HNI wealth · AIF
Updated . Every paid answer is checked by a CA. Free AI answers are labelled until a CA verifies them.
Category III AIFs (hedge funds, long-short strategies, leveraged funds) do NOT get pass-through treatment. The AIF itself is taxed at the maximum marginal rate applicable to the AIF entity (typically a trust, 35.88% effective). Unit holders receive distributions after tax.
SEBI AIF Regulations 2012 | IT Act, Sec 115U | MAT implications
This fundamentally changes the return profile: A Cat III AIF generating 20% gross return might deliver only 12-13% to investors after AIF-level tax, and you can't set off this tax against your other losses. Why do people still invest? Diversification (long-short strategies uncorrelated to market), absolute return objectives, and access to sophisticated strategies not available in MFs. But the tax drag is real and must be priced in.
Talk to a Savvy for the exact next step on your case.
Connect now
A Savvy replies in minutes.
Fixed price before you pay. Your Savvy is paid only after you accept the work.
General guidance from TaxSavvy’s library of money processes. Laws change; your Savvy confirms the answer on your exact case before anything is filed.