Alternative investments are becoming an important part of portfolio diversification for investors seeking exposure beyond traditional mutual funds, stocks and bonds. However, understanding these investment structures requires familiarity with specialised terminology.
This AIF and PMS glossary explains the essential concepts, fees, performance measures, liquidity provisions, tax terms and risk-related terms that investors should understand before evaluating alternative investment opportunities.
Whether you are exploring private equity, private credit, real estate funds, venture capital, pre-IPO opportunities or professionally managed portfolios, this AIF and PMS glossary will help you interpret investment documents and ask more informed questions.
AIF and PMS Terms Every Investor Should Know
What is AIF? An Alternative Investment Fund (AIF) is a privately pooled investment vehicle established under the applicable regulatory framework. In India, AIFs are regulated by the Securities and Exchange Board of India (SEBI) under the applicable AIF regulations.
AIF meaning: AIF refers to a pooled investment structure that collects money from eligible investors and invests according to a defined strategy.
AIF full form: AIF stands for Alternative Investment Fund.
What is PMS? Portfolio Management Services (PMS) involve professional management of a client's portfolio of securities and other permitted assets under an agreed investment mandate.
PMS meaning: PMS refers to a service through which a portfolio manager manages investments on behalf of a client. In discretionary PMS, the manager makes investment decisions within the agreed mandate.
PMS full form: PMS stands for Portfolio Management Services.
For investors looking specifically for the meaning of these terms, see the detailed guides on AIF full form and PMS full form.
This AIF and PMS glossary distinguishes between pooled investment structures and individually managed portfolios.
| Term | Meaning |
| Alternative Investment Fund | A pooled investment vehicle pursuing a defined alternative investment strategy |
| Portfolio Management Services | Professional management of an individual client's investment portfolio |
| AIF terms | Terminology relating to fund structure, commitments, fees and distributions |
| PMS terms | Terminology relating to portfolio mandates, holdings, fees and performance |
| AIF glossary | A reference guide to AIF structures and investment terminology |
| PMS glossary | A reference guide to portfolio management terminology |
In India, AIFs are generally classified into Category I, Category II and Category III, subject to the applicable SEBI framework. PMS, by contrast, is governed by the portfolio manager framework. Investors should review eligibility requirements, minimum investment requirements and regulatory disclosures before investing.
AIF vs PMS: Key Differences
An AIF is a pooled investment structure, while PMS generally involves the professional management of an individual investor's portfolio.
For a broader comparison of structure, ownership, minimum investment, liquidity, taxation and investment approach, see AIF vs PMS.
| Feature | AIF | PMS |
| Full form | Alternative Investment Fund | Portfolio Management Services |
| Structure | Pooled investment vehicle | Individually managed portfolio |
| Ownership | Investor participates in the fund or scheme | Securities are generally held directly for the client |
| Investment approach | Defined fund or scheme strategy | Client-specific portfolio mandate |
| Decision-making | Managed according to fund documents | Can be discretionary, non-discretionary or advisory |
| Capital commitment | May involve commitments and capital calls | Generally funded according to the client mandate |
| Minimum investment | Regular AIF schemes generally have a ₹1 crore regulatory minimum, subject to exceptions | Traditional PMS generally has a ₹50 lakh minimum, subject to applicable provisions |
| Liquidity | Depends on category, strategy and scheme terms | Depends on underlying holdings and client agreement |
| Fees | Management fees, performance fees and other fund expenses may apply | Management and performance-linked fees may apply |
| Regulation | Governed by the AIF framework | Governed by the portfolio manager framework |
| Best evaluated through | PPM, strategy, fees, risks and liquidity | Disclosure Document, mandate, portfolio, fees and performance |
The standard minimum investment for a regular AIF is generally ₹1 crore, while traditional PMS has a ₹50 lakh minimum under the applicable framework. These are regulatory thresholds and should not be interpreted as measures of investment quality or suitability.
Investors comparing all three structures can also read Mutual Fund vs PMS vs AIF.
Basic AIF and PMS Investment Terms
AUM (Assets Under Management): AUM is the total value of investments managed by a fund manager or portfolio manager for clients or a particular strategy.
Corpus: Corpus refers to the total capital of a fund or investment vehicle. Depending on the context, it may refer to capital raised, committed or available for investment.
AUM vs corpus: AUM generally refers to the value of assets currently being managed, while corpus commonly refers to capital raised or available to a fund. The exact meaning should be checked in the relevant documents.
NAV (Net Asset Value): NAV represents the value of a fund's assets minus its liabilities, calculated according to the applicable valuation methodology.
Portfolio Manager: A portfolio manager is the SEBI-registered entity or professional responsible for managing a client's PMS portfolio according to the agreed mandate.
