Skip to content

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

Rohan wants regular monthly cash flow from a mutual fund but also wants his capital to remain invested. A distributor suggests the IDCW option. What is the most important point the distributor should tell him?

The distributor must explain that IDCW is paid only from distributable surplus, is not guaranteed and can vary or be skipped, and that the NAV drops by the amount paid out. It is also taxable, so it is not a guaranteed income stream.

  1. AIDCW payouts are guaranteed every month by the AMC
  2. BIDCW is paid only out of distributable surplus, may vary or be skipped, and reduces the NAV by the amount paidCorrect
  3. CIDCW payouts are completely tax-free in the investor's hands
  4. DIDCW payout does not change the NAV of the scheme

Explanation

IDCW is not assured; it depends on distributable surplus and the trustees' decision. On payout, the NAV falls by the amount distributed, and the payout is taxable in the investor's hands. The other options misstate these features.

Did you get it right without looking?

One question tells you little. A timed set on Mutual Fund Scheme Selection shows your real accuracy, how long you take and where you lose marks.

Practise Mutual Fund Scheme SelectionFree diagnostic mock

More Mutual Fund Scheme Selection questions