Understanding Products and Their RisksDifficulty 2/5
Which characteristic does the SIE outline associate with direct participation programmes?
- ADouble taxation at both the entity level and the investor level
- BPass-through tax treatment, unlisted status and general illiquidity
- CDaily redemption at net asset value and listing on a national exchange
- DFederal deposit insurance and a guaranteed rate of return to investors
Show answer and rationale
Correct: B. The outline's knowledge block for DPPs is exactly three items: pass-through tax treatment, unlisted, generally illiquid. Those three characteristics are what the exam asks about.
- C — Daily redemption at net asset value describes open-end investment companies, not DPPs.
- D — DPPs carry no federal deposit insurance and no guaranteed return; investors bear the risk of the underlying business.
- A — Pass-through treatment is the avoidance of double taxation, which is the point of the structure.