SIE (Securities Industry Essentials) Practice Exam

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What is the cost basis of an inherited mutual fund?

The net asset value (NAV) when the buyer purchases the shares
The NAV at the start of the fiscal year
The NAV of the shares when the owner dies
The market value of the shares at the end of the fiscal year

The correct answer is: The NAV of the shares when the owner dies

The cost basis of an inherited mutual fund is the NAV of the shares at the time the owner passes away. This is because inherited securities receive a step-up in cost basis, meaning that the value of the mutual fund for tax purposes is reset to the market value at the time of the owner's death. This is in contrast to purchasing shares where the cost basis is typically the original purchase price. The other options may be used to determine the value of the mutual fund, but they are not considered the cost basis for tax purposes.