Investment Manager: The investment manager is responsible for managing the investments of an AIF and implementing its investment strategy in accordance with the governing documents and applicable regulations.
Sponsor: The sponsor establishes or sponsors the AIF structure and has responsibilities prescribed under the applicable framework.
Trustee: A trustee performs trustee functions for an AIF structured as a trust and oversees specified governance and fiduciary responsibilities.
Investment mandate: The documented strategy defining permitted investments, objectives, restrictions and approach to risk.
PMS mandate: The agreement describing the investment objectives, permitted instruments, restrictions and portfolio-management approach for a PMS client.
Demat account: A dematerialised account used to hold securities electronically. In PMS, securities are generally held directly for the investor rather than pooled into a common fund.
Scheme: An AIF may have one or more schemes, with each scheme operating according to its own investment strategy and governing documents.
Private placement: AIFs generally raise capital through private placement rather than public offerings, subject to the applicable regulatory framework.
PMS Mandate Types
PMS arrangements differ according to the level of decision-making authority given to the portfolio manager.
Discretionary PMS: A structure where the portfolio manager has authority to make investment decisions on behalf of the client within the agreed mandate without seeking approval for each individual transaction.
Non-Discretionary PMS: A structure where the portfolio manager provides investment recommendations, while the client retains the final decision to approve or reject transactions.
Advisory PMS: A service in which the portfolio manager provides investment advice while the investor retains control over investment decisions and execution, subject to the agreed arrangement.
The three PMS arrangements differ mainly in the level of decision-making authority retained by the investor.
AIF Structure, Categories and Investment Mandates
An AIF's structure determines how investor capital is collected, invested and distributed.
Commitment amount: The amount an investor agrees to contribute to an AIF over the commitment period, subject to the fund documents.
Fund corpus: The aggregate capital raised or available to a fund, depending on the context.
Sponsor and fund manager: The sponsor establishes the fund structure, while the manager is responsible for investment management and related responsibilities.
Investors can learn more about the Sponsor, trustee and fund manager roles in an AIF when evaluating fund governance.
Understanding these AIF terms and PMS terms helps investors assess whether a strategy aligns with their investment horizon, risk tolerance and liquidity requirements.
Category I AIF
Category I AIF structures generally invest in areas considered economically or socially desirable under the applicable regulatory framework.
Common Category I AIF strategies or sub-categories include:
- Venture Capital Funds
- Angel Funds
- SME Funds
- Infrastructure Funds
- Social Impact Funds
- Special Situation Funds
Venture Capital Fund: An AIF strategy focused on investing in early-stage or growth-stage businesses, generally through equity or equity-linked instruments.
Angel Fund: A Category I AIF structure focused on eligible start-up investments under the applicable regulatory framework.
SME Fund: A Category I AIF focused on investment opportunities involving small and medium enterprises.
Infrastructure Fund: A Category I AIF focused on infrastructure-related investments.
Social Impact Fund: An AIF structure focused on investments intended to create measurable social or environmental impact, subject to the applicable framework.
Special Situation Fund: A Category I AIF sub-category that invests in eligible special-situation assets and opportunities under the applicable framework.
Category II AIF
Category II AIF structures generally cover strategies such as:
- Private equity
- Private credit
- Real estate
- Structured credit
- Fund of funds
- Special situations
Private Equity: Investment in companies that are generally not publicly traded, often through equity or equity-linked instruments.
Fund of Funds: An AIF that invests in other funds rather than investing only directly in individual securities or businesses.
Category II is a broad AIF category, so two Category II funds can have very different strategies, risks, liquidity and investment horizons.
Category III AIF
Category III AIF structures can employ more complex investment and trading strategies, including strategies involving listed securities, derivatives, short positions and permitted leverage.
Hedge Fund: A commonly used term for an investment strategy that seeks returns through flexible or complex investment approaches. In India, hedge-fund-style strategies are commonly associated with Category III AIFs.
Long-Short Strategy: An investment approach involving long positions and short positions or derivatives, subject to the strategy and applicable regulations.
Investors should not assume that all Category III AIFs follow the same strategy. The PPM and scheme documents should always be reviewed.
Category I vs Category II vs Category III AIF
| Feature | Category I AIF | Category II AIF | Category III AIF |
| Broad focus | Economically or socially desirable areas | Broad range of alternative investments | Complex or flexible investment and trading strategies |
| Common strategies | Venture capital, angel, SME, infrastructure and social impact | Private equity, private credit, real estate, fund of funds and special situations | Long-short, hedge-style, trading and derivatives-based strategies |
| Investment style | Growth, development or impact-oriented | Private-market and alternative assets | Market-oriented and strategy-driven |
| Leverage | Subject to category-specific rules | Subject to applicable restrictions | May use permitted leverage |
| Structure | Generally close-ended | Generally close-ended | Can be open-ended or close-ended |
| Liquidity | Depends on scheme terms | Often limited and linked to tenure | Depends on strategy and scheme terms |
| Key consideration | Sector or impact mandate | Strategy, tenure, capital calls and private-market risk | Strategy complexity, market risk and leverage |
The current SEBI AIF framework should always be checked for category-specific requirements because regulations and circulars can change.
