Alternative investments

246 terms · each links to a full explanation with a worked example and the exam traps

Absolute-return StrategyA Category III AIF strategy that aims to make money independent of broad market moves, using leveraged, concentrated, long/short or market-neutral positions, and benchmarked to a fixed rate rather than an index.
Accelerator grantA bonus payment of up to 10% of programme cost, paid to an NPO under a pay-for-success-through-grants structure when it exceeds its pre-defined outcome targets.
Accreditation agenciesThe subsidiaries of stock exchanges or depositories, or other SEBI-specified entities, that verify an applicant's income and net worth and issue the certificate that makes them an accredited investor.
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.
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.
Activist StrategyAn event-driven Category III AIF strategy that takes a significant stake in a company facing a material corporate event, aiming to improve its operations by participating in management.
Affirmative RightsInvestor protection rights under which specified corporate actions of an investee company need the AIF's express consent, whatever the size of its shareholding — described as "positive control".
Alternative InvestmentA financial asset outside the conventional categories of stocks, bonds and cash — defined by what it is not, and marked above all by illiquidity.
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.
Angel FundA sub-category of Category I AIF, registered with SEBI specifically as an angel fund, which raises money from angel investors and invests it in start-ups deal by deal rather than through schemes.
Angel InvestorAn accredited investor, or key management personnel of an angel fund or its manager, who puts capital into start-ups and early-stage ventures through an angel fund.
Annual Run RateThe yearly equivalent of a start-up's Monthly Run Rate — its predictable revenue restated on an annual basis, used to judge whether revenue is consistent and sustainable.
AUM for BenchmarkingThe specific measure of Assets under Management SEBI mandates for AIF performance benchmarking — the value of total capital drawn down under the scheme, not its committed corpus or current market value.
Automatic Conversion ClauseA clause that forces convertible debt or convertible preference shares to convert into equity when a pre-defined trigger occurs — a revenue level, a funding round or an IPO — unlike an optional conversion right.
Benchmarking AgencyAn agency notified by an AIF association covering at least 33% of AIFs, which collects AIF performance data and publishes industry benchmarks and benchmark reports for individual funds.
Beneficial InterestAn investor's share in a Category III AIF represented by the units it holds — the basis on which units are allocated and distributions or liquidation proceeds are paid out.
Blended financeCombining conventional, return-seeking capital with concessional or philanthropic "social capital" in the same structure, so that the two kinds of money share risk and fund social outcomes together.
Blind poolA fund in which investors commit capital to the pool rather than to named deals — the manager chooses the investments afterwards, which is why the subscription agreement must settle everything in advance.
Bridge RoundShort-term financing that funds a company's working capital between two funding rounds, provided by banks, debt funds, venture debt funds or venture capital funds.
BuyoutA private equity transaction in which investors acquire a controlling interest — typically 51% or more of the share capital or voting rights — in a target company; with significant leverage, it is an LBO.
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.
Capitalization TableThe record of who owns how much of a company — every class of shares, each investor's stake and the employee option pool. An AIF's name goes on it when the shares are allotted.
Carried InterestThe manager's share of an AIF's profits above the hurdle rate — called additional return in Indian AIF documents — customarily 20% in the global "2-20" model and usually paid on exits.
Catch-up RateThe rate at which residual profits go to the manager after investors have received their capital and preferred return, until the manager holds its agreed share of total profits.
Category I AIFThe AIF category for funds the government or a regulator treats as socially or economically desirable — venture capital, angel, SME, social impact, infrastructure, special situation and CDMDF funds.
Category II AIFThe residual AIF category: anything that is neither Category I nor Category III and takes no fund-level leverage beyond a narrow temporary carve-out — private equity, private debt and fund-of-funds.
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.
CIV schemeA separate one-deal scheme of a Category I or II AIF through which accredited investors of that scheme co-invest alongside the fund in a single investee company, without a portfolio manager registration.
Class of UnitsA group of units in a Category III AIF carrying its own rights — typically its own fee terms — assigned by size and timing of commitment; NAV is computed separately for each class or series.
ClawbackAn investor right to recover carried interest already paid to the manager on early successful exits, when later failed investments mean the manager was overpaid across the fund's whole life.
Closed-ended AIFAn AIF scheme offered for a limited period, funded by commitments drawn down through capital calls, with no redemption before the fund winds up — compulsory for Categories I and II.
Club DealA buyout in which several private equity investors act in concert to acquire the controlling stake, because no one fund can or will write the whole cheque.
Co-investmentInvestment by a manager, sponsor or investor of a Category I or II AIF directly into an investee company that the AIF is itself investing in, alongside the fund rather than through it.
