NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Overview of Alternative Investment Funds (AIFs)
An investor commits Rs 1 crore to a Category II AIF structured as a closed-ended fund. The fund has a 5-year tenure, and the manager draws the committed amount in instalments as investments are identified. What is this feature called?
This is called drawdown of the capital commitment. Investors agree to invest a total amount, and the manager calls portions of it in instalments through drawdown notices when investments are identified, rather than collecting the full amount upfront.
- ADrawdown of capital commitmentCorrect
- BHurdle rate
- CHigh-water mark
- DClawback
Explanation
In AIFs, investors pledge a capital commitment and the manager calls it in stages through drawdown notices as investment opportunities arise. A hurdle rate is the minimum return before carry, a high-water mark is a performance-fee peak value reference, and a clawback returns excess distributions.
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