PMS Bazaar recently organized a webinar titled “Why Investors Are Turning to Semi-Liquid Credit Funds?” which featured Mr. Dipen Ruparelia, Chief Business and Product Officer, Vivriti Asset Management. This blog covers the important points shared in this insightful webinar.

The webinar blog covers insights from Mr. Ruparelia, which includes, private credit for HNIs, focusing on semi-liquid funds that balance liquidity and high returns. These funds target mid-market corporates, reduce reinvestment risk, and offer predictable, tax-efficient income. With strict deal selection and diversification, they provide stability and superior post-tax returns, making them ideal for investors with one-to-three-year horizons amid market volatility.

Key aspects covered in this webinar blog are

• Mr. Dipen Ruparelia’s perspective on debt investments
• The case for debt in volatile times
• Public vs. private debt: finding the alpha
• Understanding the “semi-liquid” innovation
• Solving the reinvestment risk
• The Vivriti strategy: mid-market focus
• Suitability and guardrails
• The structural superiority of semi-liquid vehicles
• Investment discipline: where the capital goes
• Sophisticated risk mitigation and concentration limits

Summary: Dipen Ruparelia highlighted the growing role of private credit for HNIs, emphasizing semi-liquid funds as a middle path between liquid mutual funds and locked-in AIFs. He explained that these funds offer quarterly liquidity, eliminate reinvestment risk, and target mid-market corporates with strong credit profiles. With disciplined deal selection, concentration limits, and structured risk mitigation, semi-liquid funds provide stable, high post-tax returns, preserving capital while capturing the illiquidity premium—making them ideal for one-to-three-year investment horizons in volatile markets.

Mr. Dipen Ruparelia started by sharing his expert perspective on the shifting landscape of debt investments. With over six years at the helm of business and product strategy at Vivriti, Ruparelia addressed the growing necessity of private credit in modern portfolios, particularly for High-Net-Worth Individuals (HNIs). His discussion centered on a pivotal shift in the market: the rise of semi-liquid funds—an innovative structure that bridges the gap between traditional mutual funds and long-term closed-ended products.

The Case for Debt in Volatile Times

Ruparelia began by addressing the "why" behind debt allocation, noting that there is perhaps no better time than the present to re-evaluate fixed income. He pointed to recent geopolitical instabilities, such as conflicts in the Middle East, and the fact that equity markets have seen significant pullbacks, dropping more than 10% from their September 2024 peaks.

He spent considerable time debunking the misconception that debt is riskier than equity. On the contrary, he argued that debt provides the stability and predictability essential for capital preservation. For investors with near-term goals—spanning one to three years—equities or even hybrid funds carry too much volatility. Ruparelia emphasized that debt is the primary tool for keeping principal intact while protecting the purchasing power of money against the dual threats of taxation and inflation.

Public vs. Private Debt: Finding the Alpha

While bank Fixed Deposits (FDs) and mutual funds offer easy access, Ruparelia explained that for those in the highest tax brackets (using a 39% marginal rate for illustration), traditional products often fail to provide a positive real return.

He introduced a compelling visual analysis of the "illiquidity premium." According to his data, while AAA and AA-rated public debt are highly liquid, their returns are lower. In contrast, the A and BBB-rated segments offer an "excess spread" that far outweighs their historical default risk.

• The Alpha: Ruparelia noted that A-rated papers have a historical default rate of approximately 0.7%, yet they offer a spread of roughly 5.4% over risk-free rates.
• The Opportunity: This differential represents a "positive risk" where the reward for holding less liquid, managed private credit is significantly higher than the actual statistical danger of default.

Understanding the "Semi-Liquid" Innovation

The core of the presentation was the introduction of semi-liquid funds (also known as interval or evergreen funds). While this asset class manages over $1 trillion globally, it remains a fresh concept for many Indian investors.

Ruparelia contrasted three primary structures:

1. Mutual Funds: Offer daily liquidity but lower returns and high susceptibility to interest rate volatility.
2. Closed-Ended AIFs (Category 2): Provide access to private credit but lock capital for 5 to 7 years, often using a "drawdown" model where capital is not fully deployed on day one.
3. Semi-Liquid Funds: These act as a perpetual vehicle. They allow for immediate, 100% deployment of capital into private bonds while offering a structural window for liquidity—typically 5% to 10% of the fund size per quarter.

Ruparelia argued that for investors who do not truly need daily access to their cash, trading that daily window for a quarterly one allows them to capture the superior yields of private credit without the 7-year lock-in of traditional AIFs.

Solving the Reinvestment Risk

One of the more technical insights Ruparelia shared involved the "cash flow drag" found in traditional funds. In a typical closed-ended fund, capital is returned to investors in multiple tranches as underlying loans amortize. This forces the investor to take on "reinvestment risk," often receiving small amounts of capital back that are difficult to redeploy effectively.

