n NISM Certifications
X NISM Series X
Medium

The principle of 'Tax Neutrality' for an AIF means the fund itself should not be taxed at the entity level; instead, income is passed through and taxed directly in the hands of investors, similar to individual investments.

Practice question from NISM Series XIX A- Alternative Investments Funds (AIF) Distributors Mock Test 5 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. No tax at the entity level

    Correct answer

  2. B

    Trustee bears tax liability

  3. C

    Investment manager limits own tax liability

  4. D

    Sponsor bears tax liability

Why this is the answer

Tax neutrality ensures income flows directly to investors without fund-level taxation, mirroring individual investment conditions.

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NISM Series XIX A- Alternative Investmen…