Commitment PeriodThe window in a closed-ended fund during which the manager may call capital against commitments — and the period over which management fee is charged on committed rather than invested capital.
Common PPM TemplateSEBI's standardised disclosure format for a Category I or II AIF's Private Placement Memorandum, prescribed by a February 2020 circular so every AIF discloses the same categories of information.
Continuing interestThe sponsor's or manager's own money locked into the fund — 2.5% of corpus or Rs 5 crore, whichever is lower, for Category I and II AIFs, and 5% or Rs 10 crore for Category III.
Contribution AgreementThe agreement between one investor, the trustee and the investment manager that sets the terms on which that investor participates in the AIF — the contract that turns a commitment into units.
Convergence TradeA relative-value trade that buys relatively under-valued bonds and sells relatively over-valued ones, betting their prices converge. The gaps are tiny, so profits need heavy leverage — LTCM's undoing.
Convertible ArbitrageA Category III long-short strategy: buy a company's convertible bond or preference share and short its equity, to profit when the conversion terms and the share price fall out of line.
Convertible SecurityA hybrid debt or preference security that gives its holder the option to convert it into equity shares at a pre-determined date, price and conversion ratio — the instrument a convertible arbitrage strategy trades.
Corporate liquidation exitThe least preferred, worst-case way for an AIF to exit a portfolio company: a long statutory process that returns only salvage value, if any, unless preference rights or debt give priority.
Corporate Venture CapitalA large firm taking an equity stake in a small innovative company, often adding management and marketing expertise — a strategic on-balance-sheet investment rather than a pooled fund.
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.
CrowdfundingRaising small amounts from a large number of individuals through a web platform for a project, venture or cause — a seed-stage and social funding route in India, but not a practical equity route.
Deal SourcingThe investment manager's work of finding, screening and completing investments in suitable unlisted companies — through networks, intermediaries and its own research — to build a deal pipeline.
Debt FundA Category II AIF that invests primarily in debt securities of listed or unlisted investee companies, or in securitised debt instruments, as per its stated objectives.
Default in DrawdownThe event of an AIF investor failing to pay a capital call. Other investors take up the call, and the defaulter substantially loses rights and returns under the investment agreement.
Definitive AgreementsThe binding agreements signed between an investee company and the investment manager representing the AIF to complete an investment — chiefly the share subscription agreement and the shareholders' agreement.
Designated PartnerIn a Category III AIF set up as an LLP, the sponsor acting as the partner responsible for all statutory compliances of the LLP — and bound by the AIF code of conduct.
Development Impact BondA results-based structure in which a risk funder finances an NPO up front and an outcome funder repays, with a small return, only if pre-agreed social metrics are independently verified.
Directional StrategyA Category III AIF strategy that takes a net long or net short position on stocks or an index, betting on the market's direction; short-bias and dedicated-long are its variants.
Direct real estate exposureOwning physical property outright — a large, concentrated, lump-sum investment in one or a few properties, managed by the investor and hard to sell quickly, unlike a REIT or InvIT.
Disclosure LetterA document the investee company issues to the AIF alongside the Share Subscription Agreement, listing exceptions to its warranties so disclosed risks shift from the promoters to the AIF.
Dissent periodThe window of not less than one month an AIF must give unit holders to record dissent to a material change, after which the manager must buy out the dissenters within three months.
Dissolution PeriodThe period after an AIF scheme's liquidation period, entered with 75%-by-value investor approval, to sell unliquidated investments — ending in mandatory in-specie distribution of whatever remains.
Distressed debt financingLending to a company that is stretched for cash but still a going concern — refinancing to clear dues and cut leverage, at a higher cost than a performing borrower would pay.
Distressed securitiesEquity, bonds or trade debt of a company that is near or in bankruptcy, or has suffered a massive credit-rating fall, trading at a steep discount because regulated investors are forced to sell.
Distribution AgreementThe contract between an AIF's investment manager and a distributor, defining the distributor's role, binding it to a code of conduct and fixing how commission may be paid.
Distribution WaterfallThe order in which a Category III AIF pays out capital and gains to investors and the manager — capital first, then the hurdle return, then the manager's catch-up, then the residual split.
DistributorAn individual or institution appointed to sell units of a Category III AIF to investors, empanelled with one or more funds, and bound by conduct rules on suitability and disclosure.
Distributor AgreementThe contract forming the legal basis for an AIF distributor's relationship with the fund, executed either between the fund and the distributor or as a three-way agreement including the investment manager.
Down roundA financing round priced below the valuation of the previous round — the event that triggers anti-dilution protection and re-prices every earlier investor's conversion.
DPIIT start-up definitionThe Government of India's test for a "start-up": a business not more than 10 years old, with turnover not exceeding Rs 100 crore in any financial year, engaged in innovation.
