AIF Fund Structuring Services
In Mumbai
Category selection, legal form, domestic versus GIFT IFSC domicile, waterfall modelling and investor-level tax analysis — settled before you raise, because none of it is cheap to change afterwards.
Overview
What Is AIF Fund Structuring?
Fund structuring decisions are close to irreversible. The category a fund registers under determines what it can invest in and how it is taxed. The legal form determines how investors are admitted and how returns are distributed. The domicile determines which regulator supervises it. All three are settled before the first rupee is raised, and changing any of them afterwards means unwinding a structure that investors have already committed to.
This is why structuring work is worth doing slowly. A manager who registers under the wrong category to save time discovers the constraint at the point of making an investment, which is the worst possible moment. A fund that adopts a company form because it seems familiar loses the pass-through treatment its investors were modelling.
Fund structuring is the design of the vehicle through which capital is pooled, deployed and returned. It settles the regulatory category, the legal form, the domicile, the economic terms between the manager and the investors, and the tax position of each participant, before any of those are committed to in a registration application or an investor document.
An Alternative Investment Fund is defined under the SEBI (Alternative Investment Funds) Regulations, 2012 as a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing in accordance with a defined investment policy for the benefit of its investors. Five decisions have to be made: the category (I, II or III), which governs permitted investments, leverage and tax treatment; the legal form — trust, limited liability partnership, company or other body corporate; the domicile, domestic India under SEBI or GIFT IFSC under the IFSCA fund management framework; the economic terms, being management fee, carried interest, hurdle rate, sponsor commitment and distribution waterfall; and the investor base, whether resident, non-resident or accredited, which drives exchange control and disclosure design.
N D Savla & Associates advises fund managers on structuring Alternative Investment Funds in India and at GIFT IFSC, from category selection through to the operating documents. We handle structuring as the step that precedes the AIF application process, not as part of it, because the questions the regulator asks are far easier to answer when the structure was designed deliberately.
Category Selection
Which Category Fits Which Strategy?
The table sets out the practical distinctions. Sub-categories within Category I carry their own additional conditions.
| Category | Typical Funds | Key Features |
|---|---|---|
| Category I | Venture capital, SME, social venture and infrastructure funds | Sectors with positive spillover; close-ended; statutory pass-through |
| Category II | Private equity funds and debt funds | No leverage beyond operational needs; close-ended; statutory pass-through |
| Category III | Hedge funds and funds using complex trading strategies | May employ leverage; open or close-ended; taxed at fund level |
| Angel funds | Early-stage angel investment vehicles under Category I | Lower corpus and commitment thresholds; restricted investor count |
Who It Is For
Who Needs Fund Structuring Advice?
The people who need this work are rarely the people who think they need it. Managers usually approach an adviser to file a registration application and discover that the structural questions were never settled.
First-Time Fund Managers
A manager raising a debut fund faces every decision at once, usually while also raising capital. The most consequential mistakes here are sizing the sponsor commitment without modelling it against the manager’s own balance sheet, and agreeing economic terms with an anchor investor before the structure that has to deliver them exists.
Established Managers Launching a Successor Fund
Later funds bring their own problems. Overlapping investment periods, allocation between funds, key person provisions and the treatment of co-investment all need to be designed rather than inherited from the previous fund documents. A structure copied forward without review usually carries a term that made sense for the first fund and does not for the second.
Family Offices Formalising a Programme
Groups that have been investing from the balance sheet often want a formal fund vehicle to bring in outside capital or to separate governance. The threshold question is whether an AIF is required at all, since a pooled vehicle with external investors is regulated while a proprietary investment programme is not.
Offshore Managers Raising Indian Capital
Foreign managers seeking Indian investors, or Indian managers seeking foreign capital, face an additional layer of exchange control analysis alongside the fund structure. The routing of foreign investment into the fund and from the fund into portfolio companies both need to be settled, which connects to FDI filing with the Reserve Bank of India at the operational stage.
Managers Considering GIFT IFSC
Funds with a predominantly offshore investor base or an offshore investment mandate should model the GIFT IFSC route against the domestic one before forming any entity. Our GIFT IFSC setup assistance team runs that comparison as part of structuring rather than after it.
Context
How Did India’s Fund Regulation Evolve?
India moved from having no framework for pooled private capital to having a comprehensive one in roughly two decades, and the sequence explains several features that otherwise look arbitrary.
No private capital industry
In the controlled economy there was no venture capital or private equity sector to regulate. Industrial investment was licensed, capital issues were controlled, and long-term risk capital came from development finance institutions rather than private funds. Pooled private investment vehicles did not meaningfully exist.
Venture capital regulations and their limits
Liberalisation created demand for risk capital, and SEBI responded with the Venture Capital Funds Regulations in 1996, followed by a framework for foreign venture capital investors in 2000. These worked for early-stage venture investing but had not been designed for the range of strategies that emerged over the following decade. Private equity funds, debt funds and hedge-style strategies operated in a space the regulations did not properly address, and a substantial share of India-focused capital was pooled offshore instead.
