LP vs GP: meaning, how it works in India and examples

An LP is an investor who puts money into a fund but does not run it. Typical LPs are pension funds, family offices, wealthy individuals, banks and companies. A GP is the firm and team that manages the fund: it finds startups, decides which to back, sits on boards and later sells the holdings.

The names come from partnership law. In a classic limited partnership, limited partners risk only the money they invested, while the general partner carries management responsibility. In India, many funds are set up as trusts or companies under SEBI rules, but market people still speak of LPs and GPs.

LPs promise an amount, called a commitment. The GP does not collect it all on day one. Instead it calls capital from LPs in instalments when it needs to make investments or pay fees. This is called a capital call or drawdown.

Later, when portfolio companies are sold or listed, money flows back. The fund returns capital to LPs first and then splits the profit between LPs and the GP according to an agreed waterfall.

• Fund launch: the GP raises commitments from LPs.
• Investment period: the GP calls money and invests in startups, usually over four to five years.
• Holding period: the GP supports companies and follows up in later rounds.
• Exit: shares are sold in an acquisition, IPO or secondary sale.
• Distribution: proceeds go to LPs and carry is paid to the GP.

Two and twenty is shorthand for the common fee structure: a management fee of about 2% a year of the fund's committed money, and a performance share, carry, of 20% of profit. Actual terms vary by fund. Some charge less in later years or on a smaller base, and carry rates and hurdles differ.

The management fee pays for salaries, rent and research. Carry is the reward for good performance. It is usually paid only after LPs have received back their invested money and often only after a minimum return, called a hurdle rate, is passed. If the fund makes a loss, there is no carry.

The Securities and Exchange Board of India regulates venture funds under the Alternative Investment Funds (AIF) Regulations, 2012. In SEBI's wording the GP's role is covered by the manager, the sponsor, and the investment committee that approves each deal. The fund is usually a trust governed by the Indian Trusts Act, 1882, with a trustee, sponsor and manager.

As of November 2026, summaries of the regulations say an AIF investor generally must commit at least ₹1 crore, with exceptions for certain groups such as employees of the manager and, for angel funds, the separate framework described in SEBI's 2025 changes. The manager and sponsor must also put in a share of their own money, called continuing interest, so that the GP shares the risk. Exact percentages differ by category, so the current regulation text should be consulted.

Indian VC funds draw LPs from many groups. Foreign institutions such as pension funds, sovereign funds and university endowments commit large amounts. Domestic LPs include family offices, banks, insurers, corporate groups and high net worth individuals. Government-backed vehicles such as the Fund of Funds for Startups, run through SIDBI, also commit to some funds.

Indian pension money and insurance money take part in a limited way because of investment rules. Over the last several years more Indian family offices and wealthy individuals have joined, but foreign money remains important for large funds.

The GP decides. LPs sign the fund documents and may sit on an advisory committee that handles conflicts and approves certain exceptions, but they do not vote on each startup. This is what makes the structure efficient: the GP can move quickly, and LPs rely on the GP's skill and on reporting.

LPs judge GPs by results over a full fund life, using measures such as DPI, TVPI and IRR, and by how GPs treat them. Many LPs decide whether to back the GP's next fund based on that record.

LPs look at the GP's track record, the team's stability, how the fund plans to pick companies, and how much the GP invests of its own money. They also read the terms: fee levels, carry, hurdle, the fund's life, rules on follow-on investments and what happens if a key person leaves.

They study past funds using DPI, TVPI and IRR. DPI shows cash already returned, TVPI includes the value of holdings not yet sold, and IRR adds the time dimension. A fund with high paper value but little cash returned deserves caution.

The fund documents set the rules. They usually name events that let LPs act, such as removing the GP for serious misconduct or ending the investment period if key people leave. Day-to-day disputes are rarer because the GP has wide freedom within the fund's stated strategy.

An LP advisory committee often handles conflicts of interest, such as a fund investing in a company that another fund of the same GP already holds. Good governance here is a sign that the GP takes its duty to LPs seriously.

In headlines, a fund's first close or final close refers to LP money collected. A claim that a fund has raised ₹2,000 crore means commitments, not cash in the bank. LP names are sometimes disclosed, sometimes not. A GP investing alongside its fund shows alignment.

This guide is general information, not legal, tax or investment advice. Fund terms are negotiated, so the fund's own documents set the real numbers.