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AMFI Practice Test

Series A

1) A mutual fund is not


a) A company that manages an investment portfolio.
b) A portfolio of stocks, bonds and other securities.
c) A pool of funds used to purchase securities on behalf of investors
d) A collective investment vehicle.

2) Which of the following is true? Some close end funds sell at a discount to their NAV,
because
a) Of high expense ratios
b) Investors expect that current NAV cannot be sustained by future potential
c) The repurchase price fixed by the fund is lower than the NAV
d) Of the inherent risk of closed end funds.

3) If the entry load is 2% and the NAV is Rs. 10, then the investor will have to pay for
1000 units
a) Rs. 15000
b) Rs. 8000
c) Rs. 12000
d) Rs. 10200

4) Which of the following Mutual Funds was not set up within the Phase 2:1987-1993?
a) Canbank Mutual Fund
b) Kothari Pioneer Mutual Fund
c) SBI Mutual Fund
d) LIC Mutual Fund

5) Which of the following is not a benefit from a Mutual Fund?


a) Investor has custody of securities where fund invests.
b) Investor is able to diversify risk
c) Investor can save costs
d) Investor can get professional management to manage his money.

6) Which of the following has the lowest risk?


a) Liquid Fund (MMMF)
b) Gilt Fund
c) Diversified debt fund
d) Diversified equity fund

7) The current Mutual Fund Regulations from SEBI was introduced in


a) 1992
b) 1994
c) 1996
d) 1998

8) The sponsor of a mutual fund may be compared to:


a) A director in a company
b) The chief executive of a company
c) The promoter of a company
d) An equity shareholder of a company
9) Issuing additional fresh units and redeeming the existing units of a mutual fund
scheme is the role of:
a) The custodian
b) The transfer agent
c) The trustees
d) The bankers

10) The appointment of AMC for the Mutual Fund can be terminated by
a) Majority of Directors of the Trustee
b) 50% of the Unitholders
c) 45% of the Unitholders
d) 60% of the Unitholders

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11) The Asset Management Company shall make investment decisions solely in the
interest of
a) The sponsor
b) The Trustee
c) The Unit Holders
d) Its Employees
12) Mutual funds in India are set up as a
a) Company
b) Trust
c) Partnership
d) Association of Person
13) Minimum number of independent directors on the board of asset management
company is
a) 50%
b) 25%
c) 75%
d) Two-thirds
14) Under the Indian Trusts Act, the interests of the unit-holders is safeguarded by
a) A board of trustees
b) A trustee company
c) Either
d) Neither
15) The asset management company is appointed by
a) SEBI
b) Unit holders
c) Sponsors
d) Trustee
16) Who needs to sign the trust deed with the trustee?
a) Asset Management Company
b) Sponsor
c) Custodian
d) All of the above
17) Which of the following qualifies as a self-regulatory organization?
a) SEBI
b) RBI
c) National Stock Exchange
d) AMFI
18) Whose consent is required to approve change in fundamental attributes of a closed
end scheme?
a) 50% of the unit holders
b) 50% of the trustees
c) 75% of the unit-holders
d) None of the above
19) Which schedule of SEBI (Mutual Fund) regulations 1996 specifies the contents of the
Trust Deed?
a) Eleventh Schedule
b) Eighth Schedule
c) First Schedule
d) Third Schedule
20) In case of a dispute, against whom can the Unitholders initiate legal proceedings?
a) Trust
b) Trustee
c) AMC
d) None of the above
21) Mutual Funds are regulated by
a) RBI
b) AMFI
c) SEBI
d) NSE
22) The body to which investors may address their complaints is
a) SEBI
b) RBI
c) IRDA
d) NSE
23) The first-time investor would be well-advised to refer to:
a) Detailed Offer Document
b) The Key Information Memorandum only.

