CAT III Alternative Investment Fund: What are the risk factors & who can invest in them?
The SEBI AIF regulations 2012 defines CAT III AIFs as funds which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted instruments. The CAT AIF industry is growing rapidly — the number of SEBI registered AIFs went from 173 in March 2022 to 207 in March 2023. The total commitment raised from investors stands at Rs 80,900 crore as on March 2023.
The AIF may either be a long only or a long-short fund. The AIF could be Open or Close ended. Open ended funds usually have no restrictions, an investor may add or withdraw funds at any given point in time, some funds may have a lock-in period. Close ended funds on the other hand have a restriction of not being able to withdraw funds for at least 3 years.
Category III AIFs mostly invest in public equities only, which is similar to what a mutual fund or PMS does. Some funds may invest in unlisted equities as well. However, it is expected that most CAT III AIFs invest in public listed stocks only. When it comes to investing in public equities, the SEBI regulation states that a fund can invest only up to 10% of the investible fund in any one company.
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The minimum investment as per SEBI regulations to invest in an AIF is Rs 1 crore. Someone wishing to invest in a fund may approach the fund house and ask for details about their fund such as past returns, investment strategy, etc. The investor is also required to execute an agreement with the fund before investing. Anyone whether Indian, foreign national, NRI can invest in an AIF. This includes retail investors, HNIs, corporates, family offices and institutions as well.
The fee structure differs from one fund to
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