Cat-II vs Cat-III AIFs – A Regulatory & Practical Comparison for Large Value Funds

CAT-II vs CAT-III AIFs
S. No. Criteria Category II AIF Category III AIF
1 Investment Limit Accredited investors can invest up to 50% of investable funds in an investee company. Limit is 20% of investable funds in an investee company.
2 Tenure Close-ended, minimum 3 years. Open-ended or close-ended.
3 Investment Focus Primarily unlisted securities and/or listed debt rated ‘A’ or below. Listed/unlisted securities, derivatives, other AIFs, structured products, commodities, CDS.
4 Leverage Not permitted. Permitted up to 2x NAV through derivatives/borrowing.
5 Valuation Independent valuer once a year. NAV disclosure quarterly (close-ended) / monthly (open-ended).
6 Reporting Annual report within 180 days of year end. Quarterly report within 60 days of quarter end.
7 Continuing Interest >2.5% corpus or ₹5 cr (whichever lower). >5% corpus or ₹10 cr (whichever lower).
8 Taxation Pass-through: investor bears tax liability. Fund itself bears tax liability.
To understand how RBI’s Investment in AIF Directions, 2025 affect NBFC exposures and capital adequacy, read our blog here

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