The AIF Regulations consolidate the field
The SEBI (Alternative Investment Funds) Regulations, 2012 replaced the venture capital framework and brought every privately pooled vehicle into one regime, organised into three categories by strategy and risk. This gave private equity and debt funds a domestic home for the first time, and set the minimum corpus, minimum commitment, investor cap and sponsor continuing interest requirements that still define the structure of an Indian fund.
Tax certainty and investor sophistication
The introduction of statutory pass-through treatment for Category I and Category II funds removed the principal tax obstacle to domestic pooling, since investors could receive income in its original character rather than through a taxed vehicle. Category I was further sub-divided, and an accredited investor framework was later introduced, allowing relaxations for funds raising exclusively from investors meeting defined financial thresholds. The establishment of the IFSCA and the GIFT IFSC fund management framework added a second domestic domicile aimed at offshore capital.
Mature and increasingly prescriptive
Recent regulatory attention has focused on standardising valuation of unlisted portfolio investments, dematerialisation of AIF units, transparency of fees and expenses, and the treatment of tenure extensions. The practical effect for a manager structuring a fund now is that operational and reporting obligations should be designed in at the outset rather than added later.
Our Process
What Is the Step-by-Step Fund Structuring Process?
Structuring runs before registration. Each step below constrains the ones that follow it.
Define the Investment Strategy Precisely
Select the Regulatory Category
SEBI AIF Regulations, 2012
Choose the Domicile
Select the Legal Form
Model the Economics and the Waterfall
Size and Source the Sponsor Commitment
Settle the Tax Position for Every Investor Class
Section 115UB analysis
Establish the Manager and Sponsor Entities
Only once these eight are settled does the fund move to registration and to drafting the private placement memorandum, contribution agreement and management agreement. Where structuring and AIF documentation are run in parallel to save time, the documents almost always have to be redrafted when a structural question resolves differently than assumed.
AIF regulation has been amended frequently in recent years, particularly on valuation, dematerialisation of units and tenure. Specific thresholds and timelines should be confirmed against the regulations in force at the date the fund is launched rather than against a structure used for an earlier vintage.
By Strategy
How Does Structuring Differ by Strategy?
Four strategies account for most Indian fund launches, and each pushes against a different constraint.
Venture Capital and Early-Stage Funds
These sit naturally in Category I, and the structuring focus is on the long tail: a fund life that must accommodate ten-year holding periods, follow-on reserves, and portfolio company valuations that are difficult to mark. The valuation methodology for unlisted early-stage holdings should be agreed and documented before the first close, not at the first reporting date.
Private Equity and Buyout Funds
Category II is the usual home. The binding constraints are the restriction on leverage beyond operational requirements, which affects how acquisitions can be financed, and the close-ended tenure, which has to be long enough to accommodate the intended holding period without relying on an extension that may not be approved.
Private Credit and Debt Funds
Debt strategies also sit in Category II but raise distinct questions: whether income is characterised as interest or business income, how that interacts with the pass-through treatment, and how withholding operates for non-resident investors. The tax analysis here does more structuring work than the regulatory analysis.
Long-Short and Complex Trading Strategies
Category III permits leverage and derivative strategies, but at the cost of the statutory pass-through, so returns are affected at the fund level before they reach investors. Structuring for these funds is largely an exercise in modelling the after-tax return that investors will actually receive, which frequently differs from the gross performance being marketed.
Why Us
Why Choose N D Savla & Associates for Fund Structuring?
Structuring advice is only useful if it is given before commitments are made. Almost all of the value is destroyed by being a month late.
We test the strategy against each category and against both domiciles, and give a written recommendation with the reasoning. Managers who default to the structure their peers used frequently inherit a constraint that did not bind the peer and does bind them. Where GIFT is the better answer, our GIFT regulatory and tax advisory team takes it forward.
As a chartered accountancy firm we model the after-tax outcome for resident individuals, domestic institutions, exempt entities and non-residents separately. A single blended assumption hides exactly the differences that determine whether an investor commits.
The choice between a trust and a limited liability partnership has consequences that only surface in the operating documents, in how investors are admitted at subsequent closes, and in how distributions are made. We select the form with those consequences already mapped.
We model the waterfall across downside, base and upside scenarios before the terms go into a term sheet. Carried interest arrangements that look reasonable at the target return frequently produce outcomes at the downside that neither the manager nor the anchor investor intended.
Structuring, registration with SEBI, documentation and ongoing compliance are handled by the same team, so the fund is not re-explained at each stage. Our offices at Andheri East, Charni Road, Vashi, Thane, New Panvel and Panaji support managers across the region.
Where the regulatory position is in question, we work from the regulations and circulars published by the Securities and Exchange Board of India at sebi.gov.in, so the structure reflects the framework in force rather than an earlier vintage.
Frequently Asked Questions
Frequently Asked Questions on AIF Fund Structuring
What are the three categories of Alternative Investment Fund in India?
What legal form should an AIF take?
What is the minimum corpus and minimum investor commitment for an AIF?
How is an Alternative Investment Fund taxed in India?
Should a fund be set up in domestic India or at GIFT IFSC?
Structuring a Fund?
Settle category, form and domicile before you raise. Speak to our Mumbai team.
Speak to N D Savla & Associates10:00 AM – 7:00 PM