Private-market fund presentations often contain an alphabet soup of performance metrics: IRR, MOIC, DPI, RVPI and TVPI. Each tells you something useful. None tells you everything.
The biggest mistake is reading a 20% IRR as though it were the same as earning 20% every year in a liquid mutual fund. Private-market cash flows occur at different times, capital may remain uncalled for years and much of the reported value may still be unrealised.
This guide explains the main metrics used by AIFs, private-equity funds, venture-capital funds and other closed-end strategies. For the broader context of risk and illiquidity, see our alternative investments guide. For evaluating the manager using these numbers, use our AIF due-diligence checklist.
Important: Performance calculations depend on precise cash flows, valuation methodology and fee treatment. The examples below are simplified for education and should not be used to recreate a fund’s audited performance.
Quick Comparison
| Metric | What It Measures | Best Use | Main Limitation |
|---|---|---|---|
| IRR | Annualised money-weighted return based on timing of cash flows | Assessing time-sensitive private-fund returns | Very sensitive to timing and assumptions |
| MOIC | Total value divided by invested capital | Understanding total multiple earned | Ignores time |
| DPI | Cash distributed divided by paid-in capital | Measuring realised cash return | Ignores remaining assets |
| RVPI | Residual NAV divided by paid-in capital | Measuring unrealised value | Depends on valuation estimates |
| TVPI | DPI + RVPI | Measuring total realised plus unrealised value | Can look strong before exits occur |
| PME | Private-fund cash flows relative to public-market benchmark | Opportunity-cost comparison | Result depends on benchmark and methodology |
What Is IRR?
Internal Rate of Return (IRR) is the discount rate that makes the net present value of an investment’s cash flows equal to zero.
In plain language, IRR attempts to express irregular contributions and distributions as one annualised rate.
Simple example
Suppose you invest ₹10 lakh and receive ₹15 lakh three years later, with no other cash flows.
The investment grew to 1.5 times the original capital. The annualised return is approximately 14.5%.
If the same ₹15 lakh is received after seven years instead, the multiple is still 1.5x but the annualised return falls to roughly 6%.
This illustrates why time matters.
Why IRR Can Be Misleading
IRR is useful, but it has several weaknesses.
1. Early distributions can boost IRR
A manager who returns some capital quickly may report a strong IRR even if the total money ultimately earned is modest.
2. Capital-call timing matters
If the manager delays calling committed capital, the investor’s measured IRR can improve because less capital is considered invested for less time.
3. Unrealised NAV affects interim IRR
A fund that has not sold investments may calculate IRR using estimated residual values. Those values can later rise or fall.
4. IRR is not directly comparable with a time-weighted public-market return
Investors do not control private-fund capital-call timing, while mutual-fund performance is usually reported through NAV-based time-weighted measures.
CFA Institute researchers have repeatedly highlighted limitations in treating since-inception IRR as a simple annual return. It should be read alongside cash multiples and appropriate benchmarks.
What Is MOIC?
Multiple of Invested Capital (MOIC) measures total current value relative to the capital invested.
MOIC = Total value / Invested capital
If ₹10 lakh of invested capital has produced ₹6 lakh of distributions and the remaining portfolio is valued at ₹9 lakh:
Total value = ₹15 lakh.
MOIC = ₹15 lakh / ₹10 lakh = 1.5x.
Why MOIC is useful
MOIC is intuitive. A 2.0x multiple means total value is twice invested capital. A 0.8x multiple means the investment has lost 20% of its original value before considering time.
What MOIC misses
MOIC ignores how long the return took.
A 2.0x return over three years is very different from a 2.0x return over fifteen years.
What Is DPI?
Distributed to Paid-In Capital (DPI) measures how much actual cash has been returned relative to capital contributed.
DPI = Cumulative distributions / Paid-in capital
Using the earlier example:
- Paid-in capital: ₹10 lakh
- Cash distributions: ₹6 lakh
DPI = 0.6x.
This means 60% of contributed capital has been returned in cash.
Why DPI matters
DPI does not depend on estimated value for assets still held. It therefore provides a useful reality check on paper returns.
A mature fund showing 25% IRR but only 0.3x DPI deserves careful examination. Where is the remaining value? How old are the unrealised investments? When are exits expected?
What Is RVPI?
Residual Value to Paid-In Capital (RVPI) measures the estimated value of investments still held relative to paid-in capital.
RVPI = Residual NAV / Paid-in capital
In the example:
- Residual value: ₹9 lakh
- Paid-in capital: ₹10 lakh
RVPI = 0.9x.
This is not cash. It is an estimate of current value.
What Is TVPI?
Total Value to Paid-In Capital (TVPI) combines realised and unrealised value.
TVPI = DPI + RVPI
In our example:
- DPI = 0.6x
- RVPI = 0.9x
TVPI = 1.5x.
TVPI therefore matches the broad economic idea behind MOIC in this simplified example.
DPI vs TVPI: Why the Gap Matters
Consider two funds that both report 1.8x TVPI.
| Fund | DPI | RVPI | TVPI |
|---|---|---|---|
| Fund A | 1.5x | 0.3x | 1.8x |
| Fund B | 0.4x | 1.4x | 1.8x |
Fund A has already returned most of its value in cash. Fund B depends heavily on unrealised valuations.
The same TVPI therefore has a different quality of evidence.
Gross vs Net Metrics
Always ask whether IRR and multiples are gross or net.
Gross performance
Typically describes investment-level performance before some management fees, fund expenses and carried interest.
Net performance
Attempts to reflect what investors receive after applicable fund economics.
For portfolio decisions, net performance is usually more relevant.
