LeverageÑborrowing money to investÑis a double-edged sword used by Category III AIFs. It can amplify returns in a bull market but can wipe out capital in a downturn.
SEBI caps the leverage (typically at 2x the fund size), but the risk remains. Investors in these funds need to understand the Gross Exposure vs. Net Exposure. A highly leveraged fund is not for the faint-hearted; it requires constant monitoring and a manager with a rock-solid risk management framework.
