NISMVAImportant Questions

CHAPTER 1: INVESTMENT LANDSCAPE
1. Financial goals should be defined in terms of ___________

a. Time Horizon and external funds required
b. Cost and economic policies
c. Aspirations and desires
d. Time Horizon and money needed
Ans: (d) The first step in financial goal setting is to identify events in life that
will require major funding – like child education, marriage, retirement, etc.
The next step is to assign priorities- which of these events are more
important than the others, After that, one needs to assign a time line as well
as amount of funding required at the time of such events.
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2. Investors tend to extrapolate the current event into the future and expect
a repeat. This example is called_________
a. Herd Mentality
b. Familiarity
c. Recency
d. Overconfidence
Ans: (c) Recency bias : The impact of recent events on decision making can
be very strong. This applies equally to positive and negative experiences.
Investors tend to extrapolate the event into the future and expect a repeat. A
bear market or a financial crisis leads people to prefer safe assets. Similarly,
a bull market makes people allocate more than what is advised for risky
assets. The recent experience overrides analysis in decision making.
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3. If the asset allocation is maintained at a constant ratio by regular
rebalancing of portfolio, it is known as
a. Dynamic Asset Allocation
b. Fixed Asset Allocation
c. Variable Asset Allocation
d. Strategic Asset Allocation
Ans: (b) For eg. if a fund has fixed asset allocation of 50:50 for Debt and
Equity and if equity valuation rises by 10%, then as per the fixed asset
allocation strategy, 10% of equity portfolio will be sold and debt will be
bought so that the debt equity valuation will be 50:50.
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4. The purchasing power of currency changes on account of which of the
following?
a. Asset allocation
b. Compound interest
c. Inflation
d. Diversification
Ans: (c) Due to Inflation, to buy the same amount of good every year we
have to spend more and more money. Thus, it reduces the purchasing
power of money.
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5. Inflation Risk is also referred as
a. Credit Risk
b. Liquidity Risk
c. Purchasing Power Risk
d. None of the above
Ans: (c) Inflation, or price inflation is the general rise in the prices of various
commodities, products, and services that we consume. Inflation erodes the
purchasing power of the money.
Inflation risk is also referred to as purchasing power risk, is the risk that
inflation will undermine the real value of cash flows made from an
investment.
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6. Which of these is a physical asset?
a. Gold futures
b. Real estate fund
c. Real estate
d. Mortgaged backed securities
Ans: (c) Real estate means physical property in the form of land and
buildings. Real estate funds, gold futures, and mortgage backed securities
are all financial assets.
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7. Which statement is FALSE with reference to risk appetite?
a. Risk appetite can be assessed by risk profiling.
b. Preferred risk appetite is different from ideal risk appetite.
c. Risk appetite indicates the level of risk that investor is comfortable with.
d. People of same age will have same risk appetite.
Ans: (d) One of the common factors that many people use to evaluate the
investor's risk profile is the investor's age. It is popularly believed that
younger investors have the potential for taking higher risks compared to old
people. However, this may not be correct as different investors have
different financial goals at different age levels. In fact, investors in the same
age group may also have different goals. Their financial situations may also
differ. In such cases, it may not be prudent to categorize investors on the
basis of age alone.
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8. What is asset allocation?
a. Deciding which and how many mutual fund schemes to invest in.
b. Finalizing which mutual fund schemes would deliver the highest returns in
future.
c. Deciding how to invest money across various asset categories in line with
one's risk profile, financial objectives and current situation.
d. Deciding which asset category would outperform the others and investing
in it.
Ans: (c) Asset Allocation is a process of allocating money across various

asset categories in line with a stated objective. The basic meaning of asset
allocation is to allocate an investor's money across asset categories in order
to achieve same objective.
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9. What can happen if an investor has an Overconfidence bias?
a. He will make careful investment choices
b. He will take higher risks in his investments
c. His portfolio will have all good blue chip shares
d. He will keep the risks low in his investment portfolio
Ans: (b) Overconfidence bias refers to a person's overconfidence in one's

abilities or judgment. This leads one to believe that one is far better than
others at something, whereas the reality may be quite different. Under the
spell of such a bias, one tends to lower the guards and take on risks without
proper assessment.
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10. What is the 'Goal-Based approach to Financial Planning' focused on?
a. To generate a limited amount of money
b. An investment plan which is focused on a specific goal
c. An investment plan with a specific risk profile
d. A specific option of investment
Ans: (b) A goal-Based approach to Financial Planning is a financial plan for

a specific goal. For example - Investments which will be used for higher
studies of a child. An alternate approach is a "comprehensive financial plan"
where all the financial goals of a person are taken together, and the
investment strategies are worked out on that basis.
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11. Which amongst the following bias can lead to concentrated portfolio?
a. Familiarity Bias
b. Herd Mentality
c. Overconfidence Bias
d. Recency Bias
Ans: (a) Familiarity Bias: An individual tends to prefer the familiar over the
novel, as the popular proverb goes, "A known devil is better than an
unknown angel." This leads an investor to concentrate the investments in
what is familiar, which at times prevents one from exploring better
opportunities, as well as from a meaningful diversification.
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12. Asset allocation must primarily match ______
a. Long term value creation
b. Investment needs
c. Financial goals
d. Tax saving needs
Ans: (b) The investor's need from the investment will determine the asset
class that is most suitable for the investor. Along with the need from the
investment, the investor's ability to take risk and the investor's investment
horizon is equally important to select the appropriate asset class.
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13. State True or False. When compared to Goal based financial planning,
Comprehensive financial planning requires more time commitment.
a. True
b. False
Ans: (a) A comprehensive financial plan calls for significantly more time
commitment on the part of both the investor and the financial planner. The
comprehensive financial plan captures the estimated inflows from various
sources, and estimated outflows for various financial goals, including post-
retirement living expenses. The plan can go several decades into the future.
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14. Risk profile of an investor is influenced by _____
A. the need to take risks
B. the willingness to take risks
C. the ability to take risks
a. Only C
b. A and B
c. A and C
d. All A, B and C
Ans: (d) The investor's risk appetite is a function of three things- the need to
take risks, the ability to take risks, and the willingness to take risks. Thus, an
understanding of the risk profile and the investment risks associated with
various mutual fund schemes would be essential for deciding the asset
allocation in an investor's portfolio.
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15. _______ is the process of determining the ability of an investor to bear
losses from various investments.
a. Delta Hedging
b. Asset Allocation
c. Portfolio Churning
d. Risk Profiling
Ans: (d) Risk profiling is an approach to understand the risk appetite of

investors and is an essential pre-requisite to advise investors on their
investments.
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16. The biggest advantage of investment in gold is
a. High returns
b. High appreciation in value
c. Low Purchase price
d. Hedge against inflation
Ans: (d) Historically, Gold as an asset class has given marginally more
returns than the inflation. Hence, it is considered as a best hedge against
the inflation.
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17. Rebalancing in required in case of which asset allocation?
a. Tactical Asset Allocation
b. Strategic Asset Allocation
c. Both of the above
Ans: (c) Rebalancing is required in both Tactical and Strategic Asset

allocation.
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18. Amongst the following options, ________is the most illiquid.
a. Gold
b. Real Estate
c. Shares
d. Bank Fixed Deposits
Ans: (b) Illiquid means which cannot be sold easily. From the above options,
Real Estate or Property cannot be sold easily as compared to others.
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19. Higher the Capital Base, _________the Risk Appetite.
a. Higher
b. Lower
c. Capital base has no effect on risk appetite
d. No change
Ans: (a) Higher the capital base, better the ability to financially take the
downsides that come with risk - so the risk appetite is higher.
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20. There are various risk profiling tools available on the internet. A financial
planner can use any of these as risk profiling is just a process - State True
or False?
a. True
b. False
Ans: (b) Risk profiling is an approach to understand the risk appetite of

investors – an essential pre-requisite to advise investors on their
investments. There are various factors which have influence on risk
appetite. Internet risk profiling tools are useful pointers, but it is important to
understand the robustness of such tools before using them in the practical
world. Some of the tools featured in websites have their limitations. So,
these tools cannot be always used.
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21. What is the relationship between Interest Rates and Real Estate prices?
a. Rise in interest rates lead to fall in real estate prices
b. Fall in interest rates lead to fall in real estate prices
Ans: (a) When interest rates rises and money becomes expensive, there is
less demand for real estate - therefore this softens the real estate market.
When money is cheap and easily available, more people buy real estate.
This pushes up real estate values.
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22. Commodities as an asset class does not include __________
a. Food Crops
b. Industrial Metals
c. Gold
d. Real Estate
Ans: (d) Real Estate is not a commodity as it cannot be standardised. Food

crops (Rice, wheat), Industrial Metals (Copper, Nickel) and Gold are all
commodities.
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23. Risk appetite increases as the number of earning members ________
a. decreases
b. increases
c. becomes zero
Ans: (b) More earning members means more income and so the risk taking
capacity increases.
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24. While doing an asset allocation for an investor, which amongst the
following factors will have the least importance?
a. RBl's announcement that there could be huge recession
b. RBl's announcements of changes in interest rates
c. Bonus issued by one of the MF schemes
d. Changes in prices of equity shares
Ans: (c) The purpose of asset allocation is not to enhance returns, but to
reduce the risk. Bonus issue is just a book entry and will have no effect on
asset allocation.
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25. Risk Appetite is influenced by which financial factor(s)?
a. Capital Base
b. Regularity of Income
c. Both 1 and 2
Ans: (c) Higher the capital base, better the ability to financially take the
downsides that come with risk. People earning regular income can take
more risk than those with unpredictable income streams.
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26. Today's costs can be translated into future requirement of funds using
the formula:
a. A = P / (1 + i)^n
b. A = P X (1 + i)^n
c. P = A^n X (1 + i)
d. P = A^n X (1 + i)^n
Ans: (b) The costs in today's terms, can to be translated into the rupee
requirement in future. This is done using the formula A = P X (1 + i)^n
where:
A = Rupee requirement in future, P = Cost in today's terms, i = Rate of
inflation, n = Number of years into the future, when the expense will be
incurred.
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27. Tactical Asset Allocation is the decision that comes out of calls on the
likely behaviour of the market - True or False?
a. True
b. False
Ans: (a) Tactical Asset Allocation is the decision that comes out of calls on
the likely behaviour of the market. An investor who decides to go overweight
on equities because of expectations of rise in share markets, is taking a
tactical asset allocation call.
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28. Which among the following investment avenues does not offer income
on a regular Basis?
a. Stocks
b. Real Estate
c. Debentures
d. Physical Gold
Ans: (d) Stocks offer regular income in the form of dividends, Real estate
gives rent and Debentures give interest. Physical gold give no regular
return.
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29. The asset allocation that is worked out for an investor based on risk
profiling is called ____________
a. Strategic Asset Allocation
c. Tactical Asset Allocation
d. Flexible Asset Allocation
Ans: (a) Risk profiling is key to deciding on the strategic asset allocation.
For example – If the investor is a retired/old person he should have more
debt in his portfolio.
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30. Which among the following asset categories can also be purchased for
consumption purposes apart from investment?
a. Bonds
b. Real Estate
c. Debentures
d. Stocks
Ans: (b) One may invest in a residential property and give it on rent to
generate income. This is investment. At the same time, one may also buy a
flat to live in- for residential purpose. Such a self-occupied house may not
be an investment.
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31. A person wishes to avail of a loan. For which of the below options he
cannot get a loan?
a. To start a textile factory
b. To buy a car of value above Rs. 20 lacs
c. To buy a high priced lottery ticket
d. To buy a house in a Union Territory
Ans: (c) A person cannot get a loan to buy a high priced lottery ticket.
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32. Suresh sees that his friends are investing in a finance scheme which is
promising very high returns (a ponzi scheme). He also blindly invests in the
same scheme. Which bias is Suresh exhibiting?
a. Herd mentality
b. Loss Aversion
c. Confidence Bias
d. Anchoring
Ans: (a) In behavioural finance, Herd Mentality bias refers to investors'

tendency to follow and copy what other investors are doing. They are
largely influenced by emotion and instinct, rather than by their own
independent analysis. This often works against investors interests in the
financial markets.
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33. Risk appetite of investors is assessed through _______
a. Asset Allocators
b. Financial Plan
c. Risk Profilers
d. Risk Appetizers
Ans: (c) Risk Profilers usually revolve around investors answering a few
questions, based on which the risk appetite score gets generated.
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34. What is real rate of return?
a. Return that the investor gets after adjusting inflation
b. Return that the investor gets after adjusting the risks
c. Return that the investor gets after taxes
d. Return that the investor gets after payment of all expenses
Ans: (a) The returns on investment without factoring inflation is known as

"nominal rate". However, when this number is adjusted for inflation, one
gets "real rate of return".
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35. The distribution of an investor's portfolio between different asset classes
is called asset allocation – True or False?
a. True
b. False
Ans: (a) The investor's asset allocation is a decision regarding how much
money should be allocated to which scheme category (asset class). This
decision can be taken only after assessing the investor's risk profile and
analysing investor's goals and situation.
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36. ____ strategy is supposed to be a risky strategy of asset allocation.
a. Strategic Asset Allocation
b. Tactical Asset Allocation
c. Both 1 and 2
Ans: (a) Tactical Asset Allocation is the strategy when the investor presumes
the likely behaviour of the market and goes over weight on equities. This is
very risky. Strategic Asset Allocation is as per risk profile of an individual
depending on the individuals age etc. This is a safer strategy.
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37. The strategy of maintaining a constant ratio of asset allocation is known
as _____________
a. Dynamic Asset Allocation
c. Flexible Asset Allocation
d. SIP
Ans: (b) For eg: Balanced funds adopt a stable asset allocation policies, e.g.
55:45 between equity and debt at all times, are said to be operating within a
fixed asset allocation framework.
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38. The peak of earning capacity of an investor reached during the pre-
retirement phase. True or False?
a. True
b. False
Ans: (a) In the Accumulation stage, the investor gets to build his wealth. It
covers the earning years of the investor i.e. the phases of the life cycle from
Young Unmarried to Pre-Retirement.
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39. The strategy of Tactical Asset Allocation is considered to be a risky
strategy. True or False?
a. True
b. False
Ans: (a) Tactical Asset Allocation is the strategy when the investor presumes
the likely behaviour of the market. An investor who decides to go overweight
on equities i.e. take higher exposure to equities, because of expectations of
buoyancy in industry and share markets. Such strategies are very risky and
can backfire.
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40. Which of these statement(s) is/are true?
A. In equity investments, the probability of losing money over the long term
is lesser than losing money in the short term
B. Fundamental Analysis consists of studying the financial statements, price
trends, candlestick charts, etc.
a. Only A is correct
b. Only B is correct
c. Both A & B are correct
Ans: (a) Historically, equity investing has delivered higher returns than other
asset classes in the past. Equity share prices generally fluctuate a lot in
short term due to sentiments of the investor. However, over long periods of
time, the share prices follow the growth in profits of the firm. (In
Fundamental Analysis, one does not study the charts like Candle Stick chart
etc. Study of charts is done in Technical Analysis).
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41. Investors will prefer lower risk and will settle for a lower return.
a. Aggressive
b. Adventurous
c. Moderate
d. Conservative
Ans: (d) A conservative investor is someone who wants his money to grow
but does not want to risk his principle investment. Conservative investors
choose financial products that do not fluctuate much in value, such as
conservative mutual funds.
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42. Decisions in Tactical Asset Allocation are taken on the basis of
___________.
a. likely behaviour of the markets
b. the risk profile of the investor
c. income level of the investor
d. All of the above
Ans: (a) In Tactical asset allocation, the allocation between the asset
categories changes dynamically. The purpose of such an approach may be
to take advantage of the opportunities presented by various markets at
different points of time.
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43. What does financial goal setting involve?
a. Determination of risk profile
b. Estimating the amount required for a major life event
c. Determining asset allocation
Ans: (b) The first step in financial goal setting is to identify events in life that
will require major funding - like child education, marriage, retirement, etc.
Asset allocation / Risk profiles are looked into later while deciding the
investments etc.
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44. Commodities as an asset class do not include__________.
a. Art
b. Fibres
c. Spices
d. Energy products
Ans: (a) Art is not a commodity. It cannot be standardized. It's valued as per
the perception of the buyer etc. Fibres (eg. -Cotton yarn), Spices (eg.-
Turmeric), and Energy Products (eg. -Oil) are all commodities.
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45. What does 'Asset Allocation' mean?
a. Allocating a portfolio to cash
b. Allocating various mutual funds to investors
c. Allocating units to unit holders
d. Allocating a portfolio to different asset classes
Ans: (d) The basic meaning of asset allocation is to allocate an investor's

money across asset categories (like Equity, Debt, Gold, etc.) in order to
achieve the objective.
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46. A trader believes that he can always outperform the market. This is an
example of __________ bias.
a. Recency
b. Overconfidence / Optimism
c. Herd Mentality
d. Anchoring
Ans: (b) Overconfidence / Optimism bias refers to a person's

overconfidence in one's abilities or judgment. This leads one to believe that
one is far better than others at something, whereas the reality may be quite
different.
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47. An investor chooses a mutual fund scheme based on whether
his/her_______________matches with that of the scheme.
a. Investment period
b. Investment objective
c. Investment strategy
Ans: (b) Every scheme has a pre-announced investment objective.

Investors invest in a mutual fund scheme whose investment objective
reflects their own needs and preference.
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48. Tactical Asset Allocation is suitable only for seasoned investors
operating with large investible surplus. State True or False?
a. True
b. False
Ans: (a) Tactical Asset Allocation is the decision that comes out of calls on
the likely behaviour of the market. It is suitable only for seasoned investors
operating with large investible surpluses.
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49. Mrs. Neeta needs Rs. 5,00,000 in 3 years from now. The interest rate is
6%. By which formula can we calculate the amount which is required to be
invested today to achieve the goal?
a. 500000*(1+0.06)*3
b. 500000/(1+0.06)^3
c. 500000/(1+0.06)*3
d. 500000*(1-0.06)^3
Ans: (b) Present value formula = F/ (1+r)^n. Where F is the future value
(500000); r is the rate of interest (6% p.a.); and n is the number of years (3).
PV = 500000 / (1+0.06)^3
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50. The main objective of asset allocation is risk management. True or
False?
a. True
b. False
Ans: (a) The distribution of an investor's portfolio between different asset

classes like Equity, Debt, Gold, etc. is called asset allocation.
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51. A person who wants to have a risk cover for a long term horizon should
opt for ________ .
a. Investment in Gold
b. Life Insurance
c. Equity Mutual Funds
d. Bank Fixed Deposits
Ans: (b) Risk cover can only be provided by insurance.

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52. When a bank fixed deposit is closed prematurely, there will a penalty
charged on that – State True or False?
a. True
b. False
Ans: (a) The depositor can also prematurely close the bank fixed deposit at
any time, in order to meet liquidity requirements. However, a penalty needs
to be borne for such premature closure.
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53. Apart from other things, _________ is also required to be known while
calculating the future value.
a. Economic Growth
b. Risks which are unexpected
c. Return and Gains
d. Inflation Rate
Ans. (d) The formula to calculate the Future Value is : A = P * (1+r)^n Where A is
the future value; P is the present value, r is the rate of inflation and n is the
number of years. Therefore, inflation rate is important for estimating the future
value.
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54. Usually most investors might have invested across various asset
categories. However the problem with such asset allocation is that
_________.
a. such asset allocation is done without defining any objective or without
any process
b. such asset allocation earns low returns
c. such asset allocation leads to payment of additional taxes
d. such asset allocation increases the portfolio risk
Ans. (a) The basic meaning of asset allocation is to allocate an investor's money across
asset categories in order to achieve some objective. In reality, most investors' portfolios
would have the money allocated across various asset categories. However, in many such
cases, the same may be done without any process or rationale behind it. Asset Allocation
is a process of allocating money across various asset categories in line with a stated
objective. The underlined words are very important. First, it is a "process", which always
involves several steps, and those steps should not be ignored or skipped. Second, the
whole idea behind asset allocation is to achieve some objective. Whichever approach one
selects, one must go through the steps of the process in order to achieve the objective.
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55. An Indian investor in a US Dollar based fund will benefit if US Dollar
weakens against the Indian Rupee. (Assuming other things remain the
same) - State True or False?
a. True
b. False
Ans. (b) If the investor invests in the US, and the US Dollar becomes
stronger during the period of his investment, he benefits; if the US Dollar
weakens (i.e., Rupee becomes stronger), he loses or the portfolio returns
will be lower.
56. Recency bias is applicable only to negative events - State whether True
or False?
a. True
b. False
Ans. (b) Recency bias: The impact of recent events on decision making can
be very strong. This applies equally to positive and negative experiences.
Investors tend to extrapolate the event into the future and expect a repeat. A
bear market or a financial crisis leads people to prefer safe assets. Similarly,
a bull market makes people allocate more than what is advised for risky
assets.
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57. Identify the INCORRECT statement/s with respect to investments in real
estate.
a. The minimum amount required (Ticket size) for investing in real estate is
high compared to other financial assets
b. The transaction costs are low for investments in real estate as compared
to other financial assets
c. The real estate market is quiet illiquid and the pricing is not transparent
d. All of the above are incorrect
Ans. (b) Transaction costs, in the form of stamp duty, registration fees,
brokerage etc. are high in real estate transactions. Real estate is a less
liquid asset class. The intermediation chain of real estate agents is largely
unorganized in India. . Regulatory risk is high in real estate, as is the risk of
litigation and other encumbrances. The transparency level is low even
among the real estate development and construction companies.
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58. Risk Profilers are used to ascertain the risk appetite of an investor. State
whether True or False?
a. True
b. False
Ans. (a) Risk Profilers usually revolve around investors answering a few
questions, based on which the risk appetite score gets generated. The risk
profilers try to ascertain the risk appetite of the investor so that one does not
sell mutual fund schemes that carry a higher risk than what the investor can
handle.
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CHAPTER 2: CONCEPT & ROLE OF MUTUAL
FUND
1. The Profit and Loss made by the Mutual Fund Belongs to

a. Trustee
b. AMC
c. Sponsors
d. Unit Holders / Investors
Ans: (d) The money mobilized from investors is invested by the mutual fund
scheme in a portfolio of securities as per the stated investment objective.
Profits or losses, as the case might be, belong to the investors or unit
holders. No other entity involved in the mutual fund in any capacity
participates in the scheme’s profits or losses.
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2. In whose beneficial interest is a mutual fund managed?
a. Trustee
b. Unit holders
c. Sponsors
d. AMC
Ans: (b) An investor (unit holder) in a MF scheme is the beneficial owner of

the units one has bought. The MF is managed for the beneficial interest of
the unit holders.
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3. Ultra-short-term debt scheme invests in debt and money market
instruments with Macaulay duration between _________
a. 1 to 3 months
b. 3 to 6 months
c. 6 to 12 months
d. 1 year to 3 years
Ans: (b) Macaulay Duration is the weighted average of the time to receive
the cash flows from a bond. An open ended ultra-short-term debt scheme
invests in debt and money market instruments with Macaulay duration
between 3 months and 6 months.
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4. What is the portfolio of a 'Fund of Funds' made up of?
a. Money market securities
b. Equity stocks
c. Debt securities
d. Mutual Fund schemes
Ans: (d) Fund of funds is a mutual fund which utilizes its pool of resources
to invest in various other kinds of mutual funds available in the market. It
does not directly invest in equity or debt securities.
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5. Which of the below statements is an important advantage of an
Exchange Traded Fund (ETF)?
a. A person can closely track the current valuation of an ETF and buy/sell
the units on a stock exchange at those prices
b. ETFs generally give higher returns than other Mutual Funds
c. An investor in an ETF can have a control on where his money can be
invested
d. All of the Above
Ans: (A) ETFs are passive funds whose portfolio replicates an index or
benchmark such as an equity market index or a commodity index.
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6. Once a New Fund Offer closes, an open ended mutual fund is open for
purchases _______
a. by existing investors only
b. by existing investors on the stock exchange platform only
c. by both existing and new investors on the stock exchange platform only
d. by both existing and new investors
Ans: (d) An Open Ended mutual fund can be purchased by both new and
existing investors through the traditional way or through stock exchanges.
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7. In case of a floater Fund, what is the Required Minimum Investment in
floating rate investment of total assets invested?
a. 0.65
b. 0.45
c. 0.55
d. 0.75
Ans: (a) Floater Fund is an open-ended debt scheme predominantly

investing in floating rate instruments (including fixed rate instruments
converted to floating rate exposures using swaps/derivatives). Minimum
investment in floating rate instruments (including fixed rate instruments
converted to floating rate exposures using swaps/derivatives) shall be 65
percent of total assets.
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8. Equity Linked Savings Schemes (ELSS) are eligible for deduction under
Section SOC of the Income Tax Act. However, such schemes have a lock-in
period of _________from the date of investment.
a. 3 years from the date of allotment of each individual unit
b. 3 years from the date of original investment even in case of subsequent
purchases
c. 5 years from the date of allotment of each individual unit
d. If tax exemption is NOT availed, there will not be any lock-in period
Ans: (a) The lock-in period for an ELSS fund is 3 years from the date of
allotment of each individual unit. So, even for a SIP investment, each SIP
will have a lock-in for 3 years.
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9. In which categories of stocks do Multi Cap equity funds invest in?
a. Mostly large cap stocks only of various companies
b. Mostly mid cap stocks only of various companies
c. Mostly small cap stocks only of various companies
d. A mix of large, mid and small cap stocks
Ans: (d) Multi cap funds spread the investments across the market
capitalization spectrum in order to try and benefit from the opportunities
across the market. They invest in a mix of large, mid and small market
capitalization stocks.
-----------------------------------------------------------------------------------------------------
10. Multi Asset Allocation funds invest in atleast ____________ asset
classes with a minimum allocation of at least 10 percent in each class.
a. 2
b. 3
c. 4
d. 5
Ans: (b) Multi Asset Allocation: An open-ended hybrid scheme investing in

atleast 3 asset classes with a minimum allocation of at least 10 percent
each in all three asset classes.
34
11. In an Arbitrage fund, the minimum investment in equity and equity
related instruments shall be _________ of total assets.
a. 0.5
b. 0.55
c. 0.6
d. 0.65
Ans: (d) Arbitrage Fund: An open-ended scheme investing in arbitrage

opportunities. The minimum investment in equity and equity related
instruments shall be 65 percent of total assets.
-----------------------------------------------------------------------------------------------------
12. Indian mutual funds cannot invest in _______
a. Real Estate
b. Art
c. Securitised Debt
d. Gold
Ans: (b) Investment in Art is not permitted for mutual funds in India.
35
13. Which of these is a key advantage of Exchange Traded Funds (ETFs)?
a. ETFs generally give higher returns than normal funds
b. ETFs offer tax benefits
c. Investors can control the money they have invested as to where the ETF
can invest
d. Investors can buy or sell ETFs on a stock exchange at prices which are
close to current valuations
Ans: (d) Exchange Traded Funds (ETFs) are passive funds whose portfolio
replicates an index or benchmark such as an equity market index or a
commodity index. The units of the ETF are traded at real time prices that
are linked to the changes in the underlying index.
-----------------------------------------------------------------------------------------------------
14. What is the tax applicable on the AMC for the income earned by the
mutual fund schemes?
a. Income earned by a mutual fund is exempt from taxes
b. 10 percent plus surcharge and cess
c. It is a function of the marginal rate of tax applicable to the respective
investor in the mutual fund scheme
d. It is a function of the type of income since dividends, short term capital
gains and long term capital gains attract different tax rates
Ans: (a) As per the prevailing tax laws in India, a mutual fund's income is
exempt from income tax, since mutual funds are constituted as trusts in
India for the benefits of the unit holders. (Income earned by the unit holders
i.e. mutual fund investors is taxable).
36
15. Which of these is an advantage of Mutual Funds?
a. Portfolio Customization
b. Choice Overload
c. Control Over Costs
d. Economies of scale
Ans: (d) Large investment corpus of a mutual fund leads to various other
economies of scale. For instance, costs related to investment research and
office space gets spread across investors. Further, the higher transaction
volume makes it possible to negotiate better terms with brokers, bankers
and other service providers. Limitations of Mutual Fund -
- Lack of Portfolio Customization: A unit holder cannot influence what
securities or investments the scheme would invest into.
- Choice Overload: There are multiple mutual fund schemes offered by
several mutual fund houses and multiple options within those schemes
which makes it difficult for investors to choose between them.
- No Control Over Costs: An individual investor has no control over the costs
in a scheme.
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16. ______ invests mainly in Corporate Bonds.
a. Diversified Equity Schemes
b. Diversified Debt Schemes (Income Funds)
c. Nifty Index Funds
d. Gold Funds
Ans: (b) Diversified Debt Schemes (Income Funds) invests mainly in

