What is a Master Feeder Fund?

A feeder fund conducts the majority of its investing through another fund which is called the master fund. So why would you want to invest in a fund that invest in another fund?

Well a master fund might not pass the passive foreign investment company (PFIC) which would hurt the investors on their taxes. On the other hand a feeder fund is set up to pass the PFIC so it could be beneficial for an investor to invest in that fund first and have it invest into the master fund, which would allow that investor to gain the same return as the master fund, but with a better tax situation.

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