Residual Value to Paid-in Capital

A closed-ended fund's value lives in two places: cash it has already handed back, and investments it still holds. DPI measures the first. RVPI measures the second.

The workbook calls it the unrealised multiple. It measures "the remaining market value of the fund's capital which has not yet been realised", calculated by dividing the residual value (or fair market value) of underlying investments by the paid-in capital.

Early in a fund's life almost nothing has been sold, so DPI is near zero and RVPI carries almost the whole story — which is why the workbook says that early on, RVPI is "more representative of future returns than DPI". The catch is in the word estimated: the residual value is a valuation, "not always accurate depending upon the valuation methodology used for unrealised assets".

The identity. RVPI is one half of TVPI:

• DPI = cumulative distributions ÷ paid-in capital
• RVPI = residual value ÷ paid-in capital
• TVPI = DPI + RVPI

With the workbook's figures — paid-in capital Rs 1,000 crore, residual value Rs 1,100 crore — RVPI = 1.10.

Its life cycle, as the workbook describes it:

1. Before investing begins, the fund corpus is reduced by fees and expenses and TVPI is below 1.
2. During the vintage years and growth cycle, the fund's value is "largely captured in the unrealised value of its investments, i.e. the RVPI".
3. As the fund harvests, DPI rises. When every investment is exited, RVPI falls to zero and DPI = TVPI.

The worked case in 6.8 (paid-in capital Rs 2,000 crore) shows RVPI of 0.25, 0.62, 0.60, 0.65, 0.75, 0.95 and 1.50 for Y1 to Y7, then 0 in Y8 when the fund is wound up.

Where it is disclosed and benchmarked. RVPI is one of the track-record items in Section VI of the SEBI PPM template (the template labels it "Residual Value in Multiple"). For Category I and II AIFs, the benchmarking agencies build vintage-year benchmarks using pooled IRR, DPI, RVPI and TVPI.

RVPI = Residual (fair market) value of unrealised investments / Paid-in capital

TVPI = DPI + RVPI      (until fully realised)
RVPI = 0 and DPI = TVPI (once every investment is exited)

Illustrative figures. Godavari Venture Fund II has paid-in capital of Rs 400 crore. Its snapshots over time:

At year 2 the whole of TVPI is RVPI, and it is below 1 — fees and expenses have been paid, but nothing has grown yet. At year 5, Rs 520 crore of the Rs 640 crore of total value is unrealised, so the fund's apparent 1.60x rests mostly on the valuer's numbers.

Suppose at year 5 the independent valuer marks one start-up down by Rs 80 crore. RVPI falls from 1.30 to 1.10 and TVPI from 1.60 to 1.40 — while DPI does not move at all, because cash already distributed cannot be revalued. That asymmetry is why a late-life fund is better judged on DPI and an early-life fund has little choice but to lean on RVPI.

Chapter 6 (Risk and Return — Investor and Fund Perspective) defines RVPI at 6.6.5, builds TVPI from it at 6.6.6, and tabulates it year by year in Step 11 of the worked case in 6.8. Chapter 8 (Fund Due Diligence — Investor Perspective) notes that benchmarking agencies use RVPI in vintage-year benchmarks, and Chapter 9 lists it among PPM track-record disclosures. Expect the identity TVPI = DPI + RVPI, a question on why RVPI matters more early in a fund's life, and one on RVPI reaching zero at wind-up.

• RVPI is an estimate; DPI is cash. A question describing RVPI as "realised" or "distributed" is wrong.
• The denominator is paid-in capital, not commitments. Commitments are the denominator of the PIC multiple.
• Early in the fund, RVPI is more representative than DPI; late in the fund, DPI is. Questions invert the two.
• At full exit RVPI is zero and DPI equals TVPI — not the other way round.
• Do not confuse RVPI with NAV per unit. RVPI is a fund-level multiple of paid-in capital.
• The PPM template's label, "Residual Value in Multiple", is the same metric. Do not treat it as something different because the words differ.