Corporate Bonds.
37
17. A Mutual Fund Trust must have beneficiaries. State True or False?
a. True
b. False
Ans: (a) Every trust has beneficiaries. In case of a mutual fund trust, the
beneficiaries are the investors who invest in various schemes of the mutual
fund.
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18. "To achieve growth by investing in equity and equity related
investments, balanced with income generation by investing in debt and
money market instruments" is the likely investment objective of a Diversified
Debt Scheme. State True or False?
a. True
b. False
Ans: (b) This is the likely objective of a Balanced Scheme. The investment
objective of a diversified debt scheme could be: "To generate income by
investing predominantly in a wide range of debt and money market
securities".
38
19. Liquid schemes are a variant of debt schemes that invest only in debt
securities of upto 60-days maturity. True or False?
a. True
b. False
Ans: (b) Liquid schemes are a variant of debt schemes that invest only in
short term debt securities. They can invest in debt securities of upto 91 days
maturity.
-----------------------------------------------------------------------------------------------------
20. What minimum percentage of the mutual fund scheme corpus must be
invested in equity and related instruments in case of Equity Linked Savings
Schemes (ELSS)?
a. 65 percent
b. 70 percent
c. 80 percent
d. 95 percent
Ans: (c) The ELSS notification requires that atleast 80 percent of the ELSS
funds should be invested in equity and equity-linked securities.
39
21. Interval funds combine features of both open-ended and close-ended
schemes. True or False?
a. True
b. False
Ans: (a) Interval funds combine features of both open-ended and close-
ended schemes. They are largely close-ended but become open-ended at
pre-specified intervals.
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22. A Mutual Fund wants to launch a new scheme with a Face Value of Rs.
50. Will it get the required permissions?
a. Yes
b. No
Ans: (b) As per the law, every unit has a face value of Rs. 10.
40
23. Every trust has beneficiaries and the beneficiaries, in the case of a
mutual fund trust, are _________
a. the Trustees of the AMC
b. the investors who invest in various schemes of the mutual fund.
c. the Employees of the Mutual Fund Company
d. the Chairperson and Managing Director of the AMC
Ans: (b) Every trust has beneficiaries. The beneficiaries, in the case of a
mutual fund trust, are the investors who invest in various schemes of the
mutual fund.
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24. The investment objective of a _______________might read as follows:
"To generate capital appreciation from a portfolio of predominantly equity
related securities"
a. Money market fund
b. Balanced Fund
c. Arbitrage Fund
d. Diversified Equity Fund
Ans: (d) A Diversified Equity Fund invests mainly in equity for long term
capital appreciation.
41
25. "To generate income by investing predominantly in a wide range of debt
and money market securities" - this could be the investment objective of a
_______________
a. Diversified debt scheme
b. Diversified equity scheme
c. ELSS Scheme
d. Arbitrage Funds are more riskier than Sectoral Funds
Ans: (A) "To generate income by investing predominantly in a wide range of

debt and money market securities" - this could be the investment objective
of a Diversified debt scheme.
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26. In case of Exchange Traded Funds (ETFs), the minimum investment in
securities of a particular index (which is being replicated/ tracked) shall be
______ percent of total assets.
a. 100
b. 95
c. 85
d. 75
Ans: (b) Index Funds / Exchange Traded Funds are open-ended scheme
replicating/tracking a specific index. The minimum investment in securities
of a particular index (which is being replicated/ tracked) shall be 95 percent
of total assets.
42
27. In India, the Mutual funds are constituted as ___________
a. Limited Company
b. Non-Government Organisation
c. Self Regulatory Organisations
d. Trusts
Ans: (d) Mutual funds are constituted as Trusts. Therefore, they are
governed by the Indian Trusts Act,1882.
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28. What is the investment objective of a mutual fund which seeks to grow
in value over a period of time?
a. Capital Adequacy
b. Capital Appreciation
c. Safety of Capital
d. Safety of Capital
Ans: (b) Equity funds generally grow in value over a period of time and their
investment objective is to generate capital appreciation/income from a
portfolio, predominantly invested in equity and equity related instruments.
43
29. In Interval Fund the minimum duration of transaction period is _____,
and maximum duration of interval period is _____.
a. 15 days, 2 days
b. 2 days, 10 days
c. 10 days, 2 days
d. 2 days, 15 days
Ans: (d) Interval funds combine features of both open-ended and close-
pre-specified intervals. Minimum duration of the transaction period is 2
days, and maximum duration of the interval period is 15 days.
-----------------------------------------------------------------------------------------------------
30. The minimum investment in G-Secs (as a percentage of total assets) in
case of a Gilt Fund is ____________.
a. 0.9
b. 0.95
c. 0.8
d. 0.75
Ans: (c) A Gilt fund is an open-ended debt scheme investing in government

securities across maturity. The minimum investment in G-secs is defined to
be 80 percent of total assets (across maturity).
44
31. The principle of caveat emptor (let the buyer beware) applies to mutual
fund investments. True or False?
a. True
b. False
Ans: (a) The principle of caveat emptor (let the buyer beware) applies to
mutual fund investments. So, the unit-holder cannot seek legal protection on
the grounds of not being aware, especially when it comes to the provisions
of law, and matters fairly and transparently stated in the Offer Document.
-----------------------------------------------------------------------------------------------------
32. Passive funds are safe, as the NAV of such funds do not go down even
when the respective markets fall. State whether this is True or False.
a. True
b. False
Ans: (b) Passive funds are those funds in which the fund manager has no
say on the selection of stocks or strategies etc. He has to invest as per the
index which the fund follows. For eg: NSE Nifty fund. Passive funds cannot
be said to be safe as if the index falls, the NAV of these funds will also fall.
45
33. The fund that takes contrary positions in different markets/securities
such that the risk is neutralized and return is earned are called
____________
a. Thematic funds
b. Dividend yield schemes
c. Arbitrage funds
d. Sector funds
Ans: (c) Arbitrage funds take opposite positions in different markets I

securities, such that the risk is neutralized, but a return is earned. For
instance, by buying a share in BSE, and simultaneously selling the same
share in the NSE at a higher price.
-----------------------------------------------------------------------------------------------------
34. In mutual funds, the assets are held by ___________
a. Fund Manager of that scheme
b. Registrar and Transfer Agents
c. Custodian
d. Trustees
Ans: (c) The custodian has custody of the assets of the fund. Also, as a part
of this role, the custodian needs to accept and give delivery of securities of
the various schemes of the fund.
46
35. _____ cannot invest in gold mining companies.
a. Gold Sector Fund
b. Gold ETF
c. Tax Saving ELSS Fund
d. Balanced Fund
Ans: (b) Gold ETF merely tracks the gold prices. It does not invest in any
Gold Mining Company. All other funds can invest in Gold Mining Companies
as per the fund strategy.
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36. Is Real Estate Fund a physical asset or a financial asset?
a. Physical Asset
b. Physical Asset
Ans: (b) Investment in Real Estate Fund does not provide the investor with
any physical land, house etc. The investor is allotted units of the scheme.
Therefore it's a financial asset.
47
37. Mutual funds are constituted as _________and therefore, they are
governed by the ____________
a. Companies, Indian Companies Act
b. Trusts, Indian Trusts Act
c. Investment Agencies, SEBI Act
d. NGOs, NGO Act
Ans: (b) Mutual funds are constituted as Trusts and therefore, they are
governed by the Indian Trusts Act.
-----------------------------------------------------------------------------------------------------
38. Every trust has beneficiaries - True or False?
a. True
b. False
Ans: (a) Every trust has beneficiaries. The beneficiaries, in the case of a
mutual fund trust, are the investors who invest in various schemes of the
mutual fund. The Trust acts through its trustees. Therefore, the role of
protecting the interests of the beneficiaries (investors) is that of the
Trustees.
48
39. "To achieve growth by investing in equity and equity related
investments, along with income generation by investing in debt and money
market instruments" would be the investment objective of a ______
a. Debt fund
b. Balanced scheme
c. ELSS Fund
d. Sectoral Equity fund
Ans: (b) "To achieve growth by investing in equity and equity related
investments, along with income generation by investing in debt and money
market instruments" would be the investment objective of a balanced
scheme.
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40. That mutual fund which has an investment charter that provides for a
reasonable level of investment in both equity and debt is known as ______
a. Fixed maturity plan
b. Hybrid fund
c. ELSS Fund
d. Liquid Fund
Ans: (a) That mutual fund which has an investment charter that provides for
a reasonable level of investment in both equity and debt is known as Hybrid
Fund.
49
41. What is the investment range for the mutual fund house to invest in debt
instruments for a Balanced Hybrid Fund?
a. 20 percent and 40 percent
b. 40 percent and 60 percent
c. 10 percent and 30 percent
d. 20 percent and 50 percent
Ans: (b) In open-ended balanced scheme the investment in equity and

equity-related instruments shall be between 40 percent and 60 percent of
total assets while investment in debt instruments shall be between 40
percent and 60 percent.
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42. Which of these is a Passive Fund?
A) Gold Sector Fund B) Gold Mining Companies Fund
C) Gold Exchange Traded Fund D) Gilt Funds
a. Both A and B
b. Only D
c. Only C
d. All A, B, C and D
Ans: (d) Passive funds invest on the basis of a specified index; whose
performance it seeks to track. For eg. the Nifty Index fund. Exchange-
Traded Funds (traded on exchanges) are also passive funds that generate
returns in line with the index or benchmark. So, from the above options, only
Gold Exchange Traded Fund is a passive fund.
50
43. At what price can investors buy or sell units of an open-ended fund after
the New Fund Offer?
a. The NAV of the mutual fund units
b. The New Fund Offer (NFO) price
c. The face value
d. The monthly average price
Ans: (a) Investors of an open ended fund can buy and sell mutual fund units
as per its current Net Asset Value - NAV price.
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44. When compared to open ended funds, investors in close ended funds
face a higher level of_____________.
a. Credit risk
b. Liquidity risk
c. Market risk
d. Investment risk
Ans: (a) Investors may choose the close-ended funds only if they can keep
the money locked-in such schemes. Although they are listed on stock
exchanges, many a times there is very low liquidity / volumes and also the
price could be lower than NAV. Anyone, who prefers liquidity option, should
consider investing in open-ended funds.
51
45. The units of a Close-ended mutual fund are traded between the unit
holders/investors and __________on the stock exchange.
a. The Mutual Fund
b. Other unit holders/investors
c. Specially appointed market makers to enhance liquidity
d. The Sponsors
Ans: (b) Post NFO, the sale and purchase transactions of a close-ended
fund happen on the stock exchange between two different investors, and
the mutual fund is not involved in the transaction.
-----------------------------------------------------------------------------------------------------
46. What is fixed in a Closed-end fund?
a. The Net Asset Value
b. The Rate of Return
c. The Unit Capital
d. The Market Price
Ans: (c) Close-ended Schemes have an NFO Open Date and NFO Close
Date. But, they have no Scheme Re-opening Date, because the scheme
does not sell or re-purchase units. Whatever sale-purchase of units takes
place is between the investors on the stock exchange. So the unit capital of
a closed-end fund does not change.
52
47. Investment objective defines the broad investment charter.
a. True
b. False
Ans: (a) From Investment Objective, one can find out in which asset class,
the scheme is going to invest.
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48. Which of the Following is true?
a. A Mutual Fund is a Pass-through Vehicle.
b. Mutual Fund comes under “Equity” asset class.
c. A Mutual Fund is a special Purpose Vehicle.
d. All of the above
Ans: (a) A Mutual fund is a pass through vehicle which invests in different
asset class as per the investment objective of the Fund.
53
49. Which of the followings are least comparable?
a. Liquid and Savings account
b. Liquid and Current account
c. ETF and Index fund
d. GILT and Sector fund
Ans: (d) Gilt fund invest in government securities, while sector fund invest in
stock within the same sector.
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50. Which transaction of an open-ended fund is based on the Net Asset
Value (NAV) pricing?
a. Purchase of units
b. Redemption of units
c. Both purchase and redemption of units
Ans: (c) Purchase and redemption of units are always done based on the
NAV of the scheme.
54
51. Which type of Hybrid Fund has the least exposure to equity?
a. Aggressive Hybrid Fund
b. Balanced Hybrid Fund
c. Conservative Hybrid Fund
d. Arbitrage Hybrid Fund
Ans: (c) A Hybrid fund is classified into Aggressive, Balanced, and

Conservative depending on the equity exposure of the fund. Conservative
Hybrid Fund: An open-ended hybrid scheme investing predominantly in debt
instruments. Investment in debt instruments shall be between 75 percent
and 90 percent of total assets while investment in equity instruments shall
be between 10 percent and 25 percent of total assets.
-----------------------------------------------------------------------------------------------------
52. In a Contra Fund, the minimum investment in equity & equity related
instruments shall be___________of total assets.
a. 40 percent
b. 50 percent
c. 55 percent
d. 65 percent
Ans: (d) A contra fund is an open-ended equity scheme following a

contrarian investment strategy. Minimum investment in equity & equity-
related instruments shall be 65 percent of total assets.
55
53. Zero-coupon securities are securities that do not pay regular interest,
but accumulate the interest, and pay it along with the principal when the
security matures. True or False?
a. True
b. False
Ans: (a) Zero coupon bonds do have interest component, these bonds are
offered at a discounted price and thus do not pay regular interest. The
Interest component is discounted in price.
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54. By investing in mutual funds an investor uses the services
of___________.
a. a professional actuary
b. a professional insurance agent
c. a professional investment manager
d. a professional tax planner
Ans: (c) Mutual Funds employ professional investment experts to manage

the money of investors by investing in suitable stocks/debt etc.
56
55. The lock-in for Equity Linked Savings Scheme (ELSS Funds) is____.
a. 1 year
b. 2 years
c. 3 years
d. 5 years
Ans: (c) The investment in Equity Linked Savings Schemes is subject to

lock-in for a period of 3 years during which it cannot be redeemed,
transferred, or pledged.
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56. When a Mutual fund scheme makes profits or losses, these profits and
losses belong to_____________.
a. The AMC
b. The Trustees
c. The Fund Manager
d. The Investor
Ans: (d) The investor enjoys the profits as well as bears the losses of his
investments in Mutual Funds.
57
57. __________________ invest in those securities which have maturity
matching the maturity of the scheme.
a. Fixed Maturity Plans
b. Exchange-Traded Funds
c. ELSS Funds
d. High Yield Funds
Ans: (a) Fixed Maturity Plans are a kind of close-ended debt fund where the
duration of the investment portfolio is closely aligned to the maturity of the
scheme. Fixed Maturity Plan is ideal when the investor's investment horizon
is in sync with the maturity of the scheme, and the investor is looking for a
more predictable return than any conventional debt scheme, and a return
that is generally superior to what is available in a fixed deposit.
-----------------------------------------------------------------------------------------------------
58. In which of these cases will the 'lock-in' in a retirement fund be lower
than the prescribed 5 years?
a. When the retirement age is earlier than 5 years from the date of
investment
b. When the age of the investor at the time of making an initial investment is
not less than 50 years
c. When the targeted corpus is achieved before 5 years
d. All of the above
Ans: (a) Retirement Fund is an open-ended retirement solution-oriented

scheme having a lock-in of 5 years or till retirement age (whichever is
earlier). Scheme having a lock-in for at least 5 years or till retirement age
whichever is earlier.
58
59. What is the investment in equity and equity-related instruments in a
Balanced Hybrid Fund?
a. Between 20% to 30% of total assets
b. Between 10% to 20% of total assets
c. Between 40% to 60% of total assets
d. Between 60% to 80% of total assets
Ans: (c) Balanced Hybrid Fund is an open-ended balanced scheme

investing in equity and debt instruments. The investment in equity and
equity-related instruments shall be between 40 percent and 60 percent of
total assets.
-----------------------------------------------------------------------------------------------------
60. The minimum investment limit in equity/equity-related instruments of
large-cap companies for a Large Cap mutual fund scheme is_________ of
total assets.
A. 70%
b. 80%
c. 85%
d. 90%
Ans: (b) A Large Cap Fund is an open-ended equity scheme predominantly

investing in large-cap stocks. As per SEBI rules on asset allocation, the
minimum investment in equity and equity-related instruments of large-cap
companies shall be 80 percent of total assets.
59
61. Identify the TRUE statement.
1. Retail investors can buy units of Gold ETF.
2. Banks as well as Mutual Funds, both offer Gold deposit schemes.
3. Gold ETF is a close-ended fund and so the holdings are not for
perpetuity.
a. Only statement 1 is true
b. Only statement 2 is true
c. Only statement 3 is true
d. All 1, 2 and 3 are true
Ans: (a) Gold ETFs can be easily bought by retail investors as the minimum traded
quantity is 1 unit i.e. 1 gram. The Gold deposit scheme is offered only by banks to
mobilize the idle gold in the country and put it in productive use and to provide the
customer an opportunity to earn interest on the idle gold holdings. All Exchange Traded
Funds are open-ended schemes.
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62. An investor is interested in buying some units of a Close-ended fund
after the NFO is over. How can he buy the same?
a. He can buy the units on the stock exchange from market makers
appointed by the mutual fund.
b. He can buy the units on the stock exchange from other investors who
were allotted the units and are interested in selling.
c. He can buy the units from the mutual fund itself when they open the sale
at periodic intervals as announced by the fund.
d. He cannot buy units of a close-ended fund.
Ans: (b) A close-ended scheme offers liquidity through its listing on a stock exchange. Unit
holders who are interested in selling can offer their quotes and new investors can buy
them.
60
63. Open-ended schemes generally offer exit options to investors through a
stock exchange.
a. True
b. False
Ans: (b) Close-ended schemes generally offer exit options to investors

through a stock exchange. The open-ended schemes can be easily sold at
their current NAV back to the mutual fund through an agent or directly.
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64. Which amongst the following categories of mutual funds have a fixed
maturity date?
a. Exchange-Traded Funds
b. Open-ended funds
c. Close-ended funds
d. Interval funds
Ans: (c) Close-ended funds have a fixed maturity. Investors can buy units of
a close-ended scheme, from the fund, only during its NFO.
61
65. Can Indian mutual funds invest in Real Estate?
a. True
b. False
Ans: (a) Real Estate Mutual Funds scheme means a mutual fund scheme
that invests directly or indirectly in real estate assets or other permissible
assets in accordance with the SEBI (Mutual Funds) Regulations, 1996. So
Mutual Funds can invest in real estate directly but currently, they are mostly
into buying real estate-related stocks or in Real Estate Investment Trusts -
which invests in property directly.
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66. At which price a Close Ended fund can be sold?
a. At a price higher than NAV
b. At a price lower than NAV
c. At a price same as NAV
d. At a price that can be higher or lower or the same as NAV
Ans: (d) The only way to sell a Close Ended fund before the fund closing
date is by selling it on the stock exchange where its traded prices on the
stock exchange for a fund can be higher or lower or the same depending on
the demand / supply / liquidity etc.
62
67. The speciality of a Sector Fund is that it invests in various economic
sectors - True or False?
A. True
b. False
Ans: (b) Sector Funds are sector-specific and invest in various companies
of a specific sector. For eg: the Banking Sector Fund will invest in shares of
various Banks.
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68. Which of the following is an advantage of mutual funds?
a. Convenience to buy stocks and bonds directly from the mutual fund
b. Customized portfolio
c. Economies of scale
Ans: (c) The large investment corpus of a mutual fund leads to various other
economies of scale. For instance, costs related to investment research and
office space get spread across investors. Further, the higher transaction
volume makes it possible to negotiate better terms with brokers, bankers
and other service providers.
63
69. Each mutual fund scheme must have a stated investment objective.
State whether its True or False.
a. True
b. False
Ans: (a) Every scheme has a pre-announced investment objective.

Investors invest in a mutual fund scheme whose investment objective
reflects their own needs and preference.
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70. The transparency levels in mutual funds are very low. State whether
True or False.
a. True
b. False
Ans: (b)The structure of the mutual funds and the regulations by SEBI have
ensured that investors get full transparency about their investments. There
are three essential places from where the investor can get enough
information for making informed decisions, viz., scheme-related documents
(SID, SAI, and KIM), portfolio disclosures, and the NAV of the scheme.
64
71. Which of these is a Passive Fund?
A) Gold Sector Fund B) Gold Mining Companies Fund
C) Gold Exchange Traded Fund D) Gilt Funds
a. Both A and B
b. Only D
c. Only C
d. All A, B, C and D
Ans. (c) Passive funds invest on the basis of a specified index; whose
performance it seeks to track. For eg. the Nifty Index fund. Exchange-
Traded Funds (traded on exchanges) are also passive funds that generate
returns in line with the index or benchmark. So, from the above options, only
Gold Exchange Traded Fund is a passive fund.
-----------------------------------------------------------------------------------------------------
72. Interval funds offer better liquidity to investors as compared to Close-
Ended mutual fund. State whether True or False?
a. True
b. False
Ans. (a) Interval funds combine features of both open-ended and close-
pre-specified intervals. The benefit for investors is that, unlike in a purely
close-ended scheme, they are not completely dependent on the stock
exchange to be able to buy or sell units of the interval fund.
65
73. Why does SEBI have regulations pertaining to restrictions on the
investment policies of mutual fund schemes ?
a. So that the mutual fund scheme has a minimum diversification as per the
requirements
b. So that the mutual scheme can improve their ratings over a period of time
c. So that the scheme returns are better than the benchmark returns
Ans. (a) The investors have no control, over the investment management of
the mutual fund. It is in this context that SEBI has laid down regulations
pertaining to investment universe, restrictions and portfolio diversification for
investment by mutual fund schemes. Such regulations intend to control the
risks taken by the mutual fund managers.
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74. Typically, towards the maturity of the close-end scheme, the market
price converges towards the NAV - State whether True or False?
a. True
b. False
Ans. (a) A close-ended scheme offers liquidity through its listing on a stock
exchange. Typically, towards the maturity of the scheme, the market price
converges towards the NAV.
66
75. In case of an aggressive hybrid fund, the investment range in equity
instruments is between ______ of the total assets.
a. 65 to 80 percent
b. 75 to 90 percent
c. 60 to 70 percent
d. 80 to 95 percent
Ans. (a) Aggressive Hybrid Fund is an open-ended hybrid scheme investing

predominantly in equity and equity related instruments. Investment in equity and
equity related instruments shall be between 65 percent and 80 percent of total
assets while investment in debt instruments shall be between 20 percent and 35
-----------------------------------------------------------------------------------------------------
76. The _________ has to mandatorily contribute to the corpus of the
mutual fund.
a. Sponsors
b. Trustees
c. AMC
d. Custodian
Ans. (a) The mutual fund trust is created by one or more Sponsors, who are the
main persons behind the mutual fund business. The sponsor is the promoter of
the mutual fund. The sponsor brings in capital and creates a mutual fund trust and
sets up the AMC. The sponsor makes an application for registration of the mutual
fund and contributes at least 40% of the net worth of the AMC. In other words,
every MF needs a sponsor before it can commence operations.
67
77. What is the investment range in debt instruments by a Conservative
hybrid fund?
a. Between 50 percent and 75 percent of total assets
b. Between 75 percent and 90 percent of total assets
c. Between 80 percent and 95 percent of total assets
d. Between 70 percent and 80 percent of total assets
Ans. (b) Conservative Hybrid Fund is an open-ended hybrid scheme

investing predominantly in debt instruments. Investment in debt instruments
shall be between 75 percent and 90 percent of total assets while investment
in equity and equity instruments shall be between 10 percent and 25
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78. Which debt schemes of mutual funds invest only in debt securities
where moneys will be repaid within 91 days?
a. Money Market Funds
b. Medium term debt funds
c. Fixed Maturity Plans
d. Liquid Funds
Ans. (d) Liquid Fund is an open-ended liquid scheme whose investment is

into debt and money market securities with a maturity of up to 91 days only.
An investor seeking the lowest risk ought to go for a liquid scheme.
However, the returns in such instruments are low. These schemes are
suitable for investors looking for a product to park their funds for very short
periods (up to 91 days).
68
79. What is the investment range in equity instruments for a Conservative
hybrid fund?
a. Between 20 percent and 30 percent of total assets
b. Between 30 percent and 40 percent of total assets
c. Between 10 percent and 25 percent of total assets
d. Between 5 percent and 20 percent of total assets
Ans. (c) Conservative Hybrid Fund is an open-ended hybrid scheme

investing predominantly in debt instruments. Investment in debt instruments
shall be between 75 percent and 90 percent of total assets while investment
in equity and equity instruments shall be between 10 percent and 25
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80. Identify the false statement/s with respect to a New Fund Offer (NFO).
1. A Closed-ended mutual fund NFO will have a NFO opening date, a NFO
closing date and a scheme Re-opening date
2. An Open-ended mutual fund NFO will have a NFO opening date, a NFO
closing date and a scheme Re-opening date
a. Only 1 is false
b. Only 2 is false
c. Both 1 and 2 are false
Ans. (a) A Closed-ended mutual fund will not have a Re-opening date. They
offer liquidity through its listing on a stock exchange. Investors who which to
invest or exit can do it through a stock exchange broker.
69
81. Post the New Fund Offer, investors who wishes to buy units need to pay
____________ .
a. the NFO price plus inflation rate
b. the same price as NFO
c. a price linked to the inflation index
d. a price that is linked to its NAV
Ans. (d) When a scheme is first made available for investment, it is called a
'New Fund Offer' (NFO). During the NFO, investors have the chance of
buying the units at their face value. Post-NFO, when they buy into a
scheme, they need to pay a price that is linked to its NAV.
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70
CHAPTER 3: LEGAL STRUCTURE OF MUTUAL
FUNDS IN INDIA
1. As per SEBI Regulations, MF scheme should have atleast ______

investors.
a. 50
b. 20
c. 25
d. 100
Ans: (b) Each scheme should have a minimum of 20 investors and no single
investor should account for more than 25% of the corpus of the
scheme/plan(s).
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2. What is the role of the custodian of a mutual fund?
a. To issue statement of funds holding to the investors
b. To execute the buy and sell orders in the stock market
c. To keep the safe custody of the securities of the mutual fund scheme
d. To issue account statements to the Mutual Fund unit holders
Ans: (c) The custodian has custody of the assets of the fund. As part of this
role, the custodian needs to accept and give delivery of securities for the
purchase and sale transactions of the various schemes of the fund. Thus,
the custodian settles all the transactions on behalf of the mutual fund
schemes.
71
3. Who is responsible for overall investments of the fund?
a. Fund manager
b. Market analyst
c. Individual financial advisor
d. Chief investment officer
Ans: (d) The Chief Investment officer is responsible for overall investments
of the fund.
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4. Identify the duty of a SPONSOR of a mutual fund.
a. Guards the interest of the mutual fund unit holders
b. Contributes to the capital of the Asset Management Company
c. Looks after the day to day administration of the mutual fund
d. Regularly report to SEBI on the working of the fund
Ans: (b) The application to SEBI for registration of a mutual fund is made by
the sponsor. Thereafter, the sponsor invests in the capital of the AMC.
72
5. The auditor appointed to audit the scheme accounts is the same as the
auditor of the AMC accounts. State True or False?
a. True
b. False
Ans: (b) The auditor appointed to audit the scheme accounts needs to be
different from the auditor of the AMC. While the scheme auditor is appointed
by the Trustees, the AMC auditor is appointed by the AMC.
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6. Which of these is NOT a function of Registrars and Transfer Agents?
a. Maintaining investors records
b. Processing redemption and dividend payouts
c. Analysing mutual fund performance and making it available to investors
d. Updating unit capital of fund
Ans: (c) The Registrars and Transfer Agents (RTAs) maintain investor
records. The functions of the RTA include processing of purchase and
redemption transactions of the investor and dealing with the financial
transactions of receiving funds for purchases and making payments for
redemptions, dividends etc., updating the unit capital of the scheme to
reflect these transactions, updating the information in the individual records
of the investor, called folios, keeping the investor updated about the status
of their investment account and information related to the investment.
73
7. _________ ensures that the information contained in the scheme related
documents (SID and SAI) are fully complied with.
a. The Trustees
b. The Sponsor
c. The Fund Manager
d. The AMC
Ans: (a) The trustees shall ensure that all transactions entered into by the
AMC are in compliance with the regulations and the scheme's objectives
and intent.
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8. Registrar and Transfer Agency function must be independent of the Asset
Management Company, and it cannot be retained in-house. State whether
this statement is True or False.
a. True
b. False
Ans: (b) Mutual funds can have their in-house Registrar and Transfer
agency.
74
9. All the records of the investors of a Mutual Fund are maintained by the
Fund Manager. True or False?
a. True
b. False
Ans: (b) The RTA (Registrar and Transfer Agents) maintains investor
records. Sometimes the AMC itself does this activity.
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10. AMC directors are appointed with the permission of SEBI. True or
False?
a. True
b. False
Ans: (b) AMC directors are appointed with the permission of Trustees.
75
11. Who handles the day-to-day management of the mutual fund?
a. Unit holders
b. Mutual Fund Trustees
c. Registrar and Transfer Agency
d. Asset Management Company
Ans: (d) Day to day management of the schemes is handled by an Asset

Management Company (AMC). The AMC is appointed by the sponsor or the
Trustees.
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12. Who receives and delivers securities on behalf of the Mutual Fund?
a. Authorised Stock Brokers
b. The AMC to which the fund belongs
c. Custodian
d. Merchant Bankers
Ans: (c) The custodian has custody of the assets of the fund. The custodian
accepts and gives delivery of securities for the purchase and sale
transactions of the various schemes of the fund.
76
13. The empanelment of a mutual fund distributor by an Asset Management
Company can be terminated_________________.
a. In case all the investors of the distributors shift to direct plans
b. When the term of empanelment is over
c. Any time by the AMC
d. All of the above
Ans: (c) The AMC has the power to terminate the empanelment of the
mutual fund distributor at any time.
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14. ____________forms the basis of appointment of a distributor by an
AMC.
a. SEBI approval
b. Agreement between the investor and the distributor
c. Power of attorney from the AMC
d. An agreement between the AMC and the Distributor
Ans: (d) An agreement between the AMC and the Distributor forms the basis
of appointment of a distributor by an AMC.
77
15. Who applies to SEBI for the registration of a Mutual Fund?
a. The Asset Management Company (AMC)
b. Board of Trustees
c. The Sponsors
d. Chief Fund Manager
Ans: (c) The application to SEBI for registration of a mutual fund is made by
the sponsors.
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16. Who has the responsibility of overseeing legal compliance in a mutual
fund?
a. The Custodian
b. The Sponsors
c. The AMC
d. The Trustees
Ans: (d) SEBI expects Trustees to perform a key role in ensuring legal
compliances and protecting the interest of investors.
78
17. Who appoints the trustees of a Mutual Fund?
a. RBI
b. SEBI
c. Sponsor
d. AMC
Ans: (c) The application to SEBI for registration of a mutual fund is made by
the Sponsor(s). The sponsor then appoints the Trustees. The operations of
the mutual fund trust are governed by a Trust Deed, which is executed
between the sponsors and the trustees.
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18. What is the role of the custodian?
a. To issue account statements to the MF unit holders
b. To keep the safe custody of the securities of the mutual fund scheme
c. To issue a statement of funds holding to the investors
d. To execute the buy and sell orders in the stock market
Ans: (b) The custodian has custody of the assets of the fund. As part of this
purchase and sale transactions of the various schemes of the fund. Thus,
the custodian settles all the transactions on behalf of the mutual fund
schemes.
79
19. As per the SEBI Code of Conduct, mutual fund schemes portfolios
should be managed in the interest of ___________.
a. Trustees
b. Sponsors
c. Brokers
d. All classes of unit holders
Ans: (d) As per the SEBI Code of Conduct - Trustees and asset
management companies shall carry out the business and invest in
accordance with the investment objectives stated in the scheme-related
documents and take investment decisions solely in the interest of unit
holders.
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20. Identify which of these is a function of Association of Mutual Funds in
India (AMFI)?
a. To calculate the correct NAVs
b. To make available the AUM, NAV, and other important data of the mutual
fund industry
c. To regulate and control insider trading
d. To manage the Investor Protection Fund
Ans: (b) AMFI makes available the AUM, NAV, and other important data of
the mutual fund industry on its website. (Calculation of NAV is the duty of
the mutual fund / SEBI regulates insider trading / Stock exchanges manage
the Investor protection fund).
80
21. NFOs for ELSS schemes can remain open for ______days.
a. 10
b. 20
c. 25
d. 30
Ans: (d) In the case of ELSS / RGESS schemes, the offering period shall
not be more than 30 days.
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22. As per the SEBI guidelines, how often should the mutual fund scheme's
portfolio be published?
a. Monthly
b. Half-yearly
c. Annually
d. Quarterly
Ans: (b) The AMCs shall send to its unit holders, a half-yearly portfolio via
email within 10 days from the end of each half-year. The half-yearly portfolio
of the schemes is available on the AMFI's website and the website of AMC
on or before the 10th day of the succeeding month.
81
23. SEBI regulates Mutual Funds as well as Registrars and Transfer Agents.
True or False?
a. True
b. False
Ans: (a) SEBI regulates Mutual Funds, Registrars and Transfer Agents,
Depositories, Stock Brokers, etc.
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24. Which one is the Self Regulatory Organisation (SRO) for the mutual
fund industry?
a. SEBI
b. Sponsors
c. Trustees
Ans: (d) The Mutual Funds industry in India is in the process of getting an
SRO to oversee its distributors. (AMFI is not an SRO).
82
25. The sponsor needs to contribute a minimum___________of the net
worth of the AMC.
a. 25%
b. 40%
c. 50%
d. 66%
Ans: (b) The sponsor needs to contribute a minimum 40% of the net worth
of the AMC.
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26. In most cases, the auditor appointed to audit the scheme accounts and
the auditor to audit AMC accounts are the same. State True or False?
a. True
b. False
Ans: (b) The AMC Auditor and the Scheme Auditor is always different.
83
27. Which of the following is not a function of R&T?
a. Process Dividend and redemption
b. Maintain the records
c. Settling investors transaction of fund
d. Calculation of NAV
Ans: (d) Calculating NAV is the function of Fund Accountant and not of R&T
Agent.
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28. Day-to-day management of the Mutual Fund schemes is handled by the
Trustees. True or False?
a. True
b. False
Ans: (b) Day-to-day management of the schemes is handled by an AMC.

