Since-inception IRR
Also written Life-time IRR
The internal rate of return computed from every cash inflow and outflow since a Category III AIF's launch date up to the reporting date — how a live fund's cumulative performance is reported to SEBI.
In plain language
A Category III AIF has cash flowing in through drawdowns and out through distributions and expenses, at uneven and unpredictable times over its life. Since-inception IRR is the IRR computed using every one of those cash flows, from the fund's launch date right up to the date the return is being reported.
How it works
The workbook distinguishes Since-inception IRR from Life-time IRR: the two are computed the same way — cash inflows and outflows since launch — but "Since-inception IRR" is the term used while the fund is still live, and the same computation on a fund that has already been wound up is called Life-time IRR instead.
Since-inception IRR is also distinguished from Gross IRR and Net IRR on a different axis: Gross IRR is computed before deducting management fees, incentive fees, fund expenses and taxes; Net IRR is computed after. Since-inception/Life-time IRR describes the time window of the calculation (from launch to date), while Gross/Net describes what is netted off — a fund reports figures that combine both dimensions, e.g. "Since-inception Net IRR".
The metric must be reported to SEBI on a quarterly or monthly basis by every Category III AIF, and a Consolidated IRR is also reported, aggregating cash flows across every Category III AIF the same investment manager runs.
A worked example
A Category III AIF's Best-case scenario shows a Gross IRR of 18.13% and a Net IRR of 12.98%, computed since the fund's launch — a gap of 5.15 percentage points, or 28.4% of the Gross IRR, eaten by fees, expenses and taxes.
In its Worst-case scenario, the same fund shows a Gross IRR of 6.96% and a Net IRR of 3.48% — the gap of 3.48 percentage points is smaller in absolute terms but represents 50% of the Gross IRR, because fixed costs bite proportionally harder when gross performance is weak.
Both of these — the 18.13%/12.98% pair and the 6.96%/3.48% pair — are the fund's Since-inception IRR, because they are computed over the fund's entire life to date, using the XIRR function on the full set of dated cash flows. If this same fund had since been wound up, these identical figures would be relabelled its Life-time IRR rather than recalculated differently.
Why NISM asks about it
Chapter 6, section 6.2.1.1 (Internal Rate of Return), sets out Since-inception IRR as the first of several IRR variants (alongside Gross and Net IRR), and the accompanying worked example (Best-case/Worst-case Gross versus Net IRR) is a recurring exam scenario. Expect the Since-inception/Life-time IRR distinction tested as a live-versus-wound-up naming question, and the quarterly/monthly SEBI reporting requirement tested as a standalone fact.
Common exam traps
- Since-inception IRR and Life-time IRR are the same calculation — the only difference is whether the fund is still operating (since-inception) or has been wound up (life-time).
- Since-inception versus Gross/Net IRR is a different axis entirely — one is about the time window of the cash flows used, the other is about whether fees and taxes are netted off. A fund figure typically carries both labels at once.
- The percentage-point gap between Gross and Net IRR can look small in absolute terms while representing a very large share of the Gross IRR — the workbook's own worst-case scenario (a 3.48 point gap eating 50% of Gross IRR) is designed to make exactly this point.
- Reporting is quarterly or monthly to SEBI, plus a Consolidated IRR aggregating all the Category III AIFs run by the same manager — do not confuse this with the half-yearly benchmarking data submission cycle used elsewhere in the same chapter.
Check yourself
1.Which statement about the IRR measures of a Category III AIF is correct?
- a)A since-inception IRR computed for a previous fund that has been liquidated is also known as Life-time IRR, and IRR is reported to SEBI on a quarterly or monthly basis
- b)Gross IRR is calculated at the investor level after deducting fees and taxes, so it is always lower than Net IRR
- c)Net IRR ignores the timing of cash flows and is therefore a simple average return
- d)Consolidated IRR is the IRR of the single best-performing scheme managed by the Investment Manager
Show the answer
Answer: (a) A since-inception IRR computed for a previous fund that has been liquidated is also known as Life-time IRR, and IRR is reported to SEBI on a quarterly or monthly basis
Since-inception IRR uses the cash flows from the launch date to the reporting date, and ‘If the IRR is being computed for a previous fund which was liquidated, it is also known as Life-time IRR’. The workbook also says ‘The IRR metric is to be reported to SEBI on a quarterly or monthly basis by a Category III AIF’.
- The option on Gross IRR has the definitions reversed. Gross IRR is computed at the fund level, before deducting management fees, incentive fees, fund expenses and taxes. Net IRR is at the investor level, and ‘Net IRR will be lower than the Gross IRR’.
- IRR is built on timing: ‘The timing of the cash flow is important in IRR’.
- Consolidated IRR is calculated ‘by aggregating the cash inflows and cash outflows of all the Category III AIFs, managed by the Investment Manager’ — not from one scheme.
Where this is taught
Free preparation for NISM Series XIX-BRelated terms
- Gross IRRAn AIF's IRR computed on fund-level cash flows before management fees, incentive fees, fund expenses and taxes — the return the portfolio earned, not the return investors kept.
- Net IRRAn AIF's IRR measured at the investor level, after management fees, incentive fees, fund expenses and taxes — always below the fund's Gross IRR, sometimes far below.
- Performance Fees Crystallization DateThe point at which a Category III AIF actually pays out incentive fees to its manager — at the end of the fund tenure, rather than yearly, even though the fee accrues daily to track accurate returns.