NISM Series XIX-E (Cat III AIF) key terms

A privately pooled investment vehicle that collects funds from sophisticated investors for investment according to a defined policy, and is registered with SEBI under the AIF Regulations rather than the mutual fund route.

The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, which create three fund categories, prescribe registration, investment conditions, leverage limits, reporting and conduct rules for all AIFs.

An AIF that employs diverse or complex trading strategies and may use leverage, including through investment in listed or unlisted derivatives, and is regulated more closely than Categories I and II.

An AIF investing in start-ups, early-stage ventures, small and medium enterprises, infrastructure or social impact sectors, where the sponsor or manager treats such investment as its core activity and the fund is granted incentives by regulators.

A residual AIF category covering private equity and debt funds that do not fall in Category I or III and do not use leverage other than for operational needs; it must invest primarily in unlisted securities.

The mandatory grant of a certificate of registration by SEBI before an AIF can launch a scheme; Category III applicants must satisfy higher net-worth, fit-and-proper and compliance conditions than other categories.

The eligibility test applied to the sponsor, manager, directors and key personnel of an AIF, covering integrity, reputation, financial soundness, absence of regulatory penalties and no conviction for fraud or economic offences.

The person or entity that establishes the AIF, commits a minimum continuing contribution in each scheme and is responsible for the fund's overall governance and liability for its obligations.

The entity appointed by the AIF to make investment decisions, manage the portfolio and operations, and which must hold SEBI registration and meet prescribed net-worth and personnel requirements.

The individuals whose qualifications and experience are relied on for the AIF's registration, typically the principal officers and decision-makers; their replacement requires notice to SEBI and may require approval.

The continuing interest the sponsor, or manager, must hold in each scheme, prescribed as the lower of a fixed rupee amount and a percentage of the fund corpus, to align interests with investors.

A distinct pool of investments launched under an AIF's registration, with its own private placement memorandum, corpus, investors and terms; each Category III scheme must satisfy the category's conditions separately.

The offering document through which an AIF raises money from investors, disclosing the fund's strategy, risks, fees, leverage policy, valuation approach, conflicts of interest and investor rights, and filed with SEBI.

The contract between an investor and the AIF setting out the investor's capital commitment, drawdown obligations, default consequences, transfer restrictions and the terms on which the interest is held.

The total amount an investor agrees to contribute to a scheme over its life, drawn down by the manager as investments are made rather than paid entirely at admission.

A call by the manager on investors' committed capital, made in tranches when investment opportunities arise or expenses fall due, usually on prescribed notice and in proportion to commitments.

An investor's failure to fund a drawdown when due, typically triggering remedies under the contribution agreement such as forfeiture of a portion of the interest, loss of voting rights or forced transfer of the interest.

Any borrowing or exposure technique, including derivatives, that increases a fund's investment exposure beyond its net assets; Category III AIFs may use it within regulatory limits and must disclose it.

The sum of the absolute values of a fund's long and short positions relative to net asset value, used as the measure against which Category III leverage limits are monitored and reported.

The difference between a fund's long and short exposures, expressed as a proportion of net asset value; it indicates directional market risk rather than the total trading footprint captured by gross exposure.

Exposure created by positions in futures, options, swaps or other derivatives, measured in equivalent underlying terms and counted toward Category III leverage limits and risk reporting.

An investment approach using multiple positions, derivatives, short selling or leverage to pursue absolute returns, rather than a simple long-only holding of securities, and which defines Category III funds.

Selling securities or derivatives the fund does not own, with the intention of buying them back later at a lower price; permitted for Category III AIFs within the securities lending and regulatory framework.

A return-seeking approach such as long-short equity, arbitrage, event-driven or macro trading, typically combining long and short positions and using leverage, which is the characteristic style of Category III AIFs.

An investment objective of earning positive returns regardless of market direction, rather than beating a benchmark index, which motivates the hedging and leverage typical of Category III funds.

The value of a scheme's assets minus its liabilities, divided by the number of units outstanding, computed on the valuation dates and basis stated in the fund's valuation policy.

The documented framework approved by the AIF for valuing each class of asset, including listed securities, unlisted securities, derivatives and any hard-to-value positions, with methods for determining fair value.

The requirement that certain investments, particularly unlisted or illiquid ones, be valued by an independent valuer rather than solely by the manager, to reduce conflicts of interest in reported NAV.

A fee charged by the manager as a share of profits earned above a stated hurdle or high-water mark, intended to reward returns while aligning manager incentives with investor outcomes.

The highest NAV or cumulative return previously used to calculate performance fees, above which new performance fees are charged so that investors do not pay twice for recovering lost value.

The minimum return a fund must earn before the manager becomes entitled to a performance fee, sometimes structured as a preferred return payable to investors first.

A periodic fee charged by the investment manager, usually a percentage of committed capital or NAV, for managing the portfolio and operations, as disclosed in the private placement memorandum.

A separate agreement between the manager and a particular investor granting terms different from the main fund documents, such as fee discounts or information rights, which must be disclosed and monitored for fairness.

A situation where the manager's, sponsor's or related party's interests could influence decisions against investors' interests, such as co-investment, cross-trades or affiliated brokerage, requiring disclosure and mitigation.

The standards of ethical and professional behaviour prescribed for AIFs and their managers, covering fair dealing, confidentiality, independence, avoidance of manipulative practices and proper record keeping.

Dealing in securities while in possession of unpublished price-sensitive information, or communicating such information; prohibited for fund personnel and controlled through information barriers and personal trading rules.

An internal information barrier separating teams or functions so that confidential or price-sensitive information held in one area is not shared with those making investment decisions elsewhere.

An investor meeting specified income, net-worth or entity-based thresholds, eligible for certain relaxed conditions or larger investment limits in AIF schemes under SEBI's framework.

An institution such as a bank, insurer, pension fund or registered foreign portfolio investor that meets prescribed criteria; its participation can affect placement and investor-limit rules for AIF schemes.

The tax treatment under which an AIF's income is taxed in the hands of investors rather than the fund, with Category III funds generally taxed on a pass-through basis subject to specific rules for business income.

The mechanism by which the AIF withholds tax on certain payments or distributions to investors and deposits it with the government, with certificates issued to investors for credit.

Profits from the sale of investments, classified as short-term or long-term depending on the holding period and asset type, and taxed at rates that depend on the classification and the investor's status.