The AMC is appointed by the sponsor or the Trustees.
84
29. Mutual funds in India are governed by SEBI (Mutual Fund) Regulations,
1996. True or False?
a. True
b. False
Ans: (a) Mutual funds in India are governed by SEBI (Mutual Fund)
Regulations, 1996.
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30. AMFI is an industry body, but not a self-regulatory organization. True or
False?
a. True
b. False
Ans: (a) Asset Management Companies in India are members of the

Association of Mutual Funds in India (AMFI), an industry body that has been
created to promote the interests of the mutual fund industry. AMFI is neither
a regulatory body nor a Self-Regulatory Organisation (SRO).
85
CHAPTER 4: LEGAL & REGULATORY
FRAMEWORK
1. In case of any unresolved complains against AMC, investors can

approach.
a. AMFI
b. Sponsor
c. Trustees
d. SEBI
Ans: (d) If there is any issue with AMC or Mutual Fund Scheme, the AMC can First
approach AMC’s Investor Service Center. If the issue is not resolved or the
investor is not happy with the solution or response, he can raise the issue at
higher level in AMCs. If still unresolved, investor can approach SEBI through
SCORES.
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2. As per AMFl's code of ethics, an Asset Management Company has to
disclose which of the following scheme related information to the unit
holders?
a. Only B
b. A and B
c. B and C
d. A, B and C
Ans: (b) Asset Management Company (AMC) shall disclose to unit holders investment
pattern, portfolio details, ratios of expenses to net assets and total income and portfolio
turnover wherever applicable in respect of schemes on annual basis.
86
3. Securities and Exchange Board of India (SEBI) functions does not
include which of the following?
a. Regulation of Stock Exchanges
b. Enforcing compliance of its regulations
c. Making regulations for the Mutual Fund industry
d. Approving the fund managers which have been appointed by the AMC
Ans: (d) An approval of SEBI is not required by the AMC while appointing
the fund managers.
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4. Which of the following is not a fair selling practice by a mutual fund
distributor
a. Informing the investor of the various investment options
b. Carefully understanding the clients financial needs
c. Encouraging the churning of investments
d. Giving personalised after sales service
Ans: (c) Churning means frequent buying and selling. Encouraging over
transacting and churning of Mutual Fund investments to earn higher
commissions by MF agents is a bad practice.
87
5. When is a Consolidated Account Statement (CAS) dispatched to the
investor?
a. Whenever the investor asks for a CAS
b. Bi-monthly for dormant investors
c. Every month, before the 10th working day of the following month
d. Whenever there is a transaction in the folio
Ans: (c) A Consolidated Account Statement (CAS) for each calendar month
is sent by post or email on or before 10th of the succeeding month provided
there has been a financial transaction in the folio in the previous month.
-----------------------------------------------------------------------------------------------------
6. SEBI Advertisement Code for Mutual Funds mentions the various
guidelines to be followed by _________.
a. the investors who are interpreting the performance of their investments
b. the AMC's while it is advertising the performance of their funds
c. the distributors while advertising their various services
d. the fund managers while monitoring the performance of the schemes
they manage
Ans: (b) There are various guidelines laid down by SEBI which have to
followed by the AMC while it is advertising the performance of its funds. For
eg - i) Performance advertisement of mutual fund schemes shall be
provided in terms of CAGR for the past 1 year, 3 years, 5 years and since
inception. ii) Where the scheme has been in existence for less than one-
year, past performance shall not be provided, etc.
88
7. The main purpose why SEBI has issued norms for investments by mutual
fund schemes is to __________.
a. get better returns by mutual fund schemes
b. improve the credit ratings of the mutual fund schemes
c. protect the interests of the mutual fund investors
d. protect the interests of the mutual fund industry
Ans: (c) Securities and Exchange Board of India (SEBI), has mandated
strict checks and balances in the structure of mutual funds and their
activities. Mutual fund investors benefit from such protection.
-----------------------------------------------------------------------------------------------------
8. Which of these is NOT a function of SEBI?
a. Giving approvals to the appointment of fund managers
b. Making regulations for the Mutual Fund industry
c. Regulating Stock Exchanges
d. Enforcing compliance of its regulations
Ans: (a) SEBI does not play any role in appointment of Fund Managers.
89
9. Consolidated Account Statement (CAS) has to be dispatched to the
investors ____________.
a. only when the investors sends a request for it
b. on a monthly basis, before the 10th of the succeeding month
c. for every transaction for every folio
d. quarterly for dormant investors
Ans: (b) A Consolidated Account Statement (CAS) for each calendar month
will have to be sent by post or email on or before 10th of the succeeding
month. If there are no transactions, then a six monthly CAS can be sent.
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10. As per the AMFI Code of Ethics, an AMC has to disclose which amongst
the following information to its unit holders ?
a. investment pattern
b. portfolio turnover
c. transactions of purchase and sale of securities entered into with any of
their associates
d. All of the above
Ans: (d) As per the AMFI Code of conduct, the AMC has to disclose the
investment objectives, investment policies, financial position and general
affairs of the scheme, investment pattern, portfolio details, ratios of
expenses to net assets and total income, portfolio turnover, transactions of
purchase and sale of securities entered into with any of their associates or
any significant unit holder etc. to the unit holders.
90
11. The unaudited accounts of the Mutual Fund schemes must be published
once in every six months __________.
a. on the AMC website
b. on the AMFI website
c. in a minimum of 2 newspapers
d. Both - on the AMC website and in a minimum of 2 newspapers
Ans: (d) As per SEBI rules: The mutual fund shall before the expiry of one
month from the close of each half year shall display the unaudited financial
results on AMC website, the advertisement in this reference will be
published by the fund in at least one English daily newspaper having
nationwide circulation and in a newspaper having wide circulation published
in the language of the region where the head office of fund is situated.
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12. One of the disclosure which an AMC has to make is ______
a. the commission paid to the distributors in the financial year on the
website of AMC
b. the distributor wise amount mobilised in the financial year on the website
of AMC
c. the annual report (scheme wise) and the abridged summary on the
website of AMC
d. All of the above
Ans: (c) The Annual Report of the AMC has to be displayed on the website
of the mutual fund. The Scheme-wise Annual Report will mention that unit-
holders can ask for a copy of the AMC 's Annual Report.
91
13. Advertisements regarding Mutual Fund schemes shall not contain
statements which directly or by implication or by omission may mislead the
investor. State True or False?
a. True
b. False
Ans: (a) As per the SEBI Regulations related to Sales Practices -

Advertisements shall not be so designed as likely to be misunderstood or
likely to disguise the significance of any statement. Advertisements shall not
contain statements which directly or by implication or by omission may
mislead the investor.
-----------------------------------------------------------------------------------------------------
14. As per SEBI rules, the NAV has to be published _______in at least
______daily newspapers having circulation all over India.
a. Daily, 4
b. Weekly, 2
c. Daily, 2
d. Weekly, 4
Ans: (c) As per SEBI rules, the NAV has to be published daily in at least 2
daily newspapers having circulation all over India.
92
15. Investors in Mutual Fund are not responsible for ________
a. monitoring their investments regularly
b. checking the risk factors before investing
c. reading the offer documents carefully
d. taking investment decisions of behalf of the fund manager
Ans: (d) Investors need to note that their investment is governed by the
principle of caveat emptor i.e. let the buyer beware. An investor is presumed
to have read the Offer Document, checked the risk factors etc. However, an
investor cannot ask or instruct the fund manager to buy / sell particular
security.
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16. According to guidelines given by SEBI, every mutual fund scheme
should have a minimum of __________investors.
a. 10
b. 20
c. 25
d. 50
Ans: (b) Every mutual fund scheme/plan should have a minimum of 20

investors and no single investor shall account for more than 25 percent of
the corpus of the Scheme/Plan(s).
93
17. AMFI Code of Ethics states that ___ cannot become a distributor of
mutual fund.
a. Banks
b. HNls
c. Employees of AMC
Ans: (c) Employees of Asset Management Companies (AMCs) cannot

become mutual fund distributors.
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18. An important objective of SEBI is to represent to the Government,
Reserve Bank of India and other bodies on all matters relating to the Mutual
Fund Industry. True or False?
a. True
b. False
Ans: (b) An important objective of AMFI is to represent to the Government,

Reserve Bank of India and other bodies on all matters relating to the Mutual
Fund Industry.
94
19. SEBI approval is required for an AMC to appoint a distributor. True or
False?
a. True
b. False
Ans: (b) No SEBI approval is required. A person has to clear the exam and
get an AMFI number. Based on this number AMC signs an agreement with
the individuals / companies and appoint them distributors.
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20. Pension Funds Regulatory and Development Authority (PFRDA) is the
regulator for the National Savings System.
a. True
b. False
Ans: (b) Pension Funds Regulatory and Development Authority (PFRDA) is

the regulator for the National Pension System.
95
21. All advertisements and Sales Literature containing an AMC(s)/Mutual
Fund ranking must prominently disclose _______
a. The publisher of the ranking data.
b. Criteria on which the ranking is based.
c. The name of the Ranking Entity.
d. All of the above
Ans: (d) All advertisements and Sales Literature containing an

AMC(s)/Mutual Fund ranking must prominently disclose all of the given
options.
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22. In case a fund manager is managing more than six funds, then
performance data of top _____and bottom _________ schemes has to be
disclosed in all performance related advertisements.
a. 2,2
b. 3,3
c. 4,4
d. 6,6
Ans: (b) When the performance of a particular mutual fund scheme is advertised,
the advertisement shall also include the performance data of all the other
schemes managed by the fund managers of that particular scheme. In case the
number of schemes managed by a fund manager is more than six, then the AMC
may disclose the total number of schemes managed by that fund manager along
with the performance data of top 3 and bottom 3 schemes managed by that fund
manager in all performance related advertisements.
96
23. A Mutual Fund investor can file a case against the ________for breach
of trust.
a. Mutual Fund
b. Trustees
c. Stock Exchange
d. No, a MF investor cannot file a suit.
Ans: (b) If an investor feels that the trustees have not fulfilled their
obligations, then he can file a suit against the trustees for breach of trust.
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24. Which of the following regulates mutual funds in India?
a. Asset Management Companies
b. Securities and Exchange Board of India
c. Board of Trustees of mutual funds
d. Association of Mutual Funds in India
Ans: (b) Securities markets in India are regulated by the Securities and
Exchange Board of India (SEBI). It regulates, among other entities, mutual
funds, depositories, custodians and registrars and transfer agents (RTAs) in
the country.
97
25. Open-ended schemes, except ELSS, have to re-open for ongoing sale
or re-purchase within ________business days of allotment.
a. 3
b. 5
c. 10.
d. 30
Ans: (b) Open-ended schemes, except ELSS, have to re-open for ongoing
sale or re-purchase within 5 business days of allotment.
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26. Mr. Sonu reads about the risk factors given in the offer document and
invests in an equity mutual fund scheme. After a few days the stock market
crashes and NAV of the equity fund goes down. What can Mr. Sonu do in
such a situation?
a. He can appeal to SEBI and get a remedy
b. He can get a remedy from the AMC
c. He is not likely to get any remedy from the AMC
d. He is likely to get a remedy from the trustees of the AMC
Ans: (c) The offer document of a mutual fund cleary states that 'Mutual fund
investments are subject to market risks'. When the fund invests in equity
market where prices fluctuate a lot, the NAV of the fund is likely to witness
huge fluctuations. So the AMC nor SEBI nor anyone else can otter a
remedy. The fluctuations are a part of equity markets.
98
27. As per SEBl's mandate, AMCs has to put in place a due diligence
process to regulate distributors. Which of these mutual fund distributors
would NOT be subjected to the due diligence process?
a. AUM raised of Rs. 60 crore across industry in the non-institutional
category
b. Commission received of over Rs. 125 lakhs p.a. across industry
c. Multiple point presence in more than 25 locations
d. Commission received of over Rs. 75 lakhs from a single mutual fund
Ans: (a) SEBI has mandated AMCs to put in place a due diligence process to
regulate distributors who qualify any one of the following criteria:
Multiple point presence (More than 20 locations), AUM raised over Rs. 100 crore
across industry in the non-institutional category but including high net worth
individuals (Hnls), Commission received of over Rs. 1 Crore p.a. across industry,
Commission received of over Rs. 50 Lakhs from a single mutual fund.
In the above question, the mutual fund distributor has raised an AUM of Rs. 60
crores across industry in the non-institutional category, which is less than Rs. 100
crores.
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28. Dividend warrants have to be sent to investors within 30 days of
dividend declaration. True or False?
a. True
b. False
Ans: (a) Dividend warrants have to be sent to investors within 30 days of

dividend declaration.
99
29. Statement of Account is to be sent to investors within ___days of NFO
closure.
a. 3
b. 5
c. 10
d. 30
Ans: (b) Statement of Account is to be sent to investors within 5 days of

NFO closure.
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30. For next 30 days after a New Fund Offer closes, an investor can buy
units at face value. True or False?
a. True
b. False
Ans: (b) Post-NFO, when investors buy into a scheme, they need to pay a
price that is linked to its NAV.
100
31. "Please read the scheme related documents carefully" – which
documents does this line refer to?
a. Scheme Information Document and Statement of Additional Information
b. Statement of Additional Information and fund fact sheet
c. Trust deed and Key Information Memorandum
d. Scheme Information Document and audited balance sheet of the Asset
Management Company
Ans: (a) "Mutual fund investments are subject to market risks. Please read
the scheme related documents carefully before investing." - The scheme
related documents are Scheme Information Document (SID) and Statement
of Additional Information (SAI).
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32. While selling mutual fund products of the distributors’ group / affiliate /
associates, the distributor shall make disclosure to the customer regarding
the conflict of interest arising from the distributor selling such products. True
or False?
a. True
b. False
Ans: (a) While selling mutual fund products of the distributors' group /
affiliate / associates, the distributor shall make disclosure to the customer
regarding the conflict of interest arising from the distributor selling such
products.
101
33. What is the restriction on a mutual fund scheme investing in the equity
instruments of a company?
a. 2% of the net assets
b. 5% of the net assets
c. 7.5% of the net assets
d. 10% of the net assets
Ans: (d) The Mutual Fund under all its schemes shall not own more than 10
percent of a company's paid up capital bearing voting rights. Provided no sponsor
of a mutual fund, its associate or group company including the Asset Management
Company of the fund, through the schemes of the mutual fund or otherwise,
individually or collectively, directly or indirectly, have 10 percent or more of the
shareholding or voting rights in the asset management company or the trustee
company of any other mutual fund.
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34. Even thought investment in Mutual Funds are subject to market risks, an
investor invests in an equity fund after reading the risk factors etc. Due to a
fall in the stock markets the value of the fund goes down drastically. The
investor ___________.
a. can get some remedy if he appeals to SEBI
b. can get some remedy if he appeals to AMC
c. can get some remedy if he appeals to AMFI
d. cannot get any remedy from the AMC
Ans: (d) Even thought investment in Mutual Funds are subject to market risks, an investor
invests in an equity fund after reading the risk factors etc. Due to a fall in the stock
markets the value of the fund goes down drastically. The investor cannot get any remedy
from the AMC.
102
35. In Liquid funds, simple annualised return method is used to show the
returns because _________.
a. Its a simpler way to calculate and investors understand it easily
b. The investment made is fixed for 30 / 90 / 180 days
c. The return is calculated over smaller time horizons
d. The amount invested is usually small
Ans: (c) In case of Money Market schemes and liquid plans, wherein
investors have very short investment horizon, the performance can be
measured and advertised by simple annualisation of yields.
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36. If a person wants to appeal against the ruling of SEBI, he can do so with
__________.
a. RBI
b. Commerce Ministry
c. Company Law Board
d. Securities Appellate Tribunal
Ans: (d) Anyone who is aggrieved by a ruling of SEBI, can file an appeal
with the Securities Appellate Tribunal (SAT).
103
37. Which is the first step that a mutual fund distributor should take in
building a mutual fund portfolio for his investors?
a. He should list the best performing funds for the investor to select.
b. He should set the financial goals of the investor.
c. He should invest the amount in a liquid fund and set a Systematic
Transfer Plan in good equity funds.
d. He should list good equity funds with the lowest expense ratio for the
investor to select.
Ans: (b) The selection of a mutual fund scheme for an investor will depend upon the need
that the investor has from the investment. The objective could be a financial goal like
reaching a certain level of wealth in a specified period of time; or it could be funding a
major expense related to an important life event like education of one's children or funding
one's retirement. The sight of the goal must never be missed. Therefore, the first step is to
set the financial goals.
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38. In case a fund manager is managing more than six funds,
then________ in all performance related advertisements.
a. the total number of schemes managed by him hs to be disclosed
b. performance data need not be given
c. performance data of top 2 and bottom 2 schemes has to be disclosed
d. performance data of top 3 and bottom 3 schemes has to be disclosed
Ans: (d) When the performance of a particular mutual fund scheme is advertised, the
advertisement shall also include the performance data of all the other schemes managed
by the fund managers of that particular scheme. schemes managed by that In case the
number of schemes managed by a fund manager is more than six, then the AMC may
disclose the total number of schemes managed by that fund manager along with the
performance data of top 3 and bottom fund manager in all performance related
advertisements.
104
39. Identify the true statement(s) with respect to Scheme Performance
Disclosures?
A) The data relating to funding performance of all mutual funds is available
on the AMFI website.
B) SEBI has mandated disclosure of performance data by all the AMCs.
a. Only A is true
b. Only B is true
c. Both A and B are true
d. Both A and B are false
Ans: (c) AMFI website (www.amfiindia.com) carries the performance data of all the mutual
fund schemes. SEBI has mandated disclosure of performance data by all the asset
management companies (AMCs). These disclosures can be accessed through certain
scheme documents and website of the fund house.
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40. Can the fundamental attributes of scheme be changed? If yes - how?
a. Yes- but with the consent of 100% of the unit holders
b. Yes - with the permission of SEBI and AMFI
c. Yes - but this should be communicated to unit holders who should be
provided an option to exit the scheme
d. No - the fundamental attributes cannot be changed as it is based on
these attributes that investors have invested their money
Ans: (c) The trustees shall not permit a change in the fundamental attributes of the
scheme or any other change that will affect the interests of the unit holders unless written
communication is sent to each unit holder, a notice is given in the newspaper with national
circulation and the unit holders are given the option to exit at NAV without paying an exit
load.
105
41. The AMFI Code of Ethics (ACE) sets out___________.
a. The standards of good practices are to be followed by the AMCs in their
operations and in their dealings with investors, intermediaries, and the
public.
b. The standards of good practices to be followed by the AMCs in their
operations and in their dealings with mass media.
c. The standards of good practices to be followed by mutual fund
distributors in their dealings with AMFI, AMCs, and investors.
d. The standards of good practices to be followed by fund managers in their
dealings with AMFI and investors.
Ans: (a) The AMFI Code of Ethics (ACE) sets out the standards of good
practices to be followed by the Asset Management Companies (AMCs) in
their operations and in their dealings with investors, intermediaries, and the
public.
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42. Who handles the appeals which are made against the rulings of SEBI?
a. Company Law Board
b. AMFI
c. Securities Appellate Tribunal
d. High Court
Ans: (c) Persons aggrieved by an order of Adjudicating Officer passed

under the SEBI Act can prefer an appeal to Securities Appellate Tribunal
(SAT) under section 15T of the SEBI Act.
106
43. A mutual fund scheme can invest_________ in the equity instruments of
a company.
a. 5% of the net assets
b. 10% of the net assets
c. 15% of the net assets
d. 25% of the net assets
Ans: (b) The SEBI Regulations provide for various limits to the kind of
investments that are possible in mutual fund schemes. One of the restriction
is - The Mutual Fund under all its schemes shall not own more than 10
percent of a company's paid up capital bearing voting rights.
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44. One of the objectives of_______is to undertake a nationwide investor
awareness program to promote proper understanding of the concept and
working of mutual funds.
a. SEBI
b. BSE / NSE
c. AMFI
d. NISM
Ans: (c) AMFI is the association of all the registered Asset Management
Companies. One of the objectives of AMFI is to undertake a nationwide
investor awareness program to promote proper understanding of the
concept and working of mutual funds.
107
45. Mutual funds must publish their unaudited accounts once every six
months________.
a. on the AMFI website
b. on the AMC website
c. on the SEBI website
d. in atleast two English newspaper
Ans: (b) As per SEBI rules: The mutual fund shall before the expiry of one
month from the close of each half-year, shall display the unaudited financial
results on the AMC website, the advertisement in this reference will be
published by the fund is at least one English daily newspaper and one
regional language newspaper.
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46. In a Corporate Bond fund, the minimum investment in highest rated
corporate bonds is__________percent of the total assets.
a. 50
b. 60
c. 70
d. 80
Ans: (d) In Corporate Bond Fund, minimum investment in corporate bonds

shall be 80 percent of total assets (only in AA+ and above rated corporate
bonds).
108
47. Identify the true statement with respect to 'Unclaimed Dividend' in
mutual fund schemes.
a. If the plan is a regular plan, then it is the distributor's responsibility that
the investor claims the dues
b. It is the sole responsibility of the investor that he/she claims the dues
c. The Asset Management Company (AMC) is expected to make a
continuous effort to remind the investors through letters to claim their dues.
d. All of the above are true
Ans: (c) Right to unclaimed amounts- AMC is expected to make a

continuous effort to remind the investors through letters to claim their dues.
The Annual Report has to mention the unclaimed amount and the number of
such investors for each scheme.
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48. Identify the true statement.
a. Mutual funds which are bank-sponsored are regulated by RBI and not
SEBI
b. Stock Exchanges regulates mutual funds in India
c. SEBI regulates mutual funds in India
d. SEBI and AMFI both regulate mutual funds in India
Ans: (c) Securities markets in India are regulated by the Securities and
Exchange Board of India (SEBI). It regulates, among other entities, mutual
funds, depositories, custodians and registrars and transfer agents in the
country.
109
49. If there is a breach of the Code of Conduct by an intermediary and a
second violation by the intermediary is proved then the registration of the
intermediary is________.
a. Not renewed
b. Cancelled
c. Suspended
d. Withhold
Ans: (b) In the event of a breach of the Code of Conduct by an intermediary,

the following sequence of steps is initiated by AMFI: If there is a proven
second violation by the intermediary, the registration will be cancelled, and
intimation sent to all AMCs.
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50. The investors of a mutual fund can terminate the AMC or wind up a
scheme if_______% or more of the unit holders agree to it.
a. 50
b. 75
c. 70
d. 60
Ans: (b) Mutual fund Investors' Rights & Obligations - Rights to terminate
the appointment of an AMC: 75 percent of unit holders can terminate the
appointment of an AMC. Also, 75 percent of the unit holders (unit holding)
can pass a resolution to wind up a scheme.
110
51. One of the below options is a function of AMFI - which one?
a. To manage the investor protection fund
b. To compute the NAV
c. To make available the data on AUM, NAV, and other data of the mutual
fund industry
d. To regulate insider trading
Ans: (c) AMFI publishes the AUM, NAVs, etc. on its website. (Investor
Protection fund is managed as per SEBI guidelines, NAVs are calculated by
the AMCs and SEBI regulates insider trading).
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52. Identify the true statement as per AMFI's Code of Conduct for
Intermediaries of Mutual Funds.
a. Intermediaries should rebate some of the commission received by them
to the investors.
b. Intermediaries should abstain from making negative statements about
any Asset Management Company or scheme.
c. Intermediaries should split applications so that they can earn higher
transaction charges.
Ans: (b) One of the clauses under AMFI's Code of Conduct for
Intermediaries of Mutual Funds is - Abstain from making negative
statements about any AMC or scheme and ensure that comparisons, if any,
are made with similar and comparable products along with complete facts.
111
53. What are the guidelines issued by AMFI for intermediaries known as?
a. SEBI Brokers and Intermediaries guidelines
b. Know Your Distributor guidelines
c. AMFI Guidelines & Norms for Intermediaries (AGNI)
Ans: (c) AMFI has framed a set of guidelines and code of conduct for
intermediaries (known as AMFI Guidelines & Norms for Intermediaries (AGNI)),
consisting of individual agents, brokers, distribution houses, and banks engaged in
selling mutual fund products.
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54. On what basis will the payment be made to an investor who claims his
erstwhile unclaimed redemption amount within three years?
a. The amount paid will be based on the prevailing NAV after adding the
income earned on the unclaimed profits.
b. The amount paid will be based on the NAV at the time of original
redemption plus income earned on the unclaimed amount.
c. The amount paid will be based on the NAV at the time of original
redemption plus income earned on the unclaimed amount and deducting
any penalty on the same.
d. The amount paid will be based on the average of the NAV at the time of
original redemption and today's NAV after accounting for income earned
and penalty if any.
Ans: (a) Recovery of unclaimed amounts by the investors is as follows: If the
investor claims the money within 3 years, then payment is based on prevailing
NAV i.e. after adding the income earned on the unclaimed money. If the investor
claims the money after 3 years, then payment is based on the NAV at the end of 3
years.
112
55. For which mutual fund distributors is a due diligence process mandated
by SEBI?
a. A mutual fund distributor who services more than 25 investors
b. A mutual fund distributor who receives a commission of over Rs. 50
Lakhs from a single mutual fund
c. A mutual fund distributor who brings in investments from investors of over
Rs. 1 crore for a single mutual fund
d. All of the above
Ans: (b) SEBI has mandated AMCs to put in place a due diligence process to regulate
distributors who qualify any one of the following criteria: (i) Multiple point presence
(More than 20 locations), (ii) AUM raised over Rs. 100 crore across the industry in the
non-institutional category but including high net worth individuals (HNIS), (iii)
Commission received of over Rs. 1 Crore p.a. across industry, (iv) Commission
received over Rs. 50 Lakhs from a single mutual fund.
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56. If an investor claims his unclaimed redemption amount after 3 years
then the payment will be based on the_____________.
a. average of the NAVs i.e. current NAV and NAV at the time of original
redemption
b. current NAV
c. NAV at the end of three years
d. NAV at the time of original redemption
Ans: (c) Recovery of unclaimed amounts by the investors is as follows: If

the investor claims the money within 3 years, then payment is based on
prevailing NAV i.e. after adding the income earned on the unclaimed money.
If the investor claims the money after 3 years, then payment is based on the
NAV at the end of 3 years.
113
57. Mutual funds can buy and sell securities only on a delivery basis. State
whether this statement is True or False.
a. True
b. False
Ans: (a) The Mutual Fund will buy and sell securities on a delivery basis.
Securities purchased will be transferred in the name of the Mutual Fund
because of the respective scheme.
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58. Whose job is it to track the various corporate actions like bonuses,
dividends, or rights issues in companies where the mutual fund scheme has
invested?
a. Custodian
b. Registrar and Transfer Agency
c. Unit holders
d. Auditors of the Asset Management Company
Ans: (a) The custodian has custody of the assets of the fund. As part of this
purchase and sale transactions of the various schemes of the fund.
114
59. ________of the Unit-holders can pass a resolution to wind up a
scheme.
a. 25%
b. 50%
c. 60%
d. 75%
Ans: (d) 75 percent of unit holders can terminate the appointment of an