Drag Along (Bring Along) RightAn exit right obliging other shareholders — typically the promoters — to sell their shares to the same buyer on the same terms when the AIF holding the right chooses to sell.
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.
Dual CategoryStructures whose underlying assets are illiquid but whose instruments are liquid — listed or redeemable with restrictions — such as REIT and InvIT units and security receipts.
Dual class investmentsInvestments whose underlying assets are illiquid but whose instrument can be liquid — listed on an exchange or redeemable through the mutual fund route with restrictions — such as REIT and InvIT units.
Due Diligence ReviewThe three-part investigation — business/commercial/technical, financial and legal — an AIF's investment manager runs on a potential investee company after the term sheet is signed and before the definitive agreements.
Early-stage capitalThe third round of a young company's life — money to set up initial operations and basic production once it has customers, raised in Pre-Series A, Series A or Series B.
EndowmentAn investment fund set up by an institution such as a university or hospital to protect its principal and fund a fixed purpose indefinitely — a long-horizon investor type prominent in the AIF ecosystem.
Equal trail basisSEBI's rule that a Category III AIF may charge distribution or placement fee only as an equal trail — no upfront fee at all, and paid only out of the manager's own management fee.
Equity KickerAn equity sweetener attached to a loan — warrants, preference shares or a right to convert part of the debt at an agreed valuation — usually up to 10% of the loan amount in Indian venture debt.
Equity REITA REIT that owns and manages commercial real estate directly, earning income mainly from rent, as against a Mortgage REIT, which lends against property rather than owning it.
ESGEnvironmental, Social and Governance — a generic term for evaluating corporate behaviour, used interchangeably with sustainable, responsible, impact or ethical investment.
European WaterfallA distribution sequence that returns 100% of investors' invested capital pro rata, then their full preferred return, before the manager receives any additional return or carry.
Event-driven StrategyA Category III AIF strategy taking long or short positions in one target company around a significant corporate event — a merger, acquisition, spin-off, restructuring or management change.
Exclusivity PeriodA term-sheet clause under which the investee company agrees not to negotiate with other potential investors while the AIF completes its due diligence and definitive agreements.
Family OfficeA private office that manages one or more wealthy families' money — a non-institutional investor under the workbook's classification, and one of the main domestic sources of AIF capital in India.
Final CloseThe date that ends fund-raising for a Category III AIF scheme — after it, a close-ended scheme accepts no new investors, and only then may its units be listed.
Final Investment MemorandumThe memorandum a PE fund's deal team prepares once the investment committee gives final approval, proposing a specific valuation — which the start-up can still negotiate before final agreements are signed.
Financial DDRThe part of an AIF's due diligence review that verifies an investee company's books, financial statements, representations and tax position — usually for at least three past financial years.
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.
First-loss default guaranteeA credit enhancement in which an intermediary agrees to absorb the first losses on a pay-for-success lending structure, reducing the risk for commercial lenders and motivating them to participate.
First Time ManagerAn AIF manager without a track record of its own previous funds. The PPM must say so, and must disclose the previous funds with which each member of its investment team was associated.
"For Cause" RemovalThe premature termination of an AIF investment manager's services by investors, triggered by an event of default — mainly fraud, wilful misconduct or gross negligence — rather than mere underperformance.
FoundationA not-for-profit organisation that donates funds and supports other organisations for charitable purposes — an AIF investor whose long horizon lets it carry illiquidity.
Full RatchetThe harshest anti-dilution formula: after a down round, the earlier investor's preference shares convert at the lowest price the company has issued at, as though it had invested at that price all along.
Fund GovernanceThe control structure within which an AIF is managed, directed and controlled — manager oversight, independent valuation, segregation of functions, conflict management, transparency and an investor-first culture.
Fund-level leverageBorrowing or gearing taken by the AIF itself rather than inside a portfolio company — permitted for investment purposes only to Category III AIFs, and capped at 2 times NAV.
Fund of fundsAn AIF that invests in the units of other AIFs rather than directly in investee companies — buying diversification across managers and strategies, and paying two layers of fees for it.
GARPGrowth at a Reasonable Price — an investment style combining value and growth investing, used by Category III AIFs picking stocks that combine growth potential with a sensible price.
GARUDASEBI's Green Channel: AIF Rollout Upon Document Acknowledgement — the fast-track route that lets an AIF launch a scheme and circulate its PPM 10 working days after filing.
General PartnerThe foreign-terminology name for the entity that manages a Category III AIF's investments — the Indian equivalent is the investment manager, and the fund's investors correspondingly become "Limited Partners" (LPs).
