Category III AIFs deploy complex strategies with a view to make short-term gains and generate alpha (alpha is the excess return generated by a Category III AIF, when compared with the return generated by the benchmark index). Among all three categories of AIFs, Category III AIF is the
riskiest one.
Category III AIFs are most suited, only for institutional investors and ultra-high net worth individuals, considering the risk-return profile of the fund.
Category III Funds are allowed to take leverage positions through Futures and Options (F&O) contracts, structured products, credit default swaps, margin trading and arbitrage strategies, with the purpose of earning speculative profits, or hedging their current exposures in the portfolio. This
adds to the overall portfolio risk for the investor.
Investors, before investing, should particularly look at some of the crucial clauses in the Private Placement Memorandum (PPM), to get detailed insights about the Fund.