AIF Close-Ended, Open-Ended and Fund Life Terms
Close-ended AIF: A fund with a defined tenure during which investors generally cannot redeem their investment at will.
Open-ended AIF: A fund structure that permits subscriptions and redemptions according to the scheme's terms. Category III AIFs can be structured as open-ended or close-ended.
Lock-in period: A specified duration during which an investor's ability to withdraw, transfer or redeem an investment may be restricted.
First close: The first closing of a fund after which the manager can generally begin deploying capital, subject to the fund documents and applicable conditions.
Final close: The point at which the fund completes its intended fundraising period and closes subscriptions according to its governing documents.
Commitment period: The period during which the AIF can generally call committed capital from investors for making investments, subject to the fund documents.
Perpetual validity: A regulatory registration status indicating that registration does not have a scheduled expiry date, subject to the applicable framework.
1,000-Investor Cap
The 1,000-investor cap is a commonly referenced AIF regulatory term. Regular AIF schemes are subject to investor-count restrictions under the applicable framework, while certain Accredited Investor-only structures have separate treatment.
Investors should always check the latest SEBI regulations when evaluating investor limits.
AIF Registration, Governance and Regulatory Terms
SEBI: The Securities and Exchange Board of India, India's securities-market regulator.
AIF registration number: The registration identifier assigned to an AIF under the applicable SEBI framework.
Disclosure Document: A document containing information about a PMS strategy, including its investment approach, risks, fees, performance information and other relevant disclosures.
Private Placement Memorandum (PPM): The primary offering document of an AIF containing information about the fund's strategy, structure, fees, risks, investment terms, conflicts, distributions and other material disclosures.
Investors can read the detailed guide to AIF PPM and Private Placement Memorandum before evaluating an AIF.
Merchant Banker: A SEBI-registered intermediary involved in specified AIF documentation and due-diligence processes, including PPM-related filings and certifications.
Custodian: An institution responsible for holding and safeguarding securities or assets and performing related custody and reporting functions.
Auditor: A professional or audit firm responsible for carrying out applicable audit work and reporting requirements.
Compliance Officer: The person responsible for overseeing compliance-related obligations within the applicable regulatory framework.
AIF benchmark: A reference benchmark used to compare the performance of an AIF strategy against an appropriate market or category reference.
Investor Charter: A document providing information about investor services, responsibilities and grievance-redressal mechanisms.
Accredited Investor
Accredited Investor: An investor who satisfies the eligibility criteria prescribed under the applicable regulatory framework and receives accreditation through the prescribed process.
ALTPORT's guide to the SEBI Accredited Investor Certificate explains the accreditation framework in more detail.
Accredited Investor-Only AIF
AI-only AIF: An AIF scheme restricted to Accredited Investors and subject to the specific regulatory framework applicable to such schemes.
Large Value Fund
Large Value Fund (LVF): A specialised AIF structure for qualifying Accredited Investors. LVFs operate under a distinct regulatory framework and should be evaluated separately from regular AIF schemes.
GARUDA
GARUDA: GARUDA stands for Green-Channel: AIF Rollout Upon Document Acknowledgement. It refers to SEBI's mechanism for processing AIF placement memorandums under the applicable framework.
Direct Plan and AIF Distributor Commission
Direct Plan: An AIF scheme may offer a Direct Plan to investors. A Direct Plan generally does not include distribution or placement fees, subject to the applicable regulatory framework.
AIF distributor commission: Distribution or placement fees may apply depending on the structure and intermediary arrangement. Investors should review the PPM and fee disclosures to understand whether any distribution-related fee applies and who bears it.
See AIF Direct Plan vs Distributor for the detailed rules on direct plans, distribution fees and trail arrangements.
Management Fees, Performance Fees and Carried Interest
Investment costs can significantly influence the amount an investor ultimately receives. This AIF and PMS glossary separates recurring charges from performance-linked compensation.
Management fee: A fee charged for managing the fund or portfolio. Its calculation may be based on committed capital, invested capital, assets under management or another contractual basis.
Fixed fee: A fee charged according to a fixed percentage or amount, generally independent of portfolio performance.
Performance fee: A fee linked to investment performance, subject to the relevant agreement and any applicable hurdles or other conditions.
