Tenure of a Scheme
Also written Scheme tenure · Tenure of the scheme · Tenure of fund and schemes · Fund tenure · Extension of tenure
The 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.
In plain language
A Category I or Category II AIF is a close ended fund. It is born with an end date.
That life span is the tenure of the scheme. The workbook measures it precisely: from the date of first close to the last date of the term written into the fund documents. Not from registration, and not from the day the first cheque was written.
The tenure is fixed at the start, when the fund applies to SEBI, and it cannot be less than three years. Investors need to know how long their money is locked away before they commit, so the answer has to be on the table from the beginning.
It can be stretched, but not quietly. An extension needs the consent of investors holding two-thirds of the value. If they refuse, or if the extended term runs out, the scheme has to be wound up.
That is the whole bargain of a close ended fund. The manager gets years of patient capital. The investor gets a date.
How it works
The definition (section 4.1.6). As defined by the SEBI (AIF) Regulations, tenure of a scheme refers to the duration of the scheme from the date of first close till last date of the term as specified in the fund documents.
The rules, in order.
| Rule | The figure |
|---|---|
| Form | Category I and Category II AIFs shall be close ended |
| When fixed | At the time of application to SEBI — for the fund if it has only one scheme, otherwise for each scheme |
| Minimum | 3 years |
| Extension | Up to 2 years, with the approval of two-thirds of the unit holders by value of their investment |
| Extension, accredited-investor-only fund | Up to 5 years, again on two-thirds by value |
| If consent is refused, or the extended tenure expires | The AIF shall be wound up |
Two details around that table are regularly examined. First, the trust or incorporated entity may have a different term under its own incorporation documents — but each Category I or II scheme still has to be close ended for a defined term. The vehicle and the scheme are not the same clock. Second, for an AI only scheme the 5 years is inclusive of tenure extended, if any, prior to conversion to an AI-only or LVF scheme, so a scheme that has already used an extension cannot start the 5 years again.
Where the tenure shows up elsewhere. It is one of the mandatory PPM disclosures. It is the period over which administration and management expenditure is estimated when investable funds are computed. And it is the first of the winding-up triggers in Regulation 29: an AIF shall be wound up when the tenure of the AIF or all its schemes, as mentioned in the PPM, is over — the other triggers being the trustees' opinion, a resolution by 75% of investors by value, or a SEBI direction.
When the tenure ends but the assets have not sold. Chapter 10 gives two routes, and both have their own tenure rules.
- A Liquidation Scheme is a close-ended scheme launched only to liquidate the unliquidated investments of an existing scheme whose tenure has expired. Its own tenure is determined when its PPM is filed with SEBI, and it cannot be extended. It takes no fresh commitments and makes no new investments.
- A Dissolution Period follows the expiry of the liquidation period, and needs the consent of existing investors. Before asking for it the AIF must disclose the proposed tenure of the dissolution period, the unliquidated investments, and a valuation by 2 independent valuers. If the assets still do not sell, they are mandatorily distributed in specie, and there is no further extension after the dissolution period expires.
A worked example
Kaveri Growth Fund — Scheme I, a Category II AIF. Illustrative figures.
Tenure stated in the SEBI application 7 years (minimum is 3 - fine)
First close 1 July 2019
Last date of the term 30 June 2026
Total capital commitments Rs 600 crore
June 2026 — the manager wants two more years. Three portfolio companies are close to an IPO and a forced sale now would be a bad exit.
| Scenario | Votes in favour, by value | Two-thirds is Rs 400 crore | Outcome |
|---|---|---|---|
| A | Rs 408 crore, or 68% | Met | Extension of 2 years carries, to 30 June 2028 |
| B | Rs 360 crore, or 60% | Not met | No extension — the scheme must be wound up on 30 June 2026 |
Note what the vote is counted on: value of investment, not heads. A single Rs 120 crore investor carries exactly the same weight as forty Rs 3 crore investors put together.
