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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

A distributor wants to recommend a scheme for an investor who wants regular periodic payouts from the fund while keeping capital invested. Which feature should be checked before recommending an IDCW option?

The distributor should check that IDCW is not guaranteed, depends on distributable surplus, and reduces the NAV by the amount paid out. Payouts may include part of the investor's own capital and are taxable in the investor's hands.

  1. AIDCW is guaranteed and fixed each month
  2. BIDCW is paid out of distributable surplus and NAV falls by the payoutCorrect
  3. CIDCW payments are free of tax in the investor's hands
  4. DIDCW option has no exit load ever

Explanation

IDCW (Income Distribution cum Capital Withdrawal) is not assured and can be paid from the investor's own capital as well as gains. After payout the NAV drops to the extent of the distribution. The amount is taxable in the investor's hands at slab rates, so payouts are neither guaranteed nor tax-free.

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