Profit-sharing fee: A performance-linked fee calculated as a share of eligible investment profits according to the applicable fee arrangement.
Carried interest meaning: Carried interest is the manager's or sponsor's share of eligible investment profits under the fund's distribution arrangements.
See the detailed guide to carried interest in AIF.
Expense ratio and operating expenses: These refer to costs associated with running an investment product or structure. The applicable cost categories differ between AIFs and PMS arrangements.
For a broader understanding of the costs involved, see AIF fees and charges and PMS fees and charges.
AIF and PMS Fee Terms Compared
| Fee Term | Meaning | What Investors Should Check |
| Management Fee | Fee charged for managing a fund or portfolio | Fee percentage, calculation base and frequency |
| Fixed Fee | Fee charged at a specified rate or amount | Whether it changes with portfolio value |
| Performance Fee | Fee linked to investment performance | Calculation method and applicable conditions |
| Profit-Sharing Fee | Performance-linked fee based on eligible profits | Profit calculation and crystallisation |
| Carried Interest | Manager or sponsor's share of eligible investment profits | Waterfall and distribution provisions |
| Hurdle Rate | Return threshold before certain performance-linked fees apply | Hard or soft hurdle and compounding |
| High-Water Mark | Reference level used in certain performance-fee arrangements | How previous losses and recoveries are treated |
| Exit Load | Charge that may apply on exiting within specified conditions | Applicable period and amount |
| Operating Expenses | Costs associated with running the investment structure | Which expenses are borne by investors |
| GST on Fees | Applicable GST on specified fees and services | Whether GST is included in the quoted fee |
Investors should focus on the total cost of investing, rather than comparing only the headline management fee.
A multi-manager portfolio can also create multiple layers of fees. See PMS and AIF fee stacking when evaluating total portfolio costs.
Hurdle Rate, High-Water Mark and Waterfall
Three important concepts in this AIF and PMS glossary are hurdle rate, high-water mark and distribution waterfall.
Hurdle rate meaning: A hurdle rate is a specified return threshold that must generally be achieved before a performance-linked fee or carried interest becomes payable. The exact conditions depend on the fund documents.
See hurdle rate in AIF for detailed examples.
High-water mark: A high-water mark is a reference point, generally based on a previous peak in investment value, used in certain performance-fee arrangements to prevent charging a performance fee again on the same recovered gains.
AIF distribution waterfall: An AIF distribution waterfall sets out the order in which investment proceeds are distributed among investors, managers and other entitled parties.
Catch-up: A catch-up provision determines how distributions are allocated after investors receive a specified preferred return or hurdle and before remaining profits are divided according to the agreed carried-interest structure.
Preferred return: A return that investors may be entitled to receive before performance-linked compensation becomes payable under the relevant waterfall.
Investors should read the waterfall provisions carefully, including how losses, clawbacks, catch-up provisions and interim distributions are treated.
Capital Calls, Drawdowns and Commitment Amounts
An investor's commitment to an AIF does not necessarily mean the entire amount is invested immediately.
Capital call meaning: A capital call is a request by the fund for an investor to contribute a portion of their committed capital according to the fund documents.
Drawdown meaning: A drawdown is the process of calling and collecting committed capital. In private equity, the term may also refer more broadly to capital being deployed into investments.
Commitment amount: The total amount an investor has agreed to provide, subject to the governing documents.
Uncalled commitment: The portion of the commitment that has not yet been called.
Capital contribution: The amount actually contributed by an investor after a capital call is made.
Co-investment: An arrangement in which eligible investors invest alongside an AIF or manager in the same or a related investment opportunity, subject to the applicable framework and fund documents.
| Term | Meaning |
| Capital commitment | Total amount the investor agrees to provide |
| Capital call | Request made by the fund for part of the commitment |
| Drawdown | Amount called from the investor |
| Capital contribution | Amount actually paid into the fund |
| Uncalled commitment | Portion of commitment still available to be called |
| Co-investment | Investment made alongside an AIF or manager in an eligible opportunity |
For example, an investor committing ₹1 crore to a fund may initially contribute ₹25 lakh if that amount is called. The remaining ₹75 lakh could be called later, depending on the fund's needs and terms.
Investors should maintain sufficient liquidity to meet capital calls within the stipulated timelines.
For a detailed explanation, see AIF capital calls and drawdowns and AIF capital call liquidity planning.
AIF Fund-Raising and Reporting Terms
Investors may encounter several fund-level terms in AIF disclosures and regulatory data.
Commitments raised: The amount investors have committed to an AIF or its schemes.
Funds raised: The amount of capital actually raised from investors.
Investments made: The amount deployed by an AIF into eligible investments.
