Pure Domestic AIF
Also written Pure domestic structure · Pure domestic fund · Domestic AIF trust structure · Pure domestic AIF structure
The simplest AIF structuring template: one pool set up and registered in India under the AIF Regulations, with every investor, the manager and the sponsor all resident in India for FEMA and tax purposes.
In plain language
An AIF has to decide where its money will be pooled before it decides anything else. The workbook gives four templates. The pure domestic AIF is the first and the plainest of them.
Everything sits in India. One pool, set up in India and registered with SEBI under the AIF Regulations. The manager is Indian. The sponsor is Indian. Every investor is resident in India, both for FEMA and for tax.
So there is no second vehicle abroad, no treaty to plan around and no foreign exchange leg. Money comes in as rupees and goes out as rupees.
The other three templates exist only because foreign investors want in. Once a single offshore rupee or dollar enters the picture, the fund is no longer pure domestic. It becomes an offshore, a parallel or a unified structure instead.
How it works
The three tests, from section 5.5.1. A pure domestic AIF is an AIF pool incorporated in India and registered under the SEBI (AIF) Regulations, with all the investors being residents of India for FEMA and tax purposes, and with the investment manager and sponsor being Indian. Figure 5.1 shows the resulting trust, custodian and trustee ring.
The vehicle. Chapter 5 offers three legal shells and the workbook is blunt about which wins: almost all AIFs formed in India follow the trust structure, set up under the Indian Trusts Act 1882 as an irrevocable, determinate trust. Determinate means every investor's beneficial share is ascertainable at all times, which is why the corpus is divided into units.
| Shell | The workbook's verdict |
|---|---|
| Trust | Preferred — lower compliance cost, freedom to build its own governance and reporting |
| LLP | Needs at least 2 designated partners; higher compliance than a trust, investors become partners so entry and exit are cumbersome, and MCA filing puts investor details in the public domain |
| Company | Least preferred — no tax neutrality, heavy Companies Act 2013 governance, and private placement capped at 200 investors against the 1000 the AIF Regulations allow a scheme |
What it looks like in operation. All stakeholders are resident entities. Unit holders are resident Indians — individuals, HUFs, companies, LLPs or trusts — so all transactions, subscriptions and distributions are made domestically in INR. The fund is typically invested in India, but the workbook is careful to add that it may choose to invest in overseas assets as permitted under FEMA. Being domestic does not mean being India-only on the asset side.
The general AIF norms still apply on top. Each scheme needs a corpus of at least Rs 20 crore, each investor at least Rs 1 crore (Rs 25 lakh for employees or directors of the fund or the manager, and the minimum is switched off for accredited investors), no scheme may exceed 1000 investors, and units of a close-ended AIF may be listed only after final close and only with a minimum tradable lot of Rs 1 crore.
How the four templates compare (Table 5.1).
| Feature | Pure domestic | Pure offshore | Parallel | Unified |
|---|---|---|---|---|
| Where pooled | In India | Foreign jurisdiction | Both | Both |
| Pooling vehicles | 1 | 1 | 2 | 2 |
| SEBI regulations | AIF Regulations | FVCI Regulations | AIF and FVCI | AIF Regulations |
| Investors | Domestic only | Foreign | Foreign and domestic | Foreign and domestic |
A worked example
Godavari India Opportunities Fund — Scheme I. Illustrative figures.
The sponsor is an Indian asset manager, the investment manager is its Indian subsidiary, and the fund is a determinate irrevocable trust under the Indian Trusts Act 1882 with an Indian trustee company and an Indian custodian.
| Investor | Type | Commitment |
|---|---|---|
| 62 resident individuals | Individual | Rs 1 crore to Rs 5 crore each |
| 9 resident HUFs | HUF | Rs 1 crore each |
| 2 Indian operating companies | Company | Rs 25 crore each |
| 1 Indian family office LLP | LLP | Rs 40 crore |
| 4 employees of the manager | Individual | Rs 25 lakh each |
Total commitments Rs 250 crore (minimum scheme corpus Rs 20 crore - met)
Investor count 78 (ceiling 1000 per scheme - met)
Smallest outside Rs 1 crore (general minimum - met)
Manager employees Rs 25 lakh (the reduced minimum that applies to them)
Every investor is resident in India for FEMA and for tax. So this is a pure domestic AIF, with one pooling vehicle and only the AIF Regulations to comply with.
Now break it. A Singapore pension fund asks for a Rs 80 crore allocation. Godavari cannot take it and stay pure domestic. Its choices are the other templates: set up an offshore fund that invests directly into the same investee companies alongside the scheme (a parallel structure, 2 pooling vehicles, AIF and FVCI Regulations), or have an offshore vehicle feed its whole corpus into Scheme I (a unified structure, which keeps all investment at the Indian AIF level and builds a bigger corpus for bigger deals).
