# Cumulative Return of Capital

**Cumulative return of capital** is the running total of all distributions an LP has received that represent return of their invested capital — not profit. It is the first tier of the [distribution waterfall](/waterfall-and-distributions/waterfall.md) and gates access to the preferred return and carry tiers.

## Formula

```
Cumulative return of capital = Sum of all Tier 1 distributions received to date

Remaining capital to return = Paid-in capital − Cumulative return of capital
```

When the cumulative return of capital equals the LP's [paid-in capital](/fund-mechanics/paid-in-capital.md), Tier 1 is exhausted and distributions begin flowing into Tier 2 (preferred return).

## Why It's Tracked Separately

Return of capital and profit distributions are tracked separately for three reasons:

### 1. Waterfall Position

The waterfall cannot advance to the preferred-return tier until Tier 1 is fully satisfied. Tracking cumulative return of capital is how the fund knows where it is in the distribution sequence. See [Distribution Waterfall](/waterfall-and-distributions/waterfall.md).

### 2. Tax Treatment

In most jurisdictions, return of capital is treated as a recovery of cost basis rather than income — typically not a taxable event for the LP, while profit distributions (preferred return, residual) are taxable. LPs and their tax advisors need the breakdown to calculate their tax liability correctly.

### 3. Recallable Distributions

Under some LPAs, return-of-capital distributions are recallable — the GP can call them back within a defined window. Profit distributions are generally not recallable. Tracking the categories separately makes it clear which distributions are at recall risk. See [Unfunded Commitment](/fund-mechanics/unfunded.md) for recall mechanics.

## Relationship to DPI

[DPI](/reporting-and-metrics/dpi.md) combines all distribution categories:

```
DPI = Total distributions / Paid-in capital
    = (Return of capital + Preferred return + Residual profit) / Paid-in capital
```

Cumulative return of capital is the numerator component of DPI that relates to Tier 1 only. A DPI of exactly 1.0× means the LP has received precisely return of capital (assuming no preferred return yet paid) — they've broken even in nominal terms but earned nothing above their initial investment.

## Fund-Level vs LP-Level

Like most waterfall metrics, cumulative return of capital is tracked at two levels:

* **LP level** — each LP's individual Tier 1 receipts relative to their own paid-in capital.
* **Fund level** (under a [European waterfall](/waterfall-and-distributions/waterfall-european.md)) — the aggregate across all LPs; Tier 1 is only exhausted fund-wide when *all* LPs have received full return of capital.

Under an [American waterfall](/waterfall-and-distributions/waterfall-american.md), return of capital is tracked per-deal.

## How Gildi Records It

Every distribution event in Gildi is categorized across the four waterfall tiers (return of capital, preferred return, carry, residual profit) at the time of processing. Cumulative return of capital is the sum of Tier 1 amounts across all settled distributions per LP. It is displayed on the LP's fund overview page and in the capital account statement.


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