Minimum Ticket, Joint Subscription and an Unverified Accreditation Claim
An AIF distributor is onboarding a first-time investor for a close-ended Category II private equity fund whose private placement memorandum sets a minimum commitment of Rs 1 crore and a maximum of 1,000 investors. The investor has Rs 60 lakh of liquid savings and wants to commit immediately. The distributor proposes three options: (i) the investor and his spouse subscribe jointly for Rs 1.2 crore; (ii) the investor, two friends and a cousin form a private LLP that subscribes for Rs 1.6 crore, with each member contributing Rs 40 lakh; or (iii) treat the investor as an accredited investor so that a Rs 25 lakh ticket is accepted based on his verbal confirmation of income. The investor has not provided accreditation evidence, the LLP has no operating business, and its bank account was opened two weeks ago. The fund’s subscription deadline is in five days and the distributor says the compliance team is too slow.
1. Can the distributor accept any of the three routes? Explain the compliance and distribution issues.
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None of the three routes should be accepted as presented. The fund’s PPM and the AIF framework set a minimum commitment that the distributor cannot waive to meet a deadline. A joint subscription does not turn two smaller contributions into one compliant ticket unless the fund documents expressly permit joint holders and each beneficial owner is identified, KYC-checked and independently eligible; the safer distribution answer is to decline. The LLP is not a magic wrapper: it is a pooled vehicle with recent incorporation, no operating business and multiple beneficial owners. The distributor must look through to the members, verify ultimate beneficial ownership and source of funds, and consider whether the LLP is a collective investment arrangement requiring registration. The accredited-investor claim is also unsupported: verbal income confirmation is not verification, and any carve-out must be permitted by the fund documents and the applicable framework. The deadline and the compliance team’s speed are irrelevant to these controls.
2. What onboarding evidence should be obtained before any subscription, and how should the distributor document the decision?
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Before any subscription, the distributor should obtain the investor’s PAN, identity and address proof, bank account details, source-of-funds evidence, FATCA/CRS declarations and a completed KYC record. For the LLP route, it should obtain the LLP agreement, incorporation documents, authorised signatory resolution, ownership and beneficial-ownership chart, KYC for each partner and evidence that the LLP is not an unregistered pooled investment vehicle. For the accreditation claim, it should obtain the documented eligibility evidence required by the fund and confirm that the PPM permits the lower ticket. The distributor should also complete a suitability assessment and record why the recommended commitment is appropriate. The decision to decline or proceed should be recorded in a dated file note, with the reasons, documents reviewed and any escalation to compliance. If the investor refuses to provide evidence, the distributor should not accept the subscription and should not suggest alternative structures to avoid the minimum.