Money and investor economics

2 · Think of it like thisThink of a group trip where every friend pledges an amount. The total pledged is the trip budget, even if no one has paid yet. A fund's corpus is the total amount investors have committed in writing.

2 · Think of it like thisThink of pledging ₹1 lakh to a community project, to be paid when the organisers ask. You have not paid yet, but you have promised. A commitment is an investor's written promise to put a set amount into the fund over time.

2 · Think of it like thisThink of taking money in instalments from a promised family loan, only when you need it for the next stage of building a house. A drawdown is the fund taking part of investors' commitments when it needs money to invest or pay expenses.

2 · Think of it like thisThink of a bill asking for the next instalment. A capital call is the notice the manager sends investors, asking them to pay a part of their commitment by a date.

2 · Think of it like thisThink of the instalments you have actually paid towards a pledge. A contribution is the money an investor has really put into the fund, as against what was promised.

2 · Think of it like thisThink of a shop paying its owners a share of profits after a good season. A distribution is money the fund pays back to investors, from sale proceeds, interest or dividends.

2 · Think of it like thisThink of the monthly fee you pay a property manager to look after your flat, whether rent rises or not. The management fee pays the fund manager for running the fund, usually a yearly percentage, profit or no profit.

2 · Think of it like thisThink of a bar a high jumper must clear before earning a bonus. The hurdle rate is the minimum return investors must get first, before the manager takes any share of profits.

2 · Think of it like thisThink of a sales bonus that is paid only when results are good. Carried interest is the manager's share of profits, often 20%, paid only after investors get their money back and the hurdle.

2 · Think of it like thisThink of a runner who started late sprinting to reach an agreed position in the race. After investors clear the hurdle, a catch-up lets the manager receive a bigger slice of the next profits until it reaches its agreed share.

2 · Think of it like thisThink of water filling a row of buckets one after another: the next bucket gets water only when the one before is full. A distribution waterfall is the order in which fund money is paid out: capital back, then the hurdle, then any catch-up, then the profit split.

2 · Think of it like thisThink of the bank interest rate that would have given you the same result as your investment, taking into account when each rupee went in and came out. IRR measures how fast money grew, so timing matters a lot.

2 · Think of it like thisThink of saying 'I doubled my money'. MOIC tells you how many times your money has grown, without caring how long it took. 2x means every ₹1 became ₹2.

2 · Think of it like thisThink of the current value of your house minus the loan still owed on it. NAV is the value of everything the fund owns, minus what it owes. Divide it by the number of units and you get the value of one unit.

2 · Think of it like thisThink of your trip budget after keeping aside money for tickets and the hotel. Investable funds are the corpus minus the expected running costs of the fund over its life. Many investment limits are worked out on this figure, not the full corpus.

2 · Think of it like thisLike a security deposit a landlord asks for: it shows you can stand behind your commitments.