NISM Series XIX-C key terms

A privately pooled investment vehicle incorporated or established in India that collects funds from investors to invest under a defined strategy, but is not covered by SEBI mutual fund, collective investment scheme, or other specified regulations.

The SEBI (Alternative Investment Funds) Regulations, 2012, which set registration, categorization, investment, disclosure, and compliance rules for all AIFs operating in India and for their managers.

A fund structure that gathers capital from a limited set of investors under a common investment policy, rather than offering units to the general public through a public issue.

The mandatory approval SEBI grants an applicant AIF before it can solicit or accept investor commitments; it is applied for in one of three categories and is subject to eligibility, fit-and-proper, and infrastructure conditions.

AIFs that invest in start-ups, early-stage ventures, small and medium enterprises, infrastructure, or other sectors the government or SEBI considers economically or socially desirable, including venture capital, SME, and infrastructure funds.

AIFs that do not fall in Category I or III and do not use leverage other than for operational needs; they include private equity funds, debt funds, and funds of funds investing in India.

AIFs that employ complex trading strategies and may use leverage, including for hedging, such as hedge funds, private investment in public equity funds, and distressed asset funds.

A Category I AIF that primarily invests in unlisted equity or equity-linked instruments of start-ups and early-stage companies with high growth potential, often taking active board or mentoring roles.

A Category I AIF that invests predominantly in unlisted securities of small and medium enterprises, helping them raise growth capital outside the public markets.

A Category I AIF that invests mainly in infrastructure projects or infrastructure-related companies, often through public-private partnerships, and may be structured as a trust or company.

A Category II AIF that invests in unlisted equity of mature or growth-stage companies, typically taking significant stakes and seeking control or influence over management to improve value before exit.

A Category II AIF that invests primarily in debt instruments of unlisted or listed companies, subject to SEBI limits on concentration and on lending to a single borrower group.

An AIF that invests in units of other AIFs rather than directly in portfolio companies, giving investors diversified exposure while adding a second layer of fees and oversight.

A Category III AIF that uses complex strategies such as long-short equity, arbitrage, or derivatives, may employ leverage, and often offers periodic redemption windows rather than daily liquidity.

A Category III AIF that invests in listed securities through private investment in public equity deals, often receiving shares at a discount to market price with a lock-in on resale.

A Category I AIF that pools capital from angel investors to fund early-stage start-ups, registered separately and subject to minimum investment and maximum investor limits.

The entity responsible for investment decisions, day-to-day operations, and regulatory compliance of an AIF; it must be registered with SEBI and typically holds the sponsor's stake in the fund.

The person or entity that establishes the AIF, contributes a minimum continuing interest in the fund, and bears responsibility for its management and operations, often through the manager.

The minimum capital the sponsor or manager must keep invested in the AIF, set by SEBI at the lower of 2.5 percent of corpus or INR 5 crore, aligning manager incentives with investor outcomes.

The legal obligation of the AIF manager and trustees to act in the best interest of investors, avoid conflicts of interest, and exercise care, skill, and diligence in managing fund assets.

A situation where a manager's, sponsor's, or affiliate's personal or business interests could improperly influence decisions affecting the fund, requiring disclosure, mitigation, or recusal.

An entity or individual connected to the AIF, manager, or sponsor through ownership, control, or family ties; transactions with related parties must be disclosed and conducted on arm's-length terms.

A named individual whose departure or reduced involvement triggers notice or wind-up rights for investors under the fund's private placement memorandum, protecting against loss of investment expertise.

A contractual provision in the fund documents that suspends new investments or gives investors exit or wind-up rights if a designated key person ceases to be involved in managing the fund.

The offering document an AIF issues to prospective investors, describing strategy, fees, risks, conflicts, and key terms; it must be filed with SEBI and updated for material changes.

A concise investor-facing document summarizing the AIF's strategy, fees, risks, and terms that must be filed with SEBI at least 30 days before the fund's launch.

The sale of AIF units to a limited number of selected investors through a private offering, not a public issue, subject to minimum ticket size and maximum investor count rules.

