transaction.

15.2.4 Reports to SEBI — Regulation 28

Regulation 28 states that SEBI may at any time call upon the AIF to file such reports, as it may desire, with respect to the activities carried on by the AIF.

In order to provide ease of doing business, SEBI has notified changes in frequency of Activity Report submission. The following 2 types of Activity Reports are required to be submitted to SEBI through SEBI Intermediary Portal (SI Portal):

Comprehensive Annual Activity Report: All AIFs should submit the report at the end of March of every financial year, WITHIN 30 CALENDAR DAYS from the end of March.
Limited Quarterly Activity Report: All AIFs should submit report on quarterly basis WITHIN 15 CALENDAR DAYS from the end of each quarter in the revised format as specified by SEBI. However, NO SEPARATE SUBMISSION WILL BE REQUIRED FOR THE QUARTER ENDING MARCH (as the Annual Activity Report already includes its data points).

In addition to it, all Category III AIFs shall submit report on LEVERAGE undertaken on QUARTERLY basis in pre-defined format.

In addition to the above report, all AIFs are required to intimate SEBI and investors about any changes in terms of PPM and other fund documents. These changes are to be reported on a CONSOLIDATED manner WITHIN 1 MONTH of the end of each financial year.

Annual: 30 calendar days. Quarterly: 15 calendar days, with March skipped. PPM changes: 1 month, consolidated.

15.2.5 The Compliance Test Report

To ensure proper compliance and adherence with SEBI (AIF) Regulations and related circulars, the manager of a Category III AIF must prepare and submit a Compliance Test Report (CTR) as per the prescribed format.

The CTR cycle is a three-step chain with three deadlines:

The CTR has to be submitted by the Investment Manager WITHIN 30 DAYS FROM THE END OF THE FINANCIAL YEAR, to the SPONSOR of the fund and the TRUSTEE, in case of a Trust.

The Sponsor/Trustee must intimate their observations and comments, if any, to the Investment Manager WITHIN 30 DAYS FROM THE RECEIPT of the CTR.

The Investment Manager must incorporate all the necessary changes in the CTR, WITHIN 15 DAYS from the date of receipt of observations and comments from the Sponsor/Trustee.

Any compliance violation observed by the Sponsor/Trustees in the CTR must be reported to SEBI AT THE EARLIEST.

30 days → 30 days → 15 days, and violations go to SEBI at the earliest.

What the CTR covers

Table 15.1 lists the items, and each carries a regulatory benchmark worth revising as a checklist of the whole syllabus:

Item	The rule being tested
Previously submitted information	Whether material changes were reported, or if such information submitted was misleading
Change in investment strategy	Consent of at least TWO-THIRDS of unit holders by value
Minimum corpus per scheme	INR 20 crore
Minimum investment per investor	INR 1 crore, not applicable to Accredited Investors
Continuing interest	5% of corpus or INR 10 crore, whichever is lower, for Category III (2.5% and INR 5 crore for Categories I and II)
Manager's contribution	Whether investments made by the manager were disclosed to investors
Number of investors	Not more than 1000 per scheme; Accredited Investors excluded from the count
Fund raising	Only by way of private placement
New scheme	PPM filed with SEBI within 30 days prior to launch, with scheme fees — does not apply to large value funds floated with Accredited Investors
Investment conditions	Overseas investments, co-investments, concentration limits, investment in associates and temporary liquid assets
Leverage and prudential norms	Whether a Category III AIF breached leverage limits
Transparency norms	Annual for Category I and II and quarterly for Category III
Calculation of NAV	At least once every six months for Cat I and II; quarterly for closed-ended and monthly for open-ended Cat III; independent valuation for listed debt instruments and unlisted securities in Cat III
Extension of fund tenure	Up to 2 years with approval of two-thirds of unit holders by value — and for large value funds for accredited investors, up to 5 years on the same two-thirds approval
Winding up	Approval of 75 percent of the investors in value
Distribution or sale of unliquidated investments	75 percent approval for in-specie distribution, or a liquidation scheme under Regulation 29A

Two thresholds to keep apart: TWO-THIRDS by value for a change in investment strategy and for extension of tenure; 75 PER CENT by value for winding up and for in-specie distribution.

