NISM Series XIX-A flashcards
NISM Series XIX-A · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- AIF definition
- A privately pooled investment fund incorporated in India that collects funds from investors under a defined investment policy, and is not covered by mutual fund, CIS or FDI/FPI regulations.
- Category I AIF
- Funds investing in start-ups, early-stage ventures, SMEs, infrastructure or socially desirable sectors, where SEBI or the government sees a positive economic spillover.
- Category II AIF
- Funds that do not fall in Category I or III, such as private equity and debt funds; they may not use leverage for investment purposes.
- Minimum corpus
- The smallest fund size an AIF scheme must have; generally Rs 20 crore, but Rs 10 crore for an Angel Fund under Category I.
- Minimum investor commitment
- The smallest amount an investor must commit to an AIF scheme; generally Rs 1 crore, with lower thresholds for angel investors and accredited investors.
- Investor limit per scheme
- An AIF scheme may have no more than 1,000 investors; Category I and II schemes must also have a minimum of 20 investors.
- Manager continuing interest
- The sponsor or manager must hold at least 2.5% of the corpus or Rs 5 crore, whichever is lower, in Category I and II schemes.
- Private placement memorandum
- The disclosure document used to offer AIF units to identified investors; it sets out strategy, risks, fees, conflicts and fund terms.
- Single investee limit
- Category I and II AIFs generally may not invest more than 25% of the corpus in a single investee company, subject to higher limits for infrastructure funds.
- Pass-through taxation
- Category I and II AIFs are tax-transparent for income other than business income, so income is taxed directly in the hands of investors.
- Scheme tenure
- Category I and II schemes are close-ended, typically 5-10 years, with extension possible only with investor consent as specified by SEBI.
- Valuation frequency
- AIFs must value their investments at least once every six months using internationally accepted valuation norms, under a disclosed valuation policy.
- Custodian requirement
- Category I and II AIFs must appoint a custodian when the corpus exceeds Rs 500 crore, to safeguard assets and support valuation.
- KYC and AML
- All AIF investors must complete KYC under SEBI and PMLA norms, with beneficial ownership checks, enhanced due diligence and five-year record retention.
- Grievance redressal
- AIFs must disclose a grievance mechanism in the PPM; investors can use SEBI SCORES and industry arbitration, and complaints must be reported.
- Compliance officer
- An AIF must appoint a compliance officer responsible for regulatory filings, record-keeping, annual compliance certificates and monitoring non-compliance risks.
- AIF versus mutual fund
- AIFs are privately placed with a Rs 1 crore minimum and up to 1,000 investors; mutual funds are publicly offered with daily NAV and redemption.
- AIF versus PMS
- PMS manages individual portfolios with direct securities ownership and a Rs 50 lakh minimum; AIFs pool money into a close-ended fund with lock-ins.
- Illiquidity risk
- AIF units have no ready secondary market and are subject to multi-year lock-ins, so investors may be unable to exit before scheme maturity.
- Valuation uncertainty
- AIFs invest largely in unlisted securities, so NAV depends on valuation assumptions and may not reflect realisable value at any given time.
- Distribution waterfall
- The contractual order in which AIF proceeds are shared: return of capital, preferred return, catch-up, then performance carry to the manager.
- Management fee
- A periodic fee, typically 1.5-2.5% per annum of committed or invested capital, charged by the AIF manager and disclosed in the PPM.
- Performance fee or carry
- The manager's share of profits, typically 15-20% above a hurdle rate of about 8-10%, designed to align manager and investor interests.
- Hurdle rate
- The minimum return investors must receive before the manager earns performance carry; commonly set at 8-10% per annum.
- Suitability of Category I/II
- These funds suit investors with high risk appetite, long horizons and tolerance for illiquidity; they are not suited to retail investors needing liquidity.
- Dematerialised units
- SEBI requires AIF units to be issued and held in demat form, with transfers recorded in the depository system to improve transparency.
- Accredited investor
- An investor meeting SEBI's specified income or net-worth thresholds who may access certain relaxations; distributors must verify and record accreditation.
- Distribution conduct rules
- Distributors must not guarantee returns or make misleading claims, must disclose commissions, and must ensure the AIF product suits the investor.
- Code of conduct
- SEBI's intermediary code requires fair dealing, confidentiality, avoidance of conflicts and proper record-keeping by AIF distributors and managers.
- PPM filing with SEBI
- The private placement memorandum and material documents must be filed with SEBI and made available to investors; changes may require approval.
- Liquidation period
- After scheme expiry, SEBI allows a limited period to liquidate assets and return proceeds; extensions beyond that require investor consent.
- GST on management fees
- GST applies to AIF management fees and other services; the manager is responsible for charging and remitting it, and fees must be disclosed.