A capital call (also called a drawdown) is the mechanism by which an AIF requests committed capital from its Limited Partners (LPs). Done well, it's invisible: the cash arrives in the fund's account by the due date, gets reconciled to the unitholder register, and the investment proceeds. Done poorly, it produces missed deadlines, defaulting LPs, manual Excel reconciliation, and embarrassed General Partners. This guide walks through the end-to-end capital call process for Indian Category I and II AIFs.
When do you call capital?
An AIF does not call all committed capital upfront. Typically:
- An initial call of 5–10% is made at fund close, to cover establishment expenses and the first investments
- Subsequent calls are made as investment opportunities arise, with each call sized to the deal pipeline over the next 3–6 months
- Calls may also be made for fund management fees, audit fees, custodian fees, and other fund expenses
- By the end of the investment period (typically 4–5 years from final close), 90–100% of commitments should have been drawn
The Private Placement Memorandum (PPM) governs the maximum frequency of calls (usually no more than once a month or quarter) and the minimum notice period.
Notice format and lead time
A capital call notice must be in writing, signed by an authorised signatory of the fund manager, and contain:
- Date of the notice and unique call reference number (e.g., "Call No. 5 dated 15 May 2026")
- Total amount being called from the fund
- The investor's pro-rata share — amount in rupees, percentage of commitment, cumulative drawn after this call
- Funding date — usually 10–15 business days from notice
- Bank account details — fund's designated escrow or operating account
- Purpose of the call — investment in [Portfolio Company X], management fees for [period], etc.
- NACH mandate reference or wire instructions
- Consequences of default — interest rate, forfeiture provisions
Most Indian PPMs specify a 10-business-day notice period as standard, with shorter notice (5 business days) permitted for emergency calls if explicitly provided.
Pro-rata calculation
The pro-rata share of each LP is calculated as:
LP's call amount = (LP's commitment / Total fund commitment) × Total call amount
For example, in a ₹500 crore fund with an LP whose commitment is ₹50 crore (10%), a ₹40 crore call would require the LP to contribute ₹4 crore. The calculation is straightforward — what gets complex is:
- LPs admitted after first close, who need to pay "equalisation interest" on prior calls
- LPs who have defaulted on prior calls and whose commitment may have been reduced
- Calls that include a re-investment component for distributions previously made
NACH vs wire instructions
Indian AIFs typically support two collection modes:
- NACH (National Automated Clearing House) — a mandate-based debit from the LP's bank account, registered at the time of fund subscription. Settlement is T+1. Reliable for resident LPs.
- RTGS/NEFT wire — the LP initiates a push payment to the fund's bank account. Used for institutional LPs, FPIs, and large family offices. Settlement is same-day if initiated before 5 PM.
Most funds default to NACH for individual LPs and wire for institutions. The funding date specified in the call notice should give institutional LPs sufficient time to process the wire through their treasury department — sometimes 5+ working days for offshore FPIs.
Default mechanics
The PPM defines what happens when an LP fails to fund a capital call:
- Grace period: Most PPMs grant 5–10 business days after the funding date during which the LP can cure the default with penalty interest (typically SBI MCLR + 200–400 bps)
- Suspension of rights: A defaulting LP's right to receive distributions, vote on LP advisory committee matters, and participate in the next call is suspended
- Forfeiture: After the grace period expires, the GP may at its option declare a portion (commonly 25–50%) of the LP's previously contributed capital as forfeited. This is a draconian remedy and is rarely invoked, but its existence in the PPM is what gives LPs the incentive to pay
- Top-up by other LPs: The shortfall may be offered to non-defaulting LPs on a pro-rata basis, scaling up their commitments
SEBI's 2023 master circular on AIFs strengthened LP protections around default — funds must now provide a written notice of default and a 15-day cure period before exercising forfeiture rights.
Reconciliation and tracker
After the funding date, the fund administrator must reconcile incoming funds against expected amounts:
- Match bank statement entries to LP names using narration, UTR, or NACH transaction ID
- Flag any LP with shortfall, excess, or no payment
- Update the unitholder ledger with the new contributed capital and units allotted
- Issue contribution statements to each LP confirming receipt
- Allot units at the relevant NAV (or par for first call)
- Update the fund's general ledger with the capital received and recognise the investments made
Manual reconciliation in Excel is the single biggest source of operational risk in mid-sized AIFs. With 50 LPs and 4 calls per year, that's 200 individual transactions to track, reconcile, and report.
