Invested Capital
Also written Capital Invested
The total amount a Category III AIF's manager has actually drawn down from investors to make investments, as against the larger capital they committed. The undrawn balance is dry powder.
In plain language
Investors in a Category III AIF do not hand over all their money on day one. They sign a capital commitment — a promise to pay up to a stated amount — and the manager calls that money in stages, as investments become ready. Each call is a drawdown.
Invested capital (the workbook also says capital invested) is the running total of what has actually been drawn down for the purpose of making investments. Committed capital is what investors promised; invested capital is what the fund has taken so far. The difference, the money promised but not yet called, is dry powder.
The distinction matters because fees, performance multiples and investors' own liquidity planning can all be measured against one figure or the other.
How it works
The workbook's example. A scheme closes with total capital commitments of Rs 1,000 crore. The manager issues drawdown notices as investments are ready. If Rs 650 crore has been drawn at a given time, invested capital is Rs 650 crore and dry powder Rs 350 crore.
How drawdowns happen. The drawdown schedule — fixed periodic or "as-needed" — is agreed in the Contribution Agreement, along with the notice period, penalties for failing to honour a call, class-wise schedules and the mode of the drawdown notice. With as-needed drawdowns, investors cannot forecast the timing, so they must keep enough liquidity during the drawdown period. If total drawdowns end up less than total commitments, this may lead to an early termination of the fund.
Fees. Chapter 3 says the management fee usually ranges between 1 and 2 percent of capital committed during the commitment period, and thereafter reduces to a fixed percentage of the actual invested capital if that is lower than committed capital, or a percentage of AUM.
Multiples. The PIC multiple is paid-in capital ÷ capital commitments. MOIC is total realised and unrealised value ÷ total invested capital; when all capital calls are met, total invested capital equals total paid-in capital, and TVPI equals MOIC.
Distributions. A typical waterfall starts with the return of investors' capital contributions.
The formula
Dry powder = Capital committed − Invested capital
PIC multiple = Paid-in capital ÷ Capital committed
MOIC = (Realised + Unrealised value) ÷ Total invested capital
A worked example
Illustrative figures. Krishna Multi-Asset Fund closes with commitments of Rs 400 crore. Mrs Kulkarni has committed Rs 2 crore (0.5%).
After 18 months, the manager has made three drawdowns of Rs 100 crore, Rs 80 crore and Rs 60 crore:
Invested capital = 100 + 80 + 60 = Rs 240 crore
Dry powder = 400 − 240 = Rs 160 crore
PIC multiple = 240 ÷ 400 = 0.60
Mrs Kulkarni has paid 0.5% × 240 = Rs 1.20 crore
She must keep ready 0.5% × 160 = Rs 0.80 crore
Value today: Rs 90 crore distributed so far, and investments valued at Rs 246 crore:
MOIC = (90 + 246) ÷ 240 = 1.40
Fee base under Chapter 3's description, with an illustrative 2% rate after the commitment period:
On committed capital: 2% × Rs 400 crore = Rs 8.0 crore
On invested capital: 2% × Rs 240 crore = Rs 4.8 crore
Rs 3.2 crore a year turns on which base the documents use.
Why NISM asks about it
Chapter 3 (Introduction to the Category III AIF Ecosystem), section 3.3.3 Drawdown and Capital Invested defines the term with the Rs 1,000 crore / Rs 650 crore / Rs 350 crore example, and section 3.3.7 uses it in describing how management fees step down. Chapter 6 uses total invested capital as the denominator of MOIC and links it to TVPI. Expect questions that give commitments and drawdowns and ask for invested capital or dry powder.
Common exam traps
- Invested capital is what has been drawn down, not what was committed. Rs 650 crore, not Rs 1,000 crore, in the workbook's example.
- Dry powder is the undrawn balance — committed minus invested.
- TVPI equals MOIC only when every capital call has been met.
- The workbook gives two different fee bases. Chapter 3 describes management fees of 1–2% of committed capital during the commitment period, stepping down to invested capital or AUM. Chapter 6 says Category III management fees are 1–2.5% of Gross NAV and are not charged on committed capital or capital contributions. For a Category III fee computation, use Chapter 6's Gross NAV base; for a question about how fees typically step down after the commitment period, Chapter 3's description is the source.
- Drawdowns below commitments can end the fund early.
Check yourself
1.A Category III AIF scheme has total capital commitments of Rs 1,000 crore and has drawn down Rs 650 crore. The undrawn amount of Rs 350 crore is known as:
- a)Invested capital
- b)Dry powder
- c)Corpus
- d)Reserve capital
Show the answer
Answer: (b) Dry powder
The undrawn amount is dry powder. Invested capital is the Rs 650 crore actually drawn down by the manager for making investments, as against committed capital of Rs 1,000 crore. Corpus is the total of capital commitments raised — the Rs 1,000 crore figure itself.
2.The basis on which management fees are charged in a Category III AIF:
- a)remains the committed capital throughout the life of the fund
- b)is committed capital during the commitment period, reducing thereafter to a percentage of actual invested capital or of the underlying AUM
- c)is always the NAV of the fund as at the end of each financial year
- d)must be uniform across all classes of units and all investors
Show the answer
Answer: (b) is committed capital during the commitment period, reducing thereafter to a percentage of actual invested capital or of the underlying AUM
The fee usually ranges between 1 and 2 per cent of the capital committed during the commitment period, and thereafter reduces to a fixed percentage of the actual invested capital, if it is lesser than committed capital, or as a percentage of the underlying value of the AUM. The shift protects investors from paying a full fee indefinitely on money the manager never called. Option (d) is wrong because managers have the right to charge different management fee percentages to different classes of units or investors, and the percentage may also be set on a slab-rate system reducing as AUM increases.
Where this is taught
Free preparation for NISM Series XIX-BRelated terms
- Category III AIFThe AIF category for funds running diverse or complex trading strategies with leverage — hedge funds and their kin — and the only category denied tax pass-through status.
- Capital CommitmentThe total amount an investor promises to contribute to a Category III AIF over the life of the fund — at least Rs 1 crore, or Rs 25 lakh for employees and directors of the AIF or its Manager.
- DrawdownThe process by which the manager of a Category III AIF calls committed capital from investors as the fund needs it — also known as a capital call.
- Dry PowderThe part of a Category III AIF's capital commitments that investors have promised but the manager has not yet called — committed capital still waiting on the sidelines.
- Multiple on Invested CapitalA private equity performance multiple: realised plus unrealised value divided by total invested capital. Once every capital call has been met, it equals the fund's TVPI.
- PIC MultiplePaid-in capital divided by capital commitments — how invested a fund is. A PIC of 0.80 means 80% of commitments have been called; a high PIC means the drawdown phase is nearly over.
- Total Value to Paid-in CapitalA fund's investment multiple: cumulative distributions plus the residual value of unsold investments, divided by paid-in capital — equivalently, DPI plus RVPI.
- 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.
- CorpusThe total of all capital commitments raised by a Category III AIF scheme from its investors — not the cash actually collected, which SEBI requires to be at least Rs 20 crore.