First Close
Also written First closing · First Close and Final Close
The 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.
In plain language
Fund-raising does not end on one day. A manager gathers commitments over months, and at some point has enough to stop waiting and start investing. Declaring that point is the first close.
It is a commitment by the fund to proceed, and a signal to everybody still deciding. The manager keeps the right to accept further commitments and declare subsequent closes, up to a final close that ends fund-raising altogether.
The reason it matters far beyond fund-raising is that first close is the clock start for almost everything else in the fund's life. Tenure runs from it. Management fees accrue from it. Set-up costs amortise from it. Performance benchmarking begins a year after it. Get the date wrong and every subsequent calculation in the question is wrong.
How it works
The rules, from Chapter 17:
- Corpus at first close must be at least the scheme minimum of Rs 20 crore (Rs 5 crore for a social impact fund scheme).
- Timing. First close must be achieved within twelve months from the date of the SEBI communication taking the scheme's PPM on record. Miss it and the AIF must file a fresh application to launch — which, as Chapter 7 notes among the risk factors, can push deployment past a favourable market window. For a Large Value Fund the twelve months run from the date of grant of registration or the date of filing the PPM with SEBI, whichever is later. An angel fund must on-board at least 5 accredited investors before declaring first close, and refiles its placement memorandum if it fails.
- Sponsor commitment in the AIF at the date of first close cannot be reduced, withdrawn or transferred afterwards.
- Before first close an investor may withdraw or reduce a commitment, and the AIF may modify the scheme's tenure. After first close, neither.
- Open-ended Category III schemes: first close means the close of the Initial Offer Period.
- Tenure is computed from the first close date — minimum three years for Category I and II schemes, and whatever was fixed at registration for Category III.
- Benchmarking: a scheme that has completed at least one year from first close must report performance, cash-flow and valuation data to the benchmarking agencies, half-yearly on 30 September and 31 March data. Category I and II benchmarks are grouped by vintage year, which is set by the first close timeline.
- Final close ends fund-raising; the period between the two is set in the PPM and may be more or less than a year. Later investors get to see how the scheme has performed in between — an information advantage, not a penalty. A close-ended AIF can take no new investors after final close.
A green shoe option may be exercised before final close even where first close has already happened; the AIF Regulations have no express provision on it, but normal disclosure standards require it to be disclosed in the placement memorandum.
A worked example
LMN Growth Fund I is a close-ended Category III AIF with a tenure of 5 years and total capital commitments of Rs 300 crore. It files its PPM with SEBI on 1 June 2023 and receives SEBI approval on 15 September 2023.
The workbook works this example as: first close on or before 31 May 2024, twelve months from the PPM filing date.
The manager declares first close on 15 November 2023, with commitments of Rs 210 crore — above the Rs 20 crore minimum corpus. Everything now dates from that day:
| Event | Date | Why |
|---|---|---|
| First close | 15 Nov 2023 | Commitments in, corpus above Rs 20 crore |
| Management fee starts accruing | 15 Nov 2023 | Fees accrue from first close to dissolution |
| Set-up cost amortisation starts | 15 Nov 2023 | 36 months, or fund life, from first closing |
| First benchmarking report | after 15 Nov 2024 | One year completed from first close |
| Tenure ends | 14 Nov 2028 | 5 years from first close |
At 14 November 2028 the fund's total net assets are Rs 600 crore. The manager wants more time. Extension is available for up to two further years, in two one-year steps, each needing the approval of two-thirds of investors by value:
Two-thirds of Rs 600 crore = Rs 400 crore
So the manager must gather consent from investors holding units worth at least Rs 400 crore, sought before 14 November 2028. First extension to 14 November 2029; a second, if needed, to 14 November 2030. Without that consent, or at the end of the extended tenure, the fund is wound up.
Had the manager instead missed first close altogether by 31 May 2024, none of this would exist: the fund files a fresh application and starts over.
Why NISM asks about it
Chapter 7 (Alternative Investment Funds Ecosystem), section 7.1.9 introduces first and final close, and Chapter 17 (Regulatory Framework), section 17.6 carries the regulatory conditions and the worked tenure example. Chapter 9 ties the management fee and set-up cost amortisation to the date, and Chapter 10 ties benchmarking and vintage-year grouping to it. Expect a date-arithmetic question — given a PPM filing date and a tenure, compute the last permissible first close and the tenure end — and a two-thirds-by-value extension computation.
Common exam traps
- The workbook is not internally consistent on where the twelve months start. Section 17.6.2 states that first close must be achieved within twelve months from the date of the SEBI communication taking the PPM on record, while the worked example in the same section counts twelve months from the PPM filing date of 1 June 2023 to 31 May 2024, even though SEBI approval came on 15 September 2023. Read the question carefully and use the date it gives you.
