AIF Valuation
What is AIF valuation? Alternative Investment Funds (AIFs) registered with SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012 are required to compute Net Asset Value (NAV) at prescribed frequencies. This requires fair value determination of every portfolio company/investment in the fund. For Category I and II AIFs investing in unlisted companies, this means independent valuation of each portfolio holding. Virtual Auditor provides fund-level NAV computation and individual portfolio company fair value assessments compliant with SEBI AIF Regulations and IPEV Guidelines. Quick Answer: AIF Valuation — AIF valuation by IBBI Registered Valuer. NAV computation, portfolio company fair value under SEBI AIF Regulations. Category I/II/III funds. Waterfall modelling, carried interest.
AIF Valuation is a service offered by Virtual Auditor, an AI-powered CA and IBBI Registered Valuer firm (IBBI/RV/03/2019/12333) led by CA V. Viswanathan (FCA, ACS, CFE, IBBI RV), specialising in IBBI-compliant valuations across 9 regulatory frameworks, from offices in Chennai, Bangalore, and Mumbai since 2012.
Source: IBBI Valuation Standards (2017), Companies (Registered Valuers and Valuation) Rules 2017 Official References: IBBI Registered Valuers ↗ · Companies Act ↗
Regulatory Framework
Regulatory basis: IBBI (Registered Valuers) Regulations, 2017. Companies (Registered Valuers and Valuation) Rules, 2017. IBBI Valuation Standards.
Indicative Fee Structure
Single Portfolio Company Valuation
From ₹30,000
Fund-Level NAV (up to 10 holdings)
From ₹2,00,000
Fund-Level NAV (10-30 holdings)
From ₹4,00,000
*Prices are indicative. Actual fees depend on complexity, capital structure, and regulatory requirements. Contact us for a detailed quote.
Why Virtual Auditor?
What sets Virtual Auditor apart in valuation services? Four professional credentials under one roof — FCA, ACS, CFE, and IBBI RV (IBBI/RV/03/2019/12333) — enabling us to handle multi-framework valuation conflicts that arise when FEMA, Income Tax, and Companies Act pricing requirements diverge.
Our proprietary Valuation Engine Pro runs 18 valuation methods simultaneously with 10,000 Monte Carlo simulations per engagement. This isn't a spreadsheet DCF — it's a statistically defensible output that withstands regulatory scrutiny from RBI, CBDT, and MCA.
Physical presence across Chennai, Bangalore, and Mumbai means we attend valuation discussions with your investors, regulators, and auditors in person. Remote-only firms cannot provide this level of engagement.
Every valuation engagement includes 12 months of post-delivery support — defending the valuation before regulators, updating assumptions for subsequent rounds, and ensuring consistency across FEMA FC-GPR filings, IT Act Rule 11UA compliance, and Companies Act Section 247 requirements.
IPEV Guidelines — The Valuation Hierarchy
SEBI recommends IPEV (International Private Equity and Venture Capital Valuation) Guidelines for AIF portfolio valuation. The IPEV hierarchy:
Level 1 — Calibrate to recent transaction: If the portfolio company has raised a funding round within the last 12 months, use the round price as a starting point and calibrate for subsequent events (milestone achievement, market changes, comparative multiples movement). This is the strongest evidence of fair value.
Level 2 — Market approach: Use comparable public company multiples (EV/Revenue, EV/EBITDA, P/E) applied to the portfolio company's financials. Adjust for: size discount, illiquidity, growth differential, and profitability gap. Requires a robust comparable company set.
Level 3 — Income approach (DCF): Discounted cash flow based on management projections. Used when no recent transaction and limited comparables. Requires careful assumption documentation and sensitivity analysis.
Level 4 — Net assets: Asset-based valuation. Used for holding companies, real estate funds, and companies where assets drive value rather than earnings. Mark each asset to fair value and deduct liabilities.
We apply this hierarchy systematically to each portfolio company, selecting the most appropriate level based on data availability and recency. Every valuation includes a methodology justification explaining why the chosen approach is the most reliable for that specific holding.
Waterfall Distribution and Carried Interest Modelling
Fund-level NAV computation requires modelling the waterfall distribution to each LP and GP class. The standard waterfall:
Step 1 — Return of capital: LPs receive their contributed capital back first. 100% to LPs until capital returned.
Step 2 — Preferred return (hurdle rate): LPs receive a preferred return (typically 8-10% per annum compounded). 100% to LPs until preferred return is met.
