General Securities Sales Supervisor (Series10) Practice Exam

What is the ex-dividend date for a mutual fund determined by?

1. FINRA set 2 business days prior to record date

2. Board of Directors of the fund on record date

3. Decrease in the fund's Net Asset Value for distribution

4. Increase in the fund's Net Asset Value for distribution

The correct answer is: Decrease in the fund's Net Asset Value for distribution

The ex-dividend date for a mutual fund is determined by the decrease in the fund's Net Asset Value (NAV) for distribution purposes. This date is critical because it marks the point at which new buyers of the mutual fund shares will not receive the upcoming dividend payment. Essentially, when a mutual fund goes ex-dividend, its NAV is adjusted downward to reflect the distribution of the dividend, which is the actual cash or shares being paid out to existing shareholders. Understanding this context is vital since the NAV reflects the value of the fund’s underlying assets, and when a dividend is declared, the fund must reduce its NAV to account for the cash or stock that it will distribute to current shareholders. Thus, investors who purchase shares on or after the ex-dividend date do not have the right to receive that dividend, as the value has already been deducted from the fund. The other options do not accurately represent how the ex-dividend date is determined. While FINRA does have regulations impacting trading practices and timing, it does not set a specific ex-dividend date for mutual funds. The board of directors does declare dividends but does not select the ex-dividend date based on the record date in the way suggested. Lastly, an increase in NAV would not result