GIIRSThe Global Impact Investing Rating System: an online tool that rates the social and environmental performance of companies and funds, with a methodology the workbook says 6,000 companies have used.
GivebackA distribution-waterfall clause where investors agree to return part of what they already received, to cover a liability surfacing after distribution — an alternative to a fund reserve.
Global Impact Investing NetworkThe global body that offers the IRIS+ impact accounting system, to promote transparency, credibility and accountability in how impact data is used for decision making.
Global-Macro StrategyA Category III AIF strategy taking long and short positions across currencies, fixed income, equities, commodities, real assets and interest rate derivatives, driven by macro-economic trends.
Gross Net Asset ValueThe value of a Category III AIF's assets before incentive fees are deducted — and the base on which management fees are charged, which is why it is not the same as the NAV investors see.
Growth investingA common private equity strategy of taking a minority stake to help a company grow further — typically at the intersection of VC and PE, where the company is still growing but may already be profitable.
Hedge FundA pooled vehicle using diverse or complex trading strategies, long and short positions and fund-level leverage — in India, the AIF Regulations place hedge funds in Category III.
Hurdle rateThe minimum return that must accrue to investors before the manager earns any incentive fee — the threshold that turns a fund's profit into the manager's profit.
Incentive FeesThe Category III AIF manager's share of profits — a percentage of the return above both the reference hurdle and the high-water mark, set out in the PPM and borne pro rata by all investors.
Information MemorandumIn AIF due diligence, the investee company's own document of representations and forecasts; separately, the document an AIF scheme files with SEBI through a merchant banker to enter a dissolution period.
Infrastructure FundA Category I AIF investing primarily in the unlisted securities, partnership interest or listed and securitised debt of companies and SPVs that operate, develop or hold infrastructure projects.
Insolvency ResolutionThe IBC 2016 process of helping a heavily indebted company turn around or be acquired through auction — an investment opportunity for private debt and distressed-asset funds.
In-specie DistributionDistributing an AIF's unsold investments themselves, rather than cash, to investors — allowed in the liquidation period with 75%-by-value approval and mandatory at the end of a dissolution period.
Interim funding partnerIn a CSR pay-for-success structure, the fourth party that lends the NPO working capital up front, typically a domestic philanthropic body, and is repaid out of the CSR escrow once outcomes are verified.
Internal Rate of ReturnThe rate at which the present value of an investor's cash outflows equals the present value of inflows — an annualised return that, unlike ROI, accounts for when each cash flow happened.
Investable FundsThe corpus of an AIF scheme net of the administration and management expenditure estimated for the fund's tenure — the base on which Social Impact Fund investment limits are measured.
Invested CapitalThe 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.
Investment Advisory AgreementThe agreement under which an offshore fund takes non-binding investment advice from an on-site Indian advisor — advice, not management, which is exactly what keeps the two roles apart.
Investment CommitteeA committee the manager of a Category I or II AIF may constitute to approve the fund's investment decisions; its members are responsible for those decisions and bound by the Code of Conduct.
Investment Management AgreementThe agreement between the trustee, acting for the AIF, and the investment manager, by which the trustee delegates its entire investment management power — and by which the manager can later be removed.
Investment ManagerThe person or entity appointed by an AIF's sponsor to manage its investments — deal sourcing, structuring, oversight and exit — known abroad as the "General Partner" in an LLP fund.
Investment Manager approvalThe requirement that an off-market transfer or pledge of AIF units in dematerialised form succeeds only after the fund's Investment Manager has approved it, where the AIF's own documents require that approval.
Investor Advisory CommitteeAn optional committee of mainly investor representatives that gives an AIF's manager or Investment Committee informed guidance on conflicts, risk, governance, reporting and tax — a check, not a decision-maker.
Investor Due DiligenceThe investigation an investor runs on an AIF and its manager before committing capital — the process of investigation and evaluation into the details of a potential investment.
Investor PresentationThe core marketing document an AIF distributor prepares from the PPM's disclosures, analysing the fund and scheme for investors and showing how it fits their needs.
Junior or subordinate class of unitsAIF units that accept lesser returns or share excess losses compared with pro-rata rights — open only to the manager or sponsor, DFIs, State Industrial Development Corporations and government-owned entities.
Key Man ClauseA fund agreement clause that stops an AIF or its manager from making new investments if one or more named key persons cannot devote the necessary time to the fund.
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.
Later-stage capitalCapital from Series C onwards to scale a business — new markets, geographies, product segments or acquisitions — typically from private equity funds and institutional investors, as angels and VCs exit.
Lead InvestorThe investor who sources a deal, does the diligence, commits their own capital and then assembles a syndicate of accredited investors to fund the rest — usually for a fee or a share of carry.