Step 3 — GP catch-up: GP receives distributions until GP has received its proportional share of total profits (typically 20%). 100% to GP during catch-up.
Step 4 — Carried interest split: Remaining distributions split between LP (80%) and GP (20% carried interest). This is the GP's profit share.
Our waterfall model computes: current unrealised NAV (based on portfolio fair values), accrued preferred return, GP catch-up status, and the resulting carried interest accrual. This feeds into the fund's financial statements and LP reporting. For Fund of Funds (Category II AIFs investing in other AIFs), we model waterfalls at both levels — the underlying fund and the fund-of-funds — computing the net NAV after both waterfall cascades.
NAV Reporting Requirements for LPs
SEBI requires AIFs to report NAV to investors at the prescribed frequency (semi-annual for Cat I/II, quarterly for Cat III). The NAV report must include:
Per-unit NAV: Total fund NAV divided by outstanding units. This determines the value of each LP stake.
Portfolio breakdown: Fair value of each portfolio holding, with methodology disclosure. LPs expect transparency on how each holding is valued — especially holdings where fair value has moved significantly from cost.
Capital account: Each LP contribution, distributions, expenses allocated, and current NAV of their stake. Must reconcile with the overall fund NAV.
Fee accrual: Management fees (typically 2% of committed or drawn capital), performance fees (carried interest accrual based on waterfall), and expenses — all deducted from gross NAV to arrive at net NAV.
Virtual Auditor provides the complete LP reporting package: individual portfolio company valuations, fund-level NAV roll-forward, capital account statements, and waterfall distribution computation — all compliant with SEBI reporting requirements and IPEV Guidelines.
AIF Valuation — Category Comparison
| Parameter | Cat I AIF | Cat II AIF | Cat III AIF |
|---|---|---|---|
| Type | VC, SME, Social | PE, Debt | Hedge funds |
| Valuation standard | IPEV Guidelines | IPEV Guidelines | Mark-to-market |
| NAV frequency | Quarterly | Quarterly | Monthly |
| Auditor review | Annual | Annual | Half-yearly |
People Also Ask
How often must AIF portfolios be valued?
Category I/II: at least every 6 months. Category III: every 90 days (quarterly). More frequent valuation may be required by the fund's PPM or LPA.
What valuation standard does SEBI require for AIFs?
SEBI recommends IPEV (International Private Equity and Venture Capital Valuation) Guidelines. The hierarchy: calibration to last transaction → market approach → income approach (DCF) → adjusted NAV.
SEBI AIF Valuation Requirements
SEBI AIF Regulations, Regulation 23: The fund shall ensure that the assets of the fund are valued by an independent valuer at least once in every six months for Category I and II AIFs, and at intervals not longer than 90 days for Category III AIFs. The valuation methodology shall be consistent and in line with SEBI-prescribed norms.
Category I AIFs
Venture capital funds, SME funds, social venture funds, infrastructure funds. Invest primarily in startups and early-stage companies. Valuation challenge: pre-revenue or early-revenue companies with limited financial history. Methods: Berkus, scorecard, venture capital method, recent transaction calibration.
Category II AIFs
Private equity funds, debt funds, fund of funds. Invest in growth-stage and mature companies. Valuation approaches: DCF, comparable company analysis, comparable transaction analysis, adjusted NAV for real estate/infrastructure holdings.
Category III AIFs
Hedge funds, PIPE funds. Complex trading strategies, derivatives, and listed securities. NAV computation at least quarterly (90 days). Mark-to-market for listed holdings; model-based fair value for unlisted/illiquid positions.
IPEV Guidelines
SEBI recommends adherence to International Private Equity and Venture Capital Valuation (IPEV) Guidelines for fair value determination. IPEV prescribes a hierarchy: calibration to recent transaction, then market approach, then income approach (DCF), then adjusted NAV.
Fund-Level Services
Portfolio Company Fair Value
Fund-Level NAV Computation
Waterfall Distribution Modelling
Carried Interest Calculation
Hurdle Rate Analysis
MOIC / IRR Computation
How Virtual Auditor Delivers This Differently
Our AIF valuation engine processes entire fund portfolios — valuing each holding using the appropriate method (calibrated to last round, market multiples, or DCF), then aggregating to fund-level NAV with waterfall distribution modelling. Automated computation of carried interest, hurdle rates, catch-up provisions, and MOIC/IRR metrics. Handles 10–50 portfolio companies per fund engagement.
Need Help With This?
Free 30-minute consultation with CA V. Viswanathan, FCA, ACS, CFE, IBBI RV. No obligation.