How Kapitalyze automates the capital call
Kapitalyze capital call management automates the entire workflow. From the LP commitment register, the platform generates pro-rata call schedules, produces personalised PDF notices for each LP with embedded payment instructions, and sends them via email and the LP portal with delivery confirmation.
On the funding date, the platform ingests the fund's bank statement (via API integration with HDFC, ICICI, Axis, and Kotak) and auto-reconciles incoming credits against expected amounts. Any LP with shortfall is flagged within minutes; cure notices are auto-generated for the grace period.
Unit allotments are calculated and posted to the unitholder ledger in real time. LPs see their updated contribution and NAV in the investor portal within an hour of funding. The drawdown calculator lets fund managers model future calls and project remaining commitments.
Frequently Asked Questions
Can an LP refuse a capital call?
An LP cannot refuse a properly issued capital call that complies with the PPM. Refusal is a default and triggers the default mechanics. The LP's only recourse if they believe the call is improper is to dispute it through the dispute resolution mechanism in the PPM (typically arbitration in Mumbai).
What is equalisation interest?
Equalisation interest is the rate (commonly SBI MCLR or fixed 8–10%) at which late-admitted LPs compensate earlier LPs for the time value of capital already deployed. It is computed on prior calls and paid into the fund for distribution to earlier LPs.
Can the fund call capital after the investment period ends?
Most PPMs restrict post-investment-period calls to (a) follow-on investments in existing portfolio companies, (b) management fees, and (c) fund expenses. Calls for new investments after the investment period are not permitted without LP consent.
How are foreign LP contributions handled under FEMA?
FPI investors fund through their special non-resident rupee accounts (SNRR) or designated foreign portfolio investor accounts. The AIF's designated custodian reports inward remittances to the RBI in form FC-GPR-like filings as required by the Master Direction on Foreign Investment.
What records must the fund maintain for capital calls?
Notices, LP acknowledgements, bank statements, unitholder ledger entries, and contribution statements must be maintained for 8 years under SEBI AIF Regulations and Rule 5 of the PMLA Rules.
Cash management and idle capital
One of the trickier aspects of capital call planning is balancing two competing pressures. On one hand, fund managers want to call capital just-in-time, because LPs strongly prefer not to have their committed capital sitting idle in the fund's bank account — every day of idle capital is a day of foregone return for the LP. On the other hand, the GP needs to be confident that capital will land in time for investment closing — wire and NACH settlement risk is real, especially around quarter-ends and Indian public holidays.
Best practice: call capital approximately 10–15 business days before the expected deployment date. Buffer for 1–2 LPs being slow. Park collected cash in liquid funds or overnight FDs to earn marginal yield while waiting for deployment. Some funds use a sweep facility that automatically moves balances above a threshold into liquid mutual funds.
LP communication around capital calls
Beyond the formal call notice, sophisticated fund managers maintain an ongoing communication cadence with LPs about expected calls:
- Quarterly LP updates mentioning expected drawdowns in the next 1–2 quarters
- 30-day heads-up email before a formal call notice, so LP treasury teams can prepare
- Call notice with explanatory cover detailing the investment thesis for the deal being funded
- Post-deployment update confirming the call was deployed as intended, with deal-level KPIs at the next quarterly report
LPs hate surprises. A predictable drawdown rhythm builds trust and reduces default risk. LPs that are caught off-guard by a call may delay, dispute, or in extreme cases default — even when they have the capital available. The cost of one such dispute — in fund manager time, lawyer fees, and damaged investor relationship — easily exceeds the benefit of a slightly more aggressive drawdown schedule.
Equalisation contributions for late-admitted LPs
Most Indian AIFs allow LPs to enter after the first close but before the final close, typically over a 12-month subscription window. Late LPs must "equalise" — they pay into the fund the amount they would have contributed at earlier calls, plus interest at the rate specified in the PPM. The fund distributes the equalisation interest to earlier LPs as compensation for the time value of the capital they had already deployed. The mechanics: late LP pays (prior call amount × their commitment percentage) + simple interest at SBI MCLR plus 200 bps from the original funding date.