These figures are different. A fund can have commitments that have not yet been called or capital that has been raised but has not yet been fully deployed.
NAV, IRR, XIRR, CAGR and TWRR
Performance measures are central to evaluating alternative investments, but different metrics answer different questions.
NAV meaning AIF: Net Asset Value (NAV) represents the value of the fund's assets minus its liabilities, calculated according to the applicable valuation methodology.
IRR: Internal Rate of Return is a return measure that calculates the annualised rate associated with a series of investment cash flows and distributions.
Gross IRR vs net IRR: Gross IRR measures the internal rate of return before specified fees and expenses, while net IRR measures the return after the costs and cash flows included in its calculation.
XIRR vs CAGR: XIRR calculates an annualised return for cash flows occurring on different dates, while CAGR measures compounded annual growth between two values over a specified period.
See XIRR vs CAGR vs TWRR for a detailed comparison.
MWRR: Money-Weighted Rate of Return measures the investor's return while taking the timing and size of cash flows into account.
CAGR vs TWRR: CAGR expresses annualised growth between two values. Time-weighted rate of return (TWRR) measures investment performance while reducing the impact of external cash-flow timing.
Absolute Return: Absolute return is the total percentage gain or loss over a period without annualising the result.
Gross Return: Gross return is a performance figure calculated before specified fees, expenses or deductions included in the reporting methodology.
Net Return: Net return is a performance figure after the specified fees, expenses and other deductions included in the calculation.
Pre-tax Return: Investment return before applicable taxes.
Post-tax Return: Return remaining after applicable taxes have been considered.
MOIC: Multiple on Invested Capital measures how much value or proceeds an investment has generated relative to the capital invested.
AIF and PMS Return Metrics Compared
| Return Metric | What It Measures | When It Is Useful |
| Absolute Return | Total gain or loss over a period | Understanding overall performance |
| CAGR | Annualised compounded growth between two values | Comparing growth over a defined period |
| IRR | Annualised return associated with a series of cash flows | Evaluating investments with multiple cash flows |
| XIRR | Annualised return when cash flows occur on different dates | AIF investments with irregular contributions and distributions |
| TWRR | Performance while reducing the effect of external cash flows | Evaluating manager performance |
| MWRR | Investor return based on cash-flow timing | Assessing the investor's actual experience |
| MOIC | Multiple of invested capital | Evaluating total value generated |
| Gross Return | Return before specified costs | Comparing pre-cost performance |
| Net Return | Return after specified costs | Understanding investor-level performance |
No single performance metric provides a complete picture. Investors should consider returns together with fees, cash-flow timing, risk, liquidity and the applicable benchmark.
Benchmark, Alpha, Beta and Performance Attribution
Performance should be assessed against an appropriate benchmark and in the context of the risks taken.
Benchmark: A reference index or target selected to evaluate investment performance.
Total Return Benchmark: A benchmark that generally reflects both price movement and reinvested distributions such as dividends, depending on the index methodology.
Alpha: The return attributable to performance beyond a relevant benchmark or expected return measure, depending on the methodology used.
Beta: A measure of sensitivity to movements in a specified market or benchmark.
Performance attribution: An analysis of the factors contributing to portfolio returns, including asset allocation, security selection, sector exposure and other relevant drivers.
When reviewing PMS or AIF performance, investors should ask whether the benchmark is appropriate for the investment mandate and whether reported results account for fees, risk and changing market conditions.
Investors can also use ALTPORT's PMS performance comparison platform when reviewing performance data across PMS strategies.
Risk Metrics Every PMS and AIF Investor Should Understand
Every investment involves risk, and alternative investments may include additional complexities related to valuation, liquidity, concentration and strategy.
Market risk: The possibility of losses due to changes in market prices.
Liquidity risk: The risk that an investment cannot be sold or redeemed promptly at a reasonable value.
Concentration risk: The risk arising from excessive exposure to a single issuer, sector, borrower or investment theme.
Valuation risk: The possibility that reported asset values differ from the amounts ultimately realised.
Credit risk: The possibility that a borrower or issuer fails to make payments as agreed.
Operational risk: The possibility of loss arising from inadequate processes, systems, controls or external events.
Drawdown in portfolio performance: A decline from a previous portfolio peak to a subsequent trough. This is different from a capital drawdown, which refers to calling committed capital.
Maximum Drawdown: The largest peak-to-trough decline experienced by a portfolio or strategy during a specified period.
Volatility: The degree to which investment returns or portfolio values fluctuate over time.
Standard Deviation: A statistical measure commonly used to quantify the variability of investment returns.
Sharpe Ratio: A risk-adjusted performance measure that evaluates excess return relative to volatility or risk taken.
Sortino Ratio: A risk-adjusted performance measure that focuses on downside volatility.
