Recent developments in US semi-liquid credit strategies have sparked questions around whether similar risks could emerge in India. However, the issue appears less about credit quality and more about fund architecture and liquidity design. Structurally, India and the US operate very differently and those differences matter.
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| India | Comparison | USA |
|---|---|---|
| Semi liquid private credit funds invest in illiquid assets. However, they focus on granularity, diversification, shorter duration, liquidity & redemption management, and predominantly investment grade instruments. | Semi-liquid/evergreen funds offered periodic redemptions while investing in illiquid, long-duration assets. They often take exposures to software/technology-backed companies, real estate, infrastructure, etc. | |
Semi liquid structures largely operate through SEBI-regulated Category III AIFs. Redemption windows:
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Presence of interval funds, tender-offer funds, non-traded business development companies (BDCs), and non-traded real estate investment trusts (REITs). Redemption windows:
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| Maturity mismatches are largely absent by fund architecture. Investments are well-diversified and predominantly investment grade. | Stress is driven by liquidity mismatch and sector concentration. Software is one of the largest sector exposures across semi liquid funds (BDCs), which are currently facing significant stress and triggered a surge in redemption requests. | |
| Minimum AIF ticket size of ₹1 crore restricts participation largely to institutions, family offices & sophisticated investors. | Broader investor participation can amplify redemption cycles. | |
| UHNIs and institutional participation creates a more insulated ecosystem. | Retail participation can convert fund-level stress into broader market stress. |
The distinction between India and the US is ultimately a difference in fund architecture. While parts of the US market are testing liquidity promises, India has largely avoided such risks through structures that better align investor’s redemption requirements with fund’s investment and liquidity management strategy.
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