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.

Regulatory Framework

Regulatory basis: Section 247 of the Companies Act, 2013 read with the Companies (Registered Valuers and Valuation) Rules, 2017; ICAI Valuation Standards, 2018 and International Valuation Standards.

Indicative Fee Structure

*Prices are indicative. Actual fees depend on complexity, capital structure, and regulatory requirements. Contact us for a detailed quote.

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

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

Need Help With This?

30-minute consultation with CA V. Viswanathan, FCA, ACS, CFE, IBBI RV. No obligation.

Step-by-Step Process

Step 1

Identify fund structure and investment stage

Step 2

Apply IPEV Valuation Guidelines

Step 3

Value portfolio companies individually

Step 4

Apply NAV methodology at fund level

Step 5

Document calibration to recent transactions

Step 6

Report for SEBI quarterly reporting

When Is AIF Valuation Not Required?

An independent AIF valuation may not be required when: (a) the AIF holds only listed securities valued at market price per SEBI regulations, (b) the fund is in its initial investment period with all investments at cost (within 6 months of investment), (c) the investment manager's internal valuation methodology is accepted by the fund auditor without qualification, or (d) the fund is in final distribution stage with all investments realised. SEBI mandates independent valuation for Category I and II AIFs at least once every 6 months.

If you are unsure whether your situation requires aif valuation, contact us for a free preliminary assessment. We will advise you honestly — including telling you if you do not need our services.

Documents Required

The following documents are needed to initiate the aif valuation process:

PAN card and Aadhaar of the entity/promoters, Certificate of Incorporation/Registration, last 3 years audited financial statements (with schedules and notes), shareholding pattern as on valuation date, details of any recent transactions in shares (last 2 years), business plan or financial projections (for DCF-based valuations), cap table with complete history of share issuances, and any regulatory correspondence relevant to the valuation purpose.

We provide a personalised document checklist after the initial consultation, tailored to your specific entity type and situation. Documents can be shared securely via email or our client portal.

What You Receive

Upon completion of the aif valuation engagement, you will receive: IBBI-format valuation report (typically 60-120 pages), executive summary with final value conclusion, detailed methodology explanation with assumptions and sensitivity analysis, compliance certificate confirming adherence to applicable valuation standards, and a management representation letter template.

All deliverables are reviewed by CA V. Viswanathan (FCA, ACS, CFE, IBBI RV) before release to ensure accuracy and regulatory compliance.

Updated for FY 2025-26

This service page reflects the latest regulatory requirements as of March 2026, incorporating changes from the Union Budget 2025, recent MCA notifications, CBDT/CBIC circulars, and RBI master directions applicable to aif valuation. Virtual Auditor continuously monitors regulatory updates to ensure all advice and filings are current.

Who Needs AIF Valuation?

A valuation is required when: (a) shares are being issued or transferred to/from a non-resident under FEMA regulations, (b) shares are issued at a premium and need Rule 11UA compliance under the Income Tax Act, (c) the company is undergoing merger/demerger/slump sale requiring fair value assessment, (d) ESOPs are being granted or exercised requiring Ind AS 102 fair value computation, (e) insolvency proceedings require liquidation value or fair value under the IBC, or (f) any regulatory framework mandates an independent valuation by a registered valuer.

Penalties for Non-Compliance

Using incorrect or outdated valuations can result in: (a) rejection of FEMA filings by the AD bank, requiring fresh valuation and re-filing with potential late filing penalties, (b) income tax additions under Section 56(2)(x) for inadequate consideration, attracting tax at slab rate plus interest under Section 234A/B/C, (c) disqualification of the ESOP scheme for non-compliance with Ind AS 102, and (d) personal liability of directors for transactions at undervalued prices under Section 66 of the Insolvency Code.

Proactive compliance is always cheaper than penalty. Contact Virtual Auditor for a compliance health check to identify and address any gaps before they become liabilities.

Government Portal and Online Filing

Filings related to aif valuation are submitted through the relevant government portal. We handle all online filings on your behalf, including portal registration, form preparation, document upload, and acknowledgment tracking. You do not need to navigate the portal yourself — we manage the entire digital interface.

What has changed in the law — reviewed October 2026

• Income-tax Act, 2025: assented to on 21 August 2025 and in force from 1 April 2026, it replaces the Income-tax Act, 1961 for tax year 2026-27 onward, and the Income-tax Rules, 2026 (notified 20 March 2026) replace the 1962 Rules. Section and rule numbers on this page are those of the 1961 Act and 1962 Rules, which continue to govern assessments, appeals and pending proceedings for assessment years up to 2026-27; for tax year 2026-27 onward the corresponding provisions of the 2025 Act apply, and our engagement letters quote both.