Think of it like this

The passenger who cannot get off the train

If you dislike how a bus is being driven, you get off at the next stop. That is a listed fund.

An AIF is a long-distance train with no doors until the destination. Because of the illiquidity of an AIF, the investor's ability to react to different situations is somewhat limited. So what can you actually do?

In complex problems, a solution will require finding a consensus with the fund manager and the other co-investors, or building alliances with co-investors to exercise pressure and act jointly.

Consensus and alliance. Both of which require one thing above all: knowing what is happening. That is why monitoring is not optional housekeeping in this asset class — it is the only lever an investor has.

And it explains the workbook's odd-sounding advice to be two things at once: AIF investors have to be made aware of the need to be patient and understanding especially during the early years of a fund's lifetime. By the same logic, investors' reaction should not be typically too little, too late, when things need to be addressed urgently.

Patience in year two, when the J curve is doing its work. Urgency in year five, when a problem is compounding. Telling the difference between the two is what monitoring is for.

Watching the cook is not cooking

A restaurant investor may walk through the kitchen, check the hygiene certificates, look at the supplier invoices and read the monthly accounts. What he may not do is decide tonight's menu or salt the dal.

Fund monitoring should not be confused with fund management, an activity in which, in accordance with the contribution agreement, the investors have no involvement.

The boundary is drawn precisely: fund monitoring is an oversight process on overall asset allocation, portfolio composition, fund governance and performance. Notice what is on that list — allocation, composition, governance, performance. And notice what is not: which company to buy, at what price, when to sell.

This distinction matters commercially as well as legally. An investor who strays across it starts to look like a person exercising control, which raises questions no passive investor wants raised — about tax status, about liability, and about whether the manager can still be held responsible for outcomes.

The same line runs through Chapter 11's governance material, where the AMC board is entrusted with the overall supervision and oversight of the investment management functions while the Investment Committee makes the decisions. Oversight above, decisions below.

The risk of following the map too faithfully

Most compliance writing tells you to stick to the plan. This chapter says something braver.

There are risks associated with adhering too closely to a declared investment strategy, especially when market conditions change significantly, creating new opportunities. Investors have to be made aware of the need to keep this aspect in mind as well.

A fund that declared a fintech-lending strategy in 2019 and refused to look at anything else through the regulatory upheaval that followed would have been perfectly compliant and quite possibly ruinous.

But the escape route is not unilateral drift. It requires effective communication and dialogue between the manager and the investors to seek appropriate redirections — and where the change is fundamental, the CTR records the formal test: a change in the investment strategy of the scheme has to be made with consent of at least two-thirds of unit holders by value of their investment.

So the resolution is: the strategy can change, but only with the investors' votes, never by quiet departure. That is also why any breach of a provision of the placement memorandum or agreement made with the investor is itself a matter for disclosure as and when occurred.

The compliance officer who reports past his own boss

Most employees escalate problems upward. The AIF compliance officer has a different instruction.

The Investment Manager shall appoint a Compliance Officer who shall be responsible for monitoring compliance with the provisions of the Act, rules, regulations, notifications, circulars, guidelines, instructions or any other directives issued by SEBI and such compliance officer shall INDEPENDENTLY report any deviation to SEBI FORTHWITH WITHIN 7 WORKING DAYS.

Read the two words that matter: independently and forthwith. He does not need the manager's permission, and he does not wait for the next board meeting.

The same architecture appears elsewhere in the framework. In Chapter 13, on a Category III leverage breach, the custodian shall report to SEBI... before 10 a.m. on the next working day — again, a third party reporting the manager. In Chapter 11, the Compliance Test Report goes to the Sponsor of the fund and the Trustee, and any compliance violation observed by the Sponsor/Trustees in the CTR must be reported to SEBI at the earliest.