Leveraged Buy-OutA control acquisition of a company financed substantially with borrowed money — a Private Equity buyout where the acquirer typically targets 51% or more of the target's share capital or voting rights.
Limited PartnerThe label used in foreign jurisdictions for an investor who subscribes to units of a fund structured as a limited liability partnership, as against the General Partner who manages it.
Liquidation PeriodThe 1-year period following expiry of an AIF scheme's tenure or extended tenure, for fully liquidating its assets and distributing the proceeds to investors.
Liquidation PreferenceA right that, if the investee company is liquidated, the AIF's preferred securities are paid a set amount — its investment or a multiple of it — before other shareholders receive anything.
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.
Lock-in PeriodThe stretch of time after an investor commits money to a Category III AIF during which they cannot redeem — not fixed by SEBI, but 2 years is common practice.
Long-only Equity StrategyA Category III AIF strategy that takes only buy positions in selected stocks when investing, aiming at absolute returns over the medium to long term with a strong emphasis on capital preservation.
Long-Short Equity StrategyA Category III AIF strategy that buys stocks the manager thinks are under-priced and shorts those it thinks are over-priced — often run as a 130/30 fund with 100% net market exposure.
Managed FuturesA strategy run by Commodity Trading Advisors that trades commodity, equity and currency futures using systematic or discretionary methods to profit from short-term mispricing.
Management Buy-inA buyout in which an outside management team is assembled to run the target, used where the company's existing managers cannot supply what a buyout needs.
Management BuyoutA leveraged buyout in which the company's own management team borrows to buy a majority stake from existing shareholders and takes control of the business it already runs.
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.
Management PresentationA meeting arranged by the company's bankers at which its key management team presents the business to a fund's investment team, ahead of the team's investment proposal to its Investment Committee.
Mandatory exit optionThe exit a close-ended AIF must offer dissenting investors after a material change: at least one month to dissent, buyout at no less than the average of two independent valuations, done within 3 months.
Market-Neutral StrategyA Category III AIF strategy taking equal long and short exposures within a sector, industry or market-cap segment so that portfolio beta is zero or close to zero.
Master-Feeder StructureA fund structure in which offshore investors invest through a feeder fund in their jurisdiction, which invests in a domestic master fund that also accepts direct investors.
Material changeA change to an AIF's PPM or fund terms significant enough to influence an investor's decision to stay invested — such as a new sponsor or manager, change in control, or adverse fee change.
Merchant banker agreementThe contract by which an AIF appoints a SEBI-registered merchant banker to file its placement memorandum with SEBI and certify the adequacy of its disclosures.
Merger ArbitrageAn event-driven Category III strategy: go long the target company and long or short the acquirer, to capture the gap between the target's price and the deal price as a merger completes.
Mezzanine CapitalCapital provided in a hybrid structure carrying features of both debt and equity — typically subordinated debt with an equity upside attached, such as warrants.
Mezzanine RoundThe last private round before listing: pre-IPO money that pays for listing formalities, often with anchor investors allotted shares at a discount to the IPO price and ESOP holders selling out.
Migrated Venture Capital FundA fund once registered under the SEBI (Venture Capital Funds) Regulations, 1996 that re-registered under the AIF Regulations as a Category I venture capital fund. It may not launch new schemes.
Mortgage REITA REIT that invests in real estate loans and mortgage-backed securities rather than owning property directly, earning interest income instead of rent.
Most Favoured Nation (MFN) ClauseA protection right a large investor negotiates so that no other investor in the Category III AIF is placed in a better position — usually delivered through a separate class of units.
Multi-Strategy FundA hedge fund, more common in European markets, that deploys several investment strategies within a single fund scheme rather than running one strategy alone.
National Investment and Infrastructure FundThe Government of India's own alternative investment fund, set up in 2015 as a Category II AIF to invest in infrastructure and strategic assets.
Net returnThe return on an AIF's NAV after fund expenses, costs and management fees — measured before incentive fees (pre-incentives) or after them (post-incentives, what the investor actually keeps).
Non-binding Letter of IntentThe document a private equity fund gives a target after initial due diligence, proposing an investment amount, a valuation and a stake — none of which it is yet obliged to honour.
Non-participating liquidation preferenceA liquidation preference where the investor takes either the guaranteed multiple of its investment or its pro-rata share of the proceeds on conversion — whichever is larger, but never both.
Off-Balance Sheet ExposureExposure a fund takes through leverage and derivative contracts to assets that are not its direct obligation — only margin and premium show in the books, but the fund bears the full risk and return.
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.
Open-ended AIFAn AIF scheme that offers units continuously with no fixed maturity and lets investors redeem at set intervals — permitted only for Category III AIFs, with a variable corpus.
