How to Raise Capital for an AIF in India: LP Strategy for First-Time GPs

You have SEBI registration (or in-principle approval). You have a thesis. What you don’t have yet is committed capital. That is the gap this guide addresses from the GP’s chair.

Raising an Alternative Investment Fund (AIF) in India is not a sales problem. It is a sequencing problem. The GPs who close their funds on time are not necessarily the ones with the best thesis; they are the ones who understood which LP types to approach first, what each LP’s sectoral regulator allows, and what terms to offer at each close. Get the sequence wrong and you spend 18 months in conversations that cannot convert.

Key Takeaways

• India has 1,768 registered AIFs as of February 2026, with total commitments crossing ₹15.74 lakh crore but most first-time GPs still close below target because they misjudge the LP landscape.
• The commitment-drawdown model under SEBI’s AIF Regulations 2012 is the standard fundraising structure; understanding its mechanics is essential before approaching any LP.
• HNIs and family offices account for 80–90% of AIF inflows in India today, making them the primary fundraising target for most emerging GPs — but each LP type has regulatory eligibility constraints that limit what they can commit.
• First-close LPs have the most negotiating leverage; offering differentiated terms at first close (lower fees, advisory board rights) is standard practice and SEBI-compliant.
• SEBI’s September 2025 amendments introduced Large Value Funds (LVFs) and formalised Co-Investment Vehicles (CIVs), creating new tools for GPs to attract and retain sophisticated LPs.

What is the commitment-drawdown model and why does it matter for fundraising?

Under SEBI (Alternative Investment Funds) Regulations, 2012, an AIF raises capital through private placement by issuing units via an information or placement memorandum. Investors do not transfer full capital upfront. Instead, they sign a commitment a legally binding promise to contribute up to a specified amount. The fund manager then issues drawdown notices as investment opportunities arise, calling capital in tranches, typically with 10–15 business days’ notice per Regulation 10.

This model matters because your fundraising target is measured in commitments, not cash in the bank. A GP with ₹200 crore in commitments but a poorly structured drawdown schedule can still run into operational problems. Before your roadshow begins, your fund documents the trust deed or LLP agreement, the PPM, and the LP subscription agreement must set out drawdown mechanics, penalty provisions for LP default, and pro-rata call procedures clearly. SEBI’s 2025 amendment requires drawdowns to be strictly pro-rata, removing the GP discretion that some older structures relied on.

Who can actually invest in your AIF? LP eligibility by category

This is where most first-time GPs lose time. They approach LPs who want to invest but whose own sectoral regulators prevent it or cap their exposure heavily.

Individuals and family offices

Resident Indians, Non-Resident Indians (NRIs), and foreign nationals can invest in AIFs subject to a minimum commitment of ₹1 crore under Regulation 10(b) of the AIF Regulations, 2012. For employees and directors of the AIF manager, this reduces to ₹25 lakh. As of September 2025, investors in Large Value Funds (LVFs) SEBI’s new sub-category of AIF for accredited investors must commit a minimum of ₹25 crore (reduced from ₹70 crore by the Third Amendment Regulations, 2025). Accredited Investors, certified by NSDL or CDSL with annual income above ₹2 crore or net worth above ₹7.5 crore (with ₹3.75 crore in financial assets), are excluded from the 1,000-investor cap per scheme which matters for GPs targeting a large HNI base without launching multiple schemes.

NRI and foreign national investments flow through the FDI or FPI route under Schedule VI of FEMA, and require FEMA-compliant documentation in your PPM. Omitting this is a common structuring error in first-time fund documents.

Insurance companies

Life insurers can commit up to 3% of their assets under management to AIFs; general insurers can commit up to 5%. As per Section 27E of the Insurance Act, 1938, insurance companies cannot invest in AIFs that hold a Fund of Funds (FoF) structure that invests outside India, or in any AIF using leverage beyond operational requirements. Banks are not permitted to invest in Category III AIFs, except for minimum sponsor contribution where a bank subsidiary sponsors the fund (RBI circular, December 2023 as amended).

Banks and NBFCs

Banks may invest individually in up to 10% of an AIF corpus and collectively with other Regulated Entities (REs) up to 15% of corpus subject to RBI’s revised proposal under which these limits apply across Category I and Category II AIFs only. NBFCs are capped individually at 10% of an AIF corpus under Para 8 of RBI (NBFC Undertaking of Financial Services) Directions, 2025, with the system-level 20% cap applying for all REs combined. NBFCs, unlike banks, can invest in Category III AIFs.