AMC. Also, 75 percent of the unit holders (unit holding) can pass a
resolution to wind up a scheme
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60. The full form of AGNI is___________________
a. AMFI Guidelines for New Investors
b. AMFI Guidelines for New issues and Investments
c. AMFI Guidelines for Nominations and Investments
d. AMFI Guidelines and Norms for Intermediaries
Ans: (d) AMFI Guidelines and Norms for Intermediaries.
115
61. Which of the below documents can be inspected by the unit holder?
a. Trust Deed
b. Custodial Services Agreement
c. Investment Management Agreement
d. All of the above
Ans: (d) Unit-holders have the right to inspect key documents such as the
Trust Deed, Investment Management Agreement, Custodial Services
Agreement, RTA agreement, and Memorandum & Articles of Association of
the AMC.
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62. Mutual funds have to follow the regulations of the Reserve Bank of India
(RBI) for investments in____________.
a. Securities market
b. Gold
c. Money market
d. Commodity market
Ans: (c) RBI regulates the money market and foreign exchange market in
the country. Therefore, mutual funds need to comply with RBI's regulations
regarding investment in the money market, investments outside the country,
etc.
116
63. __________________ is the regulator for the National Pension System.
a. AMFI
b. COMMERCE MINISTRY
c. SEBI
d. PFRDA
Ans: (d) Pension Funds Regulatory and Development Authority (PFRDA) is

the regulator for the National Pension System.
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64. Which of the following statements is 'True' with respect to celebrity
endorsement for mutual funds?
a. Celebrities can endorse only ongoing mutual fund schemes.
b. Celebrities can endorse only NFOs.
c. SEBI has permitted celebrity endorsements for the promotion of individual
d. SEBI has permitted celebrity endorsement at the industry level for the
purpose of increasing the awareness of mutual funds.
Ans: (d) SEBI has permitted celebrity endorsements at the industry level for
the purpose of increasing awareness of Mutual Funds as a financial product
category with a few restrictions like - The celebrity endorsements shall not
promote a scheme of a particular Mutual Fund or be used as a branding
exercise of a Mutual Fund house/AMC, etc.
117
65. Whom should the investor approach if his complaint is not resolved by
the AMC?
a. SEBI
b. Custodian
c. Company Law Board
d. Ombudsman
Ans. (a) In the event of any issue with AMC or mutual fund scheme, the investor
can first approach the AMC Investor Service Centre. If the issue is not redressed,
even after taking it up at senior levels in the AMC, then the investor can write to
SEBI (through SCORES) with the complaint details. SEBI Complaint Redress
System (SCORES) is a web based centralized grievance redress system of SEBI,
SCORES enables investors to lodge, follow up on their complaints and track the
status of redressal of such complaints online.
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66. Mutual funds can use celebrities like MS Dhoni, Sachin Tendulkar etc.
for advertising their products/schemes. State whether True of False?
a. True
b. False
Ans. (b) As per the SEBI Advertisement Code for Mutual Funds - No
celebrities shall form part of the advertisement. (AMFI can use celebrities
but individual mutual funds cannot use celebrities)
118
67. In a mutual fund, the investment decisions on investing the investors
funds is taken by __________.
a. The Trustees
b. The Sponsors
c. The Custodians or Registrars
d. The Asset Management Company
Ans. (d) Fund management is the most critical function in an Asset

Management Company. The main function of this team is to invest the
investors' money in line with the stated objective of the scheme and to
manage the same effectively.
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68. SEBI's web-based centralized grievance redress system is known as
________.
a. REFREE
b. SCORES
c. MATCH-UP
d. WINNER
Ans. (b) SEBI Complaint Redress System (SCORES) is a web-based

centralized grievance redress system of SEBI. SCORES enables investors
to lodge, follow up on their complaints and track the status of redressal of
such complaints online on the website - http://scores.gov.in
119
69. To terminate the appointment of an Asset Management Company, 90%
of the unitholders should approve this termination - State True or False?
a. True
b. False
Ans. (b) To terminate the appointment of an Asset Management Company,

75% of the unitholders should approve this termination.
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70. Who has to ensures the compliance of the information contained in the
scheme related documents with regulations?
a. The Sponsors
b. The Asset Management Company
c. SEBI
d. The Trustees
Ans. (d) A Compliance Officer signs a due-diligence certificate to the effect

that all regulations have been complied with, and that all the intermediaries
mentioned in the scheme related documents have the requisite statutory
registrations and approvals. The Compliance Officer works closely with the
Trustees on various compliance and regulatory issues. It is the
responsibility of the compliance officer to report any issue of non-
compliance directly and immediately to the trustees.
120
71. SEBI Complaint Redress System (SCORES) helps an investor to
1. Lodge a complaint for a grievance 2. Make a follow-up on the complaint
3. Track the status of redressal of such complaints online
a. Only 1
b. Only 1 and 3
c. Only 1 and 2
d. All 1, 2 and 3
Ans. (d) SEBI Complaint Redress System (SCORES) is a web-based centralized

grievance redress system of SEBI. SCORES enables investors to lodge, follow up
on their complaints and track the status of redressal of such complaints online on
the website - http://scores.gov.in is used to measure fund's risk relative to market
index.
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72. Identify which of these is NOT a function of Association of Mutual Funds
in India's (AMFI) ?
a. To represent to the Government, Reserve Bank of India and other bodies
on all matters relating to the mutual fund Industry
b. To disseminate information on the mutual fund industry and to undertake
studies and research directly and/or in association with other bodies.
c. To conduct a certification examination for Mutual Fund distributors
d. To undertake a nationwide investor awareness programme to promote
proper understanding of the concept and working of mutual funds.
Ans. (c) Function of AMFI includes all of the above except - Conductiong a
certification examination for Mutual Fund distributors. National Institute of
Securities Markets (NISM) conducts the certification examination for Mutual Fund
distributors.
121
73. Which distributor will be covered under the due diligence process of the
Asset Management Company as mandated by SEBI?
a. A distributor who has presence in more than 10 locations
b. A distributor who has AUM of over Rs. 100 crores from non-institutional
investors
c. A distributor who has received commission of over Rs 25 lakhs from one
mutual fund
d. All of the above
Ans. (b) SEBI has mandated AMCs to put in place a due diligence process to
regulate distributors who qualify any one of the following criteria: - Multiple point
presence (More than 20 locations) -AUM raised over Rs. 100 crores across the
industry in the non-institutional category butincluding high net worth individuals
(HNIs) -The commission received of over Rs. 1 Crore p.a. across industry -The
commission received of over Rs. 50 Lakhs from a single mutual fund.
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74. Redemption proceeds has to be paid to the mutual fund unit holders
within the time specified by _______ from time to time.
a. AMFI
b. SEBI
c. Registrar of Companies
d. Ministry of Finance
Ans. (b) The applicable redemption guidelines for mutual funds are set out
in SEBI (Mutual Funds) Regulations, 1996 and as amended from time to
time.
122
75. If a mutual fund enters into a transaction for purchase or sale of
securities with any of its associates, then the members of Asset
Management Company of the mutual fund have to
a. Inform the mutual fund unitholders of the intent to undertake the
transaction before it is done
b. Justify the fairness of the transaction to the Board of Trustees
c. Make certain that the transactions happens at a price that is better than
the closing market price
d. Take the approval of the trustees before undertaking the transactions
Ans. (b) As per the AMFI Code of Ethics for Mutual Funds: Members shall in
respect of transactions of purchase and sale of securities entered into with any of
their associates or any significant unitholder:
1. Submit to the Board of Trustees details of such transactions, justifying its
fairness to the scheme
2. Disclose to the unitholders details of the transaction in brief through annual and
half yearly reports.
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76. Which of the following is INCORRECT with respect to advertisements of
Mutual Funds by AMCs.
a. The advertisements can use celebrities for endorsements
b. The advertisements can show past performance of the scheme
c. The advertisements can show the return numbers
d. All of the above are incorrect
Ans. (a) As per the SEBI Advertisement Code for Mutual Funds - No
celebrities shall form part of the advertisement. (AMFI can use celebrities
but individual mutual funds cannot use celebrities)
123
77. Identify the action which needs to be taken as per the AMFI Code of
Ethics for Mutual Funds when a mutual fund enters into a transaction for
purchase or sale of securities with any of its associates?
a. AMC should make certain that the transactions happens at a price that is
better than the closing market price
b. AMC should take the approval of the trustees before undertaking the
transactions
c. AMC should justify the fairness of the transaction to the Board of Trustees
d. AMC should inform the mutual fund unitholders of the intent to undertake
the transaction before it is done
Ans. (c) As per the AMFI Code of Ethics for Mutual Funds: Members shall in
respect of transactions of purchase and sale of securities entered into with any of
their associates or any significant unitholder:
1. Submit to the Board of Trustees details of such transactions, justifying its
fairness to the scheme
2. Disclose to the unitholders details of the transaction in brief through annual and
half yearly reports
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78. There are no penalties for breach of code of conduct as mandated by
AGNI - True or False?
a. True
b. False
Ans. (b) As per 'AMFI Guidelines & Norms for Intermediaries' (AGNI)- In the
event of breach of the Code of Conduct by an intermediary the registration
can be cancelled after the set procedure is carried out.
124
CHAPTER 5: SCHEME RELATED INFORMATION
1. A Segregated portfolio is created ________________.

a. keeping in mind any future financial contingency.
b. when debt or money market instrument are affected by a credit event
c. to create a portfolio of unrated debt securities
d. All of the Above
Ans: (b) To ensure fair treatment to all investors in case of a credit event
and to deal with the liquidity risk, in December 2018, SEBI permitted
creation of segregated portfolio of debt and money market instruments by
mutual funds schemes. “Segregated portfolio” means a portfolio, comprising
of debt or money market instrument affected by a credit event, that has
been segregated in a mutual fund scheme.
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2. New Fund offer dates are mentioned on _________.
a. KIM & SID
b. SID
c. KIM
d. SAI
Ans: (a) SID has information on relevant NFO dates (opening, closing, re-
opening). KIM is essentially a summary of the SID & SAI. It contains the key
points of the offer document including the dates of issue opening, issue
closing & re-opening for sale & re-purchase.
125
3. If an investor wants to get updated monthly performance and portfolio
data on mutual funds, which of the following documents should he read?
a. Scheme Information Document (SID)
b. Fund Fact Sheet
c. Key Information Memorandum (KIM)
d. Statement of Additional Information (SAI)
Ans: (b) The fund fact sheet plays a vital role in giving updated information
on the mutual fund schemes and usually is published on a monthly basis by
all the fund houses. Fact sheet is not a statutory requirement.
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4. Where are the 'Standard Risk Factors' of a Mutual Fund scheme
disclosed?
a. Fund Fact Sheet
b. Addendum
c. Statement of Additional Information (SAI)
d. Scheme Information Document (SID)
Ans: (d) The Scheme Information Document (SID) highlights two broad
categories of risks,(1) Standard risk factors, and (2) Specific risk factors.
The standard risk factors are the risks that all mutual fund investments are
exposed to whereas there are certain risks specific to individual asset
category.
126
5. Which of these documents have to be updated once in a year?
a. Mandatory portfolio disclosures
b. Scheme Information Document
c. Fund Fact sheet
d. All of the above
Ans: (b) The Scheme Information Document (SID) of each scheme needs to
updated once every year, accordingly, the scheme performance numbers
have to be updated as a part of this exercise. Mandatory portfolio
disclosures are done every six months and Fund fact sheets are published
every month.
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6. Which document will an investor look at if he has to know the
fundamental attributes of a mutual fund scheme?
a. Key Information Memorandum (KIM)
b. Addendum
c. Scheme Information Document (SID)
Ans: (c) The Scheme Information Document contains the fundamental

attributes of a scheme under the 'Information about the scheme' column.
127
7. Where are the New Fund Offer dates mentioned?
a. Key Information Memorandum – KIM
b. Scheme Information Document - SID
c. Statement of Additional Information - SAI
d. Both SID and KIM
Ans: (d) SID has information on:

- Open-ended / Close-ended / Interval (the scheme structure).
- Equity / Balanced / Income / Debt / Liquid / ETF (the expected nature of scheme
portfolio).
- It also mentions the face value of the Units being offered, relevant NFO dates
(opening, closing, re-opening), date of SID, name of the mutual fund, and name and
contact information of the AMC and trustee company.
KIM is essentially a summary of the SID and SAI. It contains the key points of the
offer document including the dates of Issue Opening, Issue Closing & Re-opening for
Sale and Re-purchase.
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8. The details and information provided in Scheme Information Document
(SID) and Statement of Additional Information (SAI) are _____
a. applicable only for closed ended schemes
b. applicable only for open ended schemes
c. common for all schemes - open or close ended
d. applicable only for a particular scheme
Ans: (d) SID and SAI form a part of the Offer Document which gives the details of
a New Fund Offer I.e. when a new scheme is launched in the market. Thus every
scheme will have its own SID and SAI as per the investment objectives, etc. of
that particular scheme.
128
9. Which of the below is/are FUNDAMENTAL ATTRIBUTES of a scheme?
a. The type of scheme
b. Investment objective(s) of the scheme
c. Terms of the issue
d. All of the above
Ans: (d) The Offer Document is the most important sources of information on the
core aspects of the scheme called its fundamental attributes. The fundamental
attributes of the scheme includes:
• The type of scheme i.e. Open ended or Close ended or Equity or Balanced etc.
• Investment objective(s) i.e. Growth / Income etc.
• Terms of the issue i.e. listing / repurchase / redemption etc.
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10. If an investor in a Multi-cap Fund wants to know the industry wise
allocation of the funds then which document should he refer to?
a. Fund Fact sheet
b. SID and SAI
c. Investment management agreement
d. Annual accounts of the AMC
Ans: (a) One of the most popular document from the mutual fund is the monthly
Fund Fact sheet. This document is extensively used by investors, fund
distributors, fund rating agencies, research analysts, media and others to access
information about the various schemes of the mutual fund. In the fact sheet,
security wise as well as industry or sector wise allocation is provided for equity
schemes.
129
11. The Scheme Information Document (SID) prepared by the AMC is
approved by __________.
a. SEBI
b. Board of Trustees
c. Sponsors
d. Stock Exchanges
Ans: (b) Scheme Information Document and Statement of Additional

Information are the part of Offer Documents. AMC prepares the Offer
Document for the NFO. This needs to be approved by the Trustees and the
Board of Directors of the AMC. SEBI does not approve or disapprove Offer
Documents, it gives its observations and these are incorporated.
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12. The trustees / AMC cannot make any change in the fundamental
attributes of a scheme, unless approval is received from ________
a. Unit holders
b. SEBI
c. Sponsor
d. Fund Manager of that scheme
Ans: (a) The trustees / AMC cannot make any change in the fundamental
attributes of a scheme, unless a written communication about the proposed
change is sent to each Unit-holder and their approval is sought. The
Dissenting unit-holders are given the option to exit at the prevailing Net
Asset Value.
130
13. Of the following documents, which is required to be appended to the
application form of a MF scheme?
a. Statement of Additional Information – SAI
b. Addendum
c. Scheme Information Document - SID
d. Key Information Memorandum - KIM
Ans: (d) KIM is essentially a summary of the SID and SAI. As per SEBI
regulations, every application form is to be accompanied by the KIM.
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14. As per SEBI regulations, every application form is to be accompanied by
____________.
b. Scheme Information Document (SID)
c. Addendum
d. Statement of Additional Information
Ans: (a) As per SEBI regulations, every application form is to be

accompanied by the KIM. KIM is essentially a summary of the SID and SAI.
It is more easily and widely distributed in the market.
131
15. When is the Scheme Information Document (SID) updated?
a. Every year
b. Every month
c. Every two years
d. As per AMC decision
Ans: (a) Scheme Information Document (SID) is updated every year.

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16. The interim changes in a mutual fund scheme are updated to the
investors through ______________.
b. Statement of Additional Information (SAI)
c. Addendum
Ans: (c) While the SID, SAI and KIM need to be updated periodically, the
interim changes are updated through the issuance of Addendum. The
addendum is considered to be a part of the scheme related documents, and
must accompany the KIM.
132
17. Which of these is NOT included in the Key Information Memorandum
(KIM)?
a. Dates of Issue Opening, Issue Closing and Re-opening
b. Investment Objective
c. Risk profile of the scheme
d. Functions of the sponsor, trustee and AMC
Ans: (d) Some of the key items contained in the KIM are as follows:
- Name of the AMC, mutual fund, Trustee, Fund Manager and scheme
- Dates of Issue Opening, Issue Closing and Re-opening for Sale and Re-
purchase
- Investment Objective
- Asset allocation pattern of the scheme
- Risk profile of the scheme i.e. a snapshot of the risk to the principal
invested, the suitable investment horizon for investment and the type of
securities that the scheme will invest in.
- Plans and Options
- Benchmark Index
- Dividend Policy
- Performance of scheme and benchmark over last 1 year, 3 years, 5 years
and since inception.
- Expenses of the scheme
- Information regarding registration of investor grievances
133
18. The Mutual Fund application form is attached to the ________
a. KIM
b. SAI
c. SID
d. AMC Memorandum
Ans: (a) KIM is a summary of the SID and SAI. It is more easily and widely
distributed in the market. As per SEBI regulations, every application form is
to be accompanied by the KIM.
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19. In the Scheme Information Document (SID), the condensed financial
information (for schemes launched in last 3 financial years) is mentioned -
True or False?
a. True
b. False
Ans: (b) Condensed financial information (for schemes launched in last 3

financial years) is mentioned in the Statement of Additional Information
(SAI).
134
20. To source the data required to track the performance of mutual funds
most
_______offer free tools on their websites for this purpose.
a. AMC's
b. Distribution Houses
c. MF Research companies
d. All of the above
Ans: (d) An investor who wants to study the performance of a MF by

collecting daily NAV, etc. from the newspapers can find it frustratingly time
consuming. However, ready-made solutions are available in the market.
Many AMCs, distribution houses and mutual fund research houses offer free
tools in their website.
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21. Which of the following is an important aspect of an OFFER
DOCUMENT?
a. To inform the investors about the AMC's views on Stock Markets
b. To inform the investors on the performance of the scheme
c. To provide a comparison of the schemes
d. To inform the investors on the detailed information about the scheme
Ans: (d) To inform the investors on the detailed information about the
scheme is an important aspect of an OFFER DOCUMENT.
135
22. Once the New Fund Offer (NFO) of a Close Ended Fund has closed, a
person can buy the listed units of such close ended fund _________.
a. At prices usually higher than NAV
b. At prices usually lower than NAV
c. At prices which can be higher or lower than NAV
d. Units of a Close Ended Fund cannot be bought after NFO
Ans: (c) After the NFO of a close ended fund, sale and purchase
transactions happen on the stock exchange between two different investors,
and that the fund is not involved in the transaction. The transaction price is
likely to be different from the NAV. Depending on the demand-supply
situation for the units of the scheme on the stock exchange, the transaction
price could be higher or lower than the prevailing NAV.
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23. When is the Statement of Additional Information (SAI) updated?
a. Every month
b. Before 10th of January and 10th of July every six months
c. Every three months
d. Before the end of 3 months of every financial year
Ans: (d) Updation of SAI - Regular update has to be done by the end of 3
months of every financial year.(Material changes have to be updated on an
ongoing basis and uploaded on the websites of the mutual fund and AMFI)
136
24. Who issues a due diligence certificate stating compliance with all legal
formalities at the time of making a new offer of mutual fund units?
a. Board of Trustees
b. AMC
c. Compliance Officer
d. Custodian
Ans: (b) The cover page of Scheme Information Document (SID) has the
following standard clause - "The particulars of the Scheme have been
prepared in accordance with the Securities and Exchange Board of India
(Mutual Funds) Regulations 1996, as amended till date, and filed with SEBI,
along with a Due Diligence Certificate from the AMC.
-----------------------------------------------------------------------------------------------------
25. A synopsis of the scheme related information documents is found in
the________________.
a. Statement of Additional Information - SAI
b. Articles of Association
c. Trust Deed
d. Key Information Memorandum - KIM
Ans: (d) Key Information Memorandum - KIM is essentially a summary of

the SID and SAI. It contains the key points of these documents that are
essential for the investor to know to make a decision on the suitability of the
investment for their needs. As per SEBI regulations, every application form
is to be accompanied by the KIM.
137
26. Which document has the statutory information about the mutual fund or
AMC, that is offering the scheme?
a. Scheme Information Document (SID)
b. Statement of Additional Information (SAI)
c. Red Herring Prospectus
d. Fund Fact Sheet
Ans: (b) Statement of Additional Information (SAI), has statutory information

about the mutual fund or AMC, that is offering the scheme. Therefore, a
single SAI is relevant for all the schemes offered by a mutual fund.
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27. What is the time duration in which SEBI has to approve the scheme-
related documents?
a. 7 working days
b. 3 working days
c. 14 working days
d. SEBI does not approve the documents. It gives its observations.
Ans: (d) SEBI does not approve or disapprove the Scheme Related
Documents, it gives its observations. The mutual fund needs to incorporate
these observations in these documents. Thus, the Documents in the market
are "vetted" by SEBI, and not approved by SEBI.
138
28. Where is the information regarding investor service centres, minimum
investment amount, and how to make the purchases of mutual funds
mentioned?
a. Application Form
b. Nomination Form
c. Transaction Slip
d. Key Information Memorandum (KIM)
Ans: (d) KIM is a summary of the Scheme Information Document (SID) and
Statement of Additional Information (SAI) wherein all the details of the
scheme are mentioned.
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29. In which document is a commentary on the current state of the economy
and markets is also generally provided?
a. Statement of Additional Information (SAI)
b. Key Information Memorandum (KIM)
c. Fund Fact Sheet
Ans: (c) Apart from providing information about the schemes in the fund fact
sheet, AMCs may also provide periodic updates on markets and the
economy. The fact sheet is also used by the fund manager to communicate
their views on the economy and the markets to the investors.
139
30. If one wants to know the General Risk Factors, then which document
should he read?
a. Fund Fact Sheet
b. Documents filed with SEBI
c. key information memorandum (KIM)
Ans: (d) The risks in the scheme are listed in the segment on Risk Factors
in Section I, Sub-section A of the Scheme Information Document (SID). This
section includes standard or general risk factors that affect all mutual fund
schemes.
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31. Identify the false statement with respect to mutual fund scheme-related
documents.
a. KIM and SID are two broad types of scheme documents
b. SID has details of the particular scheme
c. SAI has statutory information about the mutual fund
d. KIM is essentially a summary of the SID and SAI
Ans: (a) Option 1 is wrong as Scheme Information Document (SID) and

Statement of Additional Information (SAI) are primarily the two important
documents. Key Information Memorandum (KIM) is a summary of SID and
SAI.
140
32. Identify the true statement(s)-
A) An Addendum must accompany the KIM
B) Addendum is considered to be a part of the Scheme Related Documents
a. Only A is true
b. Only B is true
d. None of them are true
Ans: (c) While the SID, SAI, and KIM need to be updated periodically, the
interim changes are updated through the issuance of an Addendum. The
addendum is considered to be a part of the scheme related documents, and
must accompany the KIM.
-----------------------------------------------------------------------------------------------------
33. ________________is/are included in the Key Information Memorandum
(KIM).
a. Name of the fund manager, trustees, etc.
b. Performance of schemes
c. Asset allocation plan
Ans: (d) KIM is essentially a summary of the SID and SAI. It contains the
key points of the offer document that are essential for the investor to know
to make a decision on the suitability of the investment for their needs. All the
above details and more are included in the KIM.
141
34. The Offer Document will NOT give any information
on_______________.
a. The risk factors of the scheme
b. The name of stocks in which the scheme is likely to invest
c. Investment objectives of the scheme
d. The features of the portfolio of the scheme
Ans: (b) The decision on the stocks to invest in a closed-door procedure is

decided by the fund managers in association with the research and analysis
team.
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35. Which of the following is an important aspect of an OFFER
DOCUMENT?
a. To inform the investors about AMC's views on Stock Markets
b. To inform the investors of the performance of the scheme
c. To provide a comparison of the schemes
d. To inform the investors on the detailed information about the scheme
Ans: (d) SID and SAI together are the primary source of information for any
investor—existing as well as prospective. These are the operating
documents that describe the product. Since the investor is required to make
an informed investment decision, these documents serve the purpose of
providing the required information in an easy-to-understand language.
142
36. With respect to KIM - Key Information Memorandum, which of the
following statement is NOT true?
a. KIM is basically an abridged version of the offer document
b. KIM basically contains only the names of Sponsor, Trust, and AMC and
not their functions
c. cannot sell but can switch the units to another scheme
d. KIM has to be provided only if the investors ask for it
Ans: (d) KIM is essentially a summary of the SID and SAI. It contains the
key points of the offer document that are essential for the investor to know
to make a decision on the suitability of the investment for their needs. It is
more easily and widely distributed in the market. As per SEBI regulations,
every application form is to be accompanied by the KIM.
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37. The Key Information Memorandum (KIM) is an abridged version of
which of these documents?
a. The yearly statement of the portfolio of the fund
b. The half-yearly statement of the financial statement of the fund
c. The annual accounts of the fund
d. Scheme related documents
Ans: (d) KIM is essentially a summary of the Scheme Information Document

-SID and Statement of Additional Information -SAI. Scheme-related
documents consist of SID and SAI. It contains the key points of these
documents that are essential for the investor to know to make a decision on
the suitability of the investment for their needs.
143
38. Identify from the following what is not considered as a scheme
fundamental attribute?
a. Type of scheme
b. Investment objective
c. Investment pattern
d. Name of fund manager
Ans: (d) The fund manager and his/her name is not a fundamental attribute
of a scheme.
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39. Legally SAI is part of the SID - True or False?
a. True
b. False
Ans: (a) In practice, Scheme Information Document (SID) and Statement of

Additional Information (SAI) are two separate documents, though the legal
technicality is that SAI is part of the SID.
144
40. Offer documents of mutual fund schemes are approved by SEBI - True
or False?
a. True
b. False
Ans: (b) Offer Documents in the market are "vetted” by SEBI, though SEBI
does not formally "approve" them.
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41. How often should the Key Information Memorandum (KIM) be updated?
a. At least once a month
b. At least once every six months
c. At least once a year
d. It need not be updated after it is issued once
Ans: (b) KIM shall be updated at least once in half-year, within one month
from the end of the respective half-year, based on the relevant data and
information as at the end of September and March and shall be filed with
SEBI forthwith through electronic mode Only.
145
42. Which of the following statements is 'TRUE' with respect to the Scheme
Information Document (SID) and Statement of Additional Information (SAI)?
a. These two documents are prepared in the format prescribed by the
Association of Mutual Funds in India as part of AMFI's Code of Conduct.
b. These two documents are prepared in the format prescribed by the
Association of Mutual Funds in India as part of AMFI's Best Practices
Circular.
c. These two documents are prepared in the format prescribed by the
Securities and Exchange Board of India.
d. Each Asset Management Company is free to prepare these documents in
the format they desire.
Ans: (c) SAI and SAI documents are prepared in the format prescribed by SEBI
and submitted to SEBI. The contents need to flow in the same sequence as in the
prescribed format. The mutual fund is permitted to add any other disclosure, which
it feels, is 'material for the investor.
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43. Statement of Additional Information' SAl contains information that
is_____________.
a. meant only for Close Ended Schemes
b. applicable for all schemes
c. applicable only for Open-Ended Schemes
d. meant only for one particular scheme
Ans: (b) The Offer Document has two parts: i) Scheme Information Document
(SID), which has details of the particular scheme. ii) Statement of Additional
Information (SAI), which has statutory information about the mutual fund, that is
offering the scheme. Therefore, A single SAI is relevant for all the schemes offered
by a mutual fund.
146
44. As per the common disclosure - Investments in mutual funds are subject
to market risks and therefore _____________.
a. will provide insurance
b. will not provide a guarantee of returns or capital protection
c. will provide a guarantee of returns
d. will guarantee capital protection in the long run
Ans: (b) There is NO guarantee of returns or capital protection in a Mutual

Fund.
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45. A summary of the scheme related information documents is found in
the_____________.
a. Statement of Additional Information (SAI)
b. Fact Sheet
c. Key Information Memorandum - KIM
d. Addendum
Ans: (c) Scheme Information Document (SID) and Statement of Additional

Information (SAI) contain the details of the particular scheme and the
statutory information about the mutual fund or AMC, that is offering the
scheme. Key Information Memorandum - KIM is essentially a summary
(synopsis) of the SID and SAI. It contains the key points of these documents
that are essential for the investor to know to make a decision on the
suitability of the investment for their needs. It is more easily and widely
distributed in the market. As per SEBI regulations, every application form is
to be accompanied by the KIM.
147
46. The investment objective is closely linked to_____________.
a. Plan
b. Scheme
c. Option
d. Maturity
Ans: (b) Every scheme has a pre-announced investment objective. When

investors invest in a mutual fund scheme, they are effectively buying into its
investment objective.
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47. KIM has to be updated every________________.
a. three months
b. six months
c. one year
d. five year
Ans: (b) KIM shall be updated at least once in half-year, within one month
from the end of the respective half-year, based on the relevant data and
information as at the end of September and March and shall be filed with
SEBI forthwith through electronic mode only.
148
48. Identify the information which is NOT included in the Statement of
Additional Information (SAI) ?
a. Tax, Legal & General Information
b. Current SIP returns of the mutual fund schemes
c. Investment Valuation Norms
d. Rights of Unit-holders
Ans. (b) Statement of Additional Information (SAI), which has statutory

information about the mutual fund or AMC, that is offering the scheme like
the Constituents of the mutual fund, Rights of Unit-holders, Investment
Valuation Norms, Rights of Unit-holders etc. It does not contain information
on scheme returns etc. This information is available in the Mutual Fund Fact
Sheet.
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49. Statement of Additional Information (SAI) has to be regularly updated
and the updation has to be done by the end of 3 months every financial
year – State whether True or False?
a. True
b. False
Ans. (a) Updation of Scheme Documents-Regulatory provisions Updation of

