Co-investment lets you invest directly into a specific deal alongside an AIF, fund manager, or lead investor—usually with lower fees and more control, but higher concentration and diligence burden. In India, common routes include AIF co-investments (often via a co-investment vehicle), Co-investment Portfolio Managers (CIPM), angel syndicates/SPVs, and private club deals. (Resolut Partners, NLS BLR)
Why co-invest at all?
For HNIs and family offices, co-investments can offer:
- Targeted exposure to a single company/asset you like.
- Fee savings vs a blind-pool fund (often reduced or no carry/management fee on the sidecar).
- Control & visibility—you underwrite the specific deal.
But they demand faster decisions, deeper diligence, and you bear single-name risk.
What this guide covers
- What “co-investment” means under Indian regulations
- The main co-investment routes in India and how they differ
- Fee math and a simple return framework
- Risks, red flags, and a practical checklist
- Quick FAQs for investors
What is a co-investment?
A co-investment is a deal-by-deal allocation offered alongside a lead fund (e.g., a Category II AIF/PE/VC fund) where select investors participate directly in a particular investee company or asset, typically on the same commercial terms and exit timeline as the fund (co-terminus), subject to regulatory guidance. (Resolut Partners, NLS BLR, Khaitan & Co)
The main co-investment models in India
1) AIF LP co-investments (via CIV/SPV)
- How it works: The AIF’s manager offers a sidecar allocation into a specific portfolio company (often through a co-investment vehicle).
- Key rule-of-thumb: Co-investors should invest on the same terms as the AIF and typically exit pro-rata when the fund exits (to avoid preferential treatment or misalignment). Recent consultations reiterate this co-terminus approach. (Resolut Partners, NLS BLR)
- When it fits: You like the fund’s deal but want more exposure to this one name, possibly with lower fee drag than the main fund.
2) Co-Investment Portfolio Manager (CIPM) route
- What changed: SEBI paved a route for managers to provide co-investment services under the Portfolio Managers framework (often called CIPM). Regulatory materials and the Master Circular for Portfolio Managers (Mar 2023), plus subsequent circulars, frame operational aspects and change-in-control protocols for PMs providing co-investment services. (lexcomply.com, Securities and Exchange Board of India)
- Minimum ticket: The usual ₹50 lakh PMS minimum does not apply to co-investment portfolio managers, providing flexibility for deal-by-deal allocations to AIF investors. (Accredited investors also have exemptions.) (apmiindia.org)
- When it fits: You are an LP in an AIF (or eligible investor) seeking an administratively cleaner path to sidecars, with papering and custody handled by a regulated PM.
3) Angel syndicates / SPVs (India)
- How it works: Platforms form an SPV (LLP/company or platform-specific vehicle) to pool investor commitments into a single cap-table entry for a startup round.
- Notes: Platforms highlight governance and compliance mechanics (e.g., RUVs) and demat requirements for Indian private company securities. Indian residents generally can’t invest into US syndicates due to regulatory constraints; platforms enable Indian deals domestically. (angellistindia.com, help.angellist.com)
- When it fits: You want deal access in early-stage companies, prefer pooled diligence with a lead, and accept high risk & illiquidity.
4) Club deals among HNIs/family offices
- How it works: A set of families/HNIs invest directly via a deal SPV with negotiated rights (SHA/SSA).
- Pros/cons: Maximum flexibility and economics; requires heavy lifting on diligence, governance, and post-deal monitoring.
5) Real estate co-investments (private deals)
- How it works: Investors co-invest via an SPV/LLP alongside a developer or anchor for a specific project (land, redevelopment, warehousing, etc.).
- Compare with REITs: REITs are diversified, listed vehicles; project-level co-investments are concentrated and illiquid but may offer higher targeted returns. (See our guides on REITs and Fractional Real Estate for structures and risks.)
At-a-glance comparison
| Route | Typical structure | Who can invest | Fees (typical) | Liquidity | Best for |
|---|---|---|---|---|---|
| AIF LP co-invest | CIV/SPV alongside AIF | AIF LPs/eligible investors | Often reduced or nil carry/AMF on sidecar | Exit with fund | Increase exposure to a single AIF deal |
| CIPM | Co-investment under PMS regs | AIF investors/eligible clients | PM-negotiated; operational ease | Exit as per deal docs | Regulated pathway, smoother ops |
| Angel syndicate | SPV via platform | Resident angels/eligible investors | Platform/spv fees + carry | Illiquid until exit | Early-stage access |
| Club deal | Bespoke SPV | HNIs/family offices | Negotiated | Illiquid | Control & custom terms |
| Real estate SPV | Project SPV/LLP | HNIs/family offices | Promote + fees | Tied to project | Asset-backed exposure |
(AMF = annual management fee; “typical” varies—always check your side letter/IM/term sheet.)
How co-invest fees affect returns (simple math)
A quick way to see why fee drag matters:
- Gross Multiple (GM): Total exit proceeds / Invested capital
- Net Multiple (NM): (Exit proceeds – Fees – Carry – Expenses) / Invested capital
- IRR: The annualized rate that sets NPV of cash flows to zero.
Illustration: Suppose you invest ₹1 crore. Exit after 5 years at 2.0x gross (₹2 crore).
- Fund route (2% + 20% carry, simplified): Assume total fee/carry impact = ₹20 lakh.