Provident funds, pension funds, and gratuity funds

Non-government Provident Funds, Superannuation Funds, and Gratuity Funds may allocate up to 5% of their investible surplus to Specified Category I AIFs and Specified Category II AIFs (those with at least 51% of corpus in infrastructure entities, SMEs, VC undertakings, or social venture entities), per the Ministry of Labour notification of 15 March 2021. National Pension System Trust (NPS), India’s largest pension system at ₹11.7 lakh crore, has a 0.1% allocation to alternatives restricted to real estate and infrastructure. A first-time GP targeting a mainstream VC or PE strategy should not rely on NPS as an LP.

Table: LP Type, Regulatory Cap, and AIF Category Eligibility

LP Type	Individual Limit	System/AUM Cap	Cat I	Cat II	Cat III
HNI / Family Office	₹1 crore minimum	No cap	Yes	Yes	Yes
Life Insurer	No individual cap	3% of AUM	Yes	Yes (no leverage)	No
General Insurer	No individual cap	5% of AUM	Yes	Yes (no leverage)	No
Bank	10% of AIF corpus	15% of corpus (all REs)	Yes	Yes	No (except sponsor)
NBFC	10% of AIF corpus	20% of corpus (all REs)	Yes	Yes	Yes
Non-Govt PF/Gratuity	5% of surplus	No system cap	Specified only	Specified only	No
NRI / Foreign National	₹1 crore minimum	FEMA / FDI route	Yes	Yes	Yes

What do you need in place before approaching LPs?

A credible LP roadshow requires more than a deck. The documents that most institutional LPs will ask for before signing a commitment letter are specific, and an incomplete set delays close by months.

1. SEBI registration or in-principle approval — without this, you cannot accept commitments. Some GPs approach LPs during in-principle approval to build a pipeline, which is acceptable, but commitments cannot be executed until full registration is granted per Regulation 3.
2. A filed Private Placement Memorandum (PPM) — your PPM must be filed with SEBI at least 30 days before launching a scheme (other than your first scheme, which is exempt from scheme fees). The PPM sets out your investment strategy, corpus target, minimum and maximum corpus, fee structure, drawdown mechanics, and risk factors. Institutional LPs review this with counsel; vague fee language is a red flag.
3. Sponsor commitment documentation — SEBI requires the manager or sponsor to commit at least 2.5% of corpus (or ₹5 crore, whichever is lower) for Category I and II AIFs under Regulation 10(d). This commitment must be evidenced in your fund documents and communicated to LPs. It signals skin in the game.
4. A clean LP subscription agreement and LP agreement — the LP agreement governs your relationship with investors for the fund’s life. Management fees, carry structure, hurdle rate, governance rights, removal thresholds, and information rights should all be locked in before your first meeting.
5. Track record documentation — Indian institutional LPs tend to write cheques of USD 3–12 million; they will ask for GP track record in detail. If this is your first fund, document your personal investment history (as an angel, co-investor, or through a prior firm), exit data where available, and reference LPs who can speak to your judgement and process.

How should you sequence your LP outreach?

The sequencing of LP outreach who you call first, what you offer them, and when is the single biggest determinant of whether you close on time.

Step 1: Anchor LP (first-close commitment)

The first commitment to your fund is the hardest to get and the most valuable to give away. Identify two or three anchor LPs typically HNI relationships or family offices you have an existing relationship with, who are willing to commit before social proof exists. Offer first-close LPs preferential terms: lower management fees (typically 1.75% versus 2% for subsequent closes), preferred advisory board rights, and in some cases a co-investment right for later deals. This is SEBI-compliant; each LP signs the same core documents, but certain economics vary by close.

First close signals to the market that credible capital has committed. In the Indian market, this is especially important because a significant portion of your LP pool will not commit to a fund with zero other commitments.

Step 2: HNI network and family offices (core of the corpus)

HNIs and family offices account for 80–90% of AIF inflows in India today (CRISIL Intelligence / Oister Global report, January 2025). For most emerging GPs, this is where the bulk of your corpus will come from. The right distribution strategy here is through wealth management relationships private banks (HDFC Private Banking, Kotak Wealth, IIFL Private Wealth) and independent RIAs who have HNI mandates with an alternatives allocation. These intermediaries are not free: distribution fees and trail commissions are standard and must be disclosed in your PPM.

