A fund fact sheet is the single most concentrated source of information about any AIF. Yet most first-time HNI investors read them the way they read mutual fund fact sheets — a quick glance at the one-year return and the star rating, then a decision. That approach works poorly for listed funds and fails catastrophically for AIFs. Here''s the field-by-field checklist I use when evaluating any Category II fund.
1. Read the strategy, not the marketing
The first page of a fact sheet is almost always marketing. Skip to the investment strategy section and answer three questions in plain English: What does the fund invest in? How does it source those investments? What is the competitive advantage of this team in doing so?
A strong answer looks like: "The fund acquires stressed residential real estate in Chennai Tier-1 micro-markets through the NCLT resolution process. We have completed eleven resolutions in the last four years, sourced through our in-house legal team and existing relationships with resolution professionals. Our advantage is speed — we can execute due diligence in 30 days versus the 90-day industry average."
A weak answer looks like: "The fund invests in high-growth opportunities across India with a focus on risk-adjusted returns." If you cannot articulate the strategy in one concrete paragraph after reading the fact sheet, move on.
2. Decompose the fee structure
Every AIF charges some combination of: management fee (typically 1.5–2.5% of committed capital per year), expense ratio or fund-level expenses (legal, audit, administration), a hurdle rate (the return investors earn before the manager shares in the upside), and carried interest (usually 20% of returns above the hurdle, with a catch-up).
Ask two concrete questions. First: on a 15% gross IRR, what is my net IRR after all fees? A well-structured fund preserves 12–13% net; a badly-structured one can strip 5% of net return. Second: is the carry computed on deal-by-deal basis or whole-fund basis? Whole-fund is strictly better for investors because the manager only shares in upside after the entire fund has returned capital plus hurdle to investors.
3. Look at track record honestly
A track record is useful only when it is genuinely comparable. Three traps to watch for.
The first is cherry-picking exits. Managers sometimes show the returns on their best exits while quietly omitting write-offs or still-illiquid positions. Insist on seeing portfolio-level returns, not deal-level.
The second is unrealised markups. In a 10-year fund, the first 3–4 years have few exits. Interim IRR calculations rely heavily on the manager''s own valuations of unrealised positions. Ask whether valuations are independently audited, by whom, and how often.
The third is team attribution. If the team moved from another firm, ask which of the prior deals they actually sourced and executed. "We worked at XYZ firm that generated 25% IRR" is not the same as "I personally led these six deals, which returned 28% IRR."
4. Check the governance architecture
Strong governance beats strong promises. The fact sheet should name — and you should verify — the following.
The independent trustee or investment committee should have real decision rights, not rubber-stamp authority. Look for investment committee members with genuine independence and domain expertise.
The independent valuer should be a SEBI-registered valuer reassessing unrealised positions at least semi-annually, in line with 2026 SEBI enhancements. If the fund does its own valuations, that is a red flag.
The auditor should be a reputable firm. The custodian should be a recognised institution holding fund assets separately from manager assets.
The conflicts-of-interest policy should disclose related-party transactions and co-investment arrangements explicitly, and either prohibit them or require independent approval.
5. Understand the lock-up and distribution mechanics
Category II AIFs have defined fund lives — typically 7–10 years, with a 2-year extension option. The fact sheet should state the commitment period (when you must contribute capital, usually years 1–4), the investment period (when capital is deployed, usually years 1–6), and the harvest period (when exits return capital, usually years 4–10).
Distribution waterfalls are where many investors get surprised. The standard waterfall returns contributed capital first, then the hurdle rate, then catch-up to the manager, then residual 80/20 split. Non-standard waterfalls almost always favour the manager — read carefully.
6. Red flags that should end the conversation
Some items on a fact sheet should make you close it and move on. Chief among them: promises of guaranteed or minimum returns on a Category II AIF (SEBI does not permit guarantees on Cat II funds), leverage levels above the category permissions, undisclosed side letters with other investors that might give them better terms than you, and management teams with no personal capital committed to the fund.
The five-minute version
If you only have five minutes: open the fact sheet, find the net IRR (not gross), the fund tenure, the manager''s own capital commitment, the independent trustee, and the valuation methodology. If any of those five is missing or unsatisfactory, keep looking. If all five check out, schedule a full diligence session with the manager and read the complete PPM before committing.
Informed investors make better decisions — and AIFs reward the informed more than almost any other asset class.
