In the Category III AIF Distributors model code of conduct, distributors should consider the investor’s interest, risk profiling, and suitability to their financial needs while marketing Category III AIFs and advising on the same.

Sponsor commitment shall be in the form of investment in the scheme of the fund and shall not be through the waiver of management fees.

Performance Risk covers the potential loss of investment, dependence on the Investment Manager, and the impact of incentive fees, encompassing various risk factors related to the performance of the investment.

A Category III AIF can invest up to 10 percent of its investable funds in one single investee company.

GST (Goods and Services Tax) is also levied on the Trusteeship Fees payable to the Trustee of the Category III AIF at the rate of 18%.

Alpha is computed using a common method known as the Capital Asset Pricing Model (CAPM), which considers the expected return, risk-free rate of return, and beta to assess the excess return generated by an investment manager or portfolio over the market return.

Employees who do not respect the Distributor’s Confidentiality Policy should be held liable for disciplinary action. It is essential to secure confidential information with passwords and encryptions to maintain data security.

Capital commitment refers to the total funds to be contributed by investors for subscription to the Category III AIF during the life of the fund.

Distributors are expected to ensure that they are not in violation of SEBI (Securities and Exchange Board of India) Regulations, adhering to the regulatory framework governing their activities.

Soft cap refers to a level of assets under management (AUM) that is descriptive of fund aspirations, investment objectives, and the vision of the Investment Manager. It represents a target or limit that the fund aims to achieve.

Investors will always prefer a high TVPI (Total Value to Paid-In), as it measures the Total Value generated, whether by distributions made or the value of unrealized assets in the fund. A higher TVPI indicates better performance and value creation for investors.

A merchant banker appointed for filing of the Private Placement Memorandum (PPM) shall not be an associate of the AIF, its sponsor, manager, or trustee. This ensures independence and impartiality in the process of preparing and filing the PPM.

Total Net Assets of the fund indeed represent the total value attributable to all classes of units and investors within the Category III AIF.

The Manager of a Category III AIF, as well as key management personnel of the manager and fund, are expected to ensure proper care, exercise due diligence, maintain integrity, adhere to the highest ethical and professional standards, and provide appropriate and well-considered inputs for the valuation of the portfolio.

RVPI (Residual Value to Paid-In) can indeed be represented as the sum of TVPI (Total Value to Paid-In) and DPI (Distributions to Paid-In) in the context of measuring the performance and value of investments in a fund.

Category III AIF may take leverage through investments in derivative contracts, provided that prior consent of investors in the fund is taken, the maximum leverage should be 2 times of the Net Asset Value of the Fund, and disclosures are made to investors and SEBI periodically.

Net Asset Value (NAV) is the value of a mutual fund’s assets minus the value of its liabilities. It is calculated on a per-unit basis and represents the fund’s market price. NAV is disclosed to investors at quarterly intervals for close-ended funds and at monthly intervals for open-ended funds.

If the total income exceeds Rs. 50 lakh but does not exceed Rs. 1 crore, the surcharge rate is 10%. Surcharge is an additional tax levied on the income tax payable and is applicable in certain income slabs.

Distributors should abstain from providing incorrect or misleading information about their organization and employees, officials, or sales agents to the customers. This emphasizes the importance of honesty and transparency in dealings with customers to build trust and maintain ethical standards.

DPI (Distributed to Paid-In) is a measure that represents the total amount distributed by the fund to its investors, per unit of capital contributed or paid-in by the investors. It helps assess the fund’s ability to return capital to investors relative to the amount they initially invested.

If a Category III AIF deploys leverage, the fund must ensure that it maintains an independent compliance function with suitable operational resources, infrastructure, checks, and controls. It should provide full disclosures of present and potential conflicts of interest, along with its resolution mechanisms to the investors and SEBI. Additionally, the fund should maintain records of all trades and transactions performed in the fund and make them available to SEBI when required. This ensures transparency, compliance, and effective risk management.

GAAR (General Anti-Avoidance Rule) is a set of rules designed to counteract aggressive tax planning. While GAAR is aimed at preventing tax avoidance, it is not directly related to the Limitation of Benefits (LOB) clause in tax treaties. The LOB clause typically outlines conditions that a taxpayer must meet to be eligible for treaty benefits. GAAR, on the other hand, provides authorities with the power to disregard transactions or arrangements if their main purpose is to obtain a tax benefit, and they lack commercial substance. The invocation of GAAR is not contingent on the presence or absence of an LOB clause in a tax treaty.

The manager of a Category III AIF is responsible for framing the preferred investment approach for making investments.

A Directional Strategy is the opposite of a Market-Neutral Strategy. In a Market-Neutral Strategy, the investment manager aims to have a portfolio beta close to zero, meaning that the strategy is designed to be independent of broad market movements. On the other hand, a Directional Strategy implies taking a position based on the expectation of market movements, either long (betting on an increase) or short (betting on a decrease).

Investors make capital commitments during a pre-defined period known as the “Commitment Period.” During this time, the Investment Manager has the authority to call capital from investors as needed for investment opportunities and fund operations. The Commitment Period is a phase in the life cycle of an investment fund where investors commit to contributing capital when requested by the fund manager.

In a limited liability partnership (LLP) structure, the investment managers are typically referred to as “General Partners.” In an LLP, general partners have management responsibilities and unlimited liability for the firm’s debts. Limited partners, on the other hand, have limited liability and are not involved in the day-to-day management of the partnership.

Indeterminate Trusts can also be Discretionary Trusts, where the trustee has the authority to exercise discretion in utilizing the trust’s assets, determining beneficial interests, and deciding on the distribution of income. The term “indeterminate” implies flexibility and discretion in managing the trust’s affairs.

