CHANAKYA FUND TRUST

What Is Chanakya Fund Trust?

Chanakya Fund Trust is a SEBI-registered Category II Alternative Investment Fund structure.

The trust is managed by Steptrade Capital, while investment decisions are made at the individual scheme level.

The structure is therefore best understood as:

Chanakya Fund Trust → AIF structure → Individual Chanakya Opportunities Fund schemes → Investor subscription

This distinction matters because investors generally do not subscribe directly to the trust as though it were a standalone mutual fund or PMS strategy. Investment takes place through the applicable scheme and according to the terms set out in that scheme's Private Placement Memorandum and related documents.

The trust is registered as:

Chanakya Fund Trust — SEBI AIF Registration No. IN/AIF2/22-23/1230

It is a Category II AIF, placing it within the AIF category generally associated with private equity, private credit, structured opportunities and other alternative investment strategies that do not fall within Category I or Category III.

Chanakya Fund Trust Registration and Structure

The registration number identifies the trust within the SEBI AIF framework. Individual schemes constituted under the trust can have different investment mandates, managers, portfolios, tenure and deployment strategies.

This is why investors should evaluate the scheme-level documents, rather than treating the entire Chanakya Fund Trust as one uniform investment strategy.

Chanakya Opportunities Fund I and Fund II

The Chanakya Fund Trust serves as the structure under which the Chanakya Opportunities Fund series operates.

The two schemes have related investment philosophies but are designed around different opportunity sets.

Fund I is more closely associated with the SME-exchange and unlisted-SME opportunity, whereas Fund II is positioned around pre-IPO and later-stage growth opportunities.

Fund I vs Fund II: SME Exchange or Pre-IPO?

The distinction between the two Chanakya Opportunities Fund schemes is particularly important for investors researching the Chanakya platform.

Chanakya Opportunities Fund I

Fund I focuses on Indian SMEs, including companies that are unlisted or positioned for listing on the SME exchanges.

The investment thesis is built around identifying businesses with strong fundamentals, capable management teams and the potential to scale.

The strategy can therefore provide exposure to companies before or around their transition into the public markets.

Chanakya Opportunities Fund II

Fund II takes the investment thesis further towards the pre-IPO and growth-stage segment.

The fund was launched in February 2026, achieved its first close in July 2026, and planned to begin capital deployment in August 2026.

Its mandate focuses on growth-stage and pre-IPO companies across areas such as:

• Advanced manufacturing
• Energy transition
• Emerging technologies
• Electronics
• Semiconductors
• Speciality chemicals
• Defence and aerospace
• Battery and energy-storage ecosystems
• Electric-vehicle ecosystems
• Power infrastructure
• Data-centre infrastructure
• Artificial intelligence
• Robotics
• Digital healthcare and diagnostics
• Rare-earth and strategic supply chains

The important distinction is therefore:

Fund I → SME exchange / unlisted SME opportunity

Fund II → Pre-IPO / late-stage growth opportunity

This difference can materially affect the liquidity profile, valuation framework, expected exit route and investment risk of the two schemes.

What the Chanakya Funds Look For — and What They Avoid

The Chanakya investment approach places significant emphasis on fundamental business quality.

The screening process considers factors such as:

Strong fundamentals

The funds seek businesses with an underlying operating model that can support sustainable growth.

Financial performance, business economics, competitive positioning and scalability are important considerations.

Capable management

Management quality is particularly important when investing in smaller companies.

The ability of promoters and management teams to allocate capital responsibly, execute strategy and manage growth can have a significant impact on the eventual investment outcome.

Ethical governance

Governance becomes especially important when investing outside the large-cap universe.

Investors should understand how the business is governed, how related-party transactions are handled, how capital is deployed and whether management interests are aligned with shareholders.

Entrepreneurial promoters

Smaller and emerging companies are often closely linked to their promoters.

The investment process therefore evaluates promoter capability, vision, execution and commitment to building the business.

What the strategy avoids

Equally important are the categories the investment approach explicitly seeks to avoid.

The strategy does not position itself around turnaround situations, start-ups or pre-revenue businesses.

That distinction matters.

An early-stage business with a compelling story is not necessarily the same as a business with established operations, measurable fundamentals and a visible path to growth.

The Chanakya approach is therefore better understood as an investment in operating businesses with identifiable fundamentals, rather than a venture-capital strategy focused on companies that have yet to establish commercial viability.

Sponsor Commitment: 20% Alignment

Under the applicable AIF framework, a Category II AIF sponsor is required to maintain a continuing interest in the fund, subject to the regulatory requirement.