SAI: Regular update has to be done by the end of 3 months of every
financial year. Material changes have to be updated on an ongoing basis
and uploaded on the websites of the mutual fund and AMFI.
149
50. The Scheme Information Document (SID) does not give information on
the names of all the securities in the mutual fund scheme portfolio - State
a. True
b. False
Ans. (a) The names of securities in the scheme's portfolio is contained in

the Fund fact sheet and not in the SID.
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51. Identify which of these is not included in the 'Fundamental Attributes -
Terms of Issue' of a mutual fund scheme?
a. Aggregate fees and expenses charged to the scheme
b. Any safety net or guarantee provided
c. Exit Loads
d. Liquidity provisions such as listing, repurchase, redemption
Ans. (c) Within the Scheme Information Document, there is an important

section on fundamental attributes of a scheme with following parameters on
terms of issue: Terms of Issue - 1. Liquidity provisions such as listing,
repurchase, redemption. 2. Aggregate fees and expenses charged to the
scheme. 3. Any safety net or guarantee provided.
150
52. 'Statement of Additional Information' SAI contains information which is
a. meant only for Close Ended Schemes
b. applicable for all schemes
c. applicable only for Open Ended Schemes
d. meant only for one particular scheme
Ans. (b) The Offer Document have two parts: a) Scheme Information
Document (SID), which has details of the particular scheme b) Statement of
Additional Information (SAI), which has statutory information about the
mutual fund, that is offering the scheme. A single SAI is relevant for all the
schemes offered by a mutual fund.
-----------------------------------------------------------------------------------------------------
53. The minimum number of investors that a mutual fund scheme should
have:
a. 10 investors
b. 20 investors
c. 50 investors
d. 100 investors
Ans. (b) Every mutual fund scheme/plan should have a minimum of 20

151
54. When is the Scheme Information Document (SID) updated?
a. Every year
b. Every month
c. Every two years
d. Every six months
Ans. (d) As per SEBI circular in 2021- For the open ended and interval
schemes, the SID shall be updated within next six months from the end of
the 1st half or 2nd half of the financial year in which schemes were
launched, based on the relevant data and information as at the end of
previous month. Subsequently, SID shall be updated within one month from
the end of the half-year, based on the relevant data and information as at
the end of September and March respectively.
-----------------------------------------------------------------------------------------------------
55. An Addendum has to be issued for changes in ___________ .
a. Fund Fact Sheet
b. Half yearly results of the mutual fund
c. Scheme Information Document (SID)
Ans. (c) Updation of Scheme Documents-Regulatory provisions : In case of

change in fundamental attributes in terms of Regulation, an addendum to
the existing SID shall be issued and displayed on AMC website immediately.
In case of other changes in SID, the AMC shall be required to issue an
addendum and display the same on its website immediately.
152
56. Which of these information is not contained in the Scheme Information
Document (SID)?
a. Names of securities in the scheme's portfolio
b. Investment objective of the scheme
c. Risk factors of the scheme
d. Portfolio features
Ans. (a) The names of securities in the scheme's portfolio is contained in

the Fund fact sheet and not in the SID.
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57. Which of these statements is true with respect to Key Information
Memorandum (KIM)?
a. KIM is a document that provides key information of the past performance
of the scheme
b. KIM is the annual newsletter of the mutual fund
c. KIM provided NAV history of all mutual fund schemes
d. KIM is a document which must accompany all mutual fund application
forms
Ans. (d) While an investor is expected to read all the scheme related
documents, circulation of the same along with the application forms is too
difficult and costly, especially if the printed forms are to be distributed. In
order to ensure the investor gets access to sufficient information in spite of
such a constraint, a Key Information Memorandum (KIM) is mandatorily
circulated along with the application form.
153
58. _________ is not included in the fundamental attributes of a mutual
fund scheme.
a. Exit Loads
b. Liquidity provisions such as listing, repurchase, redemption
c. Aggregate fees and expenses charged to the scheme
d. Any safety net or guarantee provided
Ans. (a) Within the SID, there is an important section on fundamental

attributes of a scheme with following parameters: 1. Type of a scheme 2.
Investment Objective 3. Terms of Issue Exit loads do not form a part of the
fundamental attributes of a mutual fund scheme.
-----------------------------------------------------------------------------------------------------
59. Which document is used by fund rating agencies and also by investors
to check the performance of various schemes of a mutual funds?
b. Scheme Information Document (SID)
c. Annual accounts of the AMC
d. Fund Fact Sheet
Ans. (d) One of the most popular documents from the mutual fund is the
monthly Fund Factsheet. This document is extensively used by investors,
fund distributors, fund rating agencies, research analysts, media and others
to access information about the various schemes of the mutual fund.
154
CHAPTER 6: FUND DISTRIBUTION AND CHANNEL
MANAGEMENT PRACTICES
1. For how long is the trail commission paid to the mutual fund distributor?
a. For the first one year only
b. For the first three years only
c. For the first ten years only
d. Till the money is held in the fund
Ans: (d) A mutual fund distributor is paid trail commission for as long as the
investor's money is held in the fund.
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2. Business model, experience and proficiency in the business is a compulsory
criteria for empanelment and review of which of the following category of
mutual fund distributors?
a. Institutional distributors who have points of presence in more than 10
locations
b. Individual distributors who have points of presence in more than 10
locations
c. Distributors who have received commission of over Rs. 1 crore p.a.
across industry
d. All of the above
Ans: (c) SEBI has mandated AMCs to put in place a due diligence process to regulate
distributors with respect to 'Business model, experience and proficiency in the business'
who qualify any one of the following criteria: Multiple point presence (more than 20
locations), AUM raised over Rs. 100 crore across industry in the non-institutional category
but including high net worth individuals (HNls), Commission received of over Rs. 1 crore
p.a. across industry and Commission received of over Rs. 50 lakhs from a single mutual
fund.
155
3. A mutual fund distributor cannot charge a transaction fee on which of
these transactions?
a. Systematic Transfer Plan
b. A new investor making a purchase in a mutual fund scheme
c. An existing investor making a purchase in a mutual fund scheme
d. Systematic Investment Plan (SIP)
Ans: (a) Transaction charges do not apply to transactions other than

purchases/subscriptions that result in fresh inflows.
-----------------------------------------------------------------------------------------------------
4. Which of the following information about mutual fund distributors who
have multiple points of presence (more than 20 locations) must be disclosed
by the AMCs?
A) Distributor-wise gross inflows and net inflows; B) Average assets under
management; C) Total commission and expenses paid to distributors
a. B and C
b. A and C
c. A and B
d. All A, B and C
Ans: (d) For mutual fund distributors having multiple point of presence (More than
20 locations), mutual funds or AMCs need to disclose the total commission and
expenses paid to distributors, disclosures regarding distributor-wise gross inflows
(indicating whether the distributor is an associate or group company of the
sponsor(s) of the mutual fund), net inflows, average assets under management
and ratio of AUM to gross inflows on their respective website on a yearly basis.
156
5. Which type of transactions are allowed on a stock exchange platform for
mutual fund trading?
a. Only B
b. A, B and C
c. A & B
d. B & C
Ans: (b) Investors can now transact in mutual fund units through the stock
exchanges. The units of close-ended funds and ETFs are compulsorily
listed on at least one stock exchange. At the same time, units of open
ended funds are also available through special segments on the stock
exchanges.
-----------------------------------------------------------------------------------------------------
6. Which certification examination is mandated by SEBI for becoming a
mutual fund distributor in the India?
a. NCFM Series VA Mutual Fund Distributors
b. NISM Series VA Mutual Fund Distributors
c. AMFI VA Mutual Fund Distributors
d. SEBI VA Mutual Fund Distributors
Ans: (b) Distributors need to pass the NISM certification Examination

(NISM-Series V-A: Mutual Fund Distributors (MFD) Certification
Examination) and register with AMFI to become mutual fund distributors in
India.
157
7. If a person has to trade in units of a closed-ended mutual fund on the
stock exchange platform then the units have to be held in _____.
a. Dematerialized form
b. Physical form
c. Both of these
d. None of these
Ans: (a) Trading in mutual fund units on stock exchange platform can be
done only in dematerialized form. Schemes, where the money can be
recovered from the mutual fund only on closure of the scheme like a closed-
ended fund, are compulsorily listed on a stock exchange. In such schemes,
the investor can sell the de-materialized units through the stock exchange
platform to recover the prevailing value of the investment.
-----------------------------------------------------------------------------------------------------
8. With respect to the procedure for getting empanelled as a mutual fund
distributor with AMC, the applicant needs to sign a declaration for ______.
a. Guarantee of adding a minimum of 5 investors every month
b. Declaring the rebates given back to the investors
c. Ensuring that all employees who are selling mutual funds will have more
than on ARN code
d. Commitment to abide by statutory codes, guidelines and circulars
Ans: (d) The applicant needs to sign a declaration which provides for,
among other conditions, the commitment to abide by instructions given, as
also statutory codes, guidelines and circulars.
158
9. When the distributors are empanelled, the mutual funds should
categorize the customer relationship and transactions in which of the
following ways?
a. Advisory, Sale
b. Advisory, Execution
c. Financial Planning, Distribution
d. Priority Sale, Retail Sale
Ans: (b) Customer relationship and transactions shall be categorized as:

Advisory: where a distributor represents to offer advice while distributing the
product, it will be subject to the principle of 'appropriateness' of products to
that customer category. Execution Only: in case of transactions that are not
booked as 'advisory'.
-----------------------------------------------------------------------------------------------------
10. State True or False – There are no SEBI regulations regarding the
minimum or maximum commission that distributors can earn.
a. True
b. False
Ans: (a) There are no SEBI regulations regarding the minimum or maximum
commission that distributors can earn. However, SEBI has laid down limits
on what the total expense (including commission) in a scheme can be.
159
11. ________ is responsible for settlement of Mutual Fund transactions
which are executed on the Stock Exchanges.
a. AMC
b. Stock Exchange
c. Clearing House
d. AMFI
Ans: (a) A Stock Exchange is essentially an order routing system between

the investors and the AMC, the exchanges do not offer Settlement
Guarantee. Responsibility for settlement is that of the AMC.
-----------------------------------------------------------------------------------------------------
12. Only individuals are allowed to distribute mutual funds in India. State
whether True or False.
a. True
b. False
Ans: (b) Mutual funds are distributed in India to the investors through
multiple channels, viz., individual mutual fund distributors, bank branches,
national distributors through their branches or their sub-agents, post offices,
and directly by the AMCs.
160
13. The mutual fund schemes' sale and purchase of investments are
executed by the ___________in the stock market.
a. Operator
b. Dealer
c. AMC
d. Sponsor
Ans: (b) The various dealers of a Stock Broker buy and sell shares as per
the orders of the Mutual Fund.
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14. Mutual Fund distributors receive commission on investments made by
their clients as well as on the investments they make for themselves in their
own name. State True or False?
a. True
b. False
Ans: (b) Distributors get commission on investments made through them by

their clients. However, no commission is payable on their own investments.
161
15. To maintain neutrality, all AMC's have same commission structure with
respect to commissions payable to distributors. State True or False?
a. True
b. False
Ans: (b) The commission structures vary between AMCs. Even for the same
AMC, different commissions are applicable for different kinds of schemes.
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16. The AMC pays commission to Mutual Fund Agents, but no such
commission is paid to stock brokers who trade in mutual funds on the Stock
Exchange platform. State True or False.
a. True
b. False
Ans: (a) The AMC does not pay the brokers any commission on the trades
through them on the Stock Exchange platform. The Stock Brokers get their
commissions from the investor by charging brokerages on MF transactions.
162
17. An investor purchases through a distributor 5000 units of a mutual fund
scheme at a NAV of Rs. 25. The current NAV of the scheme is Rs. 43. What
will be the trail commission for today if the trail commission rate is 1% per
annum.
a. Rs. 2150
b. Rs. 33.1854
c. Rs. 3.4246
d. Rs. 5.8904
Ans: (d) Trail commission is always calculated on the current NAV. The current
total value of investments in the above question is Rs. 43 X 5000 units = Rs.
2,15.000. Trail commission for the day = Current value X trail commission rate p.a.
/ 365 = 215000 X 1% / 365 days = 2150 I 365 = Rs. 5.8904.
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a. The mutual fund investor has the complete freedom to change the
distributor any time he wants.
b. Once an investor had invested through a distributor, he cannot change
the distributor.
c. Once an investor had invested by online method, he cannot change the
distributor.
d. Once an investor had invested through a distributor, he cannot invest
directly with the mutual fund house.
Ans: (a) Investors can choose to change their distributor or opt for direct
investing. This needs to be done through a written request by the investor.
In such cases, AMCs will need to comply, without insisting on any kind of
'No Objection Certificate' from the existing distributor.
163
19. The ARN number is assigned by _________
a. AMC
b. SEBI
c. AMFI
d. Stock Exchange
Ans: (c) The ARN number is assigned by AMFI

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20. Earlier, the amount which was paid to the distributor at the time the
money is invested in a scheme was called __________.
a. Trail Commission
b. Upfront Commission
c. Rebate
d. Fund Incentive
Ans: (b) The amount which is paid to the distributor at the time the money is
invested in a scheme is called Upfront Commission.
164
21. Which of the following options form the basis of appointment of a Mutual
Fund distributor?
a. An agreement between the AMC and the Distributor
b. Approval from SEBI
c. Power of Attorney from the AMC
d. An agreement with AMFI
Ans: (a) Empanelment with the AMC (or enrolment as an agent of an

empanelled distributor) is compulsory to be able to sell mutual fund
schemes and earn the commissions.
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22. The Stock Exchanges which provide facilities for Mutual Fund trading
also do the functions of Mutual Fund RTAs. State True or False.
a. True
b. False
Ans: (b) Stock Exchanges are not required to do the role of Registrars and
Transfer Agents (RTA).
165
23. The trail commission paid by Mutual Funds to a distributor
_____________
a. Is paid only for high valued transactions
b. Is linked to the NAV
c. Grows at a steady rate
d. Is paid to the Corporate and Bank Distributors only
Ans: (b) Trail Commission is calculated on net assets so the distributors

benefit from increase in net assets arising out of valuation gains in the
market. If the value of portfolio rises the trail commission also rises.
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24. Investors can choose to change their distributor or go direct and AMCs
will need to comply after getting a 'No Objection Certificate' from the existing
distributor. True or False?
a. True
b. False
Ans: (b) Investors can choose to change their distributor or go direct. In

such cases, AMCs will need to comply, without insisting on No Objection
Certificate from the existing distributor.
166
25. Trail commissions are linked to valuation of portfolio in the market. True
or False?
a. True
b. False
Ans: (a) Trail Commission is calculated on net assets so the distributors

benefit from increase in net assets arising out of valuation gains in the
market. If the value of portfolio rises the trail commission also rises.
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26. Investments in Mutual Funds can be done only through AMFI authorized
MF distributors. True or False?
a. True
b. False
Ans: (b) Investors can directly invest in MF's by visiting the MF office and
other Point of Sales (POS).
167
27. AMCs has to put in place a due diligence process to regulate distributors
who_____________.
a. has received commission received of over Rs. 25 lakhs from a single
mutual fund
b. has raised AUM of over Rs. 25 crores from non-institutional investors
c. has presence in more than 20 locations
d. All of the above
Ans: (a) SEBI has mandated AMCs to put in place a due diligence process
to regulate distributors who qualify any one of the following criteria: Multiple
point presence (More than 20 locations), AUM raised over Rs. 100 crore
across industry in the non-institutional category but including high net-worth
individuals (HNIS), Commission received of over Rs. 1 crore p.a. across
industry and Commission received of over Rs. 50 lakhs from a single mutual
fund.
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28. ________is not a mutual fund distribution channel.
a. Branches of Public sector banks
b. Branches of Reserve Bank of India
c. Branches of Private sector banks
d. Branches of Foreign banks
Ans: (b) Reserve Bank of India or its branches are not involved in the sales
and distribution of mutual fund products.
168
29. In which of the following cases is the transaction charge to be paid to
the mutual fund distributor, deducted from the gross investment of the
investor?
a. When the investor purchases mutual fund units worth Rs. 5000 through a
mutual fund distributor
b. When the investor purchases mutual fund units worth Rs. 10000 through
a mutual fund distributor
c. When the investor purchases mutual fund units worth Rs. 5000 through
the website of the mutual fund
d. When the investor purchases mutual fund units worth Rs. 10000 through
the website of the mutual fund
Ans: (b) To cater to people with small saving potential and to increase reach of
mutual fund products in urban areas and smaller towns, SEBI has allowed a
transaction charge per subscription of Rs. 10,000/- and above to be paid to
distributors of the mutual fund products. However, there shall be no transaction
charges on direct investments.
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30. In a mutual fund application form, if 'Direct' is mentioned in the space
provided for ARN and the choice of regular plan is indicated then the
application will be considered as_________.
a. Direct plan application
b. Regular plan application
c. Incomplete and rejected
d. Incomplete and sent to the investor for completion
Ans: (a) Investors have the option to invest directly without routing the investment
through a distributor (Direct Plan). In this case, the investor must mention "Direct"
in the space provided in the application form for entering the AMFI Registration
Number (ARN).
169
31. To become a mutual fund distributor in India, one has to pass an exam
which is conducted by__________.
a. Securities and Exchange Board of India - SEBI
b. National Stock Exchange - NSE NCFM
c. National Institute of Securities Markets - NISM
d. Association of Mutual Funds in India's - AMFI
Ans: (c) Distributors need to pass the NISM Certification Examination

(NISM-Series - V-A: Mutual Fund Distributors (MFD) Certification
Examination) and register with AMFI.
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32. As per SEBI rules, commissions cannot be paid to______________.
a. Brokers of the stock exchange
b. Banks
c. Sponsor distributors
d. Investors
Ans: (d) As per SEBI rules, a mutual fund distributor has to sign a
declaration mentioning: undertake not to rebate commission back to
investors, or attract investors through the temptation of rebate/gifts, pass
back of commission etc.
170
33. The stock exchanges which provide mutual fund trading facilities also
have to provide for settlement guarantee - State True or False?
a. True
b. False
Ans: (a) Stock Exchanges trading facility for MFs is essentially an order
routing system between the investors and the AMC, the exchanges do not
offer Settlement Guarantee. Responsibility for settlement is that of the AMC.
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34. ______________is not a fair selling practice by a mutual fund
distributor.
a. Informing the investor of the various investment options
b. Carefully understanding the client's financial needs
c. Encouraging the churning of investments
d. Giving personalized after-sales service
Ans: (d) Churning means frequent buying and selling. Encouraging over
transacting and churning of Mutual Fund investments to earn higher
commissions by MF agents is a bad practice.
171
35. The Asset Management Company primarily compensates the mutual
fund distributors through___________
a. Commissions
b. Salaries
c. Salary + Commission
d. Share in AMC's profit
Ans: (a) The mutual fund distributor earns revenue in the form of
commission income for the distribution of the mutual fund
products/schemes. The commission may be linked to either the transaction
or to the assets under management.
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36. Distributors can ‘opt-out' of charging transaction
charges________________.
a. at AMC level
b. cancelled
c. at scheme level
d. at distributor level
Ans: (d) Distributors have the option of opting out of charging transaction
charges. But such opting out shall be applicable only at the distributor level.
This means that the distributor cannot choose to charge transaction charges
from one investor and not from another.
172
37. Identify the true statement with respect to investments in mutual funds
through Stock Exchanges?
a. Stock exchanges have now become another important channel for
mutual fund companies to sell their units to investors
b. One can buy mutual fund units on the stock exchange but cannot sell
them on the stock exchange
d. None of the above are true
Ans: (a) SEBI has facilitated buying and selling of the units of mutual funds
through the stock exchanges. Exchanges have developed mutual fund
transaction engines for this purpose. The low cost and deeper reach of the
stock exchange network enable an increased level of participation of retail
investors in mutual funds.
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38. BSE's platform for Mutual Fund trading is known as BSE Solar Mutual
Funds Platform. True or False?
a. True
b. False
Ans: (b) BSE's platform is the BSE STAR Mutual Funds Platform. BSE
STAR MF stands for BSE Ltd's online stock exchange platform for Allotment
and Redemption of Mutual Fund units.
173
39. Mr. A is an existing investor in a mutual fund scheme and he is now
investing Rs. 5000 in the direct plan of the scheme. What will be his net
investment in the scheme after considering the transaction charges?
a. Rs. 4950
b. Rs. 4900
c. Rs. 4875
d. Rs. 5000
Ans: (d) Each mutual fund has to offer two plans to the investors, viz.,
regular plan and direct plan. In a regular plan, the investment is through a
mutual fund distributor, and in a Direct plan, the investor purchases units
directly from the fund. There are no transaction charges on direct
investments.
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40. In what form do mutual fund distributors earn revenue?
a. Investment advisory fee from mutual funds
b. Commission received from Association of Mutual Funds in India
c. Fees collected from the investors
d. Commission from mutual funds for the distribution of the schemes
Ans: (d) The mutual fund distributor earns revenue in the form of
commission income for the distribution of the mutual fund products/
schemes. The commission may be linked to either the transaction or to the
assets under management.
174
41. After the New Fund Offer, units of the Close Ended fund can be bought
and sold through______________.
a. The close ended funds cannot be bought and sold till the closure of the
term
b. The offices/branches of the respective AMC's
c. Stock Exchanges
d. The bank in which the unit holder has an account
Ans: (c) A close-ended scheme offers liquidity through listing in stock

exchange.
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42. Can an investor transact directly through the websites of some mutual
fund companies?
a. Yes, they can buy / sell units on the MFs website
b. No, this is not allowed in India
Ans: (a) The internet gave an opportunity to mutual funds to establish direct
contact with investors. Investors can now access the website of the mutual
fund and deal directly with the fund.
175
43. The distributors are mainly compensated through_________ by the
mutual funds.
a. commissions
b. salaries
c. portfolio profits
d. annual fees
Ans: (a) Agents receive trail commission on the current value of the
investment mobilized by them till the time the investor remains invested.
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44. With which agency are the mutual fund distributors registered?
a. Securities and Exchange Board of India
b. Fund Accounting Team
c. Depositories
d. Association of Mutual Funds in India
Ans: (d) Distributors need to pass the NISM Certification Examination

(NISM-Series-V-A: Mutual Fund Distributors (MFD) Certification
Examination) and register with AMFI.
176
45. The maximum initial commission that an AMC can pay to distributors
is_____________.
a. 0.10%
b. 0.50%
c. 2.50%
d. NIL
Ans. (d) As per the new rules: Upfront commission to distributors will be
paid by the investor directly to the distributor, based on his assessment of
various factors including the service rendered by the distributor.
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46. If the amount exceeds beyond ______, than a Legal heir certificate or a
Notarized copy of probated will shall be required to effect transmission.
a. 1,00,000
b. 2,00,000
c. 5,00,000
d. 7,50,000
Ans. (b) If the amount involved is greater than the defined threshold limit of
Rs.2,00,000 then any one of the following documents will be required to
effect transmission - a. Notarized copy of probated will b. Legal heir
certificate or Succession certificate or Claimant's certificate issued by a
competent court c. Letter of administration in case of intestate succession
177
47. The employees of institutions that are into the distribution of mutual
funds need to clear the _______ and obtain an Employee Unique
Identification Number (EUIN) from AMFI.
a. SEBI - VA Mutual Fund Distributors Certification Examination
b. SEBI - VB Mutual Fund Distributors Certification Examination
c. AMFI - VA Mutual Fund Distributors Certification Examination
d. NISM - VA Mutual Fund Distributors Certification Examination
Ans. (d) Institutions that are into the distribution of mutual funds need to
register with AMFI. The employees of these institutions need to clear the
NISM Series V-A: Mutual Fund Distributors Certification Examination and
obtain an Employee Unique Identification Number (EUIN) from AMFI.
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48. A Trail Commission is paid to the distributor as long as the investor stays
invested in the mutual fund scheme - State whether True or False?
a. True
b. False
Ans. (a) Trail commission is calculated as a percentage of the net assets

attributable to the units sold by the distributor. A mutual fund distributor is
paid trail commission for as long as the investor's money is held in the fund.
178
49. Association of Mutual Funds in India's (AMFI) conducts the certification
examination for Mutual Fund distributors - State whether True or False?
a. True
b. False
Ans. (b) National Institute of Securities Markets (NISM) conducts the

certification examination for Mutual Fund distributors.
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50. Who will sell mutual fund schemes of only a single mutual fund house?
a. Banks
b. Institutional sales team of the Asset Management Company
c. Independent financial advisor
d. Distribution Company
Ans. (b) An independent financial advisor, a bank or a distribution company

will sell mutual fund schemes of various mutual fund houses as per their
clients requirements and other considerations. However, an institutional
sales team of an Asset Management Company will sell schemes only of the
single mutual fund house which has appointed it.
179
51. Calculate the Average holding period if the portfolio turnover ratio is 50
percent.
a. 50 months
b. 2 Years
c. 3.5 Years
d. 15 Years
Ans. (b) Average Holding Period = 12 (months) / Portfolio Turnover Ratio

Here the portfolio turnover ratio is 50 percent i.e. 50/100 = 0.5
Average Holding Period = 12/0.5 = 24 months = 2 Years
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52. In the Mutual Fund industry - every AMC gives an ARN code number to
the mutual fund distributor which is to be renewed every three years - True
or False?
a. True - this is as per SEBI rules
b. False - AMFI issues the ARN code number.
Ans. (b) The ARN code is given by the Association of Mutual Funds in India
(AMFI) After obtaining the NISM VA certification and completing KYD
requirements, one has to register with AMFI. On registration, AMFI allots an
AMFI Registration Number (ARN).
180
53. A Trail Commission is paid _______ .
a. as long as the investor stays invested in the mutual fund scheme
b. when the investor invests into the mutual fund scheme
c. when the investor exits the mutual fund scheme
d. Trail Commission means no commission
Ans. (a) Trail commission is calculated as a percentage of the net assets

attributable to the units sold by the distributor. A mutual fund distributor is
paid trail commission for as long as the investor's money is held in the fund.
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54. Identify the FALSE statement:
1. As per AMFI guidelines, the intermediary has a no right of appeal to AMFI
2. It is not the sole responsibility of the mutual fund distributors for
spreading investor awareness
a. Only 1 is false
b. Only 2 is false
Ans. (a) One of the role and function of AMFI is: To undertake a nationwide
investor awareness programme to promote proper understanding of the
concept and working of mutual funds. Thus, mutual fund distributors are not
solely responsible for spreading investor awareness. As per the AMFI
Guidelines & Norms for Intermediaries (AGNI), the intermediary has a right
of appeal to AMFI.
181
55. When a mutual fund distributor empanels with an AMC, he/she has to
sign a declaration for
a. declaring the rebates given back to the investors
b. ensuring that all employees who are selling mutual funds will have more
than on ARN code
c. guarantee of adding a minimum of 25 investors every month
d. commitment to abide by statutory codes, guidelines and circulars
Ans. (d) As per the procedure for getting empaneled as a mutual fund
distributor with AMC, one of the requirement is : The applicant needs to sign
a declaration, which provides for the following - Commitment to abide by
instructions given, as also statutory codes, guidelines and circulars.
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182
CHAPTER 7: NET ASSET VALUE, TOTAL EXPENSE
RATIO & PRICING OF UNITS
1. The asset Management company has to disclose the Total Expense Ratio
(TER) of every scheme on the website on a ___________ basis.
a. Daily
b. Monthly
c. Half-Yearly
d. Yearly
Ans: (a) One of the important factors that impacts the scheme’s NAV is the Total
Expense Ratio (TER) charged to the scheme. Though the same is very tightly
regulated through SEBI regulations, the investor should know about the scheme
expense ratio. SEBI has mandated that the Asset Management Companies (AMCs)
should prominently disclose on a daily basis, the TER (scheme-wise, date-wise) of
all schemes under a separate head – “Total Expense Ratio of Mutual Fund
Schemes” on their website.
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2. If the average share in the scheme are held for 18 months the turnover
ratio would be
a. 0.5
b. 0.67
c. 1
d. 1.5
Ans: (b) If the portfolio turnover ratio is 1, that means the average stocks in the
portfolio is held for one year, with the same logic if the portfolio is held for 18
months that means the portfolio turnover ratio will be 12/18, i.e. 67%.
183
3. The expenses which can be charged by an Asset Management Company
to a Mutual Fund scheme are limited by _____
a. Fund Managers
b. Sponsors
c. Investors
d. SEBI
Ans: (d) The expenses which can be charged and the expense ratios etc.
are mentioned in the SEBI Mutual Fund Regulations,1996 which the AMC's
have to adhere to.
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a. While calculating scheme returns for an investor, if there is an entry load,
then the initial value of the Net Asset Value (NAV) is taken as NAV minus
Entry Load
b. While calculating scheme returns for an investor, if there is an exit load,
then the later value of the Net Asset Value (NAV) is taken as NAV minus
Exit Load
c. None of these
Ans: (b) If there is an entry load on the scheme then while calculating the
scheme returns, the initial value of the NAV is taken as NAV plus the entry
load because the cost of purchase increases due to entry load. So entry
load has to be added to the NAV and not subtracted.
For redemptions, instead of the later value of NAV (which is used for
calculating the scheme returns), the amount actually received or receivable
by the investor (NAV minus exit load) would need to be used.
184
5. How is the redemption transaction of a mutual fund priced?
a. NAV plus exit load
b. NAV minus exit load
c. NAV plus entry load
d. NAV minus entry load
Ans: (b) Schemes are permitted to keep the re-purchase Price lower than
the NAV. The difference between the NAV and re-purchase Price is called
the "exit load". If the NAV of a scheme is Rs. 11.00 per unit, and it were to
charge exit load of 1 percent, the re-purchase Price would be Rs. 11-1
percent on Rs. 11 i.e. Rs. 10.89.
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6. Investments are carried at __________ in a mutual fund portfolio.
a. Market Value
b. Face Value
c. Book Value
d. Cost Value
Ans: (a) Investments are taken at their market value. This is done, to ensure
that sale and re-purchase transactions are effected at the true worth of the
unit, including the gains on the investment portfolio. The process of valuing
each security in the investment portfolio of the scheme at its current market
value is called 'mark to market' i.e. marking the securities to their market
value.
185
7. Dividends which are paid by mutual funds can be paid out of _______
a. Profits of the Asset Management Company
b. Mark to Market profits
c. All realised and unrealised gains
d. Distributable surplus only
Ans: (d) SEBI guidelines stipulate that dividends can be paid out of
distributable reserves. In the calculation of distributable reserves: All the
profits earned (based on accrual of income and expenses as detailed
above) are treated as available for distribution.Valuation gains are ignored.
But valuation losses need to be adjusted against the profits. That portion of
sale price on new units, which is attributable to valuation gains, is not
available as a distributable reserve.
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8. The average net assets of a fund were Rs. 800 crore and the investment
transactions of the fund were Rs. 1600 crore. Calculate the Portfolio
Turnover Ratio.
a. 10 times
b. 0.5 times
c. 2 times
d. 20 times
Ans: (c) Portfolio Turnover Ratio is calculated as Value of Purchase and

