Alternative Investment Funds (Category III) Distributors

Syllabus and chapter weightage

Weightages are taken from the official syllabus table published in the NISM workbook, so you can see exactly where the marks are.

Every chapter can be read free, no account needed — tap a chapter to open its plain-English Foundation lesson.

Sample questions

5 questions from the chapter tests, one per chapter. Pick your answer before you open the explanation.

1. Question 1 · Chapter 1: Overview of Alternative Investments

   An alternative investment is defined as a ______ that does not fall into one of the conventional investment categories.

   1. A.mutual fund
   2. B.financial asset
   3. C.personal property
   4. D.financial planning
   Show the answer

   Answer: B. financial asset

   (This is a sample question from the NISM workbook.)

   "AN ALTERNATIVE INVESTMENT IS A FINANCIAL ASSET THAT DOES NOT FALL INTO ONE OF THE CONVENTIONAL INVESTMENT CATEGORIES. CONVENTIONAL CATEGORIES INCLUDE STOCKS, BONDS, AND CASH."

   Note what kind of definition this is — a negative one. "Globally, alternative investment industry EVOLVED OVER TIME, hence THERE IS NO UNIFORM CLASSIFICATION OR LIMITATION TO WHAT CONSTITUTES SUCH ASSETS. Alternative investments are therefore DEFINED GENERALLY BY SEVERAL SOURCES AS INVESTMENTS OTHER THAN TRADITIONAL INVESTMENTS." There is no positive test of what an alternative investment is, which is why the chapter spends its effort listing avenues instead.

   Option (c) personal property is the instructive distractor. The chapter expressly sets aside "SAVINGS IN BANK DEPOSITS, GOVERNMENT SCHEMES, ORNAMENTAL GOLD AND RESIDENTIAL PROPERTY FOR LIVING PURPOSES" — none of which is even a traditional investment, let alone an alternative one.

   Option (a) is doubly wrong: mutual fund units are named among traditional investments, and a mutual fund is expressly excluded from the AIF definition.

2. Question 2 · Chapter 2: Growth of Alternative Investment Funds in India and Suitability of Category III AIFs

   Alternative Investment Funds which primarily invest in debt securities of listed or unlisted investee companies are known as:

   1. A.Venture Capital Funds
   2. B.Debt Funds
   3. C.Angel Funds
   4. D.Infrastructure Funds
   Show the answer

   Answer: B. Debt Funds

   (This is a sample question from the NISM workbook.)

   "DEBT FUND means an AIF WHICH INVESTS PRIMARILY IN DEBT SECURITIES OF LISTED OR UNLISTED INVESTEE COMPANIES OR IN SECURITIZED DEBT INSTRUMENTS as per the stated objectives of the Fund."

   Option (d) is the near-miss worth understanding. An Infrastructure Fund may indeed hold "LISTED DEBT OR SECURITISED DEBT INSTRUMENTS" — but only of "INVESTEE COMPANIES OR SPECIAL PURPOSE VEHICLES ENGAGED IN OR FORMED FOR THE PURPOSE OF OPERATING, DEVELOPING OR HOLDING INFRASTRUCTURE PROJECTS." The sector restriction is what separates it from a general Debt Fund.

   Why private debt counts as alternative at all: "Many types of debt that are private are considered to be alternative investments BECAUSE OF THEIR ILLIQUIDITY AND OFTEN BECAUSE THEY ARE NOT COMMONLY HELD BY TRADITIONAL INVESTORS. EVEN LISTED COMPANIES ISSUE DEBT SECURITIES SUCH AS NCDs AND BONDS THROUGH PRIVATE PLACEMENT THAT ARE NOT AVAILABLE IN THE TRADITIONAL INVESTMENT ROUTE."

   The three sub-varieties to know: ⚠️ VENTURE DEBT (mezzanine financing with an equity upside such as attached warrants) · SECURITIZED DEBT INSTRUMENTS (financing cars, trucks and electric vehicles leased to corporates) · DISTRESSED DEBT (refinancing settlements with banks and insolvency resolution under the IBC).

3. Question 3 · Chapter 3: Introduction to Category III AIF Ecosystem

   A Category III AIF shall not accept from an ordinary investor a capital commitment of value less than:

   1. A.Rs 25 lakh
   2. B.Rs 50 lakh
   3. C.Rs 1 crore
   4. D.Rs 20 crore
   Show the answer

   Answer: C. Rs 1 crore

   The minimum capital commitment from an investor in a Category III AIF is Rs 1 crore, and this minimum does not apply to Accredited Investors. Rs 25 lakh is the reduced minimum for employees or directors of the AIF or of the Manager. Rs 50 lakh is the PMS minimum. Rs 20 crore is the minimum corpus for the scheme, not the minimum from a single investor.

4. Question 4 · Chapter 4: Category III AIF: Fund Structures and Service Providers

   As per the SEBI (Alternative Investment Funds) Regulations, a Category III AIF can be registered as:

   1. A.a trust only
   2. B.a trust or a company only
   3. C.a trust, a company, a limited liability partnership or a body corporate
   4. D.a partnership firm or a Hindu Undivided Family
   Show the answer

   Answer: C. a trust, a company, a limited liability partnership or a body corporate

   A Category III AIF can be registered as a Trust or a Company or a Limited Liability Partnership (LLP) or a Body Corporate. In practice, most Category III AIFs in India are formed as trusts registered under the Indian Trusts Act, 1882, to enjoy tax benefits provided under the Income Tax Act, 1961 — but the regulations permit all four forms.

5. Question 5 · Chapter 5: Regulatory Framework

   Which of the following is LEAST likely to be a permissible legal structure for an entity seeking registration as a Category III AIF?

   1. A.Limited Liability Partnership
   2. B.Company
   3. C.Trust
   4. D.Proprietorship
   Show the answer

   Answer: D. Proprietorship

   This is the workbook's own sample question. The permissible structures are a Company formed under the Companies Act, 2013, a Trust formed under a trust deed duly registered under the Registration Act, 1908, a Limited Liability Partnership incorporated under a partnership deed filed with the Registrar under the LLP Act, 2008, and a Body Corporate established under the laws of the Central or State Legislature. A proprietorship is not among them.

Frequently asked questions

What is the passing mark for NISM Series XIX-B?

You need 60% to pass NISM-Series-XIX-B: Alternative Investment Funds (Category III) Distributors. On a 100-mark paper that is 60 marks.

Is there negative marking in NISM Series XIX-B?

There is negative marking of 10% of the marks for that question, so a wrong answer costs you 0.10 marks on a 1-mark question. Guess only when you can eliminate at least two options.

How long is the NISM Series XIX-B exam?

The exam runs for 120 minutes and carries 100 marks in total.

How long is the NISM Series XIX-B certificate valid?

NISM certifications are generally valid for 3 years from the date of passing, after which they must be renewed. Confirm the current position on nism.ac.in before your certificate lapses.