Capital Call

When you invest in a private equity, venture capital or other Alternative Investment Fund (AIF) in India, you do not hand over the whole cheque on day one. You make a *commitment* — and the manager draws it down in instalments as deals appear. A capital call is that drawdown request. It answers a practical question: how does a fund that buys illiquid assets over several years actually get its money?

How it works under SEBI's AIF rules

Under SEBI's AIF regulations, the minimum commitment per investor is ₹1 crore (₹25 lakh for the fund's own employees and directors). Suppose you commit ₹1 crore to a Category II fund. The General Partner (GP) does not take it immediately. Instead, over the investment period — typically three to four years — it issues drawdown notices as it identifies companies to back. A notice might call 15% now, another tranche six months later, and so on until your full commitment is deployed.

The upside of this structure is that your undrawn capital stays in your own account earning returns, rather than sitting idle in the fund. The discipline it demands is liquidity planning: when the call arrives, usually with a short notice period, you must pay.

The cost of saying no

Defaulting on a capital call is serious. The fund's Private Placement Memorandum almost always spells out penalties — forfeiture of part of your existing stake, dilution, or interest charges. SEBI also requires that drawdowns be done pro-rata, so no single investor ends up with a disproportionate share of any one portfolio company. This is why first-time LPs are advised never to commit money they might need elsewhere.

Why it matters

Capital calls explain a quirk of private-market investing: your *committed* capital and your *invested* capital are different numbers, and so is your return profile. Because cash goes in gradually and comes back only on exits, the internal rate of return can look very different from a simple multiple. For Indian HNIs and family offices entering AIFs, understanding the call schedule is as important as understanding the strategy itself.