Part 33 closes out this batch with a structuring topic that becomes relevant once a manager's ambitions extend beyond a single, single-jurisdiction fund vehicle.
Q1. What is a master-feeder fund structure, in simple terms?
A master-feeder structure involves one or more "feeder" vehicles — each raising capital from a distinct investor pool, often organised by jurisdiction or investor type — that in turn invest their pooled capital into a single "master" fund, which makes the actual underlying portfolio investments. Investors in different feeders ultimately share the same underlying investment portfolio through the master.
Q2. Why would a fund manager use a master-feeder structure instead of a single fund raising from all investors directly?
Commonly to accommodate different investor pools with different regulatory, tax, or currency requirements — for instance, a domestic Indian feeder for resident investors under the SEBI AIF framework, and an offshore or GIFT City feeder for foreign investors — while still pooling all capital into one underlying investment strategy through the master fund, avoiding the inefficiency of running entirely separate, unrelated portfolios.
Q3. Is a master-feeder structure recognised and specifically accommodated under SEBI's AIF Regulations?
The AIF Regulations framework accommodates various fund-of-funds and layered investment structures, and master-feeder arrangements involving AIFs (including scenarios where a domestic AIF feeds into another AIF, or where structures link to GIFT City-based vehicles) are structured within this broader regulatory framework — the specific permissible structuring should be confirmed against current SEBI and, where relevant, IFSCA regulations for the specific combination of feeder and master jurisdictions involved.
Q4. What is a "parallel fund" structure, and how does it differ from a master-feeder structure?
A parallel fund structure involves two or more separate, independently constituted fund vehicles that invest alongside each other in the same underlying portfolio investments, typically in a fixed proportion, rather than one feeding capital into a single master vehicle — each parallel fund makes its own direct investment into portfolio companies (in parallel with the other fund(s)), rather than routing through a shared master fund.
Q5. Why might a manager choose a parallel fund structure over a master-feeder structure?
Parallel structures can offer greater structural independence and flexibility for investors in each vehicle (useful where different investor pools require materially different governance, tax, or regulatory treatment that a shared master fund structure would complicate), at the cost of some additional operational complexity in coordinating parallel investment execution across multiple vehicles for every portfolio transaction.
Q6. How are management fees and carried interest typically allocated across feeder vehicles in a master-feeder structure?
Fees and carry are typically calculated and allocated proportionally based on each feeder's share of capital invested into the master fund, following the same underlying fee/carry mechanics (see Parts 13, 14, and 23 of this series) applied consistently across the combined structure, though the specific fee terms offered to different feeders can, in some structures, vary based on investor type or negotiated terms.
Q7. Does each feeder fund in a master-feeder structure need its own separate SEBI (or applicable regulator) registration?
Generally yes — each feeder vehicle, to the extent it independently pools investor capital and is itself an AIF (or equivalent regulated vehicle in its jurisdiction), would typically require its own registration under the applicable regulatory framework for that vehicle's jurisdiction and investor base, distinct from the master fund's own registration.
Q8. How does NAV computation work across a master-feeder structure — is there one NAV, or separate NAVs per feeder?
The master fund computes NAV for its own underlying portfolio; each feeder's own NAV is then derived based on its proportional interest in the master fund, adjusted for any feeder-level specific expenses or fee arrangements that differ from the master level — meaning feeder-level NAV isn't necessarily numerically identical to a simple pro-rata share of master NAV if feeder-specific costs exist.
Q9. What operational complexity does a master-feeder structure add to fund accounting compared to a single fund vehicle?
Meaningfully more — capital calls, distributions, and reporting need to be coordinated and reconciled across both the feeder and master level, with each feeder's investors ultimately needing reporting that reflects the underlying master fund's portfolio performance translated through their specific feeder's terms and any feeder-level adjustments.
Q10. Can investors move between feeders in a master-feeder structure (e.g., a foreign investor becoming a resident investor mid-fund)?
This isn't a routine, simple transaction — it would generally require the investor to exit their position in one feeder and separately subscribe into the other feeder (subject to that feeder's own eligibility conditions and available capacity), effectively treated similarly to any other transfer or new subscription, rather than an automatic internal reclassification.
Q11. Does using a master-feeder structure change the tax pass-through analysis compared to a single-vehicle fund?
The pass-through analysis needs to be worked through carefully at each level of the structure — the character and taxability of income as it flows from portfolio companies to the master fund, and then from the master fund to each feeder, and finally to each feeder's own investors, particularly where feeders sit in different jurisdictions with different applicable tax treaties and domestic tax rules.
Q12. What should a manager weigh before deciding between a master-feeder and a parallel fund structure for a new multi-investor-pool fund raise?
The specific mix of investor types and jurisdictions being targeted, the operational capacity to manage the added complexity of either structure, the relative importance of a single unified NAV/reporting framework (favouring master-feeder) versus greater independence between investor pools (favouring parallel structures), and specific tax and regulatory considerations applicable to each investor pool being targeted.
Structuring Multi-Jurisdiction Fund Raises Correctly From the Start
Master-feeder and parallel fund structures carry real operational and compliance complexity that needs to be designed in from day one, not retrofitted after a fund has already begun raising capital from a single vehicle. We advise managers on structuring across domestic, GIFT City, and offshore investor pools.
This FAQ is for general informational purposes and does not constitute structuring advice specific to any fund's multi-jurisdiction plans.