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c) Either of the above
d) None of the above
24) Which of the following is true of the offer document?
a) Investor gets all the information to evaluate the performance of the proposed
scheme
b) Investor gets useful information to evaluate the performance of the AMC’s past
schemes
c) Investor does not get any information on services he can expect from the fund.
d) Investor will not be able to assess the risks of the proposed scheme based on the
offer document
25) The Abridged Offer Document contains the address of the following:
a) The Trustees of the Mutual Fund
b) The Directors of the AMC
c) The Registrar and Transfer Agents
d) Options a & b
e) Options b & c
26) Validate the statement – The investor is not obliged to read the offer document
before investing in units of a scheme.
a) Completely true
b) Rarely true
c) Completely false
d) Partly false
27) Offer documents have to be updated within
a) One year from the date of Issue
b) Two years from the date of issue
c) Six months from the date of issue
d) None of these
28) The front page of the offer document contains
a) Date of its publication
b) Name and type of the fund
c) Major objectives of the fund
d) a & b
29) To a prospective investor the reliable source of pertinent information about a scheme
is
a) Financial Press
b) Offer document
c) AMFI Website
d) Advice from the distributor
30) Which of the following distribution channels is preferred by private mutual funds?
a) Individual distributor
b) Small distribution companies
c) Established distribution companies
d) The Internet
31) Which of the following sales practices is prescribed by regulation?
a) AMFI Code of Ethics
b) SEBI Advertising Code
c) AMFI’s code for agents
d) None of the above
32) Risk factors may not be mentioned in
a) Product launch advertisement
b) Tombstone advertisement
c) Performance advertisement
d) All of the above advertisements
33) An NRI holds units in a mutual fund. What should he do with his holding if he takes up
a foreign citizenship?
a) He redeems
b) He continues
c) He transfers the unit to his mother, who resides in India
d) None of the above
34) MF Regulations prescribe
a) The minimum commission of the distributor
b) The maximum commission of the distributor
c) The minimum as well as the maximum commission of the distributor
d) Neither the minimum nor the maximum commission to the distributor
35) Which of the most appropriate position under MF Regulations?
a) Buyer beware
b) Buyer is always right

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c) Seller is always right
d) Seller is guilty unless proved right
36) According to SEBI’s code for mutual fund advertisement, for funds that have been in
existence for more than a year, annualized returns have to be furnished for
a) 1 yr, 3 yr, 5 yr. and since launch
b) 1 yr, 5 yr and since launch
c) 1 yr, 3 yr and since launch
d) 1 yr, 3 yr and 5 yr
37) An open-end fund with 10,000 units outstanding had the following items in its
balance sheet:
Investment at market value Rs. 1,00,000
Current Assets Rs. 20,000
Current Liabilities Rs. 25,000
Calculate the fund’s NAV per unit.
a) Rs. 9.5
b) Rs. 12
c) Rs. 10
d) Rs. 14.5

38) A closed-end equity fund has average weekly net assets of Rs. 200 crores. As per
SEBI Regulations, the AMC can charge the fund with investment and advisory fee
upto:
a) Rs. 2.25 crores
b) Rs. 2 crores
c) RS. 2.5 crores
d) Rs. 3 crores
39) An investor purchased units in a mutual fund in 1995 for Rs. 75000. He sold the units
in 1998 for Rs. 125000. The cost inflation index for 1995 and 1998 are 281 (C) and
351(D) respectively. The capital gains chargeable to tax are:
a) 64,957
b) 31,317
c) 50,000
d) 75,000

40) Income earned by a Mutual Fund registered with SEBI is exempt from Income-Tax as
per section
a) 10(23D)
b) 10(33)
c) Total Income is taxable @ 33.2%
d) 88
41) Unit capital of a mutual fund scheme is Rs. 20 million; the market value of its
investments is Rs. 55 million; The number of units is 1 million. The NAV is
a) Rs. 20
b) Rs. 75
c) Rs. 55
d) Not possible to say
42) Which of the following is untrue of the Automatic Reinvestment Plan?
a) The plan allows for automatic reinvestment of all income and capital gains.
b) Automatic reinvestment allows for the accumulation of additional units of the
fund
c) The major benefit of automatic reinvestment is the compounding of returns
d) The benefit of automatic reinvestment is often lost, if reinvestment is subject to a
heavy load
43) Constraints imposed by most funds on check-writing include:
a) Requirement of minimum account balance after withdrawal
b) Specification of a minimum amount for which check can be issued
c) Limit on the number of checks that are allowed to be issued in a month
d) Both 1 and 2 above
44) Which of the following is true of Systematic Withdrawal Plan (SWP)?
a) It allows investors to make Systematic withdrawal from his fund
b) It is suitable for investors seeking regular income
c) SWP is similar to Monthly Income Plan
d) Only 1 & 2
45) Choose the correct Statement – Alternative Investment Plans offered by fund allows
investors:
a) Freedom with respect to investing one time or at regular intervals
b) Making transfers to different schemes with the same fund family
c) Receiving income at specified intervals or accumulating distributions
d) All the above