Portfolio Diversification: The practice of spreading investments across securities, sectors, asset classes, strategies or managers to reduce reliance on a single source of risk.
Portfolio Overlap: The extent to which two or more investment portfolios hold similar securities, sectors, strategies or underlying exposures.
For investors with multiple PMS and AIF investments, see PMS and AIF portfolio overlap.
A practical portfolio should also be assessed against the investor's own risk tolerance. ALTPORT's guide to risk profiling in PMS explains how risk tolerance can be incorporated into portfolio decisions.
Key AIF and PMS Risk Metrics
| Risk Metric | Meaning | Why It Matters |
| Volatility | Degree of fluctuation in returns | Indicates variability |
| Standard Deviation | Dispersion of returns around the average | Measures return variability |
| Sharpe Ratio | Excess return relative to volatility | Helps assess risk-adjusted performance |
| Sortino Ratio | Return relative to downside volatility | Focuses on harmful volatility |
| Maximum Drawdown | Largest peak-to-trough decline | Shows historical downside |
| Market Risk | Risk from changes in market prices | Relevant to market-linked strategies |
| Liquidity Risk | Risk of being unable to exit promptly | Important for private investments |
| Concentration Risk | Risk from excessive exposure | Helps assess diversification |
| Credit Risk | Risk of borrower or issuer default | Important in private credit |
| Valuation Risk | Risk that reported value differs from realised value | Important for illiquid assets |
| Operational Risk | Risk from processes, systems or controls | Relevant to fund operations |
Investors can also read Managing Portfolio Drawdowns to understand maximum drawdown, recovery periods and liquidity planning.
Lock-In, Redemption, Liquidity and Exit Terms
Liquidity describes how easily an investment can be converted into cash without an unacceptable delay or loss of value.
Lock-in period meaning: A lock-in period is a specified duration during which an investor's ability to withdraw, transfer or redeem an investment may be restricted.
See AIF lock-in period for a detailed explanation of AIF lock-in and exit rules.
Redemption meaning: Redemption is the process of withdrawing an investment or receiving payment for units or interests under the applicable terms.
Redemption frequency: The permitted intervals at which redemptions can be requested, such as monthly or quarterly, where redemption is allowed.
Exit terms: The conditions governing an investor's ability to exit, including notice periods, transfer restrictions, fees and payment timelines.
Exit load: A fee or charge that may apply when an investor exits an investment within specified conditions.
In-specie transfer: A transfer in which securities or other assets are transferred rather than being converted into cash first.
AIF liquidity varies by category and fund strategy. Some AIFs have defined tenures and limited early-exit options, while others may permit withdrawals subject to specific conditions.
Investors evaluating an early exit can read how to transfer or sell AIF units before maturity.
Before investing, review the lock-in period, redemption windows, notice requirements, gates, exit charges and restrictions on transferring ownership.
Private Credit, Leverage and Security Terms
Private credit involves lending outside traditional publicly traded bond markets, often through specialised investment structures.
See Private Credit in India for a detailed explanation of the asset class.
Private credit terms: Common terminology includes coupon, yield, maturity, covenant, seniority, collateral, default and recovery rate.
Coupon: The contractual interest rate payable on a debt instrument, subject to its terms.
Yield: The income or return generated by a debt investment relative to its price or invested amount, depending on the methodology used.
Maturity: The date on which principal is scheduled to become due.
Covenant: A contractual requirement or restriction imposed on a borrower.
Leverage: The use of borrowed money or other financing to increase investment exposure. Leverage can amplify both gains and losses.
Security cover: A measure of the value of collateral available relative to a secured obligation.
Loan-to-Value (LTV): The ratio of a loan amount to the value of the underlying collateral.
Credit Rating: An assessment of the creditworthiness of a borrower or issuer.
Seniority: The priority a creditor or investor has in receiving payment relative to other claims.
Collateral: Assets pledged to secure a debt obligation.
Default risk: The risk that a borrower or issuer fails to meet contractual obligations.
Recovery rate: The proportion of an outstanding claim recovered following a default or restructuring.
Mezzanine Finance: Financing that generally ranks between senior debt and equity in the capital structure.
Venture Debt: Debt financing provided to growth-stage or venture-backed companies, often with contractual interest and potentially equity-linked features.
Investors should examine borrower concentration, collateral quality, covenants, repayment sources, refinancing risk and enforcement provisions rather than relying on advertised yields alone.
J-Curve and Private-Market Investment Terms
J-Curve: A pattern in which private-market funds may show lower or negative early-period performance before the value of underlying investments and eventual distributions increase.
The J-Curve is particularly relevant when evaluating private equity and other long-duration AIF strategies.
