NISM Series XIX-A · Chapter 11
Valuation
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An AIF's reported value, and therefore its reported returns, rest on how its mostly unlisted investments are valued. This chapter explains fair value, the main valuation methods, how a stake's value is worked out from a company's enterprise value, and the rules and safeguards for valuation in Indian AIFs.
1Fair value
Investments are reported at fair value: the price that would be received to sell the asset in an orderly transaction between market participants on the valuation date. It is not the cost, and not a forced-sale price.
For unlisted companies there is no market price, so fair value is estimated using methods and judgement. Indian AIFs follow internationally accepted guidance, such as the International Private Equity and Venture Capital (IPEV) Valuation Guidelines, as SEBI's valuation framework requires.
2Valuation methods
| Approach | How it works | Best for |
|---|---|---|
| Market multiples | apply multiples (EV/EBITDA, P/E, EV/revenue) of comparable listed companies or recent deals | profitable or established businesses |
| Price of recent investment | use the price of a recent funding round, adjusted if things have changed (calibration) | early-stage companies soon after a round |
| Discounted cash flow (DCF) | discount expected future cash flows at a suitable rate | businesses with forecastable cash flows, infrastructure |
| Net assets | value the underlying assets minus liabilities | asset-heavy or holding companies, or failing businesses |
| Quoted price | use the listed market price | listed holdings |
Private credit investments are usually valued on expected cash flows and credit risk, with impairment if the borrower is in trouble.
Remember
- Multiples, recent round, DCF, net assets, quoted price.
- Recent round prices must be checked (calibrated) as time passes.
3From enterprise value to the fund's stake
Enterprise value (EV) is the value of the whole business. Equity value = EV − net debt (debt minus cash). The fund's stake is its share of the equity value, after any preferences in its instruments.
Example A company's EBITDA is ₹40 crore and comparable companies trade at 8x EV/EBITDA. EV = ₹320 crore. Net debt is ₹70 crore, so equity value = ₹250 crore. A fund owning 20% values its stake at ₹50 crore.
4Rules and safeguards
- Independent valuer: Category I and II AIFs must have their investments valued by a valuer independent of the manager, with the qualifications SEBI requires.
- Frequency: at least every six months for Category I and II (annually with approval of 75% of investors by value). Category III NAV: at least quarterly (close-ended) or monthly (open-ended).
- Consistency: methods should be applied consistently. Changes should be explained to investors.
- Conflicts: managers have an incentive to overstate value (to flatter performance and support fundraising). Independent valuation, audit and investor committee review reduce this risk.
Remember
- Equity value = EV − net debt.
- Independent valuer; Cat I/II at least half-yearly.
Original summary written by Integrato Digital to complement the official NISM workbook (March 2026 version). Read the workbook for the full text.