Ch.7 · NAV Calculation Rules · hard
What is 'NAV stripping' and why is it not beneficial to investors?
0% of students got this wrong
EXPLANATION
NAV stripping involves buying IDCW plan units just before the record date to receive the IDCW and then redeeming. However, since NAV falls by the IDCW amount on ex-date, there is no economic benefit — the investor receives the same total value whether or not they do this. Tax-wise it can be disadvantageous since IDCW is now taxable as income while capital gains might have been more tax-efficient.
Practising Chapter 7 one question at a time?
Try the full chapter — 80 questions, tracked score, weak area breakdown.