Compliance, Disclosure and Reporting Obligations
What the exam tests
This domain tests the ongoing obligations that surround an AIF: what must be disclosed to investors, what must be reported to SEBI, and what a distributor must record. Questions often present a conduct scenario and ask which disclosure or record is missing.
Core disclosure requirements
The private placement memorandum is the primary disclosure document. It should cover investment strategy, fees and expenses, risk factors, conflicts of interest, related-party transactions, valuation policy, tax treatment and distribution/redemption terms. Investors should receive periodic reports, including scheme performance and material changes. Annual reports and audited financials are part of the compliance cycle.
Distributor compliance
A distributor should maintain records of investor interactions, suitability assessments, commission arrangements and complaints. Commission or trail paid by the manager must be disclosed where required, and any conflict that could bias a recommendation should be explained. Marketing material must be fair, not misleading, and consistent with the PPM.
Worked example
An investor asks how the distributor is paid for recommending a Category II fund. The distributor should disclose the commission or fee arrangement and explain whether it varies across products. If the distributor earns more on one fund, that conflict should be flagged. Refusing to answer, or saying “it is not your concern”, is a compliance failure.
Traps that cost marks
Do not rely on verbal side letters; do not describe performance without the relevant period and benchmark; do not assume the PPM can remain unchanged after a strategy or fee change; do not keep commission arrangements undisclosed where disclosure is required; do not confuse investor reporting with SEBI reporting.