Our AIF fees guide shows why a strong gross return may become much less impressive after the full fee stack.
What Is Public Market Equivalent?
Public Market Equivalent (PME) refers to methods that compare private-fund cash flows with the hypothetical result of investing those cash flows in a public-market benchmark.
The purpose is to answer:
Did accepting private-market illiquidity produce better results than a relevant public alternative?
Different PME methodologies exist, including Kaplan-Schoar PME and other approaches.
Why benchmark choice matters
A venture-capital portfolio should not automatically be compared with a low-volatility debt index. A private-credit fund should not necessarily be benchmarked against a high-growth equity index.
The selected benchmark should reflect a plausible liquid opportunity cost.
What Is the J-Curve?
Private-equity and venture funds often report weak or negative performance early in their lives.
Reasons include:
- Management fees begin before exits occur
- Acquisition costs are incurred early
- Portfolio companies need time to grow
- Early investments may initially be held near cost
As successful investments mature and exits occur, reported performance may improve, producing a pattern known as the J-curve.
The J-curve is not a promise. A weak fund does not automatically recover with age.
How Subscription Credit Lines Can Affect IRR
A fund may temporarily borrow against investor commitments instead of immediately calling investor capital. This can simplify administration and bridge transactions.
But delaying capital calls can also increase reported net IRR because investor cash enters later.
Investors should ask whether performance is shown with and without the effect of subscription facilities when this is material.
Performance Metric Example
Imagine an investor contributes ₹1 crore over several calls. By year six:
- ₹70 lakh has been distributed
- Remaining investments are valued at ₹80 lakh
The simplified multiples are:
- DPI = 0.70x
- RVPI = 0.80x
- TVPI = 1.50x
The fund may also report an IRR based on the exact dates of every contribution and distribution.
To evaluate the result, ask:
- How much of the ₹80 lakh residual value is based on recent third-party transactions?
- How mature are the remaining assets?
- What would TVPI become after a 20% valuation haircut?
- How does the cash-flow pattern compare with a public-market benchmark?
Vintage Year Matters
Private funds launched in different years experience different valuation, interest-rate and exit environments.
Comparing a 2021 growth-equity fund with a 2024 distressed-credit fund using raw IRR is not meaningful.
Compare managers with similar:
- Strategies
- Vintage years
- Geographies
- Risk profiles
Why “Top Quartile” Claims Need Scrutiny
A manager may claim a fund is top quartile. Ask:
- Which database?
- Which strategy?
- Which vintage?
- Gross or net returns?
- How many funds are in the comparison set?
- Is the fund ranked on IRR or TVPI?
Different databases can contain different samples and survivorship biases.
How These Metrics Apply to Indian AIFs
Category I and II private-market AIFs commonly require cash-flow metrics because they call capital and realise investments over time.
Category III AIFs with more frequently priced portfolios may also be assessed using annual returns, volatility, Sharpe ratio, Sortino ratio and drawdown.
Our AIF category guide explains why performance measurement should match the strategy.
A Five-Metric Investor Dashboard
For a mature private-market fund, ask for at least:
- Net IRR — timing-sensitive annualised performance
- MOIC/TVPI — total multiple created
- DPI — cash actually returned
- RVPI — value still dependent on estimates
- PME or relevant benchmark comparison — opportunity cost
Then add fees, leverage and liquidity to understand the risk taken to produce those metrics.
Common Myths
Myth: A 20% IRR means the fund grows 20% every year
Reality: IRR is a money-weighted calculation based on irregular cash flows.
Myth: A 2x MOIC is always excellent
Reality: Time matters. A 2x multiple over fifteen years may be less attractive than it first appears.
Myth: TVPI is realised return
Reality: TVPI includes residual estimated value.
Myth: DPI below 1x means the fund lost money
Reality: It means less than the contributed capital has been returned in cash so far; remaining assets may still hold value.
Myth: PME provides a perfect risk-adjusted comparison
Reality: PME is useful but depends on methodology and benchmark selection and does not solve every risk-adjustment problem.
Frequently Asked Questions
What is the difference between IRR and MOIC?
IRR incorporates the timing of cash flows. MOIC measures total value relative to invested capital without considering time.
Is DPI more reliable than TVPI?
DPI is based on actual distributions and therefore requires less valuation judgement. TVPI is broader because it includes remaining investments.
Can a fund have high IRR and low MOIC?
Yes. Quick early gains can produce a high IRR without creating a large total multiple.
What does 1.0x DPI mean?
It means cumulative distributions equal the amount of paid-in capital.
What does 2.0x TVPI mean?
Total distributed plus residual value equals twice paid-in capital.
Which metric should I use for a private-credit AIF?
Use net IRR and multiples alongside cash yield, DPI, default losses, recoveries and credit-risk measures.
What is PME?
PME methods compare private-fund cash flows with a selected public-market benchmark to estimate opportunity-cost performance.
Key Takeaways
- IRR measures timing-sensitive annualised performance; MOIC measures the total multiple.
- DPI is realised cash; RVPI is unrealised value; TVPI combines both.
- Two funds with identical TVPI can have very different DPI and therefore very different evidence of realised success.
- Use net rather than gross performance when evaluating investor outcomes.
- PME can improve public-market comparison, but benchmark choice remains important.
- No single private-market performance metric is sufficient.
Conclusion
IRR answers a timing question. MOIC answers a multiple question. DPI answers a cash-realisation question. RVPI shows what remains dependent on valuation. TVPI combines realised and unrealised value.
No sophisticated investor should rely on one metric. The strongest evaluation uses several performance measures together, then asks whether the outcome adequately compensated the investor for fees, leverage and illiquidity.