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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Collective Investment Vehicles

A Category III Alternative Investment Fund (AIF) is described by SEBI as one that employs diverse or complex trading strategies and may use leverage. A Category II AIF, by contrast, generally:

A Category II AIF generally does not use leverage except for day-to-day operational needs within permitted limits. Government-incentivised start-up type funds fall in Category I, while complex leveraged strategies belong to Category III.

  1. ADoes not undertake leverage other than to meet day-to-day operational needs, within permitted limitsCorrect
  2. BReceives incentives or concessions from the government for investing in start-ups
  3. CMust be open-ended and listed with daily redemption
  4. DInvests only in listed large-cap shares and derivatives for hedging

Explanation

Category II AIFs, such as private equity and debt funds, do not undertake leverage except to meet day-to-day operational requirements within limits. Incentive-linked funds are Category I, and complex-strategy leveraged funds are Category III. Category II AIFs are not listed daily-redemption vehicles.

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