The feeder fund is a particular type of mutual fund that has some advantages for investors. Here are the basics of the feeder fund to help you decide whether you should invest in one.

The Feeder Fund

The feeder fund is a mutual fund that uses its assets to invest in another mutual fund. This is similar to a fund of funds except that the feeder fund is investing in a particular mutual fund instead of several. With this arrangement, there is a master fund that holds all of the assets and makes the investment decisions for the portfolio.

Purpose

This strategy is often done in order to avoid regulation by a particular country. For example, you might have a feeder fund that is located in the United States. This fund collects all the money from the investors and uses it to invest in the master fund. The master fund is located in an offshore country that has favorable tax regulations. The money can then be used to purchase securities and benefit from tax advantages. This can increase the amount of return that is generated by the master fund. The profits are then distributed back to the feeder fund and then to the investors.

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