Approach family offices directly where you have a relationship, but do not cold-approach large family offices without a warm introduction. India’s family office ecosystem is relationship-driven. A pitch deck sent cold will not get a meeting; an introduction from a shared CA, banker, or founder will.

Step 3: Institutional LPs (for corpus credibility)

A bank, insurance company, or NBFC commitment adds credibility to your LP register disproportionate to the cheque size. These LPs move slowly expect a 4–6 week diligence cycle at minimum, and a further 4–8 weeks for internal approvals and committee sign-off. Their investment committees are typically responsible for public equity; alternatives allocation is a low-priority line. The GP must go to the right desk banks increasingly have dedicated Category I/II AIF teams, per INLPA observations from 2024.

Insurance companies and banks are worth approaching after your first close is in place, so you are not asking them to be first money in.

Step 4: Government-backed LPs and FoFs

SIDBI’s Fund of Funds for Startups (FFS) has committed ₹10,229 crore to 129 AIFs as of January 2024. NIIF runs a private markets strategy and has backed nine domestic GPs. These LPs move on long diligence cycles, require specific strategy eligibility (Category I or Specified Category II), and typically write cheques in the ₹25–75 crore range. Approach these only if your strategy fits their mandate they are not general-purpose LP sources for all AIF categories.

What terms should you offer LPs, and what is negotiable?

Management fees

The standard range for Category II buyout and growth equity funds is 1.75–2.25% of committed capital per annum. For smaller Category I funds, 1.5–2% is common. Fees are set in the PPM and must be consistent across LPs in the same close (though they can vary across closes). Do not start with a high number and negotiate down institutional LPs will push you to justify any fee with comparable fund benchmarks and flag arbitrary discounts as a governance risk.

Carry and hurdle rate

A 20% carry with an 8% hurdle rate is the de facto standard for Indian Category II AIFs. First-close LPs sometimes negotiate the hurdle to 8.5–9%, which benefits them if the fund performs strongly. A full catch-up carry mechanism (where the GP receives 100% of distributions above the hurdle until 20% carry is achieved) is common but not universal; LPs may push for a modified catch-up.

Governance rights

Institutional LPs will ask for a formal advisory board seat or observer rights. First-close anchor LPs typically receive a board seat. Subsequent LPs receive LP consent rights on material changes to strategy, key person clauses (which trigger LP exit rights if the named GP departs), and quarterly reporting with portfolio company updates. These are negotiable within the framework of Regulation 9 of the AIF Regulations, which mandates minimum disclosure obligations to investors.

What is not negotiable

Guaranteed returns cannot be offered to any LP under any structure this falls outside the private placement framework and could constitute an unregistered deposit under RBI regulations. Fund strategy can only be materially changed with consent of at least two-thirds of unit holders by value under Regulation 15(1)(e) of the AIF Regulations, 2012.

How do SEBI’s 2025 amendments affect your fundraising?

SEBI’s Second AIF Amendment Regulations (September 2025) and the related December 2025 circular introduced several changes that directly affect how you structure your fundraise.

Large Value Funds (LVFs): An AIF or scheme targeting only accredited investors with a minimum commitment of ₹25 crore (reduced from ₹70 crore by the Third Amendment Regulations, 2025) is classified as an LVF. LVFs carry a lighter compliance burden they are permanently exempt from preparing audited PPMs or PPM templates. Every LVF scheme must carry the suffix “– LVF” in its name. Converting an existing AIF to LVF status requires each investor’s consent. If your target LP profile is a small set of high-conviction family offices writing large cheques, an LVF structure can reduce your regulatory overhead meaningfully.

Co-Investment Vehicles (CIVs): SEBI formalised the CIV framework in September 2025. Any co-investment by fund managers or investors alongside the main AIF must now be run through a dedicated scheme per investee company, limited to accredited investors, and subject to the same pricing and exit terms as the main fund. CIVs are exempt from minimum corpus and diversification requirements. For GPs managing a flagship fund, CIVs are a useful tool to retain large LPs who want single-asset exposure beyond their pro-rata commitment.

Angel Fund amendments: Angel Funds now a formal sub-category of Category I AIFs may only admit accredited investors and fund managers. Existing Angel Funds must onboard at least five accredited investors before first close within 12 months of SEBI filing. Follow-on funding is capped at ₹25 crore per investee. If you are raising an Angel Fund specifically, these constraints reshape your fundraising timeline.

