AIF Fees Explained With a ₹1 Crore Example

A ‘2 and 20’ description is incomplete. The investor must know what the 2% is charged on, for how long, which expenses sit outside it, whether the hurdle is preferred or hard, and how catch-up and carry operate. Small drafting differences can change the net result.

Management fee may be charged on commitment, invested capital or another base that can step down.

Carry is the manager’s share of eligible profits after the contractual waterfall.

Fund expenses, taxes and broken-deal costs may be additional.

A 20% carry does not always mean 20% of total profit in every period.

IRR-based hurdles can behave differently from simple-return thresholds.

Gross target returns can obscure the investor’s net cash result.

Before acting, answer five questions in writing: request a worked waterfall for ₹1 crore; check fee base and step-down dates; list expenses outside management fee; confirm clawback and escrow provisions; and model low, base and high outcomes.

Never approve a fee structure you cannot reproduce with a calculator and the legal wording.