Many Alternative Investment Fund (AIF) schemes reach their first close with the help of the sponsor or the investment manager. External commitments fall slightly short of the minimum corpus, and the sponsor steps in to fill the gap so the scheme can launch on time. It is a common and legitimate practice, but it has a regulatory consequence that is sometimes overlooked: the part of that commitment used to meet the minimum corpus cannot later be reduced, withdrawn or transferred.
This article explains the minimum corpus lock-in, how it interacts with the separate continuing interest requirement for sponsors and managers, a worked example, and practical points for fund structuring and documentation.
Key points at a glance
- Every AIF scheme (other than an Angel Fund) must have a minimum corpus of ₹20 crore at first close under Regulation 10 of the SEBI (AIF) Regulations, 2012.
- A sponsor or manager commitment used to meet that minimum corpus cannot be reduced, withdrawn or transferred after first close, even if new investors join later.
- Separately, the sponsor or manager must keep a continuing interest: for Category I and II, the lower of 2.5% of corpus or ₹5 crore; for Category III, the lower of 5% of corpus or ₹10 crore.
- Continuing interest must be an actual investment, not a waiver of management fees.
- For Angel Funds, the manager's continuing interest was revised in September 2025 to the higher of 0.5% of each investment or ₹50,000.
What is the sponsor commitment rule for the minimum corpus?
The SEBI Master Circular for AIFs (now the Master Circular dated 3 June 2026) provides that the commitment made by the sponsor or manager at the time of first close, to the extent it is needed to meet the minimum corpus requirement, shall not be reduced, withdrawn or transferred after first close.
The rule has three features:
- It applies only to the portion of the commitment that was needed to reach the minimum corpus at first close.
- It applies after first close, for the life of the scheme.
- It covers all three routes out: reduction of the commitment, withdrawal of money, and transfer of units or commitment to another person.
Why SEBI requires the commitment to stay
The minimum corpus exists so that only schemes with real investor demand become operational. If a sponsor could commit money to cross ₹20 crore and then withdraw it once other investors joined, the threshold would be satisfied only on paper at the moment of first close.
- Genuine achievement of corpus: the scheme reaches ₹20 crore in substance, not just on the first close date.
- Investor confidence: early investors rely on the corpus and the sponsor's participation when committing.
- Alignment: the sponsor or manager has capital at risk alongside investors throughout.
- No artificial structuring: round-tripping or temporary bridges to meet a regulatory threshold are discouraged.
How is this different from continuing interest?
The minimum corpus lock-in is often confused with the continuing interest requirement in Regulation 10 of the SEBI (Alternative Investment Funds) Regulations, 2012. Both can apply at the same time, but they are separate tests.
| Aspect | Minimum corpus lock-in | Continuing interest |
|---|---|---|
| Source | SEBI Master Circular for AIFs | Regulation 10 of the AIF Regulations |
| Amount | The portion of sponsor or manager commitment needed to reach ₹20 crore at first close | Category I and II: lower of 2.5% of corpus or ₹5 crore. Category III: lower of 5% of corpus or ₹10 crore |
| Trigger | Declaration of first close with sponsor or manager support | Applies to every scheme |
| Can it change as the corpus grows? | No; the locked amount cannot be reduced, withdrawn or transferred | The required amount moves with the corpus, subject to the rupee cap |
| Form | Commitment and contribution to the scheme | Investment in the AIF, not a waiver of management fee |
Worked example: sponsor commitment at first close
Consider a Category II AIF scheme that needs ₹20 crore to declare its first close.
- At first close, external investors have committed ₹16 crore. The sponsor commits ₹4 crore to reach ₹20 crore.
- Over the next year, new investors commit a further ₹80 crore, taking the corpus to ₹100 crore.
- Continuing interest required: the lower of 2.5% of ₹100 crore (₹2.5 crore) or ₹5 crore, which is ₹2.5 crore.
- Although the continuing interest requirement is only ₹2.5 crore, the sponsor cannot reduce its ₹4 crore to ₹2.5 crore, because the full ₹4 crore was used to meet the minimum corpus at first close.
