Vintage, Tenure, Listing of Units and Exit

Vintage

A fund's vintage is the year in which it is launched and begins investing.

Funds of different vintages invest and exit in different market conditions, which is one reason their results differ. A vintage is a label that helps like be compared with like. It is not an indication of how a fund will perform.

Tenure

Category I and II AIFs are close-ended, with a minimum tenure of three years. The three years are a floor set by the Regulations; the actual term of a fund is set in its placement memorandum.

Category III funds may be open-ended or close-ended, and SEBI sets no lock-in for them, so their exit terms too are found in the placement memorandum.

How money comes back

Close-ended means the fund does not redeem units on request during its term. An investor cannot hand units back to the fund and ask for their value, as a mutual fund investor in an open-ended scheme can.

Instead, investors receive money in two ways: as the fund makes distributions during its life, and when it winds up. The timing depends on when the fund is able to sell its investments, not on when the investor needs the money.

Listing of units

Units of close-ended AIFs may be listed on a stock exchange after the fund's final close, that is, once it has finished taking in commitments from investors, with a minimum tradable lot of ₹1 crore. Listing creates a possible exit route: a holder may sell units on the exchange if a buyer is found.

Listing is not the same as liquidity. It does not assure a buyer or a price, and liquidity remains limited in practice. It is therefore wrong to say there can be no secondary market before a fund ends, and equally wrong to treat listed AIF units as easy to sell.

What the investor bears throughout

Across the whole term, an investor in a close-ended AIF bears illiquidity, valuation uncertainty and possible loss of capital. This illiquidity is a central risk of Category I and II AIFs.

Rules at a glance

Key points

• Vintage: the year in which a fund is launched and begins investing; it is a label, not an indication of performance.
• Category I and II funds are close-ended with a minimum tenure of three years; the actual term is in the placement memorandum.
• Units of a close-ended fund cannot be redeemed at will before the term ends.
• Investors receive money as the fund makes distributions and when it winds up.
• Units may be listed after final close with a minimum tradable lot of ₹1 crore; liquidity remains limited in practice.

Common misunderstandings

• Vintage is not a quality mark: it is the year a fund is launched and begins investing, and says nothing about how the fund will perform.
• Three years is not the standard life of an AIF: it is the minimum tenure for Category I and II funds, and the actual term is in each fund's placement memorandum.
• Close-ended AIF units cannot be redeemed at will: investors receive money through distributions and at winding up.
• Listing does not make units liquid: units may be listed after final close with a ₹1 crore minimum lot, but a buyer and a price are not assured.

Questions people ask