Adjusted NAV

A close-ended AIF cannot be priced on an exchange, and its investors get cash only when the fund exits its investments. So what is an investor's interest worth today?

The workbook's answer is the adjusted NAV. The value of a fund is "the 'Adjusted NAV' of the underlying investment portfolio such that it is equivalent to the amount of cash that would be received by the investors as if all underlying portfolio of investee assets were realised as at the valuation date".

Two steps get there. First add up the fair value of every portfolio investment — the NAV. Then take off everything that stands between that NAV and the investor's pocket: taxes and statutory payments, outstanding fees and expenses, carried interest and other contractual deductions. What remains, shared proportionately, is the fair value of the investor's interest.

Building the NAV — the bottom-up approach (section 11.9). NAV (fair value) of a fund equals the sum of the estimated fair value of the underlying portfolio investments on the valuation date. This is the sum of parts valuation method, known in AIF parlance as the bottom-up approach: the NAV of each portfolio asset is added up from the bottom to the top.

Adjusting it. The fair value of an investor's interest equals the proportionate distributable NAV of the fund after deducting:

• taxes and statutory payments, if any;
• outstanding fees and expenses;
• carried interest;
• other contractual deductions.

NAV derived as fair value and adjusted for payables and deductions "provides the best indication of the cash flows an investor would receive at the valuation date". The workbook says the concept is particularly appropriate for Category I and II AIFs, which are close-ended and whose investors realise cash only when portfolio companies are sold.

It moves. The NAV may itself be revised with movements in underlying values, subsequent transactions such as realisations, external factors, or changes in valuation methodology. And in the J curve, fund NAV declines into negative zones in the early years and climbs as the fund matures, so early-year NAVs carry a high variance; as realisations accumulate, NAV converges more closely with ultimate gross realisations.

Reporting. Category I and II AIFs value investments at least every six months through an independent valuer (one year with 75% of investors by value). Under the February 6, 2026 circular, AIFs through their RTAs must upload the latest NAV for each ISIN in the depository system before May 01, 2026, or within 30 days from the date of valuation, whichever is later — the valuation date being the date of the valuation report for an independent valuer, or the date documented in the fund's internal records for an internal valuer.

Illustrative figures. Scheme I of Malabar Growth Fund, a Category II AIF, values its portfolio on 30 September.

An investor holding 5% of the units has an interest worth 5% × 291 = Rs 14.55 crore — not 5% × 327 = Rs 16.35 crore. The Rs 1.8 crore difference is money the investor would never actually receive.

If the ed-tech company raises money in a down round next quarter and is marked at Rs 25 crore, the NAV, the carry estimate and the adjusted NAV all fall together. The adjusted NAV is an estimate as at a date, not a promise.

Chapter 11 (Valuation) introduces fund valuation at 11.9, defines the bottom-up approach and the adjusted NAV, links it to the J curve at 11.9.1, and covers the valuation regulations and NAV reporting at 11.10 and 11.12. Chapter 6 (Risk and Return) is where the J curve itself is explained. Expect questions on what the bottom-up approach adds up, which deductions separate NAV from an investor's fair value, and the six-monthly valuation requirement.

• NAV is the sum of portfolio fair values; adjusted NAV deducts taxes, fees, expenses, carry and contractual deductions. An investor's fair value is the proportionate distributable NAV.
• Bottom-up means sum of parts — each portfolio asset valued and added up — not a valuation of the fund as a single business.
• Performance benchmarking uses pre-tax NAV. Chapter 8's operational guidelines for benchmarking say reporting and benchmarking are carried out on pre-tax NAV of the scheme, whereas the investor's fair value in Chapter 11 is after taxes. Two purposes, two measures.
• Early-year NAV is least reliable — the J curve puts it in negative territory and most of the value is unrealised.
• Do not confuse this with the IPEV "net asset valuation" method, which values a single loss-making or finance company by its net tangible assets.
• The NAV upload date is before May 01, 2026 or within 30 days of valuation, whichever is later. That first date has now passed, so the 30-day limb is the one that binds going forward — check for any later SEBI change.