Pre-IPO: Investment in a company before its shares are listed through an initial public offering.
Unlisted Shares: Shares of companies that are not listed on a recognised stock exchange.
Private Market: The market for investments that are not generally traded on public stock exchanges.
Real Estate Fund: An investment vehicle focused on eligible real-estate-related assets, projects or companies.
Special Situation Investment: An investment focused on restructuring, stressed assets, corporate events or other circumstances where the investment thesis depends on a specific event or change.
AIF and PMS Tax and Compliance Terms
Investment taxation can differ substantially depending on the structure, category, underlying asset and investor profile.
Capital Gains: Profit or loss arising from the transfer of a capital asset, subject to applicable tax rules.
Holding Period: The length of time an investment is held before it is sold or transferred.
STCG: Short-Term Capital Gains are gains that qualify as short-term under the applicable tax provisions.
LTCG: Long-Term Capital Gains are gains that qualify as long-term under the applicable tax provisions.
AIF Taxation: The tax treatment of an AIF depends on its category, type of income, underlying investments and applicable tax provisions.
See AIF taxation in India for a detailed category-wise tax guide.
Pass-Through Taxation: A tax structure under which certain income of an investment vehicle is generally attributed or passed through to investors for taxation, subject to applicable provisions.
PMS Taxation: Tax treatment of PMS generally follows the underlying securities and taxable transactions in the investor's portfolio.
See PMS taxation in India for detailed tax treatment.
TDS: Tax Deducted at Source is tax withheld by the payer or intermediary when required under applicable tax provisions.
See TDS on AIF distributions for the current AIF distribution framework.
DTAA: A Double Taxation Avoidance Agreement is a tax treaty between India and another country designed to address taxation of income that may otherwise be subject to tax in both jurisdictions.
See DTAA for NRIs for more information.
FEMA: The Foreign Exchange Management Act governs specified foreign-exchange transactions and cross-border investment flows involving India.
See FEMA rules for NRI investment in India for the NRI investment framework.
NRI: A Non-Resident Indian is an Indian citizen or person of Indian origin who meets the applicable residential-status conditions for tax and regulatory purposes.
NRE Account: A Non-Resident External account is a rupee-denominated account generally used by NRIs for eligible funds originating outside India.
NRO Account: A Non-Resident Ordinary account is generally used by NRIs for managing income arising in India, subject to applicable repatriation and tax rules.
For a broader guide, see NRI investing in PMS and AIFs and NRE vs NRO repatriation rules.
KYC: Know Your Customer is the identity and due-diligence process required before an investor can access regulated financial products.
FATCA: The Foreign Account Tax Compliance Act framework requires specified information and reporting relating to certain US taxpayers and financial accounts.
CRS: The Common Reporting Standard is an international framework for the exchange of financial-account information between participating jurisdictions.
Key AIF and PMS Tax Terms
| Tax Term | Meaning |
| Capital Gains | Profit or loss arising from transfer of a capital asset |
| STCG | Gains classified as short-term under applicable tax rules |
| LTCG | Gains classified as long-term under applicable tax rules |
| AIF Taxation | Tax treatment applicable to AIF income and investors |
| Pass-Through Taxation | Certain eligible income is attributed to investors |
| PMS Taxation | Tax treatment of transactions in an investor's PMS portfolio |
| TDS | Tax withheld at source |
| DTAA | Treaty addressing double taxation between countries |
| FEMA | Framework governing foreign-exchange transactions |
| NRI | Investor meeting applicable non-resident status conditions |
| NRE | Non-Resident External account |
| NRO | Non-Resident Ordinary account |
| FATCA | US-linked financial-account reporting framework |
| CRS | International financial-account information exchange framework |
Tax rates, exemptions, reporting requirements and treaty provisions can change. Investors should check the rules applicable to the relevant financial year and their individual circumstances.
Pre-IPO, Unlisted Shares and Alternative Investment Terms
Pre-IPO: Investment in a company before its shares are listed through an initial public offering.
Unlisted Shares: Shares of companies that are not listed on a recognised stock exchange.
Private Market: The market for investments that are not generally traded on public stock exchanges.
Secondary Market: A market in which existing securities or investment interests can be bought or sold between investors, subject to the applicable structure and restrictions.
Price Discovery: The process of determining a market price through available information, demand, supply and transactions.
These terms can appear in AIF, PMS and broader alternative-investment discussions, particularly when strategies include unlisted or pre-IPO opportunities.
SIF, GIFT City and IFSC Terms
SIF: Specialised Investment Fund is a SEBI-regulated investment category that provides strategies between conventional mutual-fund products and higher-ticket alternatives such as PMS and AIFs, subject to its own framework.
For a comparison of these structures, see SIF vs PMS vs AIF.