- Tenure runs from first close, not from SEBI registration and not from final close.
- The LVF rule is different: twelve months from registration or PPM filing, whichever is later.
- Extension consent is two-thirds by value of investment, not by number of investors — and it must be sought before the tenure expires.
- Sponsor commitment locks at first close. It cannot be reduced, withdrawn or transferred afterwards.
- An investor may walk away before first close and not after. The same asymmetry applies to modifying the scheme's tenure.
- Corpus at first close must clear Rs 20 crore, not merely the target the manager set for themselves.
Where this is taught
- Series XIX-B · Chapter 3: Introduction to Category III AIF Ecosystemintroduced here
- Series XIX-C · Chapter 7: Alternative Investment Funds Ecosystemintroduced here
- Series XIX-E · Chapter 15: Regulatory Frameworkintroduced here
- Series XIX-D · Chapter 14: Regulatory Frameworkintroduced here
- Series XIX-C · Chapter 17: Regulatory Framework
Related terms
- 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.
- 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.
- Angel FundA sub-category of Category I AIF, registered with SEBI specifically as an angel fund, which raises money from angel investors and invests it in start-ups deal by deal rather than through schemes.
- 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.
- ClawbackAn investor right to recover carried interest already paid to the manager on early successful exits, when later failed investments mean the manager was overpaid across the fund's whole life.
- Compliance Test ReportThe 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.
- Management FeeThe fixed annual fee an AIF pays its investment manager for managing the fund — charged on committed capital in Category I and II funds and on gross NAV in Category III, regardless of performance.
- Benchmarking AgencyAn agency notified by an AIF association covering at least 33% of AIFs, which collects AIF performance data and publishes industry benchmarks and benchmark reports for individual funds.
- Final CloseThe date that ends fund-raising for a Category III AIF scheme — after it, a close-ended scheme accepts no new investors, and only then may its units be listed.
- In-principle ApprovalA SEBI approval granted to an eligible AIF applicant before its trust or partnership deed is registered — the deed must then be registered within 6 months, and no investor money may be called until registration.
- SeriesA sub-division within a class of a Category III AIF's units — distinct and exclusive from any other series of the same class, created to identify a different set of investors, with its own NAV.
- Performance ReportA customised, fee-based performance comparison a Benchmarking Agency prepares at an AIF's request — named a Performance Report to keep it distinct from the standard Benchmark Report.
- Warehousing of dealsBuilding a pipeline of investment deals before a fund achieves its first close — a normal part of fund-raising, and not to be confused with warehousing of investments, which parks securities for later transfer.
- Accredited Investors only (AI-only) FundAn AIF or scheme in which every investor apart from the manager, sponsor and their employees or directors is an accredited investor — a class SEBI lets launch on intimation, with lighter investor-protection rules.
- Fund of fundsAn AIF that invests in the units of other AIFs rather than directly in investee companies — buying diversification across managers and strategies, and paying two layers of fees for it.
- SettlorThe party who brings an AIF trust into existence — executing the trust deed with the trustee and conveying the initial sum that becomes the trust's first asset.
- Warehousing of investmentsParking securities for a period so they can be transferred or disposed of later — a conflict of interest the PPM must disclose, and not the same thing as warehousing of deals.
- Continuing interestThe sponsor's or manager's own money locked into the fund — 2.5% of corpus or Rs 5 crore, whichever is lower, for Category I and II AIFs, and 5% or Rs 10 crore for Category III.
- Set-up CostThe one-time cost of forming the fund and issuing its units, charged to investors as a percentage of capital commitments — up to 1.5% or 2.5% — and usually amortised over the first 36 months.
- Commitment PeriodThe window in a closed-ended fund during which the manager may call capital against commitments — and the period over which management fee is charged on committed rather than invested capital.
- Open-ended AIFAn AIF scheme that offers units continuously with no fixed maturity and lets investors redeem at set intervals — permitted only for Category III AIFs, with a variable corpus.
- Closed-ended AIFAn AIF scheme offered for a limited period, funded by commitments drawn down through capital calls, with no redemption before the fund winds up — compulsory for Categories I and II.
- Vintage YearThe year in which a fund first delivers investment capital — the marker used to compare private funds that started investing at the same point in the economic cycle.
- Performance BenchmarkingSEBI's mandatory regime under which every AIF scheme past one year from first close reports cash flow and valuation data half-yearly so that industry benchmarks can be built and each scheme measured against them.
- Tenure of a SchemeThe life of an AIF scheme — from the date of first close to the last date of its term in the fund documents — fixed when SEBI is applied to, a minimum of 3 years, and extendable by 2 with two-thirds investor consent.