The pattern is deliberate. Wherever the manager could be tempted to bury something, the rules install someone whose duty runs to SEBI rather than to him.

Two-thirds or three-quarters? The threshold table

Nothing in this chapter is easier to lose a mark on than the voting thresholds, because there are two of them and they attach to different events.

TWO-THIRDS by value — for changes to how the fund runs:

Change in the investment strategy of the scheme has to be made with consent of at least two-thirds of unit holders by value of their investment.
Fund tenure of a close-ended AIF can be extended for up to 2 years after seeking approval from two-thirds of the unit holders by value — and for a large value fund for accredited investors, up to 5 years on the same two-thirds.

75 PER CENT by value — for ending the fund or handing back assets:

If 75% of the investors by value of their investment in the AIF pass a resolution at a meeting of unitholders that the AIF be wound up.
In-specie distribution... after obtaining approval of at least 75 percent of the investors by value.
Entering a Dissolution Period requires the same 75 per cent.
And the exit-option carve-out: the mandatory exit process shall not apply in cases where the AIF has obtained the approval of not less than 75% of unit holders by value.

A rough rule that helps: two-thirds to CHANGE the fund; three-quarters to END it or to take assets in kind. And every one of these is measured by value of investment, never by headcount.

Change in control, not change in directors

A portfolio company appoints two new independent directors. Must the manager tell the fund's investors?

Under Regulation 22, no. The reportable item is precise: change in control of the Sponsor or Manager or Investee Company. A board appointment is not a change in control.

This is exactly the trap in one of the chapter's own sample questions, and the definition of control is given in the exit discussion: "control" it shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders' agreements or voting agreements or in any other manner. For a non-company sponsor, "controlling interest" means an interest, direct or indirect, to the extent of not less than fifty percent of voting rights or interest.

The right to appoint a MAJORITY of directors is control. Appointing two of nine is not.

Of course, much else about the investee company does get reported — financial information of investee companies annually or quarterly, plus leverage risk, realisation risk, strategy risk, reputation risk and ESG risk at investee company level. The point is not that investee companies go unreported. It is that this particular disclosure is triggered by control, and the exam tests whether you read the word.

