Compliance Test Report
Also written CTR · Compliance Test Report (CTR) · Compliance Test Reporting
The annual self-certification an AIF manager prepares in SEBI's prescribed format, testing the fund against the AIF Regulations and routed through the sponsor and trustee for comment.
In plain language
Once a year an AIF manager has to sit down and answer, item by item, whether the fund actually did what the regulations require. Is the scheme corpus above Rs 20 crore? Did any investor come in below Rs 1 crore? Was the investment strategy changed, and if so with whose consent? Is there a custodian?
That document is the Compliance Test Report. It is not an audit and it is not filed with SEBI in the ordinary course — it goes to the sponsor and, where the AIF is a trust, the trustee, who read it and comment. Only a violation found in it goes to SEBI, and it goes at once.
The design is deliberate. It puts the people who are legally responsible for the fund in the position of having to read, in one place, every way in which the manager might have fallen short.
How it works
The format is prescribed — Annexure 12 to the SEBI Master Circular for AIFs dated 7 May 2024. The timetable has three legs and all three are examinable:
Financial year ends 31 March
+ 30 days → Manager submits CTR to the sponsor and trustee
+ 30 days → Sponsor / trustee send observations and comments
+ 15 days → Manager incorporates the changes in the CTR
Any compliance violation the sponsor or trustee observes in the CTR must be reported to SEBI at the earliest — that leg has no fixed window.
What the report covers, from Table 15.1:
| Disclosure item | The rule being tested | What the CTR says |
|---|---|---|
| Previously submitted information | Material changes must be reported to SEBI | Whether SEBI was told, or whether what was filed was misleading |
| Change in investment strategy | Needs consent of at least two-thirds of unit holders by value | Whether strategy changed and whether consent was obtained |
| Minimum corpus | Rs 20 crore per scheme | Whether each scheme clears it |
| Minimum investment amount | Rs 1 crore per investor (not applicable to accredited investors) | Whether any new investor came in below it |
| Continuing interest | 5% of corpus or Rs 10 crore, whichever is lower, for Category III; 2.5% or Rs 5 crore for Categories I and II | Whether the manager or sponsor has it |
| Manager's contribution | Must be disclosed to investors | Whether it was disclosed |
| Number of investors | Maximum 1,000 per scheme, accredited investors excluded | Whether each scheme adheres |
| Fund raising | Private placement only | Whether funds were solicited any other way |
| General obligations | Custodian appointed, changes in sponsor or manager, annual audit | Whether each holds |
| Transparency norms | Periodic reports — annual for Categories I and II, quarterly for Category III | Whether they were made, with disclosures on financial and operational risks and fees |
| Leverage | Category III leverage limits | Whether limits were breached |
The CTR also picks up specific SEBI directions. Schemes that adopted a priority distribution model before 18 November 2024 may not accept fresh commitments or invest in a new investee company; where that causes an investment-limit breach it is not treated as non-compliance, but it must be recorded in the CTR.
Outside the regulator's eye, the CTR has a second life as a due diligence document. Chapter 12's list of what an investor asks a manager for includes the latest annual Compliance Test Report filed with SEBI, alongside the trust deed, the Investment Management Agreement, the custodian agreement and sample valuation reports. A manager who cannot produce a clean one has answered the due diligence question without meaning to.
A worked example
Sentinel Opportunities Fund, a Category III AIF, closes its financial year on 31 March 2026. The compliance officer builds the CTR and three items come up.
Item 1 — minimum corpus. An open-ended scheme saw redemptions in February and the corpus fell to Rs 18.4 crore against the Rs 20 crore floor.
Corpus after redemption Rs 18.40 cr
Minimum required Rs 20.00 cr
Shortfall Rs 1.60 cr
The rule the CTR tests against: the AIF must bring the scheme back to Rs 20 crore within 3 months of the breach, must intimate SEBI within 2 days of receiving the redemption request that causes it, and must redeem the entire units of all investors if it cannot restore the corpus.
Item 2 — minimum investment. An investor was admitted in November at Rs 85 lakh. That is below the Rs 1 crore floor — unless the investor holds a valid accreditation certificate, in which case the floor does not apply at all. The compliance officer checks the certificate's validity dates; it expired in September. The CTR records a violation.
Item 3 — continuing interest. The scheme corpus is Rs 240 crore. Category III continuing interest:
5% of Rs 240 crore = Rs 12.00 cr
or Rs 10 crore, whichever is LOWER
= Rs 10.00 cr
The sponsor holds Rs 10 crore. Compliant.