Sale of Securities during a period divided by the average size of net assets
of the scheme during the period.
Portfolio Turnover Ratio = 1600 / 800 = 2
186
9. A mutual fund has the policy of imposing an exit load of 2% for
redemption upto one year and 1% for redemptions beyond one year. If an
investor redeems 2000 units at an NAV of Rs. 40 at the end of six months
from the date of investment, what will be redemption amount receivable by
the investor?
a. Rs. 76500
b. Rs. 79200
c. Rs. 80000
d. Rs. 78400
Ans: (d) The investor has redeemed the units within a year of investment,
so the exit load applicable is 2%. 2000 units X Rs. 40 = Rs. 80000
Less 2% exit load : 2% of 80000 = 1600 (80000 x 2 / 100)
Net amount = 80000 - 1600 = Rs. 78400
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10. As per the Principles of fair valuation of mutual funds, the valuation of
the securities shall be ________
a. done aggressively
b. done conservatively
c. always rising
d. reflective of the realizable value of the securities
Ans: (d) As per Principle No. 1 of SEBl's Fair Valuation Principles - The
valuation of investments shall be based on the principles of fair valuation i.e.
valuation shall be reflective of the realizable value of the securities/assets.
The valuation shall be done in good faith and in true and fair manner
through appropriate valuation policies and procedures.
187
11. Which of these expenses can be charged to a fund?
a. Office salaries of fund management team
b. Rent of the AMC registered office
c. AMC general administration expenses
d. Custodian and Fund Administrator fees
Ans: (d) In addition to the investment and advisory fee, the AMC may
charge the mutual fund scheme with recurring expenses which includes
fees of custodians and fund administrators.
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12. In which of the following cases can Goods and Service Tax (GST) be
charged to the mutual fund scheme over and above the Total Expense Ratio
of the scheme?
a. GST applicable on any fees must be within the Total Expense Ratio.
b. GST applicable on distributor commission only can be charged to the
scheme over and above the Total Expense Ratio.
c. GST applicable on AMC fees as well as distributor commission can be
charged to the scheme over and above the Total Expense Ratio.
d. GST applicable on AMC fees only can be charged to the scheme over
and above the Total Expense Ratio.
Ans: (d) AMC(s) can charge GST, as per applicable Taxation Laws, to the
schemes within the limits prescribed under SEBI (Mutual Fund) Regulations. GST
on fees paid on investment management and advisory fees shall be charged to
the scheme in addition to the overall limits specified as per the Total Expense
Ratio (TER) provisions. The commission payable to the distributors of mutual
funds may be subject to GST, as applicable in case of the ARN holder. Such tax
cannot be charged to the scheme.
188
13. Calculate the NAV for the following information : Value of stock 200 cr,
Value of money market instruments – Rs. 25 cr, Dividend accrued but not
received – Rs. 10 cr, Amount receivable on sale of shares – Rs. 5 cr,
Amount payable on purchase of shares: Rs. 10.5 cr, Fees payable – Rs. 1
cr. No. of outstanding units - 3 cr
a. 75.83
b. 80.77
c. 76.16
d. 79.17
Ans: (c) NAV = (Value of stocks + Value of money market instruments +

Dividend accrued but not received + Amount receivable on sale of shares -
Amount payable on purchases of shares - Fees payable) / No. of
outstanding units
= 200 cr + 25 cr + 10 cr + 5 cr - 10.5 cr - 1cr / 3 cr
= 228.5 cr / 3 cr = 76.16
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14. Management fees cannot be charged by liquid schemes and other debt
schemes on funds parked in short-term deposits of commercial banks -
State True or False?
a. True
b. False
Ans: (a) Management fees cannot be charged by liquid schemes and other
debt schemes on funds parked in short-term deposits of commercial banks.
189
15. In which of the following transactions a 'Transaction charge' can be
deducted?
a. Online purchases
b. Systematic transfer plan (STP) transaction
c. Purchases of Rs. 10000 or more
d. Purchase made on stock exchanges
Ans: (c) To cater to people with small saving potential and to increase reach
of mutual fund products in urban areas and smaller towns, SEBI has
allowed a transaction charge per subscription of Rs.10,000/- and above to
be paid to distributors of the mutual fund products.
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16. What is the Total Expense Ratio for an Index fund or an ETF?
a. Total Expense Ratio shall not exceed 1.00 per cent of the daily net
assets.
b. Total Expense Ratio shall not exceed 2.00 per cent of the daily net
assets.
c. Total Expense Ratio shall not exceed 1.5 per cent of the daily net assets
d. Total Expense Ratio shall not exceed 0.50 per cent of the daily net assets
Ans: (a) In case of an Index fund scheme or Exchange traded fund (ETF),
the total expense ratio of the scheme including the investment and advisory
fees shall not exceed 1.00 per cent of the daily net assets.
190
17. The valuation of Illiquid securities held by a Mutual Fund is done as per
________
a. the last traded price of that security on BSE or NSE
b. the norms prescribed by SEBI to arrive at a fair valuation
c. the average price of bid and ask quotation
d. the lowest price calculated as per the above three methods
Ans: (b) Non traded securities/Illiquid securities are valued '"in good faith'"
by the asset management company on the basis of the valuation principles
laid down by SEBI.
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18. The current market value of the stocks of a Mutual Fund scheme
portfolio is Rs. 12 cr and the current liabilities are 7 cr. The unit capital is Rs.
10 cr and the face value per unit is Rs. 10. What is the current NAV of this
scheme?
a. Rs. 10
b. Rs. 12
c. Rs. 19
d. Rs. 5
Ans: (d) Current Valuation is Rs 12 cr less Rs 7 cr (current liability) = Rs 5

cr. Number of outstanding units = Unit Capital / Face value = 10 cr / 10 = 1
crore outstanding units The formula for calculating NAV is: (Total Assets
minus Liabilities other than to Unitholders) / No. of outstanding Units = 5 cr /
1 cr = Rs. 5
191
19. The NAV of an equity fund is Rs. 76.45 and the face value is Rs. 10. An
investor invests Rs. 30,000. How many units will be allotted to him? (There
is no entry load)
a. 1866.43
b. 477
c. 392.41
d. 3000
Ans: (c) Units are allotted as per the current NAV. The amount invested
divided by the NAV will give the units allotted. Rs. 30,000 / 76.45 = 392.41
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20. The expenses of _______cannot be charged to a mutual fund scheme.
a. custodian fees
b. software development
c. registrar services for transfer of units sold
d. GST - Goods and Service tax
Ans: (b) The expenses on software development is not for a particular

scheme but for the AMC as a whole and cannot be charged to a particular
scheme.
192
21. Identify the false statement(s).
A. When an investor wants to redeem from a scheme, the distributor must
suggest redemption from the scheme with the maximum exit load.
B. The mutual fund distributors can ignore the impact of exit load at the time
of repurchase.
a. Only statement A is false
b. Only statement B is false
c. Both statements A and B are false
Ans: (c) Both taxes and loads reduce investment returns. Therefore, it is
important for the distributor to consider these two aspects during
repurchases/redemptions. This means that when there is a need to withdraw
money from a scheme, the distributor must assess the implications of capital
gains tax and exit loads. When an investor wants to redeem from a scheme,
the distributor must suggest redemption from the scheme with the minimum
exit load.
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22. Identify the FALSE statement(s) -
A. For Index funds, the NAV is calculated upto 4 decimal points.
B. The AMC and a mutual fund scheme of the AMC can have the same auditor.
a. Only A is false
b. Only B is false
c. Both A and B are false
Ans: (b) NAV is to be calculated upto 4 decimal places in the case of index funds,
liquid funds and other debt funds. Accounts of the mutual fund schemes need to
be maintained independent of the accounts of the AMC. The auditor appointed to
audit the mutual fund scheme accounts needs to be different from the auditor of
the AMC.
193
23. Lower the expenses of a Mutual Fund, lower would be the NAV - True or
False?
a. True
b. False
Ans: (b) NAV is basically the value of Portfolio less the MF expenses. So
Lower the expenses, higher would be the NAV.
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24. NAV of Equity funds is to be calculated upto ____ decimals.
a. 1
b. 2
c. 3
d. 4
Ans: (b) NAV for equity and balanced funds is to be calculated upto at least
2 decimal places. NAV is to be calculated upto 4 decimal places in the case
of index funds, liquid funds and other debt funds.
194
25. The difference between NAV and re-purchase price is ______________
a. Exit Load
b. Entry Load
c. Commission of the MF Agent
d. Dividend Stripping
Ans: (a) The difference between the NAV and Re-purchase Price is called
the "exit load". If the NAV of a scheme is Rs. 20.00 per unit, and it were to
charge exit load of 1%, the Re-purchase Price would be Rs. 20 - 1% i.e. Rs.
19.80.
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26. Recurring expenses cannot be charged to a Mutual Fund scheme as it
drags down the NAV - True or False?
a. True
b. False
Ans: (b) Recurring Expenses can be charged to the scheme. Since the
recurring expenses drag down the NAV, SEBI has laid down the expenses
and their limits which can be charged to the scheme.
195
27. The Entry & Exit Loads and Taxes do not have an impact on the returns
to the investors - True or False?
a. True
b. False
Ans: (b) Loads and taxes pull the investor's returns below that earned by
the Scheme.
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28. Expenses incurred to launch a new fund can be charged to the fund -
True or False?
a. True
b. False
Ans: (b) Initial Issue Expenses are one-time expenses that come up when
the scheme is offered for the first time (NFO). These need to be borne by
the AMC and cannot be charged (either one time or deferred) to the
scheme.
196
29. An investor purchases through a distributor 20000 units of a mutual fund
scheme at a NAV of Rs. 65. The current NAV of the scheme is Rs. 62. What
will be the trail commission for today if the trail commission rate is 1% per
annum.
a. Rs. 35.6164
b. Rs. 33.9726
c. Rs. 19.5543
d. Rs. 28.1217
Ans: (b) Trail commission is always calculated on the current NAV. The
current total value of investments in the above question is Rs. 62 X 20000
units = Rs. 12,40,000. Trail commission for the day = Current value X trail
commission rate p.a. / 365 = 12,40,000 X 1% / 365 days = 12400 / 365 =
Rs. 33.9726
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30. The cost of fund management are the highest in ________
a. Passive Funds
b. Active Funds
c. Index Funds
Ans: (b) In Active Funds like Diversified Equity Funds, the Fund manager
does a lot of buying / selling. Also, a lot of research work goes into it. So the
cost of fund management are higher.
197
31. The Market Value of a scheme is Rs. 579 crores. Dividend accrued but
not received is Rs. 18 crore. The Expenses payable are Rs. 3 crore. The
total number of outstanding units is 300 lakhs. What is the NAV of the
scheme?
a. 188
b. 198
c. 208
d. 218
Ans: (b) Total Market Value of Rs. 579 crore Add Dividend Accrued of Rs. 18
crore, Less Expenses Payable of Rs. 3 crore Divided by Units 300 lakhs = 198
NAV
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32. Which of these statement(s) is / are TRUE?
A. The Asset Management Company (AMC) is not accountable for the
procedures for detecting incorrect valuation.
B. It is mandatory for the AMC to disclose the valuation policy.
a. Only A is true
b. Only B is true
Ans: (b) The responsibility of true and fairness of valuation and correct NAV shall
be of the Asset Management Company, irrespective of disclosure of the approved
valuation policies and procedures. Disclosure of the valuation policy and
procedures approved by the Board of the AMC shall be made in Statement of
Additional Information, on the website of the AMC to ensure transparency of
valuation norms to be adopted by asset management company.
198
33. As SEBI has banned _______,the Sale Price of a MF unit is the same
as NAV.
a. Entry Load
b. Exit Load
c. Commission Refund
d. SIP Transact on Charges
Ans: (a) For eg: If the NAY of a MF unit is Rs. 50 and entry load was 1%
then the unit was sold to the investors at Rs. 50 + 1% i.e. Rs. 50.50. Now
with the ban on entry loads the Sale price is equal to NAV (Rs. 50 in above
example).
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34. Mutual funds are allowed to charge differential exit loads based on the
amount of investment.
a. True
b. False
Ans: (b) While charging exit loads, no distinction will be made among unit
holders on the basis of the amount of subscription.
199
35. Which of the below expenses can be charged to a fund?
a. Expenses to manage a fund
b. Expenses to launch a new fund
c. Expenses done by the AMC
d. Expenses done by the Investors
Ans: (a) Earlier expenses to launch a fund were charged to the fund but
now they cannot.
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36. How often does a mutual fund disclose the information on Total Expense
Ratio charged to a mutual fund scheme and where is this published?
a. Daily - on the mutual fund website
b. Weekly - on the mutual fund website
c. Once a month in the fund Fact sheet
d. Once a year when it makes the mandatory disclosures to SEBI and AMFI
Ans: (a) SEBI has mandated that the Asset Management Companies
(AMCS) should prominently disclose on a daily basis, the Total expense
ratio (scheme-wise, date-wise) Of all schemes under a separate head —
"Total Expense Ratio Of Mutual Fund Schemes" on their website.
200
37. Identify the true statement with respect to Total Expense Ratio?
a. The AMC is not allowed to change the Total Expense Ratio of a scheme
during its entire life time.
b. The AMC can change the Total Expense Ratio and it need not be
communicated to the unit holders as its an internal matter.
c. The AMC can change the Total Expense Ratio and it has to be
communicated to all the unit holders.
d. There is no term as - Total Expense Ratio for a mutual fund scheme.
Ans: (d) As per SEBI regulations - The AMCs are required to send the
update to the investors through email whenever there is a change in the
expense ratio.
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38. Which of the following statement is true with respect to 'Mark to
Market’?
a. Securities in the portfolio are valued at current market prices
b. Securities in the portfolio are valued at 52 week high prices
c. Securities in the portfolio are valued at 52 week low prices
d. Securities in the portfolio are valued at purchase price
Ans: (a) the process of valuing each security in the investment portfolio of
the scheme at its current market value is called Mark to Market (MTM). The
mark-to-market valuation is done on a daily basis for the calculation of daily
NAV of a mutual fund scheme.
201
39. Mr. Suresh invests Rs. 2,00,000 in a mutual fund with a face value of
Rs. 10 and NAV of Rs. 50. How many units will be allotted to him?
a. 4000 units
b. 20000 units
c. Will be lower than 4000 units due to entry load
d. Will be lower than 20000 units due to entry load
Ans: (a) Units are allotted as per current NAV. The NAV is Rs. 50 and the
amount invested is Rs. 200000. Units allotted = 200000 / 50 = 4000
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40. Which expenses can be charged by the AMC to a mutual fund scheme?
a. Expenses that are incurred to manage the fund
b, Expenses that are incurred to launch the fund
c. Expenses that are incurred by the AMC
d. Expenses that are incurred by the investors in buying the fund
Ans: (a) Expenses for managing the fund are charged to the fund. Any
expense other than the investment advisory fee and recurring expenses
shall be borne by the asset management company or trustee or sponsors.
202
41. In case of any conflict between the Principles of Fair Valuation and
AMC's Valuation Guidelines, _________________.
a. Asset class
b. Index
c. Investment objective
d. Benchmark
Ans: (d) To know how well a mutual fund scheme is performing, it has to be
compared to a pre-defined comparable benchmark.
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42. In case of any conflict between the Principles of Fair Valuation and
AMC's Valuation Guidelines,____________________.
a. The Valuation Guidelines will prevail
b. The Principles of Fair Valuation will prevail
c. Both are the same so there will never be a conflict
d. SEBI will decide which is correct
Ans: (b) To ensure fair treatment to all investors, SEBI has laid down certain
fair valuation principles of mutual fund schemes. In case of any conflict
between the Principles of Fair Valuation and Valuation Guidelines, the
Principles of Fair Valuation shall prevail.
203
43. When there is a need to withdraw money from a scheme (i.e.
repurchase / redemption), the distributor must assess the implications
of___________ & __________on the investor's portfolio.
a. entry loads and exit loads
b. capital gains tax and exit loads
c. capital gains tax and entry loads
d. entry loads and dividend tax
Ans: (b) Both taxes and loads reduce investment returns. Therefore, it is important
for the distributor to consider these two aspects during repurchases / redemptions.
This means that when there is a need to withdraw money from the scheme, the
distributor must assess the implications of capital gains tax and exit loads.
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44. From which of these can the mutual fund NOT distribute dividends?
a. Income accruals
b. Dividends that are received from equity investments
c. Realized gain from the sale of investments
d. Unrealized appreciation in the value of investments
Ans: (d) SEBI guidelines stipulate that dividends can be paid out of
distributable reserves. In the calculation of distributable reserves: (i) All the
profits earned are treated as available for distribution. (ii) Valuation gains
are ignored. But valuation losses need to be adjusted against the profits. (iii)
That portion of sale price on new units, which is attributable to valuation
gains, is not available as a distributable reserve.
204
45. Identify which statement is true?
a. Investors cannot hold the units of a mutual fund in fraction of 1 unit
b. Investors can hold the units of a mutual fund in fraction of 1 unit
c. Investors can hold the units of a mutual fund in market lots of 50 units
d. Investors can hold the units of a mutual fund in market lots of 100 units
Ans: (b) Investors can hold their units even in a fraction of 1 unit. For
example, an investor is holding 650 units in a dividend re-investment
scheme of a mutual fund. The announcement of dividends, when converted
into units, could result in say addition of 20.5 units. Thus his total holding
will become 650 + 20.5 = 670.50 units - which is a fraction.
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46. The NAV of a mutual fund unit changes every day due to changes
in_____________.
a. number of investors in the mutual fund
b. the market value of the mutual fund portfolio
c. the size of the portfolio
d. the units remaining in the portfolio
Ans: (b) NAV = (Current value of investments held + Income accrued +

Current assets - Current liabilities - Accrued expenses / No. of outstanding
units). When the current value of the investment held (i.e. the market value
of the portfolio) changes, the NAV will also change.
205
47. In case of_____________the Net Asset Value has to be declared for up
to 4 decimal points.
a. Mid Cap and Small Cap Funds
b. Liquid Funds
c. Aggressive Hybrid Funds
d. ELSS Funds
Ans: (b) NAV is to be calculated up to 4 decimal places in the case of index

funds, liquid funds, and other debt funds. (NAV for equity and balanced
funds is to be calculated up to at least 2 decimal places)
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48. What is the Net Asset Value (NAV) after dividend payment called?
a. ex-Dividend NAV
b. ex-Load NAV
c. cum-Dividend NAV
d. Net NAV
Ans: (a) After a dividend pay-out, the reduced NAV is called ex-Dividend
NAV. (After a dividend is announced, and until it is paid out, it is referred to
as cum-Dividend NAV).
206
49. When can mutual funds charge an additional expense of 0.30% of daily net
assets of the scheme?
a. If the new inflows from beyond the top 30 cities are at least (a) 30 percent of
gross new inflows in the scheme or (b) 15 percent of the average assets under
management (year to date) of the scheme, whichever is higher
b. If the new inflows from beyond the top 30 cities are at least (a) 20 percent of
c. If the new inflows from beyond the top 15 cities are at least (a) 25 percent of
d. If the new inflows from beyond the top 15 cities are at least (a) 10 percent of
Ans: (a) In order to promote mutual funds beyond 30 cities, AMC pays an extra 0.30%
brokerage to distributors. However, the inflows the inflows from beyond 30 cities are
atleast. If the new inflows from beyond the top 30 cities are at least (a) 30 percent of
management (year to date) of the scheme, whichever is higher.
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50. Some of the costs incurred by the Asset Management Companies to
manage the mutual fund schemes can be changed to___________in proportion
to their holding of units in the scheme.
a. Distributors
b. Stock Brokers
c. Unit holders
d. Independent Financial Advisors
Ans: (c) All the investor's money is pooled together in a scheme. Costs incurred for
managing the scheme are shared by all the Unit-holders in proportion to their holding
of units in the scheme.
207
51. A Mutual Fund holds shares of AAA Ltd. in its portfolio. When the NAV of
the scheme is calculated on 10th April, then each share of AAA Ltd. will be
valued at______________.
a. Average traded price of AAA Ltd. on 10th April across all stock exchanges
b. The opening price of AAA Ltd. on 10th April at BSE/NSE
c. The closing price of AAA Ltd. on 10th April at BSE/NSE
d. Average traded price of AAA Ltd. on 10th April at BSE/NSE
Ans: (c) As per the SEBI rules of valuation for equity shares, the securities
shall be valued at the last quoted closing price on the stock exchange.
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52. NAV of income funds is to be calculated upto_____________decimals.
a. 1
b. 2
c. 3
d. 4
Ans: (d) NAV is to be calculated up to 4 decimal places in the case of

income funds, liquid funds, and other debt funds. NAV for equity and
balanced funds is to be calculated up to at least 2 decimal places.
208
53. In the case of mutual fund schemes, dividends can be paid only out
of__________.
a. Unit capital
b. The distributable surplus generated by the scheme
c. Premium reserve account
d. Mark-to-market profits
Ans: (b) SEBI guidelines stipulate that dividends can be paid out of
distributable reserves. In the calculation of distributable reserves:
- All the profits earned (based on the accrual of income and expenses as
detailed above) are treated as available for distribution.
- Valuation gains are ignored. But valuation losses need to be adjusted
against the profits.
- That portion of the sale price on new units, which is attributable to
valuation gains, is not available as a distributable reserve.
-----------------------------------------------------------------------------------------------------
54. It's due to loads and taxes that there is a difference between scheme
returns and investor returns - True or False?
a. True
b. False
Ans: (a) Loads like Exit Load and Taxes like STT reduce the scheme
returns.
209
55. ____________ indicates how much money can be generated per unit of
mutual fund in case the scheme is liquidated.
a. Market price
b. Exit load
c. Asset Under Management
d. Net Asset Value
Ans: (d) The true worth of a unit of the mutual fund scheme is otherwise called
the Net Asset Value (NAV) of the scheme. The NAV is also the net realizable
value per unit in case the scheme is to be liquidated-how much money could
be generated if all the holdings of the scheme are sold and converted into
cash.
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56. Investments owned by the scheme may be quoted in the market at
higher than the cost paid. Such gains in values on securities held are
called_________.
a. Valuation gains
b. Notional gains
c. Valuation losses
d. Notional losses
Ans: (a) Investments owned by the scheme may be quoted in the market at
higher than the cost paid. Such gains in values on securities held are called
valuation gains. Similarly, there can be valuation losses when securities are
quoted in the market at a price below the cost at which the scheme acquired
them.
210
57. Investors have bought 20 crore units of a mutual fund scheme at Rs. 10
each. The scheme has thus mobilized 20 crore units X Rs. 10 per unit i.e.
Rs. 200 crore. An amount of Rs. 140 crore is invested inequities. The
balance amount of Rs. 60 crore, mobilized from investors, was placed in
bank deposits. Interest and dividend receivable (accrued but yet not
received) by the scheme is Rs. 8 crore, scheme expenses payable (accrued
but not paid yet) is Rs. 4 crore. Calculate the scheme's NAV per unit.
a. Rs. 10.00
b. Rs. 20.00
c. Rs. 10.20
d. Rs. 20.40
Ans: (c) NAV = (Current value of investments + Income accrued + Current

assets - Current liabilities - Accrued expenses) / No. of outstanding units)
Current Value of investments is Rs. 140 cr in equities + Rs. 60 cr in bank
deposits = Rs. 200 crores.
Income accrued = Rs. 8 crores. Accrued expenses = Rs. 4 crores
Thus, NAV = 200 cr + 8 cr - 4 cr / 20 cr = 204 cr / 20 cr = 10.20
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58. What is the maximum Total Expense Ratio chargeable in the case of
index funds?
a. It depends as the TER changes in line with the size of the scheme
b. Any amount that the AMC may deem appropriate
c. 1 percent of the daily net assets
d. 1.5 percent of the daily net assets
Ans: (c) In the case of an index fund scheme or exchange-traded fund, the
total expense ratio of the scheme including the investment and advisory
fees shall not exceed 1.00 percent of the daily net assets.
211
59. Identify the true statement with respect to Total Expense Ratio?
a. The AMC is not allowed to change the Total Expense Ratio of a scheme
during its entire life time
b. The AMC can change the Total Expense Ratio and it need not be
communicated to the unit holders as its an internal matter
c. The AMC can change the Total Expense Ratio and it has to be
communicated to all the unit holders
d. There is no term as - Total Expense Ratio for a mutual fund scheme
Ans. (c) As per SEBI regulations - The AMCs are required to send the
update to the investors through email whenever there is a change in the
expense ratio.
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60. The NAV which is applicable for processing a mutual fund transaction
depends on
a. The type of scheme
b. The day of transaction
c. The time of transaction
d. All of the above
Ans. (d) The NAV which is applicable for processing a mutual fund
transaction depends on the type of scheme, the day of transaction and the
time of transaction.
212
61. The Asset Management Company is responsible for ensuring the
valuation of the securities in a mutual fund scheme’s portfolio are true and
fair. State True or False?
a. True
b. False
Ans. (a) As per SEBI Fair Valuation Principles - The responsibility of true
and fairness of valuation of assets/securities and correct NAV shall be of the
Asset management company (AMC), irrespective of disclosure of the
approved valuation policies and procedures i.e., if the established policies
and procedures of valuation do not result in fair/ appropriate valuation, the
asset management company shall deviate from the established policies and
procedures in order to value the assets/securities at fair value.
-----------------------------------------------------------------------------------------------------
62. Mr. Sunil redeems 5000 units at an NAV of Rs 30. If the exit load is 1
percent, what is the redemption value of the investment?
a. Rs. 148500
b. Rs 147650
c. Rs. 150000
d. Rs. 151500
Ans. (a) Mr. Sunil redeems 5000 units at an NAV of Rs 30 5000 x 30 = Rs.
150000 Exit loat at 1% of 150000 = 1500 Redemption value = 150000 -
1500 = Rs. 1,48,500
213
63. The Investment management and advisory fee that an AMC can recover
on unclaimed amounts in schemes is at a maximum rate of 2 percent per
annum - State True or False?
a. True
b. False
Ans. (b) AMC is expected to make a continuous effort to remind the investors
through letters to claim their uncliamed amounts. AMC can recover investment
management and advisory fees on management of these unclaimed amounts,
at a maximum rate of 0.50 percent per annum.
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64. Identify the FALSE statement/s: 1. For equity mutual funds schemes
which are actively managed, the net asset value need NOT be declared up
to 4 decimal points 2. Each mutual fund scheme's account is combined with
the accounts of the Asset Management Company
a. Both 1 and 2 are false
b. Only 1 is false
c. Only 2 is false
Ans. (b) Key Accounting and Reporting Requirements for mutual funds:
-The accounts of the schemes need to be maintained distinct from the
accounts of the AMC. The auditor for the AMC has to be different from that
of the schemes. - NAV for Equity and Balanced funds is to be calculated up
to at least 2 decimal places. (and not 4). NAV is to be calculated up to 4
decimal places in the case of index funds, liquid funds and other debt funds.
214
65. By what percentage is the Securities Transaction Tax (STT) levied on
re-purchase of units (by the mutual fund) of equity oriented schemes
(delivery based)?
a. 1%
b. 0.025
c. NIL
d. 0.001
Ans. (d) TRANSACTION / STT (%) / PAYABLE BY Purchase of units of equity

