CIV scheme

An investor in a fund likes one particular deal and wants more of it than its share of the pool gives. That is co-investment, and until recently the only way to offer it was through a Co-investment Portfolio Manager registered under the SEBI (Portfolio Managers) Regulations, 2020 — which meant the AIF's manager had to take an additional registration it otherwise did not need.

SEBI removed that friction in 2025 by creating a route inside the AIF structure. Category I and II AIFs may now offer co-investment to accredited investors by launching a separate co-investment scheme — a CIV scheme — one scheme per deal.

The PMS route still exists. The CIV route is an alternative, and the manager chooses which is more feasible in a given case.

The conditions for offering it. Co-investment may be offered only to accredited investors of a particular scheme of an AIF, in unlisted securities of an investee company where that scheme is investing or has invested. A shelf placement memorandum must be filed with SEBI through a merchant banker, with the stipulated fee, before the facility is offered. A separate CIV scheme is launched for each co-investment in an investee company. Angel Funds shall not launch any CIV schemes. Each CIV scheme invests in only one investee company and shall not invest in units of AIFs. The terms of co-investment — for a manager, sponsor, co-investor or CIV scheme — shall not be more favourable than the terms of the AIF's own investment. The timing of exit must be identical to the scheme's exit, and on exiting, the CIV scheme is wound up.

How it must be run. Each CIV scheme has a separate bank account and demat account, and its assets are ring-fenced from other schemes. Co-investments of an investor in an investee company across CIV schemes shall not exceed three times the contribution that investor made to the total investment in that company through the AIF scheme. That cap does not apply to multilateral or bilateral development financial institutions, state industrial development corporations, or entities established, owned or controlled by the Central Government, a State Government or a foreign government including central banks and sovereign wealth funds.

An investor excused, excluded or in default on the AIF scheme's investment in that company cannot co-invest in it. A CIV scheme shall not borrow or use any leverage. Rights and distributions are pro-rata to contribution, except to the extent carried interest is shared with the sponsor, manager or the manager's employees, directors or partners. Expenses of the co-investment are shared proportionately between the AIF scheme and the CIV scheme in the ratio of their investments.

And three things the manager must prevent: a CIV investment that lets its investors hold indirectly what they could not hold directly, one that would have needed additional regulatory disclosure had it been made directly, and one into an investee company that could not receive investment from that investor directly.

Girnar India Fund II, a Rs 900 crore Category II AIF, is investing Rs 100 crore into a speciality manufacturing company that needs Rs 300 crore. The manager offers co-investment to the scheme's accredited investors.

Aurelia Family Office holds 5% of the scheme, so Rs 5 crore of the fund's Rs 100 crore cheque is its money.

Contribution through the AIF scheme                    Rs   5.00 crore
Three-times cap on co-investment                       Rs  15.00 crore
Aurelia co-invests through CIV Scheme A                Rs  12.00 crore
Headroom left across all CIV schemes in this company   Rs   3.00 crore

A sovereign wealth fund in the same scheme is not subject to the cap at all, and puts Rs 90 crore through CIV Scheme B.

Expense sharing follows the investment ratio. On a Rs 60 lakh legal and diligence bill for the deal:

When the fund exits at a Rs 900 crore valuation four years later, all three vehicles exit on the same day, on the same terms, and both CIV schemes are wound up. If the fund is forced to hold, the co-investors hold too. That symmetry is the price of the access.

Chapter 11 section 11.9 sets out the conditions and the manner of co-investment in full; Chapter 7 section 7.1.3 introduces the two routes, the PMS one and the CIV one. Expect a 'which of the following is not a condition for a CIV scheme' question, a numerical on the three-times cap, and the exemption list.

• One CIV scheme per investee company, and a CIV scheme cannot hold units of AIFs. It is a single-deal vehicle.
• Accredited investors of that scheme only — not any accredited investor, and not other investors of the AIF.
• Terms not more favourable than the AIF's, exit at the same time as the AIF, then wound up. The co-investor gets access, not better economics.
• Three times the contribution made through the scheme, not three times the commitment — and three investor classes are exempt from it.
• Angel funds cannot launch CIV schemes, and CIV schemes cannot borrow or take leverage.
• The PMS route was not abolished. The CIV route is an additional option, created because the extra portfolio manager registration was operationally awkward.
• An investor who defaulted or was excused or excluded from the fund's investment in that company is barred from co-investing in it.