An investor class recognized by SEBI as having sufficient income, net worth, or financial sophistication to invest in certain higher-risk vehicles, subject to specified verification thresholds.

The smallest commitment an AIF may accept from an investor, generally INR 1 crore, or INR 25 lakh for angel funds and certain employees or managers of the fund.

The total capital committed by investors to an AIF, as stated in the fund's documents; it forms the base for calculating fees, sponsor continuing interest, and investment limits.

The amount an investor contractually agrees to contribute to an AIF over its life, drawn down by the manager as investments are made rather than paid upfront.

A capital call by which the AIF manager requests committed capital from investors, typically when an investment or expense is due, under the schedule set in the fund documents.

The formal written request sent to investors specifying the amount, purpose, and due date of a drawdown; failure to fund can trigger default remedies such as forfeiture of interest.

The periodic fee an AIF charges to cover operating and management costs, usually a percentage of committed or invested capital, with rates and calculation bases disclosed in the fund documents.

A profit-sharing fee paid to the AIF manager, typically a percentage of gains above a hurdle, designed to reward outperformance but requiring careful calculation to avoid overpayment.

The minimum return an AIF must earn before the manager can take a performance fee, often set as a preferred return to investors, protecting investors from paying fees on ordinary returns.

A provision that prevents the manager from charging performance fees on recovered losses; fees are paid only on gains above the highest prior net asset value, protecting investors from double charging.

The use of borrowed funds or derivatives to increase exposure beyond committed capital; Category III AIFs may employ it within SEBI limits, while Category I and II funds face tighter restrictions.

The total absolute value of an AIF's long and short positions, used to measure leverage and risk; SEBI caps it for Category III funds at twice the fund's net asset value.

The difference between an AIF's long and short positions, showing directional market risk; unlike gross exposure, it nets offsetting positions and can be negative for short-biased funds.

The fund's total assets minus liabilities, divided by units outstanding, representing the per-unit value used for subscriptions, redemptions, and performance reporting.

The process of determining the fair value of an AIF's investments and units, using methods such as market prices, comparable transactions, or discounted cash flows as specified in the fund documents.

A qualified third party appointed to value an AIF's unlisted or illiquid investments, providing objectivity and reducing the risk of manager bias in reported net asset values.

A minimum holding period during which investors cannot redeem or transfer AIF units, protecting the fund from early withdrawals that could disrupt long-term investment strategies.

The process by which an investor exits an AIF by having units repurchased or cancelled, subject to lock-in periods, notice requirements, and the fund's stated liquidity terms.

The planned duration of an AIF, including any extension option, after which the fund is wound up and proceeds are distributed to investors in accordance with the fund documents.

The process of closing an AIF, liquidating its assets, settling liabilities, and distributing remaining proceeds to investors, subject to SEBI reporting and investor approval requirements.

The planned method and timeline for an AIF to sell its portfolio investments, such as an IPO, strategic sale, secondary sale, or buyback, to return capital to investors.

An entity recognized under government policy as a newly incorporated business with growth potential, eligible for Category I AIF investment and certain regulatory and tax benefits.

A large institutional investor such as a bank, insurer, or pension fund that meets SEBI's financial thresholds and may receive relaxed investment limits in certain offerings.

A transaction between parties with no special relationship, conducted as if they were independent, used as the standard for related-party dealings in AIF operations.

The principle of structuring fees, sponsor capital, and governance so that the manager's financial outcomes improve only when investors also benefit, reducing agency problems.

The internal body of an AIF manager that reviews and approves investment decisions under the fund's mandate, documenting rationale and ensuring compliance with investment limits.

The documented strategy, asset allocation, restrictions, and risk limits an AIF must follow, as disclosed to investors and filed with SEBI; material changes require investor consent.

The ease with which an AIF's assets can be converted to cash or units redeemed; illiquid private assets typically require lock-ins and staggered exits rather than daily redemption.

The smallest divisible interest an investor holds in an AIF, representing a proportional claim on the fund's assets and used to calculate subscriptions, redemptions, and NAV.