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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Overview of Alternative Investment Funds (AIFs)

Mr. Raghav Menon, a 45-year-old businessman, wants to invest in a Category II AIF. His adviser explains the features of the fund. Which statement is correct about Category II AIFs?

Category II AIFs do not employ leverage or borrowing other than to meet day-to-day operational requirements. They include private equity and debt funds. Government incentives relate to Category I, and listing is allowed only after final closure of the scheme, not immediately after first close.

  1. AThey are permitted to borrow funds for investment purposes beyond day-to-day operational requirements
  2. BThey do not undertake leverage or borrowing other than to meet day-to-day operational requirementsCorrect
  3. CThey may be listed on a stock exchange immediately after the first close
  4. DThey receive specific incentives or concessions from the government

Explanation

Category II AIFs, such as private equity and debt funds, do not undertake leverage or borrowing except to meet day-to-day operational requirements, within the permitted limits. Incentives are associated with Category I. Listing is permitted only after the final closure of the scheme, not after first close.

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