Onboarding LPs: KYC and accreditation for first-time GPs

Most first-time GPs underestimate the LP onboarding workflow. The instinct is to treat it as a paperwork tail-end of the fundraising effort, something the fund administrator handles. By the time the LP is signed, the thinking goes, the hard work is done.

It is not. LP onboarding is where four overlapping regulatory regimes meet — SEBI's AIF rules, the Income Tax Act's accredited-investor and source-of-funds requirements, the global FATCA/CRS reporting framework, and the fund's own subscription agreement. The fund administrator handles the mechanics but only the GP and the GP's counsel can resolve the substantive questions that arise.

This article walks through what onboarding actually involves for a Category I or Category II AIF, the four documentation regimes, and the four onboarding failures that we see repeatedly with first-time GPs.

The documents an LP signs and submits

Subscription form (Form-A). The LP's commitment letter to the fund. Specifies the commitment amount, the class of units, the LP's representations on accredited-investor status, and the LP's signature accepting the LPA terms.

KYC documentation. PAN, address proof, identity proof, photograph. For individual LPs: PAN, Aadhaar or passport, address proof, photograph. For corporate LPs: company PAN, incorporation certificate, address proof, board resolution authorising the investment, KYC of authorised signatories.

Source of funds declaration. Statement of how the LP intends to fund the commitment. For individual LPs this is typically a CA-certified networth statement plus bank statements showing the source of liquid funds. For corporate LPs it is audited financial statements plus board confirmation that the commitment is within the company's investment authority.

Accreditation declaration. Statement that the LP meets the SEBI eligibility threshold: ₹2 crore net worth and ₹1 crore in financial assets for individuals, or the corporate equivalent. Self-certified at the LP level but verifiable from the source-of-funds documents.

FATCA/CRS declaration. Statement of the LP's tax residency for FATCA (US) and CRS (other jurisdictions) reporting. Required for every LP regardless of nationality because the fund needs to know its FATCA/CRS reporting universe.

Bank mandate. Account details for capital calls (where the LP pays from) and distributions (where the LP receives funds). Bank verification letter or cancelled cheque.

The sequencing that matters

The fund administrator typically wants the entire pack of documents before opening the LP account. The GP wants the subscription commitment locked in early so the fundraise count is updated. These two interests conflict and the standard resolution is a conditional acceptance: the GP accepts the LP commitment subject to KYC and source-of-funds verification within a specified window (usually 30 days).

The conditional acceptance lets the fundraise progress without waiting for every LP's paperwork. The risk is that an LP commits, gets included in the fundraise count, and then fails KYC for an unanticipated reason — typically a source-of-funds issue or a FATCA misclassification. We have seen first closes have to be re-announced because a major LP failed KYC after the GP had already publicised the close.

The four onboarding failures we see repeatedly

1. Source of funds inadequately documented. Individual LPs sometimes assume that a bank statement showing the commitment amount in their account is sufficient proof of source. It is not. The fund administrator needs to trace the source back at least one step — was the money inherited (estate documentation), earned (income tax returns showing accumulated income consistent with the wealth), gifted (gift deeds), or sold from another investment (sale documentation). For a ₹5 crore commitment from a 35-year-old LP, a bank statement alone is not going to satisfy the KYC standard.

2. FATCA/CRS declarations missed or misclassified. US persons (citizens, green card holders, US tax residents) need to file a W-9 form. Non-US persons file a W-8BEN or W-8BEN-E. Indian LPs are not US persons in the normal case, but Indian LPs who hold green cards, or who are US tax residents under the substantial-presence test, need to declare as US persons. Missing this triggers FATCA penalties for the fund and creates retrospective reporting obligations. The fund administrator typically catches this but only if the LP fills the form correctly in the first place.

3. NRI LPs missing RBI clearances. NRIs investing in Indian AIFs need to source funds from an NRE (non-resident external) account or an NRO (non-resident ordinary) account, with FEMA implications. Some NRI LPs assume that any Indian bank account works. It does not. NRI investments into AIFs are subject to specific RBI reporting requirements under the Foreign Exchange Management Act, and the AIF needs to file the appropriate FC-GPR returns for NRE-sourced investments. Getting this wrong creates a regulatory exposure for the fund.

4. Family office sub-account structures unclear. Family offices in India typically invest through a structure of related entities — a trust, an LLP, a holding company. When the family office commits ₹50 crore to the fund, the question is which entity is the actual LP. Sometimes the answer is split across multiple entities, in which case each entity is a separate LP from the fund's perspective with its own KYC, its own accreditation declaration, and its own source-of-funds. Family offices often resist this complexity and the first-time GP accommodates them. Then the fund administrator cannot process the subscription because the structure is unclear. We have seen onboardings stall for six weeks on this point.

The Custodian KYC overlay

For Cat III funds (and for Cat I/II funds with a custodian), the custodian runs its own KYC process in parallel to the fund administrator's. The custodian's KYC has different standards — typically tighter on source of funds, looser on accreditation. The two KYC processes need to be reconciled before the LP's first capital call can be drawn.

We tell GPs to pick a custodian and a fund administrator that already work together regularly. The KYC reconciliation between two parties that have an existing operational relationship is straightforward. The reconciliation between two parties working together for the first time creates documentation gaps that surface at capital call time, which is the worst time to resolve them.

The accreditation framework changes in 2026

SEBI's consultation paper on a formal accreditation agency framework is likely to land in 2026 as binding regulation. The expected shape: LP eligibility is verified once by a SEBI-recognised accreditation agency, the agency issues a certificate that is valid for a defined period (likely two years), and the fund's KYC burden is reduced to certificate verification.

For funds raising in 2026, this changes the onboarding workflow. LPs who already hold accreditation certificates from the new agencies will be quick to onboard. LPs who do not will need to first apply for accreditation, which adds time to the onboarding cycle. We expect a transition period of about a year during which both old-style and new-style verification will run in parallel.

The onboarding handbook every first-time GP needs

A working onboarding handbook covers: the LP pack (Form-A, KYC requirements, source-of-funds template, FATCA/CRS forms, bank mandate), the GP-side review checklist (what the GP's counsel reviews before the fund administrator opens the account), the fund administrator's review checklist (operational standards), the custodian's review checklist (if applicable), and the issue resolution workflow (what happens when an LP fails KYC).

Most first-time GPs do not have this handbook. They run the first fundraise off ad-hoc workflows and accumulate institutional knowledge as issues arise. By the second fundraise, the handbook gets written. We push for the handbook to be in place before first close of the first fund. It saves real time across the fundraise.

One workflow, four regimes, one goal

LP onboarding is a sequenced documentation exercise that lives at the intersection of four regulatory regimes. The fund administrator runs the mechanics. The GP and the GP's counsel resolve the substantive issues. The custodian (where applicable) runs a parallel verification. All four parties need to be aligned for the LP to move from commitment to capital call. When the system works, onboarding takes two to three weeks per LP. When it does not, it takes two to three months and the fundraise count slips.