Operating ExpensesThe recurring costs of running an AIF charged to all investors — audit, legal, custody, reporting and similar — typically capped each year, for instance at 10 to 50 basis points of NAV or commitments.
Option poolThe block of shares a company sets aside for employee stock options — its size matters to an investor because every option exercised dilutes the investor's stake.
Outcome funderThe investor or donor in a pay-for-success structure who pays only after verified social outcomes are delivered — typically a CSR donor, foundation, retail investor or government body.
Over-commitment StrategyA deliberate cash-management approach where an institutional investor commits to more Category III AIFs than its current cash could cover if every capital call landed at once.
P2P LendingLoans raised through a web-based crowdfunding platform that matches individual lenders directly to individual borrowers, regulated in India by the RBI rather than SEBI.
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.
Participating (double-dip) liquidation preferenceA liquidation preference under which the investor first receives its guaranteed multiple and then also shares in the remaining proceeds in proportion to its shareholding — paid twice, hence "double-dip".
Pay-for-success structureA funding structure in which conventional capital earns a return only if social impact is demonstrably created, with social capital (CSR, foundations, impact investors) paying on success.
Performance BenchmarkingSEBI's mandatory regime under which every AIF scheme past one year from first close reports cash flow and valuation data half-yearly so that industry benchmarks can be built and each scheme measured against them.
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.
Performance ReportA customised, fee-based performance comparison a Benchmarking Agency prepares at an AIF's request — named a Performance Report to keep it distinct from the standard Benchmark Report.
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.
PIPEA Private Investment in Public Equity — a Category III AIF buying a large, negotiated stake directly from a listed company rather than through the open market.
Pre-emptive RightAn anti-dilution right letting a shareholder keep its percentage holding by taking up its pro-rata share of any new shares the company issues in later financing rounds — a right, not an obligation.
Pre-IPO StrategyAn AIF mandate to subscribe to a company's shares before its IPO at a discount to the issue price, accepting the ICDR lock-in that runs from the date of listing.
Preliminary Investment MemorandumA memorandum a fund's investment team may present to its Investment Committee, detailing a proposed investment and deal structure, to get authorisation to sign the term sheet.
Pre-seed capitalThe first money into a start-up, given to founders to develop and validate an idea — to show it is sustainable, scalable and saleable — usually from family and friends, since there is no revenue yet.
Priority Distribution ModelA structure in which one class of investors bears more loss than its pro-rata share because another class has priority in distribution — no Category III AIF scheme may adopt it.
Private EquityEquity capital raised by companies from external investors without going to the public markets — direct investment in businesses that are not listed on a stock exchange.
Private Equity FundAn AIF investing primarily in equity or equity-linked instruments or partnership interests of investee companies — a Category II fund, and the later-stage counterpart to a venture capital fund.
Product Market FitThe point at which customers repeatedly buy and re-buy a start-up's product — the signal that lets an AIF manager stop betting on an idea and start betting on demand.
Pro-rata rightsThe rule that each AIF investor's share in every investment of a scheme, and in the proceeds, follows their share of commitments — save for excused, excluded or defaulting investors and the manager's carry.
Protective provisionsTerm-sheet rights letting a class of preferred shareholders — usually minority or preference investors — approve key company decisions such as new share classes, board size, dividends or dissolution.
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.
Ratchet (Clawback) ClauseAn anti-dilution clause that hands an existing investor extra shares, free or near-free, if the company later raises money at a lower valuation — compensating it for having paid too much.
Real Estate Investment TrustA SEBI-registered trust that pools investors' money into commercial real estate and lists its units on a stock exchange, so rent-yielding property can be bought in small lots and sold in a day.
Real InvestmentsNon-financial investments such as real estate, gold and commodities — physical assets, as opposed to financial investments like equity and bonds, which are claims on future cash flows.
Redemption GateA limit, set by the manager in the PPM, on the maximum amount investors can redeem from a Category III AIF in each redemption period — over and above expenses, taxes and exit load.
Regular schemeAn AIF scheme that is not an LVF, an Accredited Investor Only Fund or an Angel Fund — so its PPM must be filed through a merchant banker at least 10 working days before launch.
Residual put optionA put option that promoters agree to only as a fallback: the AIF cannot exercise it unless the company fails to list within an agreed time or the AIF cannot use the other exit routes.
Right of First OfferA shareholders' agreement right requiring a selling shareholder to obtain the holder's best offer first, and to sell to the holder at that price if the market cannot beat it.
Right of First RefusalA shareholder right to match the best outside quote a selling shareholder has obtained — the holder sees the price first and may buy at it, or refuse and let the sale proceed.