- Net proceeds ≈ ₹180 lakh → NM ≈ 1.8x; IRR ~12.5–14% (ballpark).
- Co-invest sidecar (0% mgmt, 0–10% carry): Assume impact = ₹0–₹10 lakh.
- Net proceeds ≈ ₹190–₹200 lakh → NM ≈ 1.9–2.0x; IRR ~14–17% (ballpark).
Reality varies—read the side letter for exact carry, fees, broken-deal costs, and expense caps, which differ by manager and route.
Key regulatory guardrails (what to know)
- Same-terms & co-terminus exits: Recent guidance/consultations emphasize that co-investors should neither get more favorable terms than the AIF nor exit on a different timeline (to avoid conflicts). Expect pro-rata, pari-passu rights aligned with the fund. (Resolut Partners, NLS BLR, Khaitan & Co)
- CIPM flexibility on minimums: The ₹50 lakh PMS minimum does not apply to co-investment portfolio managers (and accredited investors enjoy separate flexibility), easing ticket sizes for deal-by-deal access. (apmiindia.org)
- Operational circulars: SEBI circulars outline process items (e.g., change-in-control for PMs offering co-invest services) and are consolidated in the Master Circular for Portfolio Managers. (Securities and Exchange Board of India, lexcomply.com)
- Angel platforms: Expect domestic structures, KYC, and demat for Indian private companies. Indian residents generally cannot invest in US syndicates today. (help.angellist.com)
Regulations evolve. Before committing, ask your advisor to confirm the latest circulars/consultation outcomes for your specific structure.
Risks and red flags to watch
- Adverse selection: Funds may prioritize their best capacity for themselves; ensure alignment via same-terms, pari-passu constructs. (Khaitan & Co)
- Concentration risk: A single deal can impair outcomes even if your fund performs.
- Governance & information rights: Check SHA/SSA, board observer rights, quarterly MIS, and audit standards.
- Follow-on funding risk: You might be asked to bridge rounds; clarify pro-rata rights and caps.
- Exit rigidity: If exits are tied to fund timelines, plan liquidity accordingly. (Resolut Partners)
- Process risk: KYC, custody, demat for private securities, and cashflow controls (escrow). (help.angellist.com)
Due-diligence checklist (print-friendly)
- Deal thesis: revenue model, unit economics, competitive moat.
- Governance pack: SHA/SSA, tag/drag, ROFR, information & inspection rights.
- Economics: exact carry, fee caps, broken-deal expenses, expense sharing.
- Structure: CIV/SPV deeds, investor rights, voting mechanics.
- Reg path: AIF category, CIPM/PM registration where applicable, demat process. (lexcomply.com, help.angellist.com)
- Valuation & round terms: liquidation preference, anti-dilution, ESOP overhang.
- Exit map: IPO/M&A/secondary timelines, alignment with fund exit rights. (Resolut Partners)
- Tax & compliance: capital gains characterization, withholding, FEMA if cross-border (consult your tax advisor).
Who should consider co-investments?
- HNIs/family offices who can evaluate single-name risk and deploy time into diligence.
- Investors already allocating to AIFs/PMS and wanting deal-by-deal overlays.
- Those comfortable with illiquidity and lumpy outcomes seeking to optimize fee drag.
FAQs
Q1. What is the minimum ticket size?
There is no universal minimum. Under PMS rules the general minimum is ₹50 lakh, but co-investment portfolio managers are exempt from this threshold (and accredited investors have flexibility). AIF sidecars and syndicates set their own deal minimums—often lower than standard fund commitments. (apmiindia.org)
Q2. Are co-investors guaranteed the same terms as the fund?
Not automatically—you must negotiate/confirm it. However, policy direction and market practice in India increasingly require same terms and co-terminus exits to prevent conflicts. Always verify your term sheet/side letter. (Resolut Partners, NLS BLR)
Q3. Can Indian residents invest in US angel syndicates?
As of now, platforms indicate Indian residents generally cannot participate in US syndicates; domestic syndicates are enabled. Cross-border flows are subject to FEMA and platform policies. (help.angellist.com)
Q4. How are returns taxed?
Tax depends on the asset (unlisted equity vs listed securities vs real estate SPVs), holding period, and investor profile. Seek personalized advice; structures can influence capital gains rates, TDS, and withholding.
Q5. How do co-investments compare with REITs or listed funds?
Co-investments are concentrated and illiquid with bespoke terms. REITs/listed vehicles are diversified and liquid but offer less control. Choose based on your risk tolerance, horizon, and need for control vs convenience.
Final word for Indian investors
Co-investments can be a high-impact satellite to a core portfolio—especially if you already back quality AIF managers. Focus on alignment (same terms), process hygiene (CIPM/AIF compliance), and exit clarity. If a deal fails any of these, pass.
Sources & references:
SEBI Portfolio Managers Master Circular; SEBI circulars for PMs offering co-investment services; consultation/analysis on AIF co-investments and pari-passu rights; AngelList India documentation on syndicates, demat, and cross-border constraints. (lexcomply.com, Securities and Exchange Board of India, Resolut Partners, NLS BLR, Khaitan & Co, angellistindia.com, help.angellist.com)
Disclaimer: This article is for education, not investment advice. Evaluate each deal with licensed professionals.