Take scenario A further. In 2028, the scheme converts into an AI only scheme, every investor being accredited, and asks for more time. The AI-only limit is 5 years inclusive of extensions already taken.
Extension already used 2 years
AI-only ceiling 5 years
Still available 3 years -> to 30 June 2031
Not five more years. The two already spent come off the total.
And in 2031, Rs 90 crore of investments still have not sold. The scheme cannot extend again. So the manager launches Kaveri Growth Fund — Liquidation Scheme, whose tenure is fixed when its PPM is filed and cannot be extended at all, to work those assets out. Failing that, the scheme enters a dissolution period with investor consent, after disclosing the unliquidated investments and a valuation from 2 independent valuers — and if the assets still will not sell, they are handed to investors in specie.
Why NISM asks about it
Chapter 4 (Regulatory Framework — Indian Context), section 4.1.6, titled Tenure of Fund and Schemes. The chapter's own sample question is about as direct as they come: Category I and II AIF schemes shall have a minimum tenure of ______ years — three. Chapter 4 also carries the AI-only extension rule at 4.1.7, and Chapter 10 (Fund Monitoring, Reporting and Exit) supplies the winding-up trigger at 10.9 and the liquidation scheme and dissolution period at 10.10 and 10.11. Chapter 9 lists tenure as a PPM disclosure.
The numbers to hold are the 3-year minimum, the 2-year ordinary extension, the 5-year accredited-investor extension, and two-thirds by value for either. Then the 75% by value that is needed for investors to resolve on winding up — a different fraction for a different decision.
Common exam traps
- Tenure runs from FIRST CLOSE, not from SEBI registration, not from the PPM being taken on record and not from final close. This is the single most examined word in the definition.
- Two-thirds by value to extend; 75% by value to resolve on winding up. Two fractions, two decisions. Both are by value of investment, never by number of investors.
- 2 years is the ordinary extension; 5 years belongs to an accredited-investor-only fund — and the 5 years is inclusive of anything already used before conversion.
- The scheme's tenure and the vehicle's term are different things. A trust can outlive the scheme it houses; the Category I or II scheme must still be close ended for a defined term.
- A liquidation scheme's tenure cannot be extended at all, and there is no further extension once a dissolution period expires.
- Section 4.1.6 states the close-ended form and the 3-year minimum for Category I and Category II AIFs only. This paper is about those two categories; do not generalise the rule to Category III from it.
- Two large-value thresholds sit near this rule and they are NOT the same test. XIX-A defines a large value fund for accredited investors as one where each investor commits not less than Rs 25 crore (section 4.1.7). Separately, the PPM template and annual PPM audit are waived where each investor commits at least Rs 70 crore — USD 10 million or equivalent — and gives the fund a waiver (section 9.5.2). Rs 25 crore defines the fund; Rs 70 crore buys the audit waiver. Reading them as a contradiction, or swapping them, costs the mark.
Where this is taught
Free preparation for NISM Series XIX-ARelated 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.
- Close-ended fundA mutual fund scheme that sells units only in its NFO, runs for a fixed period and redeems all units at maturity — in between, investors can exit only by selling on the stock exchange, where listing is compulsory.
- 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.
- Large Value Fund for Accredited InvestorsAn AIF or scheme in which every investor other than the manager, sponsor and their employees or directors is an accredited investor committing at least Rs 25 crore — with lighter regulation.
- Liquidation SchemeA close-ended AIF scheme launched only to liquidate unsold investments of existing schemes whose tenure has expired. SEBI has barred new liquidation schemes after 25 April 2024.
- PPM Compliance AuditThe mandatory annual audit, at each financial year end, of a Category I or II AIF's compliance with the terms of its private placement memorandum — findings to the trustee, manager's board and SEBI within 6 months.
- Pure Domestic AIFThe 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.
- First CloseThe 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.
- 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.