How Treelife supports AIF fundraising

Treelife’s AIF Setup team provides end-to-end support for GPs raising Category I, II, and III AIFs. Our work on the fundraising side includes:

• PPM drafting and SEBI filing — we structure the placement memorandum to satisfy SEBI’s disclosure requirements and to read as a commercial document that an institutional LP can evaluate without a translation layer.
• LP agreement and subscription agreement structuring — we negotiate LP documents with your anchor investors and build in the right governance and carry mechanics before your first close.
• Regulatory eligibility mapping — for each LP category you are targeting, we verify what their sectoral regulator permits and flag constraints before you invest time in a conversation.
• FEMA and foreign LP documentation — for AIFs targeting NRI or foreign capital, we handle the FEMA Schedule VI structuring and foreign investor documentation in the PPM.
• First-close term structuring — we help you set up tiered terms across closes that reward anchor LPs while protecting your economics in subsequent closes.

Engagements typically start with a 45-minute scoping call.

FAQs on Raising Capital for AIFs

Q: Can I approach LPs before SEBI registration is complete?
A: You can initiate conversations and build your pipeline during the in-principle approval period, but you cannot accept commitment letters or any capital until SEBI grants full registration under Regulation 3 of the AIF Regulations, 2012. Running a soft pipeline in parallel with your registration application is standard practice for experienced GPs.

Q: What is the minimum corpus for an AIF scheme?
A: Each scheme of an AIF must have a minimum corpus of ₹20 crore under Regulation 10(c) of the AIF Regulations, 2012. For Social Impact Fund schemes, the minimum is ₹5 crore. Angel Funds are excluded from this minimum.

Q: How many investors can my AIF have?
A: A standard AIF scheme is capped at 1,000 investors. Angel Funds are capped at 200. As of SEBI’s September 2025 amendments, Accredited Investors are excluded from the 1,000-investor count, allowing GPs targeting only accredited capital to scale without breaching the cap.

Q: Can an insurance company invest in my Category III AIF?
A: No. Insurance companies are restricted to Category I and Category II AIFs under Section 27E of the Insurance Act, 1938, and cannot invest in AIFs that use leverage beyond operational requirements. Banks face a similar restriction — they are not permitted to invest in Category III AIFs except as sponsor of a bank subsidiary managing a Cat III fund.

Q: Is a family office in India eligible to invest in my AIF?
A: Yes. A family office structured as an LLP, company, or trust can invest in an AIF subject to the ₹1 crore minimum. If the family office pools capital from multiple family members or external investors and is itself acting as a fund-like structure, it may require AIF registration with SEBI under the AIF Regulations, 2012. This is a distinction that matters for structuring your LP counsel should confirm the family office’s own regulatory status before onboarding.

Q: What carry structure is standard for a Category II AIF in India?
A: The market standard is 20% carry above an 8% hurdle rate per annum on committed capital (or invested capital, depending on your waterfall). First-close anchor LPs sometimes negotiate the hurdle up to 8.5–9%, benefitting them in high-performing funds. Full catch-up carry (where the GP receives 100% of profits above the hurdle until the 20% is caught up) is common, but LPs increasingly negotiate a modified catch-up or no catch-up provision.

Q: Can I offer different management fees to different LPs?
A: Yes, as long as the variation is by close, not by individual within the same close. First-close LPs may receive a lower management fee (say 1.75%) versus second-close LPs (2%). All LPs within the same close must receive the same terms. This structure should be explicitly laid out in the LP agreement.

Q: What is the GP’s minimum co-investment requirement in its own AIF?
A: Under Regulation 10(d) of the AIF Regulations, 2012, the manager or sponsor must commit 2.5% of the corpus or ₹5 crore, whichever is lower, as a continuing investment. This must be maintained throughout the fund’s life and cannot be redeemed ahead of other investors.

Q: How long does it typically take to raise an AIF from first LP conversation to final close?
A: For a well-prepared first-time GP with a ₹100–200 crore target and a primarily HNI and family office LP base, 12–18 months from first LP conversation to final close is realistic. Institutional LPs add 4–6 months to the timeline due to their internal approval processes. GPs who close faster typically have a combination of: an existing relationship with their anchor LP, clean fund documents from day one, and a defined LP outreach sequence rather than a broad simultaneous approach.