AIF Structuring & Registration
End-to-End Structuring and Registration of a ₹250 Cr Category II Real Estate AIF
Category II AIF
SEBI Registration
PPM Drafting
Trust Structuring
Real Estate Fund
A prominent real estate developer sought to transition from raising project-specific debt to launching a formal, blind-pool Category II Real Estate AIF. Navigating SEBI's rigorous AIF Regulations required translating their commercial thesis into a compliant Trust structure. Elite Valuation advised on the entire lifecycle: structuring the Investment Manager entity, drafting the Indenture of Trust and Private Placement Memorandum (PPM) aligning with SEBI's standard templates, establishing multi-class unit structures for differential fee hurdles, and successfully securing the SEBI Certificate of Registration within an expedited 60-day window.
₹250.0 cr
60 Days
Multi-Class
Sec 115UB
01. Fund Thesis & Regulatory Context
The Sponsor, a highly successful real estate development group in Western India, aimed to raise institutional and HNI capital to acquire distressed residential assets. Rather than raising project-by-project capital (which limits agility), they opted to set up a blind-pool fund under the SEBI (Alternative Investment Funds) Regulations, 2012.
They chose the Category II AIF route, which is the most popular vehicle for real estate and private equity funds in India. Category II funds enjoy "pass-through" tax status under Section 115UB of the Income Tax Act, meaning the tax liability falls directly on the investors, not the fund itself.
However, the transition from being a real estate developer to a SEBI-registered fund manager involves immense regulatory friction. The Investment Manager must meet strict eligibility criteria, establish robust conflict-of-interest policies, and draft a Private Placement Memorandum (PPM) that passes SEBI's increasingly stringent compliance reviews.
Elite Valuation was retained to design the commercial structure, draft all charter documents, and act as the primary liaison with SEBI for the registration.
"Launching an AIF is not just filling out forms. It is translating a GP's commercial strategy—fees, hurdle rates, and drawdowns—into a rigidly governed legal trust structure that SEBI and institutional LPs will trust."
02. What Made the Registration Difficult
SEBI's scrutiny of AIF applications has intensified. Resolving commercial requirements against regulatory constraints was the primary challenge.
| Challenge Area | Description & Regulatory Impact |
|---|---|
|
Vehicle Selection Trust vs LLP | While LLPs are easier to incorporate, a Trust structure was required to allow for flexible issuance of multi-class units with differential voting rights and fee structures. |
|
Sponsor Commitment Skin in the Game | Cat II rules mandate the Sponsor to maintain a continuing interest of 2.5% of the corpus or ₹5 Crore, whichever is lower. Structuring how this capital was injected without triggering adverse tax events was critical. |
|
PPM Standardization SEBI Template Adherence | SEBI requires the PPM to strictly follow its standardized template. We had to fit the fund's complex European waterfall distribution model into the rigid SEBI disclosure formats. |
|
Conflict of Interest Developer as GP | Because the Sponsor was also a developer, SEBI heavily scrutinized the application to ensure the AIF wouldn't just dump capital into the Sponsor's own failing projects. Robust ring-fencing policies had to be drafted. |
03. The Execution & SEBI Liaison Process
Elite Valuation managed the entire lifecycle, ensuring commercial viability while pre-empting SEBI queries to fast-track the approval.
Phase A: Entity Structuring & Trust Deed
We incorporated a new Private Limited Company to act as the Investment Manager (IM), ensuring the directors met SEBI's strict experience criteria. We then drafted and registered the Indenture of Trust, appointing an independent SEBI-registered Trustee company to hold the assets, establishing the necessary governance separation.
Phase B: Multi-Class PPM Drafting
We drafted the Private Placement Memorandum featuring three classes of units (Class A, B, and C) based on capital commitment sizes. We structured a "European Waterfall" distribution model (return of all capital and hurdle rate before GP carry) to make the fund attractive to institutional Limited Partners (LPs), fully aligned with SEBI's standardized template.
