At least 75% of its gross income is passive income
At least 50% of its assets produce passive income or are held for the production of passive income.
if held on the end of the year, are taxed on unrealised gains.
Indian AIFs: Cat 1 and Cat 3 Alternative Investments Funds also are a PFIC in the US rules
Investments under the Ambit of PFIC
not considered PFICs:
Cat 2 AIFs: AIFs with pass through taxation may be exempt from PFIC rules if they pass on all income and gains/losses to unit holders.
Alternative Investment Funds (AIFs) Pros: Access to alternative asset classes like private equity, venture capital, and real estate, which can enhance diversification and potentially higher returns. Professional management by experienced fund managers. May offer lower correlation with traditional asset classes, reducing overall portfolio risk. Cons: High minimum investment requirements, making it suitable only for high-net-worth individuals or institutional investors. Illiquid investments with longer lock-in periods. Some AIFs may be classified as PFICs, depending on their investment strategies and income sources, leading to complex tax reporting and potential tax liabilities.
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