NISM Series XIX-D flashcards

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 vehicle that collects funds from investors for investment in accordance with a defined investment policy, excluding mutual funds, collective investment schemes, family trusts and holding companies.

Category I AIF

An AIF that invests in start-ups, early-stage ventures, SMEs, infrastructure or social impact sectors, and is considered to have positive spillover effects on the economy.

Category II AIF

A private equity or debt fund that does not undertake leverage other than for operational requirements and does not fall in Category I or III, and may invest in unlisted securities.

Minimum corpus

The minimum amount a scheme must raise, which is INR 20 crore for Category I and II AIFs and INR 10 crore for angel funds, before the first close.

Minimum investor commitment

The smallest amount an investor may commit to a scheme, which is INR 1 crore for Category I and II AIFs and INR 25 lakh for angel funds.

Sponsor continuing interest

The minimum interest the sponsor or manager must hold in a Category I or II scheme, being 2.5% of the corpus or INR 5 crore, whichever is lower, locked in until winding up.

Maximum investors per scheme

A scheme may have no more than 1,000 investors, excluding the manager, sponsor and their employees; angel funds may have a maximum of 49 angel investors.

Scheme launch deadline

A scheme must be launched within 12 months of SEBI registration, and the minimum corpus must be raised before the first close is declared.

SEBI AIF Regulations

The SEBI (Alternative Investment Funds) Regulations, 2012, which govern registration, operations, disclosure and winding up of AIFs in India.

Manager net worth

The manager or sponsor must have a minimum net worth of INR 20 crore, or the manager must have a five-year track record with minimum assets under management.

Fit and proper criteria

Standards for key personnel including no conviction for fraud or economic offences, no insolvency, and no disqualification by any financial regulator.

Trustee role

In a trust-form AIF, the trustee oversees the manager, ensures compliance with the regulations, and protects the interests of investors.

Related-party transaction

A transaction between the fund and the manager, sponsor, trustee or their associates, which must be disclosed to investors and approved where material.

Record retention period

The manager must maintain records of transactions, investor communications and valuations for at least eight years and make them available to SEBI on request.

Foreign investment in AIFs

Foreign investment in Category I and II AIFs is governed by FEMA and the FDI policy, subject to sectoral caps and KYC and anti-money laundering norms.

Pass-through taxation

Category I and II AIFs are generally treated as pass-through entities for investment income other than business income, so income is taxed in investors' hands.

Independent valuation

Unlisted securities must be valued by an independent valuer in accordance with SEBI-prescribed norms, and the methodology must be disclosed to investors.

Segregation of assets

Each scheme must maintain a separate bank account, and fund assets must not be commingled with the manager's assets or with other schemes' assets.

Drawdown procedure

Capital calls must follow the contribution agreement and must not exceed the disclosed corpus without investor consent; uninvested capital must be returned as specified.

Winding up timeline

A scheme must be wound up within its disclosed tenure, and proceeds must be distributed to investors after settling liabilities, with any extension needing investor consent.

Compliance officer

The manager must appoint a compliance officer to monitor regulatory changes, conduct compliance testing, and report to the board or trustee.

Quarterly SEBI reporting

The manager must file quarterly reports with SEBI covering assets under management, portfolio composition and any regulatory breaches, within the prescribed timelines.

Fiduciary duty

The manager owes investors duties of loyalty and care, must act in the fund's best interest, and must disclose and manage conflicts of interest.

Fee disclosure

All fees, including management and performance fees and other charges, must be disclosed in the private placement memorandum and contribution agreement.

Private placement rule

AIF schemes may be marketed only through private placement, and the fund must not solicit investments from the public or from ineligible investors.

Insider trading prohibition

The manager and its personnel must not trade on material non-public information and must comply with the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Investor consent threshold

Material changes to a scheme, including strategy, fees or tenure, require consent of at least 75% of investors by value, unless the scheme documents provide otherwise.

Change in control approval

Any change in the sponsor, manager, trustee or control of the AIF requires prior SEBI approval and, where applicable, investor consent.

SEBI penalties

SEBI may impose monetary penalties, suspend or cancel registration, issue directions, and debar key personnel for violations of the AIF Regulations.

SCORES grievance platform

SEBI's online complaint system where investors can file grievances against AIFs; the manager must respond within the prescribed timelines.

SAT appeal

An appeal against a SEBI order lies to the Securities Appellate Tribunal within 45 days of the order, with further appeal to the Supreme Court.

Private placement memorandum

The fund document disclosing investment objective, strategy, risks, fees, tenure, the manager's track record and conflicts of interest to prospective investors.