Meanwhile Godavari can still deploy part of its Rs 250 crore into securities of companies incorporated outside India, subject to FEMA and to RBI and SEBI conditions. Domestic pooling, overseas assets — both at once.
Why NISM asks about it
Chapter 5 (Alternative Investment Fund Structuring), section 5.5.1, with the trust, LLP and company alternatives at 5.4 and the four-template comparison in Table 5.1 at 5.5.5. The chapter's own sample questions test exactly this ground: the most common structure adopted for a domestic AIF in India (trust), the trust structure suitable for an AIF (determinate trust), and in an LLP structure the investors are ______ in the firm (partners).
Expect a matching question on Table 5.1 — pooling location, number of pooling vehicles, which SEBI regulations apply, and which investors are permitted, across the four templates. The pure domestic row is the reference point the other three are read against.
Common exam traps
- Pure domestic is stricter than onshore. The published Onshore Fund page, written from the Series XIX-B workbook, defines an onshore fund as one domiciled in India pooling money from both foreign and domestic investors. XIX-A's pure domestic AIF requires every investor to be resident in India for FEMA and tax. A fund with foreign investors pooled in India is onshore but not pure domestic. Answer from the paper you are sitting.
- Pure domestic does not mean India-only investments. The fund may invest in securities of companies incorporated outside India, subject to FEMA and to RBI and SEBI conditions.
- Pure domestic uses the AIF Regulations; pure offshore uses the FVCI Regulations. The chapter's own sample question tests this as a true/false. See Offshore Fund Structure and FVCI Route.
- One pooling vehicle in pure domestic and pure offshore; two in parallel and unified. The sample question that asks whether a parallel structure has two funds registered under the AIF Regulations is false — in a parallel structure one pool is offshore.
- Trust, not company, and determinate, not charitable. A public charitable trust is not an AIF vehicle. The word that matters is determinate — each investor's beneficial share must be ascertainable at all times.
- The 200-investor cap belongs to the Companies Act, the 1000 to the AIF Regulations. A company-form AIF is squeezed by the lower of the two.
Check yourself
1.Which statement about a pure domestic AIF is correct?
- a)It may never invest outside India
- b)It is a single pooling vehicle in India under the AIF Regulations, with all investors resident for FEMA and tax purposes and all transactions in INR, but it may still invest in overseas assets as FEMA allows
- c)It must register under both the AIF Regulations and the FVCI Regulations
- d)Its investors must all be accredited investors
Show the answer
Answer: (b) It is a single pooling vehicle in India under the AIF Regulations, with all investors resident for FEMA and tax purposes and all transactions in INR, but it may still invest in overseas assets as FEMA allows
A pure domestic AIF would consist of an AIF pool incorporated in India and registered under the SEBI (AIF) Regulations, all the investors being residents of India for FEMA and tax purposes, and the investment manager, sponsor being Indian. And on overseas exposure: The fund is typically invested in India but as allowed under FEMA Regulations, the AIF may choose to invest in overseas assets as well. So "pure domestic" describes where the money comes from and who runs it, not where it goes. Since the unit holders are resident Indians (i.e. individuals/HUFs/Companies/LLPs/Trusts), all transactions, subscriptions and distributions are made domestically in INR.
Where this is taught
Free preparation for NISM Series XIX-ARelated terms
- 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.
- Trust deedThe registered instrument, executed by the sponsor in favour of the trustees, that constitutes a mutual fund as a trust, names its first trustees and governs its operations under clauses SEBI prescribes.
- FDI RouteThe route for strategic foreign investment into India: at least 10% of an investee company's post-investment fully diluted paid-up capital, under the DPIIT's FDI policy and RBI's NDI Rules.
- FVCI RouteThe route for SEBI-registered off-shore funds to make venture capital investments in eligible unlisted Indian companies — in stipulated priority sectors, or start-ups in any sector — at freely agreed prices.
- Parallel StructureA fund structure in which offshore investors invest through separate offshore funds that invest directly in Indian companies alongside a SEBI-registered domestic AIF.
- 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.
- Unified StructureA fund structure in which commitments from domestic and offshore investors are pooled into one onshore Indian AIF, with the offshore fund investing into it rather than directly in companies.
- Offshore Fund StructureA structure used when there is no intent to pool capital in India: the pooling vehicle is domiciled abroad, such as in Mauritius or Singapore, takes offshore investors' money and invests directly into Indian companies.
- Onshore FundA fund created by a domestic investment manager and domiciled in India, pooling capital from resident and foreign investors, registered under the SEBI (AIF) Regulations with its PPM filed through a merchant banker.