Fund Structuring

Structuring Investment Funds for Compliance and Efficiency

Setting up an investment fund — whether a venture capital fund, private equity fund, or debt fund — requires careful decisions on legal form, jurisdiction, regulatory category, and tax structuring that will affect the fund's operations for its entire life. Getting this structure wrong early is expensive and difficult to unwind later.

We advise fund sponsors on choosing and setting up the right structure — trust or LLP, onshore or offshore, and the appropriate SEBI AIF category — along with the tax and regulatory framework needed to operate the fund efficiently and attract institutional capital.

Our Fund Structuring Services

Fund Structure Design

Advising on trust vs. LLP structures, and onshore vs. offshore feeder arrangements based on target investor base.

AIF Category Selection

Determining the appropriate SEBI AIF category (I, II, or III) based on the fund's investment strategy and objectives.

Sponsor & Manager Structuring

Structuring the roles, contribution, and fee arrangements between sponsor, investment manager, and trustee entities.

Tax Structuring

Advising on pass-through taxation status, withholding tax implications, and structuring for domestic and foreign investors.

PPM & Constitutional Documents

Drafting the Private Placement Memorandum, trust deed, and investment management agreement for the fund.

Regulatory Liaison

Coordinating with SEBI, RBI (for foreign investment), and other regulators through the fund's setup and life cycle.

Key Fund Structuring Considerations

Choice between trust and LLP structure affects governance flexibility and investor perception
AIF Category I, II, or III determines permissible investment strategies, leverage, and regulatory obligations
Sponsor commitment requirements under SEBI AIF Regulations must be met and maintained through the fund's life
Tax pass-through status depends on satisfying specific conditions under the Income Tax Act
Foreign investment into the fund may require compliance with FEMA and RBI reporting requirements
PPM disclosures must accurately reflect the fund's strategy, risk factors, and fee structure to withstand SEBI scrutiny

Frequently Asked Questions

What are the different categories of AIFs under SEBI regulations?

SEBI classifies Alternative Investment Funds into Category I (funds investing in start-ups, SMEs, infrastructure, or other sectors considered socially or economically desirable, including venture capital funds), Category II (funds like private equity and debt funds not falling under Category I or III and not undertaking leverage other than for operational purposes), and Category III (funds employing diverse or complex trading strategies, including leverage, such as hedge funds).

Should a fund be structured as a trust or an LLP?

Most Indian AIFs are structured as trusts, since the trust structure offers established SEBI-recognised governance conventions and is more familiar to institutional investors, though an LLP structure can offer flexibility in profit-sharing and management arrangements, and the right choice depends on investor expectations and strategy.

What is the minimum sponsor commitment required for an AIF?

SEBI regulations require the sponsor or manager to have a continuing interest in the fund, generally not less than 2.5% of the corpus or Rs. 5 crore, whichever is lower, for Category I and II AIFs, and not less than 5% of the corpus or Rs. 10 crore, whichever is lower, for Category III AIFs, subject to specific carve-outs for certain fund types.

How does an AIF achieve tax pass-through status?

Category I and Category II AIFs registered with SEBI generally enjoy pass-through taxation under Section 115UB of the Income Tax Act, meaning income (other than business income) is taxed in the hands of investors as if earned directly, provided the fund satisfies the conditions specified for pass-through status.

Can foreign investors invest into an Indian AIF?

Yes, subject to compliance with FEMA regulations and the Foreign Exchange Management (Non-debt Instruments) Rules, which govern how foreign capital can be contributed to Indian AIFs, along with related reporting requirements to the RBI through the fund's designated bank.

Structure Your Fund the Right Way

From choosing the right AIF category to drafting the PPM, we help you build a fund structure that satisfies regulators and investors alike.

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