Risk funder / risk investorThe party that supplies upfront capital in a pay-for-success structure and bears the risk that social outcomes are not delivered, earning a small return of approximately 4–8% only if they are.
Secondaries marketThe sale of an existing investor's fund units or partnership interest to co-investors or outside buyers, usually at a negotiated discount to net asset value.
Secondary SaleAn AIF exit in which it sells its stake in a portfolio company to a third party — often another AIF, such as a later-stage PE fund taking over from a VC fund — rather than exiting through an IPO.
Security ReceiptsA receipt issued by a SEBI-registered Asset Reconstruction Company against stressed loans it has acquired — one of the defined "special situation assets" a Special Situation Fund is permitted to invest in.
Seed capitalCapital that turns a validated idea into an early-stage product, funding the R&D to find the right product, market and customers — typically from HNIs, angel investors or angel funds.
Self-managed FundAn international fund model in which the investment team are employees of the fund itself and draw their salaries and costs from the fund, so the headline management fee is lower than a normally managed fund's.
SeriesA sub-division within a class of a Category III AIF's units — distinct and exclusive from any other series of the same class, created to identify a different set of investors, with its own NAV.
Series NAVThe NAV of one series of units within a class: Series Assets less Series Liabilities and Series Expenses on a Valuation Day, divided by that series' units and rounded to four decimals.
SettlorThe party who brings an AIF trust into existence — executing the trust deed with the trustee and conveying the initial sum that becomes the trust's first asset.
Set-up CostThe one-time cost of forming the fund and issuing its units, charged to investors as a percentage of capital commitments — up to 1.5% or 2.5% — and usually amortised over the first 36 months.
Shareholders' AgreementAn inter se agreement between an AIF and all existing shareholders of the investee company, binding them to the rights and obligations of the deal — made enforceable by amending the articles.
Share Subscription AgreementThe main definitive agreement between an AIF and an investee company for a fresh issue of shares — setting the terms of the investment and the AIF's rights beyond an ordinary shareholder's.
Shelf Placement MemorandumA placement memorandum filed with SEBI to launch a co-investment scheme under a Category I or II AIF, filed through a merchant banker along with a fee of Rs 1,00,000, ahead of each individual co-investment.
Short-bias StrategyA directional strategy in which the manager holds both long and short positions but keeps a net short exposure to the broad market, so the fund benefits when the market falls.
Side LetterA supplementary agreement between one investor, the AIF and the manager granting that investor terms not generic to all — such as a different fee, waterfall or committee seat.
SME FundA Category I AIF that invests primarily in unlisted securities of Small and Medium Enterprises, or in securities of SMEs that are listed or proposed to be listed on an SME exchange or SME segment.
Social Impact BondAn impact bond in which the Government is the outcome funder, paying for verified social results; the UK pioneered it, the US calls it Pay For Success, and the workbook says India has yet to see one.
Social Impact FundA Category I AIF investing primarily in social ventures and social enterprises, which satisfies the social performance norms laid down by the fund and may both take and give grants.
Social unitsUnits of a social impact fund issued to investors who have agreed to receive only social returns or benefits — no financial return — against their contribution.
Sovereign Wealth FundA state-owned fund set up by countries with large trade surpluses — OPEC members, Norway, China, Japan, Singapore, Malaysia — that invests across markets, including through AIFs.
Special purpose acquisition vehicleThe company incorporated for a leveraged buyout to pool the debt and equity capital and give the lenders a ring-fenced secured structure, sitting between the investors and the target.
Special Purpose VehicleA separate entity, usually a company, floated to hold and develop real estate, in which a REIT or InvIT holds a controlling interest — the indirect route through which a trust owns its assets.
Special Situation AssetAn asset a special situation fund may invest in: stressed loans, ARC security receipts, and securities of companies whose loans are stressed, under IBC resolution or in continuing default.
Special Situation FundA sub-category of Category I AIF that invests only in special situation assets — stressed loans, security receipts and the securities of defaulting companies — and may act as a resolution applicant under the IBC.
Specified Alternative Investment FundThe fourth registration category SEBI inserted in 2023 for AIFs that fit none of Categories I, II and III, and for which SEBI may specify separate regulations.
Start-upA young business built on something new — a product, service, technology or business model — with high growth potential and a high failure rate; the DPIIT test is under 10 years old and turnover never above Rs 100 crore.
Sticky loan in venture debtWhat venture debt becomes when the borrower's fortunes turn: the lending AIF is left holding founder shares in a distressed company as collateral, and because they are untraded the loan cannot be readily recovered.
Strategic SaleAn AIF's exit by selling its stake in a portfolio company to a corporate buyer in the same or an adjacent industry — usually the second most preferred exit after an IPO.