oriented mutual fund / Nil Sale of units of equity oriented mutual fund (delivery
based) 0.001 Seller Sale of equity shares, units of business trust, units of
equity oriented mutual fund (non-delivery based) / 0.025 / Seller Sale of units
of an equity oriented mutual fund to the mutual fund / 0.001 / Seller
-----------------------------------------------------------------------------------------------------
66. __________ is responsible for ensuring the valuation of the securities in
a mutual fund scheme's portfolio are true and fair.
a. Association of Mutual Funds in India (AMFI)
c. The auditor of the fund
d. Asset Management Company (AMC)
Ans. (d) As per SEBI Fair Valuation Principles - The responsibility of true and
fairness of valuation of assets/securities and correct NAV shall be of the Asset
management company (AMC), irrespective of disclosure of the approved valuation
policies and procedures i.e., if the established policies and procedures of valuation
do not result in fair/ appropriate valuation, the asset management company shall
deviate from the established policies and procedures in order to value the
assets/securities at fair value.
215
67. Identify the CORRECT statement/s. A. Valuation gains are ignored. But
valuation losses need to be adjusted against the profits while calculating
distributable surplus. B. The Mark-to-market gains form a part of the
distributable reserves in case of mutual fund Income Distribution Cum
Capital Withdrawal plan
c. Both A and B is correct
d. Both A and B are incorrect
Ans. (a) SEBI guidelines stipulate dividends can be paid out of distributable
reserves. Mark-to-market gains are on paper - they are not realised. They will
be realized when those investments are sold. So these cannot be included in
distributable reserves Also Valuation gains are ignored. But valuation losses
need to be adjusted against the profits. This conservative approach to
calculating distributable reserves ensures that dividend is paid out of real and
realized profits, after providing for all possible losses.
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68. Ms. Priya redeems 2000 units at an NAV of Rs 13. If the exit load is 1
percent, what is the redemption value of the investment?
a. Rs. 25500
b. Rs. 26250
c. Rs. 26000
d. Rs. 25740
Ans. (d) Ms. Priya redeems 2000 units at an NAV of Rs 13 = 2000 x13 = 26000
Exit loat at 1% of 26000 = 260 Redemption value = 26000 260 Rs. 25740
216
69. Sale of units of equity oriented mutual fund (delivery based) will attract
Securities Transaction Tax at
a. 0.01
b. 0.001
c. 0.017
d. 0.125
Ans. (b) When an investor sells units of an equity fund in the stock
exchange, or offers them for re-purchase to the fund, he/she will have to
incur Securities Transaction Tax (STT). STT is charged at 0.001% on such
sale transactions.
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70. The market value of a mutual fund scheme's portfolio is Rs. 15 crores.
Its current liabilities are Rs. 2 crore. The unit capital is Rs. 10 crore and face
value per unit is Rs 10. Calculate the NAV per unit?
a. Rs. 15
b. Rs. 10
c. Rs. 11.50
d. Rs. 13
Ans. (d) The formula for calculating NAV is: (Total Assets minus Liabilities
other than to Unitholders) / No. of outstanding Units Total assets minus
liabilities = 15 cr - 2 cr = Rs 13 cr Number of outstanding units = Unit
Capital/ Face value = 10 cr/ 10 = 1 crore outstanding units NAV = 13 cr/ 1 cr
= Rs. 13
217
71. The additional Total Expense Ratio (TER) charged has to be credited
back to the Mutual Fund in which of these situations?
a. When the performance of the mutual fund declines as compared to
previous year
b. When the inflows from beyond the top 30 cities are redeemed within a
period of 1 year from the date of investment.
c. When the TER of the mutual fund exceeds the limit specified under the
regulations
d. All of the above
Ans. (b) Mutual funds can charge additional TER if the new inflows are from
beyond top 30 cities (subject to some conditions) However, the additional TER
on account of inflows from beyond the top 30 cities so charged shall be
credited back to the scheme in case the said inflows are redeemed within a
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72. The Net Asset Value (NAV) of a segregated portfolio has to be declared
on a
a. Daily basis after the credit event
b. Weekly basis (on every Saturday) after the credit event
c. Monthly basis after the credit event
d. NAV need not be declared
Ans. (a) To ensure fair treatment to all investors in case of a credit event and to
deal with the liquidity risk, in December 2018, SEBI permitted creation of
segregated portfolio of debt and money market instruments by mutual funds
schemes. "Segregated portfolio" means a portfolio, comprising of debt or money
market instrument affected by a credit event, that has been segregated in a
mutual fund scheme. The Net Asset Value (NAV) of the segregated portfolio shall
be declared on a daily basis.
218
73. When does the market price of close-end mutual fund scheme converge
with the NAV price?
a. During the New Fund Offer
b. Before the New Fund Offer
c. Toward maturity
d. It never converges
Ans. (c) A close-ended scheme offers liquidity through its listing on a stock
exchange. Typically, towards the maturity of the scheme, the market price
converges towards the NAV.
-----------------------------------------------------------------------------------------------------
74. The additional Total Expense Ratio (TER) charged has to be credited
back to the Mutual Fund if the inflows from beyond the top 30 cities are
redeemed within a period of 1 year from the date of investment. State
a. True
b. False
Ans. (a) Mutual funds can charge additional TER if the new inflows are from
beyond top 30 cities (subject to some conditions). However, the additional
TER on account of inflows from beyond the top 30 cities so charged shall be
credited back to the scheme in case the said inflows are redeemed within a
219
CHAPTER 8: TAXATION
1. Mutual Fund units issued against purchase transaction will be subjected

to the stamp duty of _________ at the invested amount.
a. 0.50%
b. 0.05%
c. 0.005%
d. 0.0005%
Ans: (c) With effect from July 1, 2020, mutual fund units issued against Purchase
transactions would be subject to levy of stamp duty at the rate of 0.005% of the
amount invested. Transfer of mutual fund units (such as transfers between demat
accounts) is subject to payment of stamp duty @0.015%.
-----------------------------------------------------------------------------------------------------
2. Which of the following statement/s is/are false?
A. If money market scheme is sold after three years, the gain/loss will be
considered as capital gain/loss.
B. If Debt scheme is sold after three years, the gain/loss will be considered
as capital gain/loss.
C. If Arbitrage scheme is sold after three years, the gain/loss will be
considered as capital gain/loss.
a. Statement A is false
b. Statement A & B is false
c. Statement C is false
d. All are false
Ans: (b) Arbitrage funds are treated as equity funds for taxation. If you stay
invested for less than one year, then you make short-term capital gains (STCG). If
you stay invested for more than a year, then gains will be considered as long-term
capital gains (LTCG).
220
3. Which of these statement(s) is/are FALSE?
a. If an investor holds his investments in a debt fund for more than three
years, the capital gain will be considered as a long term capital gain
b. As the purchase and re-purchase is done with the mutual fund, the
investor does not have to pay any capital gain tax
c. Both 'a' and 'b' are false
Ans: (b) The difference between the purchase price and the selling price of
the units would be treated as capital gain and such capital gains are subject
to tax. Long term is defined as the holding period of more than 3 years in
case of non equity oriented funds like debt funds, whereas the same is
more than 1 year in case of equity oriented funds.
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4. Long term capital gains is NOT taxed in which of these funds?
A. Balanced Advantage Funds B. Balanced Funds
C. Diversified Equity Funds
a. Both A & B
b. Only C
c. Only A
d. Capital gains from all types of MF are taxed subject to certain conditions
Ans: (d) Capital gains from equity, debt and hybrid funds are taxable subject
to certain conditions like holding period, etc.
221
5. The loss booked from a debt investment of 15 months can be set off
against _______.
a. Long term capital loss
b. Short term capital loss
c. Short term capital loss or long term capital loss
d. It cannot be set off
Ans: (c) A capital gain or loss from an investment of less than 3 years in a
debt instrument is considered as Short term. Short term capital loss is to be
set off against short term capital gain or long term capital gain. Long term
capital loss can only be set off against long term capital gain.
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6. Stamp duty is required to be paid for which of these mutual fund
transactions?
A. New purchases B. Systematic Investment Plan (SIP)
C. Dividend reinvestment D. Systematic Transfer Plan (STP)
a. A, B and D
b. Only A
c. B & D
d. A, B, C and D
Ans: (d) Stamp duty will be applicable to all transactions pertaining to

scheme inflows: Purchase, Additional Purchase, Dividend re-investment,
Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) and
Dividend Transfer Plan (DTP).
222
7. The loss booked from an equity investment of 18 months can be set off
against _______.
a. Long term capital loss only
b. Long term capital gain only
c. Short term capital gain only
d. Short term capital gain or long term capital gain
Ans: (b) A capital gain or loss from an equity investment of more than than
12 months is considered as Long term. Long term capital loss can only be
set off against long term capital gain.
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8. Which tax is payable on the redemption of units of Equity Oriented fund?
a. Dividend distribution tax
b. Securities transaction tax
c. Wealth tax
d. Alternate dividend tax
Ans: (b) STT is payable on sale of units of equity oriented mutual fund.
223
9. Amongst the following options, which of the following is TRUE?
a. STT is paid on purchase of the units of Equity Mutual Funds through a
stock exchange
b. STT is paid on purchase of the units of Equity Mutual Funds from the
fund house
c. STT is paid on repurchase I redemption of the units of Equity Mutual
Funds
d. STT is paid on purchase of the units of Debt Mutual Funds
Ans: (c) Securities Transaction Tax (STT) is applicable on sale / redemption

transactions in units of equity mutual fund schemes. There is no STT on
Debt funds.
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10. STT is ________on transactions in debt or debt-oriented mutual fund
(including liquid fund) units.
a. Applicable
b. Not Applicable
Ans: (b) STT is applicable only on equity transactions.
224
11. An investor in debt oriented mutual fund receives the benefit of
______on long term capital gains.
A. Indexation B. Tax exemption
a. Only A
b. Only B
c. Both A and B
Ans: (a) Indexation means that the cost of acquisition or the cost of
purchase is adjusted upwards to reflect the impact of inflation. An investor in
long term debt funds receives the benefit of indexation but they are not
exempted from paying long term capital gains tax.
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12. Long term capital loss from an investment can be set off against
_______.
a. short term capital gains only
b. short term capital gain or long term capital gain
c. long term capital gains only
d. long term capital loss cannot be set off
Ans: (c) As per the Income Tax Act: (1) Short term capital loss is to be set
off against short term capital gain or long term capital gain, (2) Long term
capital loss can only be set off against long term capital gain, (3) Capital
loss, short term or long term, cannot be set off against any other head of
income (e.g. salaries).
225
13. The Income Tax Act allows setting off of the short term capital loss
against long term capital gains. State whether True or False.
a. True
b. False
Ans: (a) As per Income Tax rules: (1) Short term capital loss can be set off
against short term capital gain or long term capital gain. (2) Long term
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14. For calculating Capital Gains, investment in mutual funds for less then 1
year is considered as _____.
a. Long Term
b. Medium Term
c. Short Term
d. Ultra Short Term
Ans: (c) For calculating Capital Gains, investment in mutual funds for less
then 1 year is considered as short term.
226
15. As per the Income Tax Act - which of the below option is True?
a. Capital loss, short term or long term, can be set off against any other
head of income
b. Long term capital loss can be set off against long term and short term
capital gain
c. Short Term Capital gains is a tax free income
d. Short term capital loss is to be set off against short term capital gain or
long term capital gain
Ans: (d) A few key provisions of the Income Tax Act are: (1) Capital loss,
short term or long term, cannot be set off against any other head of income
(e.g. salaries). (2) Short term capital loss is to be set off against short term
capital gain or long term capital gain. (3) Long term capital loss can only be
set off against long term capital gain.
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16. As per the provisions of the Income Tax Act - Short term capital loss is to
be set off against short term capital gain or long term capital gain. True or
False?
a. True
b. False
Ans: (a) Some key provisions of IT Act related to Capital Gains are: (1)
Capital loss, short term or long term, cannot be set off against any other
head of income (e.g. salaries). (2) Short term capital loss is to be set off
against short term capital gain or long term capital gain. (3) Long term
227
17. Dividend Distribution Tax (DDT) on Equity oriented mutual fund
schemes for Corporate Investors is _____.
a. 0.1
b. 0.25
c. 0.3
d. NIL Tax
Ans: (d) In the Union Budget presented by the Finance Minister in February
2020, the dividend distribution tax has been done away with.
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18. In which of these funds is Securities Transaction Tax (STT) not
charged?
a. Fixed Maturity Plans (FMPs)
b. Equity index ETFs
c. ELSS - Equity Linked Savings Scheme
d. Blue chip equity funds
Ans: (a) Securities Transaction Tax is not applicable to transactions in debt

securities or debt mutual fund schemes. Fixed Maturity Plans are close-
ended debt funds and STT is not applicable on them.
228
19. In the non-equity oriented funds, the rate of long term capital gains tax is
___________.
a. 10 percent with indexation
b. 10 percent without indexation
c. 20 percent with indexation
d. 20 percent without indexation
Ans: (c) The rate of tax on long term capital gains from non-equity-oriented
funds is 20% with indexation.
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20. The dividend received by a Mutual Fund investor will be taxed at a rate
of 12.5%. True or False?
a. True
b. False
Ans: (b) As per the Union Budget presented by the Finance Minister in
February 2020, the dividend distribution tax has been done away with,
whereas the dividend would henceforth be added to the taxable income of
the assessee for the year. This means, the dividends would be taxable in
the hands of the recipient at the applicable tax rate.
229
21. There is no Tax Deducted at Source (TDS) on dividend payments or re-
purchase payments of Mutual Funds for Indian investors. True or False?
a. True
b. False
Ans: (b) In case of dividends from mutual fund schemes, even for resident
Indians, TDS is applicable. There is no TDS on re-purchase proceeds to
resident investors.
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22. At what rate is the Securities Transaction Tax charged on sale of units of
debt oriented mutual fund in a stock exchange ?
a. 0.01%
b. 0.1%
c. 0.125%
d. 0%
Ans: (d) STT is not applicable on transactions in debt or debt-oriented

mutual fund (including liquid fund) units.
230
23. What is Indexation?
a. Reduction of short and long term capital gains tax by using an index
based calculation
b. Benchmarking the index fund against a suitable index like Sensex / Nifty
c. Adjusting the cost of acquisition upwards to reflect the impact of inflation
d. Adjusting the cost of acquisition downward to reflect the impact of
inflation
Ans: (c) Indexation means that the cost of acquisition or the cost of
purchase is adjusted upwards to reflect the impact of inflation. For eg. - A
stock was purchased at Rs. 100 and sold for Rs. 150 after 5 years. The long
term capital gains is Rs. 50 on which tax is to paid. But when adjusted for
indexation (as per data released by Central Board of Direct taxes every
year), the capital gains will be reduced and the tax will have to be paid on a
lower amount.
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24. The Securities Transaction Tax levied on re-purchase of units of debt
mutual funds is_______________.
a. 0.001%
b. 0.03%
c. 0.25%
d. STT is not applicable
Ans: (d) STT is not applicable to transactions in debt securities or debt mutual
fund schemes. STT is applicable only on redemption/switch to other
schemes/sale of units of equity-oriented mutual funds whether sold on a stock
exchange or otherwise.
231
25. Short term capital loss from an investment can be set off
against______________.
a. short term capital gains only
b. short term capital gain or long term capital gain
c. long term capital gains only
d. Short term capital loss cannot be set off
Ans: (b) As per the Income Tax Act - Short-term capital loss is to be set off
against short-term capital gain or long-term capital gain.
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26. Which of the statement is true with respect to the applicability of TDS in
the case of capital gains from mutual fund units?
a. There are NIL TDS on capital gains in the mutual funds for all investors.
b. TDS is required to be deducted at 10 percent on all declared dividend.
c. All capital gains from mutual fund investments are subject to TDS @
10%.
d. TDS is not applicable on capital gains for resident individuals but is
applicable for Non-Resident Individuals (NRI).
Ans: (d) There is no TDS on re-purchase proceeds to resident investors.

However, for certain cases of non-resident investments, the same is
applicable.
232
27. Mr. X has invested Rs. 3,00,000 in a 370-day FMP and on maturity he
received Rs. 3,25,000. What is the capital gain in this transaction?
a. Rs. 325000
b. Nil
c. Rs. 25000
d. Insufficient Data
Ans: (c) Capital Gains are calculated as the difference between the sum
invested and the sum realized when the units are sold/matured. So in the
above question, the capital gain is Rs. 325000 - 300000 = Rs. 25000/-.
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28. In the case of capital gains from mutual fund investments, Tax
Deduction at Source (TDS) is applicable for:
a. All investors who have invested more than Rs. 5 lacs
b. Minor through guardian
c. TDS is not applicable in the case of mutual funds
d. Non-Resident Indians (NRIs)
Ans: (d) TDS will be deducted at source on gains made on sale/redemption

of mutual fund investments by NRIs as applicable.
233
29. Redemption from which of the following mutual fund schemes would
attract Securities Transaction Tax (STT) for an investor?
a. Liquid Fund
b. Overnight Fund
c. Multi-cap mutual fund
d. Government Securities Fund
Ans: (c) In the given options, only Multi cap fund is an equity fund, and the
rest are debt funds. STT is applicable only on redemption/switch of units of
Equity oriented mutual funds whether sold on a stock exchange or
otherwise. STT is not applicable on the purchase of units of an equity
scheme. It is also not applicable to transactions in debt securities or debt
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30. Mr. X has invested Rs. 2,00,000 in a 370 day FMP and on maturity he
received Rs. 2,15,832. What is the capital gain in this transaction?
a. Rs. 7916
b. Rs. 13750
c. Rs. 15832
Ans. (c) Capital Gains is calculated as the difference between the sum
invested and the sum realized when the units are sold / matured. So in the
above question, capital gain is Rs 215832 - 200000 = Rs. 15832
234
31. Identify the FALSE statement: 1. The investor does not have to bear a tax
on the capital gains as the re-purchase of units is done by the mutual fund 2.
Capital gains will be considered as Long term capital gain in case of debt funds
only if the holding period is more than 3 years
a. Both 1 and 2 is false
b. Only 1 is false
c. Only 2 is false
Ans. (b) Re-purchase transactions are treated as a sale of units by the investor.
Therefore, there will be an element of capital gain (or capital loss) and it will be
taxed accordingly. Capital gains are classified into two categories: short term
capital gains and long-term capital gains. Long-term is defined as a holding period
of more than three years in case of non- equity oriented funds (Debt funds etc.),
whereas the same is more than 1 year in case of equity-oriented funds.
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32. Identify the FALSE statement: 1. When an investor sells his mutual fund
units, the re-purchase is done by the mutual fund. Therefore the investor does
not have to bear a tax on the capital gains 2. When an investor invests in a
debt mutual fund for more than three years, the capital gains will be considered
as Long term capital gain
a. Only 1 is false
b. Only 2 is false
Ans. (a) Re-purchase transactions are treated as a sale of units by the investor.
Therefore, there will be an element of capital gain (or capital loss) and it will be
taxed accordingly. Capital gains are classified into two categories: short term
capital gains and long-term capital gains. Long-term is defined as a holding period
of more than three years in case of non- equity oriented funds (Debt funds etc.),
whereas the same is more than 1 year in case of equity-oriented funds.
235
33. In case of an Index Fund, the minimum investment in securities of a
particular index (which is being replicated/ tracked) shall be
a. 80% of the total assets
b. 85% of the total assets
c. 90% of the total assets
d. 95% of the total assets
Ans. (d) Index Funds are open-ended scheme replicating/tracking a specific

index. The minimum investment in securities of a particular index (which is
being replicated/ tracked) shall be 95 percent of total assets.
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34. What happens in the process of Indexation?
a. In indexation, the impact of capital gains tax is reduced in case of both
short term and long term capital gains
b. In indexation, the mutual fund's performance is benchmarked against a
suitable index
c. In indexation, the cost of acquisition is adjusted upwards to reflect the
impact of inflation
Ans. (c) Indexation means that the cost of acquisition or the cost of
purchase is adjusted upwards to reflect the impact of inflation. For eg. - A
stock was purchased at Rs 500 and sold for Rs 800 after 5 years. The long
term capital gains is Rs 300 on which tax is to paid. But when adjusted for
indexation (as per data released by Central Board of Direct taxes every
year), the capital gains will be reduced and the tax will have to be paid on a
lower amount.
236
CHAPTER 9: INVESTOR SERVICES
1. If you want to delete the default bank in a Mutual Fund Folio?

a. All the nominees have to sign the bank change form
b. A new Folio has to be opened with the same joint holding as the new
default account.
c. Another Account should be added as the default bank account.
Ans: (c) Before deleting the bank account, new account has to be added as
default bank.
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2. For which of the documents time stamping is mandatory
a. Purchase Application
b. Payment Instrument
c. Additional Purchase
d. All of the Above
Ans: (d) Time stamping is mandatory for all financial transactions in mutual
funds like purchase, redemption, etc. The application form, the payment
instrument etc. have to be time and date stamped.
237
3. Banks and NBFCs can lend money against _______of MF units.
a. Nomination
b. Redemption
c. Pledge
d. All of the Above
Ans: (c) Banks, NBFCs and other financiers often lend money against
pledge of Units by the Unit holder. This is effected through a Pledge Form
executed by the unit-holder (pledger). The form has a provision for
specifying the party in whose favour the units are pledged (pledgee).
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4. A mutual fund scheme's NAV is said to be cum-dividend from
_________________.
a. the date the dividend is announced till it is paid out

b. date the dividend is paid
c. date unit holders approve the dividend
d. date of notice of meeting
Ans: (a) When a dividend is announced, and until it is paid out, it is referred
to as cum-dividend NAV.
238
5. In which of these options can an investor expect a cash flow in his bank
account?
a. Bonus
b. Dividend Payout
c. Dividend Re-investment
d. Growth
Ans: (b) Only, if the investor chooses Dividend Payout option in his mutual fund
investments, the money will flow into his bank account when ever the mutual fund
pays the dividend. In a growth option, dividend is not declared. Therefore, nothing
is received in the bank account. In a dividend reinvestment option, the investor
does not receive the dividend in his bank account; the amount is reinvested in the
same scheme and additional units are allotted to the investor. In a bonus issue,
the investor does not pay anything. The fund allots new units for free.
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6. The opening of time stamping machine needs to be documented and
reported to ______.
a. Sponsors
b. Trustees
c. SEBI
d. Asset Management Company
Ans: (b) The points of acceptance for mutual fund transactions have time
stamping machines with tamper-proof seal. Opening the machine for repairs or
maintenance is permitted only by vendors or nominated persons of the mutual
fund. Such opening of the machine has to be properly documented and
reported to the Trustees.
239
7. The NAV applicable for purchase in a gilt fund of Rs. 50 Lakhs if the
cheque is received after 2 pm will be _______.
a. Same day NAV if received before cut off time.
b. Closing NAV of day immediately preceding the date of application
c. Closing NAV of the next business day
d. NAV of the business day on which the funds are available for utilisation
Ans: (d) For all type of debt funds (except liquid funds), if the amount is
above Rs. 2 lakhs, irrespective of the time of receipt of application, NAV of
the business day on which the funds are available for utilisation without
availing of any credit facility before the cut-off time (3 pm) of that day is
applicable.
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8. A mutual fund application form with multiple holders has to be signed by
________.
a. Any of the holders
b. All the holders
c. Only the first holder
d. Only the first two holders
Ans: (b) The application has to be signed by all the holders irrespective of
the mode of holding.
240
9. When an investment is done by a minor, what is rule regarding Know
Your Customer (KYC) requirement?
a. No KYC is required
b. It depends whether the investment is in equity funds or debt funds
c. KYC will be required only if the transaction is thorough a stock exchange
d. KYC of the guardian is required
Ans: (d) An investment made for a minor (less than 18 years) is done
through a guardian who has to comply with the KYC and PAN requirements
and all other formalities as if the investment was for themselves.
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10. For KYC verification _________ is not accepted as a photo identity
documentation for Micro SIP's.
a. Credit Card
b. Employee ID cards issued by companies registered with Registrar of
Companies
c. Card issued to National Pension System (NPS) subscribers
d. Photo Debit Card
Ans: (a) Credit card is not accepted because it may not be backed up by a
bank account.
241
11. What is the investment of a constant amount at regular intervals in a
mutual fund scheme called?
a. Systematic Withdrawal Plan
b. Systematic Transfer Plan
c. Value Investing
Ans: (d) It is considered a good practice to invest regularly, particularly into

volatile markets such as equity markets. Systematic Investment Plan – SIP
is an approach where the investor invests constant amounts at regular
intervals.
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12. By mistake the ARN number is wrongly mentioned in the application
form. How will such an application be processed?
a. The application will be rejected
b. It will be returned for rectification
c. As a Direct Plan application
d. As a Regular Plan, provided the error being corrected within a time frame
Ans: (d) If the wrong ARN code is mentioned in the application form, then
the application will be processed as a Regular Plan. However, the AMC will
contact the investor/distributor for the right ARN code within 30 calendar
days of the receipt of the application form. If the error is not rectified within
these 30 days, the application will be reprocessed as a direct application
without charging any exit load.
242
13. Which of these documents is NOT required to be submitted by
institutional investors while investing in mutual funds?
a. Profit and Loss Statement
b. PAN card copy
c. List of authorised signatories
d. Memorandum of Association and Articles of Association
Ans: (a) A Profit and Loss Statement is not required to be submitted by an

institutional investor while making investments in mutual funds.
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14. __________is / are Non Financial transaction(s) in a mutual fund.
A. Switch B. Pledge of units
C. Nomination D. Transmission
a. A, B and C
b. B, C and D
c. A, C and D
d. C and D
Ans: (b) Pledge of units, Nomination and Transmission are Non Financial
transactions in a mutual fund. A switch is a redemption from one scheme
and a purchase into another combined into one transaction and is a
financial transaction.
243
15. A mutual fund has to report which of the following information of an
investor who comes under the Foreign Account Tax Compliance Act
(FATCA)?
a. The entire investment value of all the folios of the investor
b. The identity of the account holders
c. The identity of the beneficial holders
d. All of the above
Ans: (d) To comply with the requirements of Foreign Account Tax

Compliance Act (FATCA), the mutual fund application form requires
information to be provided if the citizenship/nationality/place of birth/tax
residency are places other than India for all categories of investors, the
entire investment value of all the folios held, the identity of the investors and
their direct and indirect beneficiaries and controlling persons etc.
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16. The expenses on ___________cannot be charged to the mutual fund
scheme.
a. Custodian fees
b. Depreciation on fixed assets of the Asset Management Company
c. Trustee Fees
d. Marketing Expenses
Ans: (b) The depreciation on fixed assets of the Asset Management

Company cannot be charged to a particular mutual fund scheme.
244
17. Which of these investors is/are exempted from proving PAN details for
investments in Mutual Funds?
a. Systematic investment plans, where annual investment does not exceed
Rs 50000
b. Investors residing in the state of Sikkim
c. Transactions undertaken on behalf of Central/State government
d. All of the above
Ans: (d) The following categories of investors are exempt from producing
PAN:
- In case of transactions undertaken on behalf of Central/State government
and by officials appointed by the court.
- Investors residing in the state of Sikkim.
- UN entities/Multilateral agencies exempt from paying taxes/filing tax
returns in India.
- Investments (including SIPs and lump sum investments) in Mutual Fund
schemes upto Rs. 50,000/- per investor per year per mutual fund.
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18. Which of the below investors will require the approval of board before
investing in mutual funds?
a. Non Resident investors
b. Institutional investors
c. High Net worth investors
d. Retail investors
Ans: (b) Authorisation will be required from the board for the institution to
invest. This is typically in the form of a Board Resolution.
245
19. Mr. X invests in a liquid fund at 4 pm and the funds are not available for
investments the same day. What will be the applicable NAV in this case for
allotment of units?
a. Closing NAV of the day preceding the day funds are available
b. Closing NAV of the day the funds are available
c. Closing NAV of the day immediately preceding the date of application
d. Closing NAV of the day of the date of application
Ans: (a) For Liquid Funds the cut-off time is 1.30 pm If application received after cut
off time on a day and funds are available for utilisation on the same day whether intra-
day or otherwise, the closing NAV of the day immediately preceding the next business
day is applicable. If application received up to the cut off on a day and funds are
available for utilisation before the cut-off time, without availing any credit facility,
whether intra-day or otherwise then closing NAV of the day immediately preceding the
day of the receipt of application is applicable. Irrespective of the time of receipt of
applications, where the funds are not available for utilisation before the cut-off time,
without availing any credit facility, whether intra- day orotherwise, the closing NAV of
the day immediately preceding the day on which the funds are available for utilisation.
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20. State True or False. On every new business day in the morning the time
stamping machine is set to serial number 1 and the application received on
that day are affixed with time stamp and serial number starting from 1.
a. True
b. False
Ans: (b) Applications are sequentially numbered from the first number of the
machine to the last number of the machine, before a new numbering cycle is
started for the machine. The daily time stamping of application DOES NOT start
with serial 1. It starts with the number subsequent to the day before last number.
246
21. A company wishes to invest in a specific scheme of a Mutual Fund.
Which document authorises it to do so?
a. The Memorandum of Association
b. The Articles of Association
c. Share holders resolution
d. Specific Board resolution
Ans: (d) The specific resolution has to be passed in Board of Directors