GIFT City: Gujarat International Finance Tec-City is India's international financial hub located in Gujarat.
IFSC: International Financial Services Centre is a designated financial-services jurisdiction within GIFT City governed by the applicable IFSC framework.
IFSCA: The International Financial Services Centres Authority is the regulator responsible for financial products and entities operating within India's IFSC framework.
For investors comparing domestic and GIFT City structures, see GIFT City AIF vs Domestic AIF.
GIFT City structures can be relevant for eligible NRI, non-resident and international investors, depending on the specific fund, investor status and applicable regulations.
How to Use This AIF and PMS Glossary When Evaluating an Investment
Knowing the definitions is only one part of evaluating an AIF or PMS.
Use this AIF and PMS glossary alongside the actual fund or portfolio documents.
When reviewing an investment, consider:
- Structure: Is it an AIF, PMS, SIF or another investment structure?
- Category: If it is an AIF, is it Category I, II or III?
- Mandate: What can the manager actually invest in?
- Ownership: Do you hold securities directly or units/interests in a pooled vehicle?
- Minimum investment: What is the applicable investment threshold?
- Commitment: Is the entire amount invested immediately or subject to future capital calls?
- Fees: What management, performance, carried-interest, brokerage, custody and other charges apply?
- Hurdle: Is there a hurdle rate before performance fees become payable?
- High-water mark: Does the performance-fee arrangement include a high-water mark?
- Returns: Are the reported returns gross or net?
- Performance measure: Is the relevant metric TWRR, XIRR, IRR, CAGR or another measure?
- Benchmark: Is the benchmark appropriate for the strategy?
- Risk: What are the historical drawdowns, volatility and concentration levels?
- Liquidity: When and how can you exit?
- Tax: How are returns and distributions taxed?
- Documents: Have you reviewed the PPM, disclosure document and relevant agreements?
- Manager: Who is responsible for managing the strategy?
- Portfolio fit: Does the investment overlap with other holdings?
Before investing in an AIF, investors can also review the guide on how to invest in an AIF.
AIF and PMS Evaluation Checklist
Before committing capital, investors can use this checklist:
| Area | Questions to Ask |
| Investment structure | Is the product an AIF, PMS, SIF or another vehicle? |
| AIF category | What category is the AIF and what does that category permit? |
| Manager | Who manages the investments and what is their track record? |
| Strategy | What exactly is the investment mandate? |
| Ownership | Are securities held directly or through a pooled structure? |
| Minimum investment | What is the applicable minimum investment? |
| Commitment | Is capital called in stages? |
| Fees | What are all management, performance and operating costs? |
| Hurdle | Is there a hurdle rate? |
| High-water mark | Does the performance fee use a high-water mark? |
| Returns | Are returns gross or net of fees and expenses? |
| Benchmark | What benchmark is used and why is it appropriate? |
| Risk | What are the drawdown, volatility and concentration levels? |
| Liquidity | What are the lock-in, redemption and exit provisions? |
| Tax | What is the expected tax treatment for the investor? |
| Documents | Have the PPM, agreements and disclosures been reviewed? |
| Portfolio fit | Does the investment duplicate existing exposures? |
Conclusion: Make Better-Informed Investment Decisions with ALTPORT
Understanding investment terminology is an important step towards making informed decisions about alternative investments. This AIF and PMS glossary provides a foundation for understanding fund structures, fees, capital commitments, return calculations, liquidity restrictions, taxation, private-credit terminology and investment risks.
However, terminology alone is not enough. Investors should also review the offering documents, investment mandate, fee structure, valuation policies, risk disclosures, tax treatment and exit provisions before committing capital.
The most useful way to use this glossary is as a starting point for due diligence. When a fund document uses a term such as hurdle rate, high-water mark, capital call, carried interest, XIRR, TWRR, portfolio overlap or pass-through taxation, investors should understand exactly how that term applies to the specific investment.
Alternative investments can involve higher complexity, lower liquidity and different risk characteristics from traditional investment products. Investors should evaluate each opportunity based on their own investment objectives, risk tolerance, liquidity requirements, investment horizon and overall portfolio allocation.
Explore ALTPORT's AIF and PMS resources to understand available investment structures and compare the factors that matter before making an investment decision.
Disclaimer
This article is intended solely for educational and informational purposes and does not constitute investment advice, a recommendation, an offer or a solicitation to buy or sell any security or investment product. Investment structures, fees, taxation, eligibility requirements and liquidity provisions vary by product and may change. Readers should refer to the relevant regulatory requirements and official offering documents and consult appropriately qualified financial, legal and tax professionals before making investment decisions. Past performance does not guarantee future results, and all investments involve risk, including the possible loss of capital.