Structured productA pre-packaged instrument built on a traditional investment such as a bond or currency, with an embedded derivative such as an option or swap — complex, customised, illiquid and meant for high net worth investors.
Sunrise sectorsNewly emerging sectors around which AIF investment themes are being built — new-generation technologies and ESG, including AI, virtual and artificial reality, green energy and sustainability.
Super CarryAdditional return (carry) charged by a highly sought-after AIF manager above the industry-norm "2 and 20" benchmark, reflecting strong negotiating power from a high performance track record.
Supervisory CommitteeA voluntary best-practice committee an AIF manager may set up, meeting at least once a year, with powers over outsize valuations, governance, fund terms and conflicts — but none to replace investor consent.
Suspension of redemptionsAn open-ended Category III AIF halting redemptions in exceptional circumstances, justified only in investors' best interest or by SEBI — with no new subscriptions accepted while it lasts.
SyndicateA structure in which many smaller investors pool money in a special purpose vehicle to invest alongside a Lead Investor, who does the due diligence, commits own capital and charges a fee or carry.
Tag Along (Co-sale) RightAn exit right letting the AIF insist that anyone buying a promoter's shares also buys the same percentage of the AIF's shares, at the same price and on the same terms.
Taking privateA buyout of a listed company by acquiring the shares held by the public — in India through SEBI's delisting process for promoters, or a Takeover Code open offer for an external acquirer.
Target ReturnThe return a manager says it intends to achieve from a scheme — a statement of ambition that signals how much risk it plans to take, never a promise and never the contractual carry threshold.
TeaserA brief 1–3 page summary of a company and its investment opportunity, sent by the company's investment banker to selected funds so they can judge whether the deal fits before signing an NDA.
Temporary borrowingThe only fund-level borrowing Category I and II AIFs may do: for temporary funding needs, for no more than 30 days, on no more than 4 occasions a year, and up to 10% of investable funds.
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.
Term SheetThe non-binding document in which an AIF and an investee company set out the main terms of a proposed investment. Once signed, it leads to due diligence and then to the binding definitive agreements.
Thematic investingInvesting behind a significant opportunity or structural trend — such as electric vehicles — across its value chain, without starting from research on individual stocks, and spreading risk across uncorrelated themes.
Traditional investmentInvestment in financial securities — listed stocks and bonds, general mutual fund units and ETFs — whose shared feature is liquidity; distinct from savings such as bank deposits or ornamental gold.
Transaction ExpensesCosts of buying, selling or disposing of a Category III AIF's investments — brokerage, depository and custodian transaction charges, STT and exchange charges — borne by the fund and allocated pro-rata across classes.
TrusteeThe party that holds a Category III AIF's trust deed when the fund is set up as a trust, appoints the investment manager and custodian, and receives the annual audit findings on the fund's behalf.
Trusteeship FeesThe fee an AIF set up as a trust pays its trustee under the offer letter — typically a fixed Rs 1 lakh to Rs 5 lakh a year, with 18% GST on top that the fund may not be able to recover.
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.
Valuation DayThe day, fixed in advance by a Category III AIF and disclosed in its offer documents, as on which its NAV is determined — at least monthly for open-ended funds and quarterly for close-ended ones.
Venture CapitalDirect investment in infant, early-stage businesses built on new products, services, technology, IP or business models — highly risky because such firms are small and prone to high mortality.
Venture Capital FundA Category I AIF that invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings, and includes migrated venture capital funds.
Venture Capital UndertakingA domestic company that is not listed on a recognised stock exchange at the time the investment is made — the defined target that a venture capital fund must put at least 75% of its investable funds into.
Venture DebtSpecialised lending to start-ups that have already raised institutional venture equity — unsecured, priced above commercial rates, repaid in two to three years, usually with an equity kicker attached.
Veto RightsAn investor's right to block a corporate action of the investee company even when it has the requisite majority — "negative control", as opposed to the "positive control" of affirmative rights.
Virtual Data RoomThe secure repository in which an investee company places detailed confidential records — constitutional documents, accounts, tax returns, contracts, IP and employee records — for the investor's due diligence.
Warehousing of dealsBuilding a pipeline of investment deals before a fund achieves its first close — a normal part of fund-raising, and not to be confused with warehousing of investments, which parks securities for later transfer.
Weighted average anti-dilutionThe gentler of the two anti-dilution methods: the conversion price is reset to the average price of all capital raised to date, not to the lowest price the company has ever issued at.
WrapperA supplement attached to a domestic fund's Private Placement Memorandum when it is distributed offshore, so the offering complies with private placement rules in the jurisdictions where it is marketed.