Frequently Asked Questions
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What is a CAT III Alternative Investment Fund?
A Category III AIF can use complex strategies, but Shepherd’s Hill’s fund follows a simple approach without derivatives or short-term strategies.
A Cat III or Category III Alternative Investment Fund is a fund which can employ either diverse or complex trading strategies for investing in listed or unlisted securities and derivatives, including use of leverage. The types of funds which may be included under this category include hedge funds or funds which trade with a view to make short term returns or such other funds with no specific incentives or concessions given by the government or regulator. However, Shepherd’s Hill’s Cat III fund is relatively straightforward and does not invest in derivatives or short-term strategies. Cat III AIF Fund is currently the only viable option for investors in India to invest in public securities through a privately pooled vehicle.
What are the broad rules allowed by SEBI in an AIF Cat 3 Fund?
A Category III AIF can use derivatives, long-short strategies, and leverage up to 2× NAV, subject to SEBI regulations. Shepherd’s Hill follows a more conservative, long-only, unleveraged, value-based equity strategy.
SEBI has certain specific regulations for AIF Cat 3 schemes (i.e., a Category III Alternative Investment Fund). The terms “AIF Cat 3,” “Alternative Investment Fund – Cat III,” and “AIF Fund – Cat III” are interchangeable. Here is a non-exhaustive summary of some of these rules.
• Structure & tenure. An AIF Cat 3 scheme can be open-ended or close-ended. This flexibility is unique to Category III within the Alternative Investment Fund framework.
• Strategies & instruments. An AIF Cat 3 AIF Fund may employ diverse/complex trading strategies, including investing in listed or unlisted securities and derivatives, and using long–short, arbitrage, and similar approaches—hallmarks of a hedge-style Alternative Investment Fund
• Leverage. SEBI permits an AIF Cat 3 to use leverage up to 2x NAV (gross exposure after permitted offsets must not exceed twice the scheme NAV). This cap defines the risk budget for a leveraged AIF Fund.
• How exposure is measured. SEBI’s master circular details the leverage/exposure calculation, including what counts as long vs short, how to treat options/futures, and that SLBM short selling is “short exposure.” This matters for any AIF Cat 3 deploying long-short strategies.
• Concentration norms. For listed equity, an AIF Cat 3 can compute the single-name investment limit based on investable funds or NAV, subject to disclosed methodology and rectification timelines. This gives a Category III Alternative Investment Fund some operational flexibility.
• CDS (credit default swaps). An AIF Cat 3 AIF Fund may buy CDS (for hedging or otherwise) and may sell CDS subject to earmarking government securities and staying within the leverage cap.
• Reporting cadence. If an AIF Cat 3 uses leverage, it must report monthly to SEBI (quarterly if unlevered). This heavier cadence reflects the risk profile of a leveraged Alternative Investment Fund.
• Units of other AIFs. Where an AIF Cat 3 invests in units of other AIFs, the leverage cap continues to apply (with specific NAV/exposure treatment spelled out by SEBI).
• What’s not permitted (example). SEBI has indicated (via informal guidance) that mutual fund units are not a permissible investment for a Cat III AIF Fund—reinforcing that an Alternative Investment Fund Category III is meant for direct, strategy-driven exposures.
In summary: an AIF Cat 3 is a type of SEBI-regulated, Alternative Investment Fund category—the AIF Fund can be open or closed, take long-short/derivative exposures, and use leverage up to 2x NAV, all within clearly defined exposure, concentration, CDS, and reporting rules. While this is what is broadly allowed, at Shepherd’s Hill, our AIF strategy is much more conservative with a primarily equity, long-only, unleveraged, value-based, sector- and market-cap agnostic portfolio strategy.
What investment options are available for an Indian Resident?
Indian residents can invest in both PMS and AIF.
Indian residents can invest in both PMS and AIF.
What is the PMS account opening process for Indian Residents?
Submit the required details and documents; a document package will be sent within 24 hours for signatures. After submission and IPV, the bank and demat accounts will be opened within 4–5 working days. Once the accounts are opened, investments can begin.
When you are ready to start, please send us required details and scans of your PAN card and address proof. Within 24 hours, we will dispatch a document package to you for your signatures. On return of the completed document set, and following an in-person verification (IPV) by the bank, the bank and demat accounts will be opened (this takes about 4-5 working days). After this, investments can begin.
What is the AIF account opening process for Indian Residents?
Submit the required details and documents. Receive the forms within 24 hours for signing. Accounts open within 4–5 working days after completion, followed by investment.
When you are ready to start, please send us required details and scans of your PAN card, Address proof, your demat client master list, and a cancelled cheque. Within 24 hours, we will dispatch a document package to you for your signatures. On return of the completed document set, accounts will be opened (this takes about 4-5 working days). After this, investments can begin.
