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

Ms. Anita Rao, a high-net-worth client, asks about the sponsor's commitment in a Category III AIF. Which statement about the continuing interest of the sponsor or manager under the AIF Regulations is correct?

For a Category III AIF, the sponsor or manager must keep a continuing interest of 2.5% of the corpus or Rs 5 crore, whichever is lower. It is mandatory, ensuring the manager has skin in the game alongside investors.

  1. AIt is optional for Category III AIFs
  2. BIt must be at least 2.5% of the corpus or Rs 5 crore, whichever is lower, for Category IIICorrect
  3. CIt must be at least 5% of the corpus or Rs 10 crore for Category III
  4. DIt is fixed at 10% of the corpus for all categories

Explanation

The manager or sponsor must hold a continuing interest so that they have skin in the game. For Category III it is 2.5% of the corpus or Rs 5 crore, whichever is lower; for Category I and II it is 2.5% or Rs 5 crore, whichever is lower, in the case of Cat I and II as well, but with a different figure for Category III. The other options misstate the requirement and its lower-of structure.

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