Semi-liquid funds solve this by offering a Growth Plan. For a 45-year-old investor who doesn't need immediate cash flow, the fund can compound returns internally. Conversely, for retirees, an Income Plan provides stable, predictable distributions. This flexibility, combined with "one-shot" deployment, ensures that the investor's money is working from day one.

The Vivriti Strategy: Mid-Market Focus

Concluding with a look at Vivriti  Asset Management’s own approach, Ruparelia detailed their focus on mid-market corporates. By providing flexible growth and working capital to operating companies in sectors like logistics, warehousing, and steel manufacturing, the firm identifies opportunities that traditional banks often overlook.

Vivriti, now in its fourth vintage of funds, manages over ₹7,800 crores. Ruparelia highlighted that their strategy is designed to be "all-weather." Even as interest rates fluctuate, the private credit segment remains less impugned by volatility, maintaining elevated spreads compared to public debt markets.

Suitability and Guardrails

Ruparelia concluded with a clear profile of the ideal investor:

• Target Audience: HNIs and Ultra-HNIs (minimum ₹1 crore investment).
• Time Horizon: A recommended minimum of one year and above.
• Risk Management: To prevent "hot money" from disrupting the fund, a 2% exit load is maintained as a protective guardrail for long-term participants.

For those seeking a middle path between the low yields of liquid mutual funds and the rigid locks of private equity, Ruparelia suggests that semi-liquid private credit may be the most efficient way to achieve superior risk-adjusted returns in the current economic climate.

The Structural Superiority of Semi-Liquid Vehicles

Ruparelia began by detailing the "immediate access" model that distinguishes semi-liquid funds from their closed-ended counterparts. He explained that these funds accept inflows and serve redemptions on a quarterly basis, typically capped at 10% of the total fund size. To protect long-term investors from "hot money" (short-term, volatile capital), the fund implements a 2% exit load for any redemptions within the first six months.

A critical distinction Ruparelia highlighted was the taxation and cash flow efficiency:

• Taxation: As a Cat 3 fund without pass-through status, tax is handled at the fund level (approximately 39% on net income), simplifying the process for the investor.
• Eliminating Reinvestment Risk: Unlike traditional funds that return capital in small, unpredictable tranches as underlying loans mature, semi-liquid funds allow investors to stay fully invested. Ruparelia noted that this prevents "cash drag," where an investor’s money sits in low-yield savings while awaiting the next deployment.

Investment Discipline: Where the Capital Goes

Ruparelia was explicit about the fund’s "sweet spot." Vivriti  targets mid-market corporates—profitable companies with annual revenues exceeding ₹500 crores and a track record of 7 to 10 years.

He clarified the firm's strict exclusions:

"We are not investing in startups or early-stage ventures with unproven models, nor are we touching companies in stress or distress."

Instead, the fund provides bespoke, flexible capital that traditional banks struggle to offer. These mid-market firms often require customized payment schedules, such as principal moratoriums, that align with their specific business cycles. Ruparelia emphasized that by focusing on non-convertible ventures with an average maturity of 15 to 18 months, the fund ensures a steady stream of "natural liquidity" through principal amortization to meet investor redemption requests.

Sophisticated Risk Mitigation and Concentration Limits

Addressing the inherent risks of private credit, Ruparelia detailed a rigorous "funnel" approach. Out of every 100 deals screened, Vivriti  typically invests in only three to five. This selective underwriting is bolstered by hard covenants and early warning signals to identify potential stress before it manifests.

A cornerstone of their risk strategy is strict diversification. Ruparelia noted that while the fund allows for an 8% cap per issuer, they aim for an average concentration of just 4%. With more than 25 distinct names in the current portfolio, the risk of a single default significantly impacting the total fund is minimized. He reassured the audience that even in a hypothetical default scenario, the fund’s natural cash flows from the other healthy assets are designed to cover the 10% quarterly liquidity promise.

Ruparelia concluded by reinforcing the suitability of this asset class for investors with a one-to-three-year horizon. He argued that while equity markets remain volatile, the private credit segment offers elevated spreads that have remained resilient despite recent interest rate cuts.

The "stay invested as long as you want" tagline of the semi-liquid category summarizes its primary appeal: it offers the high-yield potential of private debt with the operational simplicity of a perpetual vehicle. For the modern HNI, Ruparelia suggests that this provides the ultimate balance of stability, predictability, and superior post-tax returns.

Mr. Ruparelia covered all the topics mentioned above in-depth and answered questions from the audience toward the end of the session. For more such insights on this webinar, watch the recording of this insightful session through the appended link below.

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Disclaimer: The content shared in this blog is for informational and educational purposes only and should not be construed as an offer, solicitation, or recommendation to invest in any Alternative Investment Fund (AIF). As per SEBI regulations, AIF investments are allowed only for investors with a minimum commitment of ₹1 crore. Prospective investors are strongly advised to carefully review the Private Placement Memorandum (PPM), including all associated risk factors, and seek independent financial advice before making any investment decision. PMS Bazaar neither endorses nor recommends any specific fund or product mentioned herein and is not responsible for any investment decisions made based on this content.