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46) The current market price of a 9%—coupon bond, when other bonds of similar
maturities pay 11% will be:
a) Above par
b) Below par
c) At par
d) Will be unrelated to other bonds
47) Yield and Price of a bond move:
a) In opposite directions
b) Together in the same direction
c) In an unrelated fashion
d) In line with the inflation index
48) SEBI places a limit on a scheme’s investment in “investment grade rated” debt
instruments of a single issuer, because:
a) Even investment grade securities carry risks of default by borrower
b) A scheme must diversify its holdings and thus reduce portfolio risk
c) Investment Grade ratings cannot be solely relied upon
d) SEBI wants to leave some for investment in “non-investment grade” securities by
the scheme
49) Technical Analysis tries to predict future movement of stock price by analyzing:
a) The financial workings of a Company
b) The stock price movements of a Company
c) Both of the above
d) None of the above
50) An investor purchased an open-end fund when its NAV was Rs. 20. 16 months later,
its NAV stood at Rs. 22. The percentage NAV change in the fund was:
a) 8%
b) 7%
c) 7.5%
d) 8.5%
51) A unit of open-end fund was purchased when its NAV was Rs. 20. At year-end its NAV
was Rs. 22. In the interim period, the fund made a distribution of Rs. 4 per unit when
its NAV was Rs. 21. What was the simple Total Return of the Fund?
a) 25%
b) 30%
c) 20%
d) 31%
52) Which of the following is false?
a) ROI is a measure similar to Total Return with reinvestment of distributions
b) Total Return with reinvestment of distributions assumes reinvestment at NAV on
the distribution date
c) As a measure of performance, Total Return with reinvestment of distributions
seeks to overcome the shortcomings of simple Total Return
d) Because of its simplicity, simple Total Return is preferred in practice to Total
Return with reinvestment of distribution

53) Return can be annualized and compounded only if the Scheme has completed
a) 30 days
b) 12 months
c) 6 months
d) 24 months
54) An equity scheme is 90 days old. To compute its yield, it can use
a) Absolute return
b) Simple annualized return
c) Compounded annualized return
d) Any of these
55) Financial Planning is
a) Investing funds to receive the highest rate of return possible
b) Resorting to tax planning to keep taxes as low as possible
c) Planning for retirement with the maximum income possible.
d) Process of solving financial problems and reaching financial goals.
56) Your client has won Rs. 1 crore in “Kaun Banega Crorepati”. What would your
suggestion be?
a) Invest the entire amount without any delay in “old economy” stocks—since they
are back in favour
b) Invest the entire amount immediately in an Equity Index Fund—since the index is
at a historic low
c) Invest in very safe liquid investment options and take the time needed to work
out a financial plan

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d) Invest immediately in IT stocks, since their valuations are now considered to be
attractively low
57) Which one of the following portfolio is most risky?
a) 75% Equity — 25% debt
b) 40% Equity — 60% debt
c) 60% Equity — 40% debt
d) 80% Equity — 20% debt
58) The strategy advisable for an investor to maximize investment return in the long run
is:
a) Buy and hold on to investments for a long time
b) Liquidate poorly performing investments from time to time
c) Liquidate good performing investments from time to time
d) Switch from poor performers to good performers
59) A criticism of rupee-cost averaging is
a) Investment is for the same amount at regular intervals
b) Over a period of time, average per share price will be more than guessing the
highs and lows
c) It does not tell you when to buy, sell or switch from one scheme to another
d) Rupee cost averaging has no serious shortcomings
60) If you maintain a flexible ratio of asset allocation, would you
a) Rebalance the Debt/Equity allocation periodically?
b) Rebalance the Debt/Equity allocation very frequently?
c) Generally avoid portfolio rebalancing?
d) Keep fixed percentages of equity and debt investments at all times?
61) SIP is best example of
a) Rupee Cost Averaging
b) Value Averaging
c) Buy & Hold
d) None of the above
62) Direct investment in stock markets can be better option over investing through
mutual funds if:
a) The investor wants better returns than those offered by mutual funds
b) The investor has large capital, knowledge and resources for research
c) The investor has identified a bullish phase in the stock market
d) The investor wants to invest for the long run
63) An investor in need of regular income should not select:
a) A bank deposit
b) A debt fund
c) An equity growth fund
d) PPF
64) Which of the following has the highest level of liquidity?
a) Equity
b) PPF
c) Company fixed deposits
d) Mutual Funds
65) Which of the following should not be viewed primarily as an investment option?
a) Mutual Funds
b) Equity shares
c) Life Insurance
d) None of the above
66) An investor asks you in what order he should list the following schemes, going from
the scheme with the least risk to the one with the one with the highest risk — 1. A
Balanced Fund, 2. A Stock Index Fund, 3. A Liquid (Money Market) Fund and 4. A
Pharmaceuticals Sector Fund.
a) 1, 2, 3, 4
b) 1, 3, 4, 2
c) 3, 1, 2, 4
d) 2, 3, 1, 4
67) Ex-Marks (or R-Squared factors) of a fund measures
a) How much of a fund’s NAV movement is due to the market index movement
b) How a fund’s NAV movement relates to the market index movement
c) How much of a fluctuation has occurred in a fund’s NAV over a historical period
d) How many marks a Credit rating Agency accords to a fund
68) Which is better investment option whilst selecting an equity fund?
a) Ex Marks – 75%, Beta – 0.9, Gross Dividend Yield – 8%
b) Either a or c
c) Ex Marks – 80%, Beta – 0.9, Gross Dividend Yield – 8%

