CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

The tax advantage an SMA offers over a mutual fund is that ______

A. it can take into account the specific tax needs of the investor.
B. dividends are re-invested and not paid out to the investor.
C. no taxable capital gains are ever realized.
Correct Answer: A

Another tax benefit is the lack of embedded capital gains. Mutual funds must pay out all capital gains once per year. Since mutual funds are "mutual," all investors share the tax liability on the gains. So, for example, if the fund doubled in value from January through November, investors purchasing into the fund in December did not get the benefit of any of those gains, but they do inherit the tax liability because the gains are embedded in the portfolio. Separate account investors, thanks to an individual cost basis on the underlying securities, would not be liable for capital gains generated prior to the day they invested in the portfolio.

User Contributed Comments 7

User Comment
steph73 sma?
fsammari Specialized managing accounts
johntan1979 That's incorrect. Man... you two NEED to read the notes, or you won't make it.
jonan203 dude, fsammari, it's separately managed account
Kevdharr I really don't understand why people ask questions (with obvious answers) in the comments section on this website. You could go back and look at the reading to easily find out what SMA means. Or you could Google it. Just a thought.
Olesya_CFA @johntan1979 LOL!
joeclark Shit bricks. Someone needs to do some reading.
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