An AIF commitment is larger than cash already called
Series X-A case study · set 3, case 5 of 9 · 5 questions · 1 mark each
Question 1 of 5Case practice
0 right · 0 wrong · 5 to go
The case · stays here for all 5 questions
An investor commits ₹50 lakh to a fictional closed-end fund under a contract allowing later capital calls. The fund has called and received ₹30 lakh so far. It has distributed ₹5 lakh to the investor, and the investor’s remaining interest has a reported value of ₹35 lakh at the measurement date. The contract does not reduce uncalled commitment when distributions are made, and no recallable-distribution clause applies in this example. The investor cannot assume an immediate secondary-market sale. Ignore fees beyond those already reflected in the reported figures and do not calculate IRR because cash-flow dates are not given.
All people, firms, prices and contract terms are fictional.
Ignore taxes and transaction costs unless the case explicitly includes them.
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The case and its answers
Every question of this case, with its answer and why each other option is wrong.
An investor commits ₹50 lakh to a fictional closed-end fund under a contract allowing later capital calls. The fund has called and received ₹30 lakh so far. It has distributed ₹5 lakh to the investor, and the investor’s remaining interest has a reported value of ₹35 lakh at the measurement date. The contract does not reduce uncalled commitment when distributions are made, and no recallable-distribution clause applies in this example. The investor cannot assume an immediate secondary-market sale. Ignore fees beyond those already reflected in the reported figures and do not calculate IRR because cash-flow dates are not given.
All people, firms, prices and contract terms are fictional.
Ignore taxes and transaction costs unless the case explicitly includes them.
Q1How much of the original commitment remains uncalled?
Option A. ₹20 lakh — Correct answer
Option B. ₹25 lakh
Why it is wrong: This incorrectly adds the distribution to uncalled commitment.
Option C. ₹15 lakh
Why it is wrong: This incorrectly subtracts the distribution from uncalled commitment.
Option D. ₹50 lakh
Why it is wrong: This ignores capital already paid.
Answer: A. ₹50 lakh − ₹30 lakh = ₹20 lakh. Remember: Committed capital and contributed capital are different quantities.
Hint, shown before you answer in practice mode: Subtract paid-in capital from the commitment.
XA-S3-C05-Q1easynumerical
Q2What is the total value represented by distributions plus the remaining interest?
Option A. ₹30 lakh
Why it is wrong: This is paid-in capital, not total value.
Option B. ₹55 lakh
Why it is wrong: This adds uncalled commitment as though it were an asset value.
Option C. ₹40 lakh — Correct answer
Option D. ₹35 lakh
Why it is wrong: This omits money already distributed.
Answer: C. ₹5 lakh + ₹35 lakh = ₹40 lakh. Remember: Fund performance can include realised distributions and unrealised residual value.
Hint, shown before you answer in practice mode: Include both cash already received and residual value.
XA-S3-C05-Q2mediumnumerical
Q3What is total value divided by paid-in capital, rounded to two decimals?
Option A. 1.33 times — Correct answer
Option B. 1.67 times
Why it is wrong: This divides commitment by paid-in capital.
Option C. 0.80 times
Why it is wrong: This divides by total commitment instead of paid-in capital.
Option D. 1.17 times
Why it is wrong: This omits distributions from total value.
Answer: A. (₹5 lakh + ₹35 lakh) ÷ ₹30 lakh = 1.33 times. This multiple does not reflect the timing of cash flows. Remember: A value multiple is not the same measure as annualised IRR.
Hint, shown before you answer in practice mode: Use ₹40 lakh of total value and ₹30 lakh actually paid.
XA-S3-C05-Q3mediumnumerical
Q4What is the reported gain over paid-in capital, including the residual value?
Option A. ₹35 lakh
Why it is wrong: This treats the entire residual value as gain.
Option B. −₹10 lakh
Why it is wrong: This compares total value with the full uncalled commitment.
Option C. ₹5 lakh
Why it is wrong: This counts only distributions.
Option D. ₹10 lakh — Correct answer
Answer: D. ₹40 lakh total value − ₹30 lakh contributed = ₹10 lakh. Part of this is based on the reported, unrealised residual value. Remember: Reported gains should distinguish valuation from cash realised.
Hint, shown before you answer in practice mode: Subtract paid-in capital from total value, not from commitment.
XA-S3-C05-Q4mediumnumerical
Q5What should the adviser recognise when planning the investor’s liquidity?
Option A. The entire ₹50 lakh commitment has already been paid.
Why it is wrong: Only ₹30 lakh has been called.
Option B. The ₹35 lakh residual value is guaranteed cash available tomorrow.
Why it is wrong: The interest is not assumed readily saleable.
Option C. The investor may still need to fund ₹20 lakh of calls and cannot rely on a quick sale of the interest. — Correct answer
Option D. No more cash is needed because a distribution has occurred.
Why it is wrong: The case explicitly leaves the remaining commitment unchanged.
Answer: C. Uncalled commitments can create later cash needs. A reported value does not automatically provide cash on demand. Remember: Alternative-investment planning must cover both capital calls and exit liquidity.
Hint, shown before you answer in practice mode: Consider future obligations and the marketability of the residual interest together.
XA-S3-C05-Q5mediumapplication
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