SERIES 6 EXAM ASKS QUESTIONS ABOUT MUTUAL FUND SHAREHOLDER'S COST BASIS

The Series 6 exam asks questions about a mutual fund shareholder"s "tax basis."  Tax basis is often referred to as "cost basis," or simply "basis."  An applicant needs to be familiar with these terms.

Take a situation where Henry purchases shares of XYZ Fund at the offering price of $10.00.  Given that XYZ Fund has a front-end load of five percent, the NAV is $9.52.  Is Henry's tax basis $10.00 or is it $9.52?

What happens to Henry's basis if he exchanges shares of the XYZ Fund for shares of ABC Fund?

Suppose Henry receives a gift of 1,000 shares of DFG Fund from Uncle Bert when DFG Fund shares are worth $20.00 each.  Uncle Bert paid $8.00 per share.  What is Henry's cost basis?

What effect on Henry's basis if DFG Fund pays out a distribution of dividends and capital gains, which Henry immediately reinvests?  How will that effect Henry's basis?

As you can see, there are many possible questions on the Series 6 dealing with a shareholder's cost basis, tax basis, or basis.  Don't go into the Series 6 without being familiar with these concepts.

PS Watch for Bob Eder's forthcoming book, Study for the Series 6 Exam.