Distribution waterfall calculator.
Model preferred return, GP catch-up, and 80/20 carry. Compare European whole-fund vs American deal-by-deal structures for SEBI AIFs and global funds.
Your inputs
Capital actually deployed by the fund.
Gross proceeds available for distribution.
LP minimum return before GP earns carry.
Time-weighted to compute preferred return.
| 1. LP return of capital | ₹80 Cr |
| 2. LP preferred return @ 8% over 5yr | ₹37.55 Cr |
| 3. GP catch-up | ₹9.39 Cr |
| 4a. LP residual @ 80% | ₹98.45 Cr |
| 4b. GP carry @ 20% | ₹24.61 Cr |
| Total LP | ₹216 Cr |
| Total GP | ₹34 Cr |
The four tiers of a waterfall.
A distribution waterfall is the contractually-agreed order in which a fund returns exit proceeds to LPs and the GP. The standard structure in Indian AIFs and global PE/VC funds has four tiers.
Tier 1 — Return of capital. LPs get back the capital they actually drew, before anyone earns a profit share. Formula: tier1 = min(proceeds, drawn_capital).
Tier 2 — Preferred return (hurdle). LPs receive an annualised preferred return on their drawn capital — typically 8% for Indian AIFs. We compound this to year N: pref = drawn × ((1 + hurdle)^years − 1). If the fund doesn't clear the hurdle, the GP earns no carry.
Tier 3 — GP catch-up. Once LPs have their preferred return, the GP catches up so that, looking at total profits to date, the GP holds its carry percentage (e.g. 20%). Full catch-up means 100% of distributions go to the GP until caught up. 50/50 split slows it down. None skips this tier entirely.
Tier 4 — Carried interest split. Remaining proceeds are split (100 − carry%) : carry% — typically 80:20 — between LPs and GP.
European vs American. European (whole-fund) treats the entire fund as one pot: LPs must get all drawn capital + preferred return back across the fund before any carry is paid. American (deal-by-deal) computes carry per-exit: the GP earns carry as soon as a single deal generates returns, with potential clawback at fund end if later deals underperform.
Indian context. SEBI AIF Regulations 2012 require Category I/II AIFs to disclose waterfall mechanics in the PPM. Sponsor commitment must be at least 2.5% of corpus (or ₹5 Cr, whichever is lower). Category III AIFs are taxed at the fund level; Cat I/II are pass-through with carry typically taxed as business income or LTCG in the GP's hands.
Caveats. This calculator models a single exit at year N from a pool of drawn capital. Real funds have staggered drawdowns, multiple exits, management fee offsets, and clawback provisions. Use this for direction; fund-admin software (or a spreadsheet you trust) for binding numbers.
Questions GPs and LPs ask.
What is a distribution waterfall?+
A distribution waterfall is the contractual order in which an investment fund distributes exit proceeds between its LPs and the GP. Typical tiers: return of capital, preferred return (hurdle), GP catch-up, and 80/20 carry split of the remaining profits.
European vs American waterfall — what's the difference?+
European (whole-fund) waterfall: LPs receive 100% of returns until they've recouped all drawn capital across the entire fund, then the hurdle, then carry kicks in. American (deal-by-deal): each deal's carry is computed independently as soon as the deal exits — better for the GP, riskier for LPs because clawback may be needed.
What is the preferred return or hurdle rate?+
The preferred return (hurdle) is the minimum annualised return LPs must earn before the GP is entitled to carry. In Indian AIFs, the hurdle is typically 8%. Until LPs hit this, the GP earns no performance fee.
What is GP catch-up?+
After LPs receive their preferred return, the GP catches up so that, looking back at profits to date, the GP has earned its carry percentage (e.g. 20%). Full catch-up means 100% of distributions go to the GP until they've caught up. Partial (50/50) splits the catch-up tier.
How does SEBI AIF Regulations 2012 affect waterfalls?+
SEBI requires Category I and II AIFs to maintain a minimum sponsor commitment of 2.5% of corpus (or ₹5 Cr, whichever is lower). Carry/performance fee is paid only after the hurdle to LPs. Waterfall mechanics must be disclosed in the PPM (Private Placement Memorandum).
What is MOIC vs IRR?+
MOIC (Multiple on Invested Capital) is total distributions / drawn capital — a raw multiple ignoring time. IRR (Internal Rate of Return) is the annualised time-weighted return. A 2.5x MOIC over 5 years is roughly 20% IRR; over 10 years it's roughly 10% IRR.
Is GP carry taxed in India?+
Category I/II AIFs are pass-through; carry is taxed in the hands of GP partners as business income or capital gains depending on classification. Category III AIFs are taxed at the fund level. Tax treatment of carry is a topic of ongoing CBDT clarification.
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