Key terms in this chapter

Change of control: For a company sponsor or manager, the right to appoint a majority of directors or to control management or policy decisions, acting individually or in concert. For other entities, a change in legal formation, ownership or a controlling interest of not less than fifty per cent of voting rights or interest.
Compliance Officer: Appointed by the investment manager to monitor compliance with the Act, rules, regulations and SEBI directives, and required to report any deviation independently to SEBI forthwith within 7 working days.
Compliance Test Report (CTR): Submitted by the investment manager within 30 days of financial year end to the sponsor and trustee, who comment within 30 days; the manager incorporates changes within 15 days, and any violation observed is reported to SEBI at the earliest.
Comprehensive Annual Activity Report: Filed by all AIFs on the SEBI Intermediary Portal within 30 calendar days from the end of March each financial year.
Corporate liquidation exit: The least preferred and worst-case exit, providing only salvage value through a long statutory process. Liquidation preference rights, or holding the investment as venture debt with priority over equity, protect the AIF's position.
Dissent period: The period of not less than one month allowed to unit holders to express dissent to a material change, before the buyout of dissenting investors' units begins.
Dissolution Period: The period following expiry of the liquidation period for liquidating remaining investments, entered only with investor consent. It cannot exceed the original tenure, cannot be extended, and the scheme may accept no fresh commitments and make no new investments.
Fourth Schedule: The schedule to the AIF Regulations containing the Code of Conduct, compliance with which the manager and the trustee, board or designated partners must ensure.
Fund-level leverage: Market borrowing by an AIF at fund level using its invested securities as collateral. Borrowing at fund level for investment strategy is unique to Category III AIFs, and must be disclosed by overall level, cash borrowing, derivative positions and main source.
Fund monitoring: An oversight process by investors over asset allocation, portfolio composition, fund governance and performance, plus internal and external risk factors. It is not fund management, in which investors have no involvement.
Grounds for winding up: Under Regulation 29 — expiry of the tenure of the AIF or all its schemes; the trustees' opinion that winding up is in investors' interests; a resolution by 75 per cent of investors by value; or a direction from SEBI in investors' interests.
Information Memorandum (dissolution): The document a scheme entering a dissolution period must file with SEBI through a merchant banker, together with the merchant banker's due diligence certificate, before expiry of the liquidation period.
In-specie distribution: Distributing unliquidated investments to investors in kind, permitted during the liquidation period with approval of at least 75 per cent of investors by value, after arranging bids for a minimum of 25 per cent of the value of those investments.
Limited Quarterly Activity Report: Filed by all AIFs within 15 calendar days from the end of each quarter, with no separate submission for the March quarter since the annual report already includes those data points.
Liquidation Period: A period of one year following expiry of the tenure or extended tenure of an AIF scheme, within which its assets must be liquidated and proceeds distributed after satisfying all liabilities.
Liquidation Scheme: A close-ended AIF scheme launched only to liquidate unliquidated investments of an existing scheme whose tenure has expired. No new liquidation schemes may be launched after 25 April 2024.
Mandatory exit option: The right of dissenting investors in a close-ended AIF to exit on a material change or change of control, unless 75 per cent of unit holders by value approve the change.
Mandatory in-specie distribution: Where the requisite investor consent is not obtained, unliquidated investments are distributed in-specie without consent, at One Rupee. An investor unwilling to accept that valuation must write off the investment.
Material change: A change in PPM disclosures or fund documentation amounting to a material departure — construed as a change in the fundamental attributes of the fund or scheme — which triggers the process prescribed under the AIF Regulations.
Offer for Sale through IPO: A secondary share sale of the AIF's holdings into the IPO market — the most preferred and attractive exit for an equity-oriented AIF, historically yielding the best returns, with partial exit and post-listing sales also possible.
One Rupee valuation: The value at which unliquidated investments are distributed in-specie where the manager fails to arrange bids for at least 25 per cent of their value, or where investor consent is not obtained — recorded for the manager's track record and benchmarking agency reporting.
Put option (exit): A contractual right, not an obligation, for the AIF to sell its shares back to the company or promoter. Priced by a formula, often stiff to compensate for a lost IPO exit, and often a residual option available only if listing does not occur.
Regulation 22 disclosures: Transparency requirements covering fund investment information, fees to the manager or sponsor and fees charged by their associates, inquiries and legal actions, material liabilities, breaches of the PPM, change in control of the sponsor, manager or investee company, significant changes in the key investment team, and systemic risk information.
Secondaries: Sale of an investor's existing unit capital or partnership interest to co-investors or outside investors. Outstanding commitments transfer to the incoming investor, consents may be required, and pricing is negotiated at a substantial discount to NAV.
Secondary sale (trade sale): Exit through a stake sale to a third party, typically another fund — a VC fund being taken over by a later-stage PE fund. Appropriate when the IPO option is not feasible in adverse markets.
Stewardship Code (six principles): Mandatory for AIFs in respect of listed investments: a disclosed stewardship policy, a conflicts policy placing clients first, continuous monitoring of investee companies, a policy on intervention and collaboration, a voting policy with independent voting decisions, and periodic reporting on stewardship activities.
Strategic sale (M&A exit): Exit to a corporate buyer in the same industry or one entering it, often carrying a substantial strategic premium. The second most preferred exit after an IPO.
Systemic risk (AIF context): Business practices that may lead to a wider financial risk for an AIF beyond a particular investment risk — for example heavy concentration in one sector so that sectoral trouble erodes a large part of the portfolio.
Vintage funds and mature funds: Vintage funds have completed fund close; mature funds are closer to harvesting their portfolio and completing the fund cycle, so exit prospects and execution become important disclosures.

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Original explanatory writing based on the official NISM workbook for Series XIX-C, which is published and copyrighted by NISM. Check figures against the current edition at nism.ac.in.

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