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d) Ex Marks – 90%, Beta – 0.8, Gross Dividend Yield – 9%
69) What type of portfolio asset mix would recommend to your 55 year old client who
plans to retire at age 58? Choose a portfolio that is the closest match to the
investor’s needs.
a) 40% in Equity Schemes and 60% in Balanced Funds.
b) 40% in Equity Schemes and 60% in Debt Funds
c) 20% in Equity Schemes, 20% in Liquid Funds and 60% in Debt Funds
d) 100% in Monthly Income Statements
70) For which of the following funds would you consider “average maturity” as an
important factor in selecting the right one for the investor?
a) A Debt Fund
b) A Balanced Fund
c) A Money Market or Liquid Fund
d) Both ‘a’ and ‘b’ above
71) Which of the following Portfolios would you recommend to a recently retired Couple?
a) 35% in Conservative Equity Funds, 25% in moderately aggressive equity, 40% in
money market funds.
b) 30% in short term municipal funds, 35% long term municipal funds, 25%
moderately aggressive equity, 10% in emerging growth equity
c) 50% in aggressive equity fund, 25% in high Yield bond funds and growth and
income funds, 25% in conservative money market funds
d) Either 2 or 3
72) AMFI Code of Conduct for Intermediaries
a) prohibits mutual fund distributors from accepting commissions from an investor
who renew his investment in a scheme
b) Prohibits them from rebating the commission back to such investors
c) Encourages them to refrain from rebating the commissions to such investors, but
does not prohibit
d) Prohibits them from rebating the commissions back to all investors
73) Mutual funds in India are required by SEBI to
a) Prohibit their employees from personal trading in secondary markets
b) Allow all employees to trade freely in secondary markets without restrictions
c) To establish a code of conduct and allow employees to do personal trading that
conforms to SEBI guidelines
d) Allow employees to carry on personal trading as long as they abide by SEBI
guidelines

74) A Charitable Trust wanted to invest in Mutual Funds. What would you do?
a) Accept the application form with cheque
b) Refuse to accept the application
c) Refer to the offer document of the scheme to confirm that a charitable trust is
allowed to invest
d) Accept the application form, without the cheque, and forward it for financial
acceptance by the fund/ AMC

75) Contingent Deferred Sales Charge (CDSC)


a) Is higher for investors who stay invested in the schemes longer
b) Is lower for investors who stay invested in the scheme longer
c) Is the same for all investors irrespective of how long they stay invested
d) Is not allowed to be charged to mutual fund investors in India

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ANSWERS

1 a 31 b 61 a
2 b 32 b 62 b
3 d 33 a 63 c
4 b 34 d 64 d
5 a 35 a 65 c
6 a 36 a 66 c
7 c 37 a 67 a
8 c 38 a 68 d
9 b 39 b 69 c
10 a 40 a 70 d
11 c 41 d 71 a
12 b 42 d 72 d
13 a 43 d 73 c
14 c 44 d 74 c
15 d 45 d 75 b
16 b 46 b
17 c 47 a
18 c 48 b
19 d 49 b
20 b 50 c
21 c 51 b
22 a 52 d
23 a 53 b
24 b 54 a
25 e 55 d
26 c 56 c
27 b 57 d
28 d 58 d
29 b 59 c
30 c 60 c