The clock
| Date | Who | What |
|---|---|---|
| 31 Mar 2026 | — | Financial year ends |
| by 30 Apr 2026 | Manager | CTR submitted to sponsor and trustee |
| by 30 May 2026 | Sponsor / trustee | Observations and comments sent to the manager |
| by 14 Jun 2026 | Manager | Changes incorporated in the CTR |
| at the earliest | Sponsor / trustee | The Item 2 violation reported to SEBI |
The Rs 15 lakh shortfall on one investor is the smallest number in the report and the only one that has to reach the regulator on its own.
Why NISM asks about it
Chapter 15 (Fund Monitoring, Reporting and Exit), section 15.2.5 covers the CTR and Table 15.1 lists its components; Chapter 12 (Fund Due Diligence — Investor Perspective) lists the latest annual CTR among the documents an investor asks a manager for. Expect a straight timetable question — 30 days, then 30 days, then 15 days — and component questions that are really questions about the underlying rule, since each CTR line restates a regulation and its threshold.
Common exam traps
- The workbook is inconsistent about who must file. Section 15.2.5 says the manager of a Category III AIF must prepare and submit the CTR, while Table 15.1 in the same section tests Category I and II thresholds (continuing interest of 2.5% or Rs 5 crore, annual rather than quarterly reporting) and Chapter 12 lists the CTR among documents sought from any AIF manager. Answer from the chapter the question is drawn from.
- The CTR goes to the sponsor and trustee, not to SEBI. Only violations observed in it are reported to SEBI, and those go "at the earliest" rather than on a fixed date.
- 30 + 30 + 15. Thirty days from year end to submit, thirty for the sponsor or trustee to comment, fifteen for the manager to incorporate. The last leg is the one candidates misremember as thirty.
- A CTR is not the PPM audit and not the statutory audit. The books are audited annually by a qualified auditor; the PPM terms are separately audited; the CTR is the manager's own compliance self-test in SEBI's format.
- Every threshold in the table is a live exam fact. Rs 20 crore corpus, Rs 1 crore ticket, 1,000 investors with accredited investors excluded, two-thirds by value for a strategy change, 5% or Rs 10 crore continuing interest for Category III.
- A recorded non-breach is still a CTR item. Priority-distribution-model schemes record their investment-limit breaches in the CTR even where those breaches are not treated as non-compliance.
Where this is taught
- Series XIX-D · Chapter 10: Investment Process and Governance of Fundsintroduced here
- Series XIX-B · Chapter 5: Regulatory Frameworkintroduced here
- Series XIX-A · Chapter 7: Investment Process and Governance of Fundsintroduced here
- Series XIX-C · Chapter 11: Investment Strategies, Investment Process and Governance of Fundsintroduced here
- Series XIX-D · Chapter 12: Fund Monitoring, Reporting and Exit
- Series XIX-C · Chapter 15: Fund Monitoring, Reporting and Exit
Related terms
- Conflict of interestAny interest of the analyst's own — a shareholding, a fee, a relationship — that could bias the research, and which the regulations require to be disclosed rather than merely avoided.
- Accredited InvestorAn investor certified by an accreditation agency as meeting SEBI's income or net-worth tests, and therefore allowed into products on relaxed terms — including below the Rs 1 crore AIF floor.
- Principal officerThe named individual at a non-individual intermediary who carries personal regulatory responsibility for the advisory business, and who must personally hold the prescribed qualification and NISM certification.
- Alternative Investment FundA privately pooled investment vehicle registered with SEBI that raises money from select Indian or foreign investors under a defined investment policy — never from the public at large.
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- Compliance OfficerThe separately appointed officer of a merchant banker, listed company or intermediary who monitors compliance with securities law, handles investor grievances, and reports non-compliance to SEBI independently.
- Stewardship codeSEBI's mandatory code requiring all AIFs and mutual funds to monitor, engage with and vote in the listed companies they invest in — and to publish the policies by which they do it.
- First CloseThe date an AIF scheme declares it has raised enough commitments to proceed — the point from which tenure, management fees and set-up cost amortisation all start running.
- Private placement memorandumThe offer document of a Category III AIF, filed with SEBI through a merchant banker at least 30 days before a scheme launches — and the document SEBI comments on but never approves.
- Key Management PersonnelThe key investment team of an AIF's manager, the employees who decide on behalf of the fund, and anyone else the AIF or manager declares as such — named in the PPM and bound by the Code of Conduct.