The person to whom the property is transferred in a trust is called the Trustee. The trustee holds and manages the trust property for the benefit of the beneficiaries, as per the terms and conditions set forth in the trust deed.

The Onshore Fund is managed by an India-based investment manager who collaborates with the Offshore Investment Manager through an Investment Advisory Arrangement, offering recommendations for investment opportunities in the domestic market.

Excessive leverage (borrowed money) and concentrated positions in stocks can indeed increase the volatility of a fund, as they amplify the impact of market movements on the fund’s overall value.

According to the SEBI (AIF) Regulations 2012, an Alternative Investment Fund (AIF) is defined as a privately pooled investment structure.

A Fund of Funds is a pooled investment vehicle that invests in other Alternative Investment Funds (AIFs) to achieve greater diversification across different investment strategies within the industry.

The agreement prepared by legal advisors, wherein the trustee appoints the investment manager of the Category III AIF, is known as the Investment Management Agreement.

Venture capital, private equity, hedge funds, over-the-counter and exchange-traded derivative contracts, real estate, commodities, precious metals, arts, and antiques are all considered avenues for alternative investments.

The concentration limit of 10 percent is on the fund corpus and not on the total contributions from one investor. This implies that the fund cannot have more than 10 percent of its corpus coming from a single investor.

A Foundation is a not-for-profit organization that donates funds and provides support to other organizations for charitable purposes. Unlike for-profit organizations, the primary goal of a foundation is to contribute to social, educational, cultural, or other charitable causes rather than generating profits.

Incentive fees help align the interest of the Investment Manager with the fund and encourage them to seek the best execution of investments for the benefit of the investors. These fees are typically based on the fund’s performance, linking the manager’s compensation to the fund’s success.

The General Anti-Avoidance Rule (GAAR) may be invoked by Indian income-tax authorities if they find that any arrangements entered into by a Category III AIF are considered impermissible avoidance arrangements. GAAR is designed to prevent tax avoidance and ensure that transactions are undertaken for legitimate economic purposes.

Sovereign Wealth Funds were started by several countries, including members of the OPEC, China, Japan, Singapore, and Malaysia. These funds are state-owned investment pools that manage a country’s reserves, often derived from commodity exports or foreign exchange reserves.

A Subscription Agreement sets out the terms and conditions on which an investor subscribes to the securities issued by an offshore fund. It outlines the terms of the investment, including the rights and obligations of the investor and the fund.

In the ‘Proposed Investment Strategy’ section of an ideal pitch book, disclosures about the investment opportunity and the expected risk-return profile of the fund/scheme on the implementation of the investment strategy should be provided. This information is crucial for potential investors to understand the nature and potential outcomes of the investment strategy.

Risk-adjusted performance measures, such as the Sharpe Ratio, allow investors to compare the returns of a Category III AIF adjusted for the risk level of a benchmark. These metrics help assess how well an investment has performed relative to its risk exposure.

A Large Value Fund for Accredited Investors is an Alternative Investment Fund or scheme of an Alternative Investment Fund in which each investor is an accredited investor and invests not less than Rs. 70 crore.

The portfolio manager has the authority to charge customized fees to investors based on various factors such as the investor profile, targeted market segment, tenure of the fund, and other macro-economic factors or risks.

Portfolio managers typically charge fees for managing investment portfolios. These fees can vary depending on the size and complexity of the portfolio, as well as the level of service provided by the manager. They may include a combination of fixed fees (charged as a percentage of assets under management) and performance-based fees (charged based on the fund’s performance relative to a benchmark or set of metrics).

Therefore, the portfolio manager is the entity responsible for setting and charging fees tailored to the specific circumstances of the investors and the fund.

Investments made by Offshore Funds in India are typically regulated by the foreign jurisdiction where the fund is established and the relevant regulatory authorities in that jurisdiction. SEBI (Securities and Exchange Board of India) primarily regulates investments made by domestic funds in India.

Open-ended schemes offer units to investors on a continuous basis and do not have a fixed maturity period. Investors can enter or exit the fund at any time, and the fund continuously issues and redeems units based on investor demand.

Exit Load is pre-defined in the Private Placement Memorandum and depends on the Investment Manager, investment strategy, and the time remaining until fund liquidation. It represents a fee or charge imposed on investors who redeem or sell their units before a specified holding period.

Category III AIFs deploy complex strategies with a view to make short-term gains and generate alpha. Alpha represents the excess return on an investment beyond what would be expected from the market’s overall movements (beta).

Skewness refers to the extent to which a distribution is not symmetrical across the mean. It indicates whether the data is skewed to the left or right of the mean, helping to assess the shape of the distribution. Positive skewness means the data is skewed to the right, while negative skewness indicates a leftward skew.

In case the IPO involves a fresh issue of equity shares, and the majority of the proceeds from such a fresh issue are proposed to be utilized for capital expenditure, the lock-in period for such shares shall be 1 year.

Model Code of Conduct for Category III AIF Distributors requires them to inform investors about the key risk factors of each fund/scheme and desist from misrepresentation or exaggeration. This emphasizes the importance of providing accurate and truthful information to investors.

An Irrevocable Trust is a trust in which the Settlor (the person creating the trust) does not have the power to revoke the trust. Once established, the trust continues its operations until its purpose is served or the stipulated tenure is complete.

Marketing, Sales, Investor Support, and Relationship Management are indeed considered the four pillars of AIF distributorship. These aspects are crucial for effectively promoting and managing investments in Alternative Investment Funds.

A Trust is a legal entity set up for the transfer of property from one person to another, with the intention that the trust is administered for the benefit of the owners (beneficiaries) specified in the trust deed.