- The sponsor also cannot transfer its units or commitment to a group company or an incoming investor to free up the ₹4 crore.
If, instead, external investors had committed ₹19 crore and the sponsor ₹4 crore at first close, only ₹1 crore of the sponsor's commitment would have been needed for the minimum corpus. That ₹1 crore would be locked, and the balance would be governed by the continuing interest rules and the scheme documents.
Practical point: Document at first close how the minimum corpus was met, identifying the sponsor or manager commitment used for the purpose. This record answers questions from the trustee, the auditor carrying out the PPM compliance audit and SEBI years later, when the investor base has changed.
Special cases: Angel Funds and accredited investor schemes
Angel Funds
Angel Funds follow a separate regime in Chapter 8 of the Master Circular. After the September 2025 amendments, the manager's or sponsor's continuing interest is the higher of 0.5% of each investment or ₹50,000, contributed investment by investment, instead of a fund-level percentage. The general ₹20 crore minimum corpus does not apply to Angel Funds.
AI-only schemes and Large Value Funds
Accredited Investors-only schemes and Large Value Funds (minimum commitment of ₹25 crore per accredited investor from November 2025) enjoy several relaxations, but the sponsor and manager should confirm from the current regulations which continuing interest and corpus requirements continue to apply to the specific scheme before relying on any relaxation.
Common mistakes to avoid
- Treating sponsor money as a temporary bridge to be replaced by incoming investors.
- Transferring sponsor units to a related entity during a group restructuring without checking the lock-in.
- Counting a waiver of management fees towards continuing interest.
- Failing to call and contribute the sponsor's committed amount on the same drawdown terms as other investors.
- Not reflecting the lock-in in the PPM and contribution agreement, leading to mismatched investor expectations.
Practical checklist for sponsors and investment managers
- Before first close, decide how much sponsor or manager commitment is needed and whether that amount can stay invested for the full tenure.
- Record the commitment used to meet the minimum corpus in the first close documentation.
- Compute continuing interest separately, for the category of the scheme, and monitor it as the corpus grows.
- Ensure sponsor contributions are drawn down and paid like those of other investors.
- Flag the locked commitment in the transfer register so that no transfer is processed inadvertently.
- Include the lock-in and continuing interest in the annual PPM compliance audit scope.
Frequently Asked Questions on Sponsor Commitment in AIFs
Can the sponsor of an AIF withdraw its commitment after first close?
Not the portion used to meet the minimum corpus. The SEBI Master Circular prohibits reducing, withdrawing or transferring that commitment after first close.
What is the minimum corpus of an AIF scheme?
₹20 crore for each scheme under Regulation 10 of the SEBI (AIF) Regulations, 2012. Angel Funds follow a separate framework.
What is the continuing interest requirement for Category I and II AIFs?
The sponsor or manager must have a continuing interest of at least 2.5% of the corpus or ₹5 crore, whichever is lower. For Category III AIFs it is 5% of the corpus or ₹10 crore, whichever is lower.
Can continuing interest be met by waiving management fees?
No. Continuing interest must be in the form of an investment in the AIF and cannot be met through a waiver of management fees.
Can the locked sponsor commitment be transferred to a group company?
No. A transfer is specifically covered by the prohibition, so the sponsor must continue to hold that commitment for the life of the scheme.
Does the lock-in apply if the sponsor commitment was not needed to reach ₹20 crore?
The lock-in applies only to the extent the commitment was needed to meet the minimum corpus. Any excess is governed by the continuing interest rules and the scheme documents.
Conclusion
A sponsor or manager commitment that carries a scheme across the minimum corpus threshold becomes part of the scheme's foundation. It must stay in place after first close, regardless of how much capital the scheme later raises, and it sits alongside the separate continuing interest requirement.
Sizing that commitment realistically, recording it clearly at first close and monitoring it over the life of the scheme keeps the structure compliant in substance and not only in form.
This article is intended for general information and knowledge sharing only and does not constitute professional advice or solicitation of any kind. Provisions are summarised as of September 2026. Readers should refer to the relevant provisions, regulations and judicial pronouncements for their specific facts.