Phase C: Form A Application & Query Resolution
Upon submitting the comprehensive Form A, SEBI raised queries regarding the "related party transaction" policy, given the Sponsor's development background. We drafted supplementary conflict-of-interest charters, explicitly barring the fund from investing more than the permissible limits into Sponsor-owned SPVs without a 75% LP super-majority vote.
Phase D: Final Registration & Tax Setup
Following satisfactory query resolution, SEBI granted the final Certificate of Registration. We immediately facilitated the PAN/TAN applications for the Trust and provided a framework for obtaining the Section 115UB tax pass-through status for LP distributions.
6 Key Deliverables in AIF Setup:
The importance of the Distribution Waterfall
LPs scrutinize how a GP gets paid. We structured a "European Waterfall," meaning the GP only receives its 20% carried interest after the LPs have received 100% of their drawn-down capital plus the 12% hurdle rate across the entire fund. Had we used an "American Waterfall" (deal-by-deal carry), the fund would have faced severe pushback from institutional investors. Aligning this complex math with SEBI's disclosure formats requires deep financial and legal expertise.
04. Registration Conclusion & Commercial Impact
The smooth registration process allowed the GP to hit the market rapidly, armed with a legally bulletproof, institutionally acceptable fund structure.
₹250.0 cr
60 Days
12%
Cat-II
- The AIF was fully registered in 60 days, allowing the Sponsor to capitalize on immediate distressed real estate opportunities in the market.
- The multi-class unit structure allowed the GP to offer fee discounts to anchor investors writing ₹25+ Crore cheques, driving faster first-close momentum.
- SEBI queries regarding developer-fund conflicts were preemptively managed, avoiding months of regulatory back-and-forth.
- The Trust vehicle successfully secured Section 115UB tax pass-through status, ensuring LPs were not subjected to double taxation on capital gains.
05. Lessons from Category II AIF Structuring
Setting up an AIF is a marriage of commercial ambition and rigid regulatory compliance.
The IM Team is the first filter
SEBI looks closely at the Investment Manager's key personnel. They must possess at least 5 years of relevant experience. If the profiles do not explicitly demonstrate fund management or relevant asset-class expertise, the application will stall.
Standardization is mandatory
SEBI's standardized PPM template leaves little room for creative formatting. GPs must adapt their commercial term sheets to fit SEBI's exact reporting structure, not the other way around.
Sponsor commitment is locked
The ₹5 Crore sponsor commitment is not a suggestion; it is a regulatory lock-in. Sponsors cannot withdraw this capital or distribute it until the fund is fully liquidated, requiring careful cash-flow planning for the GP.
Independent Trustees are vital
Using an institutional, independent Trustee company (rather than an internal board) signals strong governance to SEBI and institutional LPs, smoothing the registration and fundraising processes.
Why Choose Elite Valuation for AIF Services
Elite Valuation supports Fund Managers, Family Offices, and Corporate Sponsors with end-to-end AIF Structuring, SEBI Registration, and ongoing Portfolio Valuation services across Category I, II, and III Alternative Investment Funds.
We do not just fill out forms. We strategically design your Trust vehicle, architect complex waterfall distribution models, draft SEBI-compliant PPMs, and manage the regulatory liaison process to ensure your fund reaches the market without delay.
Led by Sagar Shah (CA, CS, IBBI Registered Valuer), Elite Valuation combines Big Four technical depth with the personalized agility required to navigate India's complex asset management regulations.
IBBI Registered Valuer
CA & CS Led Advisory
End-to-End AIF Setup
Pan-India Advisory
AIF Structuring
PPM Drafting
SEBI Registration
Fund Taxation Strategy
AIF Portfolio Valuation
Sagar Shah — CA | CS | IBBI Registered Valuer | Founder, Elite Valuation
Sagar Shah is the founder of Elite Valuation and a qualified Chartered Accountant, Company Secretary, and IBBI Registered Valuer with prior experience at Ernst & Young. He specialises in business Valuation, M&A advisory, ESOP Valuation, FEMA compliance, and regulatory Valuation across the Companies Act, SEBI, and RBI frameworks. Elite Valuation operates pan-India from Ahmedabad, advising companies of all stages and sizes.