For the Chanakya structure, the sponsor and fund manager commitment is stated at 20%.

That figure is meaningful when viewed against the regulatory minimum.

A higher sponsor commitment means the investment manager has a greater amount of its own capital economically aligned with the fund's investment outcomes.

However, this should not be interpreted as a performance guarantee.

Sponsor alignment can strengthen alignment of interests, but it cannot eliminate market risk, liquidity risk, valuation risk, business risk or the possibility of capital loss.

The relevant takeaway for investors is therefore:

20% sponsor/fund-manager commitment = stronger capital alignment, not guaranteed returns.

Minimum Investment and Investor Eligibility

AIFs operate under a different regulatory framework from mutual funds and PMS products.

The applicable minimum investment for an AIF is generally ₹1 crore, subject to the applicable regulations and scheme-specific terms.

The Chanakya schemes are intended for eligible investors who can understand and tolerate the risks associated with alternative investments.

Potential investors can include:

• High-net-worth individuals
• Ultra-high-net-worth individuals
• Family offices
• Eligible institutional investors
• Eligible foreign investors, subject to applicable regulations

The exact eligibility requirements, commitment structure, drawdown process, fees, tenure, exit provisions and other commercial terms should be reviewed in the relevant Private Placement Memorandum (PPM) and scheme documentation.

Investors should not assume that the terms of Fund I automatically apply to Fund II.

Each scheme must be assessed independently.

Category II AIF Taxation in India

Category II AIF taxation differs from the taxation of mutual funds and PMS structures.

A Category II AIF generally operates under the pass-through framework under Section 115UB of the Income-tax Act, subject to applicable conditions and exceptions.

Broadly, the income generated by the AIF can be attributed to the investors according to the applicable tax framework.

For investors, this means taxation is not simply determined by the fact that the investment is labelled an "AIF."

The tax treatment can depend on:

• Nature of income
• Type of underlying investment
• Holding period
• Character of gains
• Distribution structure
• Investor status
• Applicable tax regulations

Where a fund invests in SME or pre-IPO equity and subsequently exits those investments, the resulting gains may have capital-gains implications depending on the underlying transaction and applicable tax provisions.

Tax deducted at source may also apply to distributions where required.

Investors should therefore evaluate the after-tax return, not simply the gross investment outcome.

Because taxation can change and individual circumstances differ, investors should consult an appropriately qualified tax professional before making an investment decision.

Key Risks of SME, Microcap and Pre-IPO AIF Investing

Investing in smaller companies, unlisted businesses and pre-IPO opportunities can provide access to growth opportunities that may not be available through conventional large-cap portfolios.

It also introduces a different set of risks.

SME liquidity risk

SME-exchange securities can have significantly lower trading volumes than large-cap stocks.

During stressed markets, an investor may not be able to exit a position quickly at the desired price.

Unlisted valuation risk

Unlisted businesses do not have continuous market-price discovery in the same way as listed companies.

Valuations can therefore depend on private transactions, comparable companies, negotiated deals and internal valuation methodologies.

Pre-IPO risk

For a pre-IPO investment, an eventual listing is an important potential exit route.

However, a company may delay its IPO, change its plans or fail to obtain the expected valuation.

Fund II's pre-IPO orientation therefore creates a meaningful IPO-window dependency.

Governance risk

Smaller companies can carry higher promoter and governance risks.

Weak governance, related-party transactions, accounting issues or poor capital allocation can materially affect an investment.

Concentration risk

An AIF may hold a relatively limited number of investments.

Poor performance in an individual company can therefore have a meaningful impact on fund-level returns.

Illiquidity

A Category II AIF is generally a long-term investment structure.

Investors should not assume that capital can be withdrawn whenever required.

Execution risk

The investment thesis depends on the management teams of portfolio companies executing their growth plans successfully.

Regulatory risk

Changes in securities regulations, SME listing rules, taxation, AIF regulations or IPO regulations can affect investment outcomes.

Key-person risk

The investment process depends on the experience and judgement of the investment team.

Changes in key personnel can therefore affect the strategy's execution.

Explore Chanakya Opportunities Fund I

For investors specifically researching the first Chanakya scheme, explore Chanakya Opportunities Fund I.

Investors looking at the broader alternative-investment landscape can also explore Category II AIF and AIF taxation by category.

For information about the investment manager, see Steptrade Capital.

Other strategies on the platform include Steptrade Revolution Fund and Steptrade India Fund.

Investors seeking further information can contact our investment team.