meeting for investments in a MF scheme.
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22. The party in whose favour the Units are pledged is called a _____
a. Pledger
b. Pledgee
c. Pledge
d. Pledion
Ans: (b) The unit holder is the Pledger. The party in whose favour the Units
are pledged is called the Pledgee.
247
23. The dividend is declared on units which are under a lien will be paid
to___________.
a. the unit holder only
b. the lien holder only
c. the unit holder or lien holder as per the agreement
d. the unit holder or lien holder as per the terms of issue of mutual fund
units
Ans: (c) The dividend pay-outs declared on units under lien may be paid to
the unit holder or the lender (lien holder) depending upon the agreement.
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24. What is the maximum number of joint holders allowed per mutual fund
application?
a. 3
b. 4
c. 5
d. 6
Ans: (a) The maximum number of joint holders allowed per mutual fund
application is three.
248
25. Dormant investors are those investors who have not transacted during
the previous _________months.
a. 3
b. 6
c. 12
d. 24
Ans: (b) Dormant investors are those investors who have not transacted
during the previous 6 months.
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26. Mutual funds offer facilities that help investor invest constant amounts
regularly through a _____________.
c. Systematic Saving Plan
Ans: (d) Mutual funds offer facilities that help investor invest constant
amounts regularly through a SIP.
249
27. An investor can convert his Mutual Fund units into demat form but again
converting the demat unit into physical form is not allowed. State True or
False?
a. True
b. False
Ans: (b) The investor also has the option to convert the demat units into
physical form. This process is called re-materialisation.
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28. Amit does not have a PAN Card. He wishes to invest Rs. 1 lakh in a
mutual fund scheme. He does not fall into any exempt investor category. In
which way can he invest?
a. He cannot invest as PAN Card is mandatory
b. He can sign up for a SIP and get an exemption from the requirements of
a PAN card
c. He can provide additional prescribe photo proofs like the Aadhaar, Voter
Id etc.
Ans: (a) Permanent Account Number (PAN) Card with photograph is mandatory
for all applicants except those who are specifically exempt from obtaining PAN.
The following categories of investors are exempt from producing PAN: In case of
transactions undertaken on behalf of Central/State government and by officials
appointed by the court, Investors residing in the state of Sikkim, UN
entities/Multilateral agencies exempt from paying taxes/filing tax returns in India
and Investments (including SIPs and lump sum investments) in Mutual Fund
250
29. Which document is NOT required for the KYC process by a mutual fund
investor?
a. Proof of Income
b. Proof of Address
c. Proof of Identity
d. PAN card
Ans: (a) For the KYC process (for establishing proof of identity and address)
following documents are required:
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30. What exception is made for investments by Systematic Invest Plans, if
the annual investment is below Rs. 50000?
a. KYC is not required to be done
b. Photo identity is not required
c. PAN Card is not required
Ans: (c) Providing Permanent Account Number (PAN) is compulsory for all
mutual fund investments. Exception has been made for Micro-SIPs i.e. SIPs
where annual investment (12 month rolling or April-March financial year)
does not exceed Rs. 50,000.
251
31. If the ARN code is not mentioned and choice of plan is not indicated in
the application form, then the application will be ________.
a. processed as a Direct Plan application
b. rejected
c. processed as a Regular Plan application
d. treated as incomplete application and will be returned to the investor for
completion
Ans: (a) If the ARN code is not mentioned and choice of plan is not
indicated then the application will be processed as a Direct Plan application.
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32. Foreign investors can invest in equity schemes of MFs registered with
SEBI after completing KYC process. State True or False?
a. True
b. False
Ans: (a) Foreign investors can invest in equity schemes of MFs registered
with SEBI after completing KYC process.
252
33. If a charitable trust wishes to invest in a Mutual Fund, which amongst
the following document is not required to be submitted?
a. Memorandum and Articles of Association
b. Trust Deed
c. Board Resolution authorising the investments
d. List of authorised signatories
Ans: (a) A Charitable Trust does not have any Memorandum and Articles of
Association. It has a Trust Deed.
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34. Mr. Gupta invests Rs. 1 crore in a Gilt Mutual Fund scheme and gives a
local cheque at 1pm. Which will be the applicable NAV for allotment of units
to Mr. Gupta?
a. Closing NAV of the day on which the application was made.
b. NAV of the business day on which the funds are available for utilisation
before the cut-off time of that day is applicable.
c. Next business day NAV.
d. Closing NAV of the day immediately preceding the application day.
Ans: (b) For all Equity oriented funds and Debt funds (except liquid funds) if the
transaction is more than Rs. 2 lakhs: Irrespective of the time of receipt of
application, NAV of the business day on which the funds are available for
utilisation before the cut-off time of that day is applicable.
(If it is below Rs. 2 lakhs: Same day NAV if received before cut off time i.e. 3 pm)
253
35. The facility of ASBA - 'Application Supported by Blocked Amount' is
mainly for additional purchase of Mutual Funds units. State True or False?
a. True
b. False
Ans: (b) ASBA can only be used for IPO's of equity shares and NFO's of
Mutual Funds. It cannot be used for additional purchase.
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36. Investors who have not transacted during the previous ________ are
known as dormant investors.
a. 15 months
b. 12 months
c. 9 months
d. 6 months
Ans: (d) Dormant investors are those who have not transacted for previous
six months.
254
37. Mr. Mohit has filled up an application form for subscribing to a mutual
fund scheme. However, the address mentioned in the application form is
different from the address provided at the time of KYC compliance. Which
address will be included in the mutual funds records once the KYC
compliance is validated?
a. The address provided for KYC compliance
b. The address provided in the application form
c. Mr. Mohit can indicate which address is correct
d. The address provided in the application form will be used for all
communications
Ans: (a) Once the first holder's PAN is validated for KYC, the address provided in
the KYC form will override the information provided in the application form.
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38. Who uses the information collected under the Foreign Account Tax
Compliance Act (FATCA)?
a. Foreign Government or foreign agencies
b. Indian Government
c. Indian Tax authorities
d. All of the above
Ans: (d) To comply with the requirements of Foreign Account Tax Compliance Act
(FATCA) and Common Reporting Standards (CRS) provisions, financial
institutions, including mutual funds, are required to undertake due diligence
process to identify foreign reportable accounts and collect such information as
required under the said provisions and report the same to the US Internal
Revenue Service/any other foreign government or to the Indian Govt. / Tax
Authorities for onward transmission to the concerned foreign authorities.
255
39. Which of these entities can invest in Indian mutual funds?
A. Foreign portfolio investor B. Insurance company C. Salaried individual
a. Only C
b. A and B
c. B and C
d. All A, B and C
Ans: (d) All of the above can invest in Indian mutual funds.
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40. Identify the TRUE statements with respect to Transmission of mutual
fund units.
A. Before the transfer is effected, the mutual fund will insist for an indemnity
against future problems for the mutual fund arising out of the transfer.
B. Before the transfer is effected, the mutual fund will not insist on the death
certificate of the deceased unit-holder.
C. Before the transfer is effected, the mutual fund will insist on the KYC
documentation from the nominee.
a. A and B are true
b. B and C are true
c. A and C are true
d. All A, B and C are true
Ans: (c) Transmission is the process of transferring units to the person entitled to
receive it in the event of the death of the unit holder. In case of transmission, before
the transfer is effected, the mutual fund will insist on the KYC documentation from the
nominee, death certificate of the deceased unit-holder, and an indemnity against
future problems for the mutual fund arising out of the transfer.
256
41. Identify the true statement(s) -
A) A systematic transaction cannot be cancelled.
B) Assuming a mutual fund scheme is profitable then the investors can keep
en-cashing some profits through a Systematic Withdrawal Plan
a. Only A is true
b. Only B is true
Ans: (b) 1. A systematic transaction (like SIP etc.) can be stopped. 2. Assuming
the scheme is profitable, the re-purchase ensures that some of the profits are
being regularly encashed by the investor.
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42. Which of these statements are TRUE with respect to time stamping on
mutual fund documents?
A. Time stamping is relevant for non-financial mutual fund transactions.
B. The daily time stamping of application does not start with serial 1.
C. Breakdown of time stamping process or breaking of seal is mandated to be
duly recorded and reported to the Trustees.
a. A and B are true
b. B and C are true
c. A and C are true
d. A, B and C are true
Ans: (b) (1) Applications for non-financial transactions like change of address are
stamped. However, here stamping of time is not relevant; the data stamping is pertinent.
(2) Applications are sequentially numbered from the first number of the machine to the
last number of the machine, before a new numbering cycle is started for the machine. The
daily time stamping of application does not start with serial 1. (3) The points of
acceptance have time stamping machines with tamper-proof seal. Opening the machine
for repairs or maintenance is permitted only by vendors or nominated persons of the
mutual fund. Such opening of the machine has to be properly documented and reported
to the Trustees.
257
43. Cut-off timing guidelines are not applicable for ________.
a. International Funds
b. New Fund Offer (NFO)
Ans: (c) The cut-off timing is not applicable for NFOs and International
Schemes.
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44. Investments in mutual fund are allowed using __________.
a. ASBA
b. Cheque or DD
c. Remittance
d. Any of the above
Ans: (d) Investments in mutual fund are allowed using any of the given
options
258
45.Investors' KYC details are stored in the server of _________.
a. AMFI
b. AMC
c. KRA
d. SEBI
Ans: (c) KRA means KYC Registration Agency. The KRA after checking the
KYC details uploads the details in the server of any centralised KRA.
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46. Investors have the right to specify upto ______ nominees for their
mutual fund investment folios.
a. 1
b. 2
c. 3
d. 4
Ans: (c) The investors can appoint upto 3 nominees, who will be entitled to
the 'Units' in the event of the demise of the investors. The investor can also
specify the percentage distribution between the nominees. If no distribution
is indicated, then an equal distribution between the nominees will be
presumed.
259
47. PAN No. and KYC documentation is compulsory for mutual fund
investments with the only exception of _________.
a. ELSS Funds
b. Micro SIPs
c. Gilt Funds
d. Government Mutual Funds
Ans: (b) Micro SIPs: SIPs where annual investment (12 month rolling or
April-March financial year) does not exceed Rs. 50,000.
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48. How many (maximum) bank accounts can a resident individual investor
register with a mutual fund folio?
a. 1
b. 2
c. 3
d. 5
Ans: (d) Mutual funds provide investors the facility to register multiple bank
accounts to facilitate receiving the redemption, dividends and any other pay
outs from the fund. An individual investor can register up to five bank
accounts and a non-individual investor, upto ten.
260
49. STP is a combination of SIP and SWP. True or False?
a. True
b. False
Ans: (a) In a STP (Systematic Transfer Plan), the amount that is withdrawn
from a scheme is re-invested in some other scheme of the same mutual
fund. Thus, it operates as a SWP (Systematic Withdrawal Plan) from the
first scheme, and a SIP (Systematic Investment Plan) into the second
scheme.
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50. Mutual Funds cannot accept cash from investors for investing in their
schemes. True or False?
a. True
b. False
Ans: (b) Mutual funds usually do not accept cash. However for small
investors, who may not be tax payers and may not have PAN/bank
accounts, such as farmers, small traders/businessmen/workers are allowed
cash transactions for purchase of units in mutual funds to the extent of Rs.
50,000/- per investor, per mutual fund, per financial year.
261
51. An investor gives a cheque of Rs. 1 lacs for investing in a Debt scheme
at 3.30 pm at a Mutual Fund office. The NAV of which day will be applicable
to him?
a. NAV of the same day
b. NAV of the next business day
c. NAV of the day on which funds will be available
Ans: (b) For all Equity and Debt funds (except Liquid funds) - For
investment of Rs. 2 lacs and below - NAV of the same day if received before
3 pm (cut off time). If received after 3 pm then NAV of the next business
day. For investments of amount over Rs. 2 lacs, irrespective of the time of
receipt of application, NAV of the business day on which the funds are
available for utilisation before the cut-off time of that day is applicable.
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52. Relaxation in documentation requirements for micro SIPs is not
available for ________.
a. Non Resident Indians
b. Hindu Undivided Family
c. Individuals
d. All of the above
Ans: (b) Relaxation in documentation requirements for micro SIPs is not

available for HUFs and non individuals. Such relaxation is available for
individuals or NRIs.
262
53. A Mutual Fund scheme is known to distribute dividends from time to
time. Such MF can be used as a source of ________.
a. Good Capital Appreciation
b. Regular Income
c. Safety of Capital
d. Tax Planning
Ans: (b) A Mutual Fund scheme is known to distribute dividends from time to
time. Such MF can be used as a source of regular income.
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54. Mutual funds can accept cash to the tune of Rs. ______________from
small investors who do not have a PAN.
a. Rs. 50,000
b. Rs. 20,000
c. Rs. 10,000
d. Rs. 5,000
Ans: (a) Mutual funds usually do not accept cash. However for small
investors, who may not be tax payers and may not have PAN/bank
accounts, such as farmers, small traders / businessmen / workers are
allowed cash transactions for purchase of units in mutual funds to the extent
of Rs. 50,000/- per investor, per mutual fund, per financial year.
263
55. What are the benefits of Dematerialisation?
A. Reduction in paper work B. Auto credit of bonus units
C. No inconvenience of safekeeping paper certificates, etc.
a. A and C
b. B and C
c. A and B
d. All A, B and C
Ans: (d) The benefits from a demat account are as follows:

- Less paperwork in buying or selling the mutual fund units, and correspondingly,
accepting or giving delivery of the units.
- Direct credit of bonus and rights units that the investor is entitled to, into the
investor's demat account.
- Change of address or other details need to be given only to the Depository
Participant, instead of separately providing it to every company/mutual fund where
the investor has invested and holds demat units.
- Consolidate all investments in mutual funds, direct equity, debentures and others
under one account.
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56. Minors are not legally eligible to contract, so for investing in Mutual
Funds they ________.
a. have to become 18 years before investing
b. can invest through their guardians
c. can invest only in long term capital gain funds
d. can invest in specific 'Minors Only' Mutual Funds
Ans: (b) Minors i.e. persons below the age of 18 are not legally eligible to
contract, they need to invest through their Parents/Lawful guardians.
264
57. How can an investor remit money in an Indian mutual fund from abroad?
a. Through Society for Worldwide Interbank Financial Telecommunication
(SWIFT)
b. Through Immediate Payment Service (IMPS)
c. Through Real time gross settlement (RTGS)
d. Through National electronic funds transfer (NEFT)
Ans: (a) For investments in mutual funds, remittance can be made directly
to the bank account of the scheme through Real Time Gross Settlement
(RTGS)/National Electronic Funds Transfer (NEFT) facilities (for transfers
within India) or SWIFT transfer (for transfers from abroad). SWIFT transfers
tend to pass through multiple banks in different geographies, and multiple
levels within the same bank, resulting in delays.
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58. Which of these investors is allowed to do a nomination?
a. Only SIP investors
b. Only Equity Mutual Fund investors
c. Only Institutional Investors
d. Only Individual Investors
Ans: (d) Only individual investors can make a nomination.
265
59. In which of these options will the unit balance increase in the mutual
fund investors folio without any transaction being done by the investor?
a. Redemption
b. Dividend Re-investment option
c. Dividend Payout option
d. Growth option
Ans: (b) In a Dividend Re-investment option, the investor does not receive
the dividend in his bank account; the amount is re-invested in the same
scheme and additional units are allotted to the investor. (The reinvestment
happens at the ex-dividend NAV).
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60. Nomination and Pledge options are not available for mutual fund
investors. True or False?
1. True
2. False
Ans: (b) Nomination and Pledge options are available for mutual fund
investors.
266
61. Tax Deferral is a key feature of ______________
a. Dividend Option
b. Growth Option
c. Arbitrage Fund
d. Liquid Schemes
Ans: (b) Tax Deferral is a key feature of Growth Option.

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62. Mr. Mahesh gives his investment application form to the distributor at 10
am. The distributor then goes to the Mutual Fund office and submits this
application at 1pm. What is the cut off time for this investment?
a. 0.5416
b. 0.416
c. 0.6041
d. 0.625
Ans: (a) The cut off time is when the investment is submitted to the PoA -
Point of Acceptance is relevant - not the time when the investor submits the
transaction request to the distributor.
267
63. If an Institutional Investor is making an application for investing in a
Mutual Fund, which additional document is required?
a. Audited Accounts for the last 3 years
b. Bank Statements
c. Board Resolution
d. Approval letter from SEBI
Ans: (c) If an Institutional Investor is making an application for investing in a

Mutual Fund, Board Resolution is required.
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64. As regards cut-off timing, the time when it is submitted to the Points of
Acceptance PoA is relevant - not the time when the investor submits the
transaction request to the distributor. True or False?
a. True
b. False
Ans: (a) This can be explained using an example. Suppose an investor

gives a MF investment application form on Monday to his distributor but the
distributor submits the form to the official PoA on Tuesday before the cut-off
time, the NAV of Tuesday will be considered while allotting the units to the
investor.
268
65. The Transaction Slips are used by ___________
a. First time investors of Mutual Funds
b. NFO Investors
c. Existing Investors
d. Relatives of Existing Investors
Ans: (c) For a first time investment in a mutual fund Full application form is
to be filled. Then once an investor has a folio with a mutual fund,
subsequent investments / sale with the same mutual fund do not call for the
full application form. Only Transaction Slip needs to be filled and submitted.
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66. Relaxation in documentation requirements for micro SIPs is available for
__________.
a. Non Resident Indians
b. Non Individuals
c. Hindu Undivided Family
d. None of the Above
Ans: (a) Relaxation in documentation requirements for micro SIPs is only

available to individuals and not for HUFs and non-individuals. Such
relaxation is available for NRIs as they are individuals.
269
67. A Board Resolution is not required for an institutional investor to invest
in Mutual Funds if the Memorandum and Articles of Association permit it to
do so. True or False?
a. True
b. False
Ans: (b) A Board Resolution is required as an authorisation for the investing

institution to invest.
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68. To do away with multiple KYC formalities with various intermediaries,
SEBI has mandated a unified KYC for the securities market through the
Depository Participants registered with SEBI. True or False?
a. True
b. False
Ans: (b) To do away with multiple KYC formalities with various

intermediaries, SEBI has mandated a unified KYC for the securities market
through KYC Registration Agencies registered with SEBI.
270
69. Which of the following is true with respect to Growth Option in Mutual
Fund schemes?
a. The change in NAV captures the scheme performance
b. Units rise or fall depending on the schemes performance
c. The NAV falls as and when dividend is declared
d. Dividend Distribution Tax is applicable
Ans: (a) In Growth Option, the NAV rises or falls depending on the schemes
performance. No dividend is declared in Growth Option.
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70. When a dividend is paid, the NAV of the units__________ to that extent.
a. rises
b. falls
c. There is no change
Ans: (b) In a dividend pay-out option, the fund declares a dividend from time
to time. When a dividend is paid, the NAV of the units falls to that extent.
271
71. ____________ is considered as an Institutional Investor.
a. Non-Resident Indians
b. Trusts
c. Persons of Indian Origin (PIO)
d. High Net worth Individuals
Ans: (b) Charitable Trusts / Private Trusts are considered as institutional

investors. Non-Resident Indians (NRIs)/Persons of Indian Origin (PIO) /
HNls are individual investors.
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72. What will happen if one of the joint holders of a mutual fund folio dies?
a. The folio will be cancelled and the amount refunded
b. The units will be transferred to nominees
c. The units will be transferred to the heir of deceased holder
d. The units will continue to be held by surviving joint holders
Ans: (d) Transmission is the process of transferring units to the person

entitled to receive them in the event of the death of the unit holder. If a folio
is jointly held and has nominations, the right of the joint holder will be given
priority.
272
A) The nominee is the beneficial owner of the mutual fund units
B) Nomination does not create any title or beneficial interest in the units in
favour of the nominee after the death of the unit-holder
a. Only A is true
b. Only B is true
Ans: (b) Nomination is only an authorization for the mutual fund to transfer
the units to the nominee in the event of the demise of the unit-holder. The
nominee holds the units in trust for the legal heirs of the investor. It does not
create any title or beneficial interest in the units in favour of the nominee
after the death of the unit-holder.
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74. If a third-party payment is to be made for subscribing to a mutual fund
scheme, then which of the following is/are essentially required?
a. The minimum investment has to be Rs. 50,000
b. The third-party has to provide PAN details and also comply with the KYC
norms
c. The third-party should also have a folio with the mutual fund
d. All of the above
Ans: (b) Compliance with the KYC norms and providing the PAN details are
mandatory by the third party making the payment irrespective of the amount
involved. The third party need not have a folio with the mutual fund.
273
75. Which investor need not provide a PAN card at the time of making a
mutual fund investment?
a. Investor who is investing up to Rs. 50,000 in a mutual fund scheme
(excluding SIPs) per year per mutual fund.
b. Investor who is investing up to Rs. 50,000 in a mutual fund scheme
(including SIPs) per year per mutual fund.
c. An investor who is investing up to Rs. 1,00,000 in a mutual fund scheme
(excluding SIPs) per year per mutual fund.
d. Investor who is investing up to Rs. 1,00,000 in a mutual fund scheme
(including SIPs) per year per mutual fund.
Ans: (b) The following categories of investors are exempt from producing PAN: 1.
In case of transactions undertaken on behalf of Central/State government and by
officials appointed by the court. 2. Investors residing in the state of Sikkim. 3. UN
entities/Multilateral agencies exempt from paying taxes/filing tax returns in India.
4. Investments (including SIPs and lump sum investments) in Mutual Fund
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76. Identify the false statement(s)-
A) Share certificate is a physical asset
B) Debenture is a physical asset as the paper on which it is printed has
value
b. Statement B is false
c. Both statements A and b are false
Ans: (c) Shares and Debentures are not physical assets. They are financial
assets. Physical assets include Gold, Building, Art, etc.
274
77. A minor has one more year to become a major. A 3-year SIP is started in
the minors folio. Which of the following statement is true in this case?
a. The SIP will be registered for 3 years.
b. The SIP will be registered for only 2 years.
c. The SID will be registered for only 1 year till the investor attained majority.
d. The SIP will be registered for 3 years from the date of attaining the
majority.
Ans: (c) Standing instructions like Systematic Investment Plans (SIP) are
registered in a minor folio only till the date of the minor attaining majority,
even though the instructions may be for an extended period.
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78. An investor already has a folio in a mutual fund scheme where he is a
joint holder. Now he wants to do additional investments in the same scheme
as a sole holder. How can he make the change?
a. He will have to do the investments under a new folio and select the mode
of holding as single
b. He can do the investments by mentioning the mode of holding in the
application as single to apply only for the fresh investments being made
c. He can do the investment by changing the mode of holding for the
additional units after the investment has been made.
Ans: (a) Once a mutual fund folio is created as a jointly held account there
can be no change in the joint holders or mode of holding except in the event
of a death.
275
79. Which information has to be provided by a normal investor to be
identified as an existing investor in the mutual fund?
a. PAN
b. PEKRN
c. Folio Number
d. KYC acknowledgment
Ans: (c) An existing investor can use the application form to make fresh
purchases in other schemes of the same mutual fund or even make
additional purchases in a scheme. In this case, the assigned folio number
has to be provided and all the personal information already captured under
the folio will apply to the new investment being made also.
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80. Identify the true statement(s) with respect to the stamping of application
for Non Financial transactions of a mutual fund.
A) Time stamping is relevant B) Date stamping is pertinent
C) Date and Time stamping is done
a. All A, B, and C are true
b. Only A and B are true
c. Only B and C are true
d. Only A and C are true
Ans: (c) Applications for non-financial transactions like a change of address

and investor's acknowledgment are date and time-stamped. However, here
stamping of time is not relevant; the date stamping is pertinent (relevant).
276
81. When should the information under Foreign Account Tax Compliance
Act (FATCA) be provided?
a. Only if the investment is made from a foreign bank account
b. Only if the place of birth is other than India
c. Only if an NRI is doing the investment
d. Only if the investor is a resident of the USA or Europe
Ans: (b) For applicants, including guardians, whose country of

birth/citizenship/nationality/tax residency is other than India, the application
requires additional information under Foreign Account Tax Compliance Act
(FATCA).
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82. Who is NOT authorized to attest the documents submitted for Know
Your Customer compliance, in case originals are not produced at the time of
KYC?
a. Notary Public
b. Manager of a Scheduled Commercial Bank
c. Mutual Fund distributor
d. Gazetted Officer
Ans: (c) In the KYC process, the supporting documents (identity and
address proof) are verified with the original documents. Alternatively, the
investor can provide a True Copy attested by a Notary Public, Gazetted
Officer, or Manager of a Scheduled Commercial Bank.
277
A) Individuals can register up to 5 bank accounts with a mutual fund
B) A Non-Individual can register up to 10 bank accounts with a mutual fund
c. Both A and B are correct
Ans: (c) Mutual funds provide investors the facility to register multiple bank
accounts to facilitate receiving the redemption, dividends, and any other
payouts from the fund. An individual investor can register up to five bank
accounts and a non-individual investor, ten.
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84. Which of these statement(s) is/are TRUE?
A) If the mutual fund units are held in Demat form, they cannot be converted
into physical form.
B) When a mutual fund is redeemed or when there is a dividend pay-out,
the amount will be credited to the bank account linked to the Demat account
for those mutual fund investors who opt for demat units.
Ans: (b) The mutual fund investor has the option to convert the Demat units
into physical form. This process is called re-materialisation. Dividends &
redemption proceeds will be credited directly to the bank account. electronic
modes such as direct credit, NEFT, NACH facility.
278
85. Mr. Sandesh invests Rs. 75 lakhs in a Gilt Fund and gives a local
cheque at 3.30 pm. What will be the applicable NAV for the allotment of
units?
a. NAV of the business day on which the funds are available for utilization.
b. Same day NAV if received before the cut-off time.
c. The closing NAV of the next business day.
d. The closing NAV of the day immediately preceding the date of
application.
Ans: (a) A sector fund would invest in only the concerned sector so the
benchmark has to be a similar index. For eg., A Banking Sector fund can be
benchmarked against S&P BSE Bankex and an Infrastructure Fund can be
benchmarked against Nifty Infrastructure Index to get the correct picture.
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86. Which of these documents is not required to be submitted for investing
in mutual funds by a charitable organization?
a. List of authorized signatories
b. Trust deed
c. Board resolution
d. Memorandum and Articles of Association
Ans: (d) A Charitable Trust does not have any Memorandum or Articles of
Association. It has a Trust Deed.
279
87. In case the units are pledged, the unit holder__________________.
a. can sell the units after the lock-in period
b. cannot sell the units
d. cannot do an additional purchase
Ans: (b) Once units are pledged, the Unit-holder/s cannot sell or switch out
the pledged units, until the pledgee gives a written no-objection to release
the pledge.
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88. What is the maximum percentage of holding can a single investor have
in a mutual fund scheme?
a. 5%
b. 10%
c. 20%
d. 25%
Ans: (d) A Scheme/Plan shall have a minimum of 20 investors and no single

investor shall account for more than 25 percent of the corpus of the
Scheme/Plan.
280
89. Who cannot invest in Mutual Funds in India?
a. Minors
b. HUFs
c. NRIs
d. All of the above
Ans: (a) Minors i.e. persons below the age of 18, are not legally eligible to
enter into a contract. They need to invest through their guardians. Hindu
Undivided Families (HUFs) and Non-Resident Indians (NRIs) can invest in
Indian MFs as per guidelines.
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90. Gold futures contract______________.
a. are traded in commodity exchanges
b. are not standardized contracts
c. are available through mutual funds
Ans: (a) CAGR is the mean annual growth rate of an investment over a
specified period of time longer than one year. It represents one of the most
accurate ways to calculate and determine returns for individual assets,
investment portfolios, and anything that can rise or fall in value over time.
281
91. The dividend declared on units under lien is paid
to___________________
a. always to the lien holder
b. always to the unit holder
c. the lien holder or the unit holder as per the agreement
d. Units under lien do not receive any dividends
Ans: (c) The dividend pay-outs declared on units under lien may be paid to
the unit holder or the lender depending upon the agreement.
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92. The mechanism used to ensure that the cut off timing is strictly followed
is called________.
a. Stamp time
b. Time verification
c. Timestamping
d. Auditing
Ans: (c)The NAV that is applicable to a transaction depends, among other

things, on the day and time at which the transaction request was received at
the official point of acceptance. It is therefore very critical to record the time
at which a transaction was received and use this information to determine
the applicable NAV for a transaction. Timestamping is the process by which
a stamp is put with details like date and exact time of receipt etc. on the
transaction form.
282
93. As the Unit Certificates are non-transferable, they do not offer any real
transactional convenience for the Unit-holder. State True or False?
a. True
b. False
Ans: (a) Since Unit Certificates are non-transferable, they do not offer any
real transactional convenience for the Unit-holder. However, if a Unit-holder
asks for it, the AMC is bound to issue the Unit Certificate within 5 working
days of receipt of the request.
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94. A board resolution for investing in a mutual fund scheme is compulsorily
required by______________.
a. Non-Resident Indians - NRIs
b. Hindu Undivided Family - HUF
c. Institutional Investors
d. Minors
Ans: (c) Institutional investors require authorization the invest in any security
/ asset, etc. This is typically in the form of a Board Resolution.
283
95. What is the maximum permissible limit of investment a single investor
can have in a scheme?
a. 5% of the corpus
b. 10% of the corpus
c. 20% of the corpus
d. 25% of the corpus
Ans: (d) As per SEBI rules, a Scheme/Plan shall have a minimum of 20

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96. Which of these statements is TRUE with respect to Cut-off timings?
a. Cut-off timings are prescribed by SEBI from time to time
b. Cut-off timings are agreed upon between the AMC and the Collection
centers
c. Cut-off timings are different from AMC to AMC
d. Cut-off timings are different for different RTAS
Ans: (a) SEBI has prescribed cut-off timing to determine the applicable NAV
and these timings are uniformly applicable for all mutual funds.
284
97. _____________ can be used in lieu of dividend payouts.
a. Systematic Transfer Plan (STP)
b. Systematic Withdrawal Plan (SWP)
c. Systematic Investment Plan (SIP)
d. Total Redemption
Ans: (b) Mutual funds make it convenient for investors to manage their
SWPs by registering the amount, periodicity (generally, monthly), and period
for their SWP.
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98. Which of these statements is true with respect to a Switch transaction?
a. Switch transaction is allowed only after one year from the date of
purchase
b. Switch transaction is similar to a purchase transaction
c. Switch transaction is similar to a sale transaction
d. Switch transaction is redemption from one mutual fund scheme and
simultaneous purchase into another scheme
Ans: (d) A switch is redemption from one scheme and purchase into another
combined into one transaction. For example, investors who believe that
equity markets have peaked and want to book profits can switch out from an
equity scheme and switch into a short-term debt fund.
285
99. Identify the TRUE statement(s) for an Equity Linked Saving Scheme
(ELSS).
a. Only 1
b. Only 2
c. Only 3
d. Only 2 and 3
Ans: (b) If one opts for a dividend reinvestment plan, each time a dividend is
reinvested, the same would also attract a 3-year lock-in. (Note - Currently
the dividend reinvestment plan in EL SS has been abolished).
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100. Where should the change in status of an individual from a Resident to
a Non-Resident Indian be updated for mutual fund investments?
a. lt should be updated with the Registrar and Transfer Agent
b. It should be updated with the KYC Registration Agency
c. It should be updated directly with the Mutual Fund
d. It can be updated with any of the three options provided
Ans: (b) The KYC Registration Agency (KRA) prescribes a 'Change Form' to
be used to register change, if any, in the information provided at the time of
the Know Your Customer (KYC) process. These include: Change in Name,
Change in Status/ Nationality, Change in PAN, Change in permanent
address or address for correspondence, etc.
286
101. Investments have to be made only through authorized signatories for
investments by_______________.
a. Institutional investors
b. Hindu Undivided Family (HUF)
c. Non Resident Indians (NRI)
d. High net worth individuals (HNI)
Ans: (a) Since institutional investors are not natural persons, authorized
individuals invest on behalf of the institution. Authorization for the investing
institution to invest is typically in the form of a Board Resolution.
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102. The form for registering a change in the default bank account has to be
signed_______________.
a. by the first holder only
b. by all the holders of the folio
c. according to the mode of holding of the folio
d. by all the holders of the bank account
Ans: (c)The form for registering the change in the default bank account has
to be signed according to the mode of holding of the folio.
287
103. Identify the FALSE statement(s)-
A. Authorised signatories have to sign the request for transactions of
institutional investors in mutual funds.
B. Even if the Memorandum of Association and Articles of Association does
not permit investment in mutual funds, the company can invest in a mutual
fund on the basis of a Board Resolution.
Ans: (b) 1. A company cannot invest in mutual funds if its incorporation

documents ((Memorandum of Association and Articles of Association) do
not provide for investments of this type. 2. The mutual fund can allow
transactions only if the transaction form/slip carries the signature of any
(one or more, as required) of the authorised signatories.
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104. The investor cannot pledge the units of a Mutual Fund as a security to
a financier. True or False?
a. True
b. False
Ans: (b) The investor can pledge the units as a security to a financier.
288
105. _________assumes that all dividend payouts are re-invested in the
scheme at the ex-dividend NAV.
a. Compounded Returns
b. Compounded Annual Growth Rate
c. Annualised Returns
d. Simple Returns
Ans: (b) Whenever a dividend is paid and compounding is to be considered, the

CAGR (Compounded Annual Growth Rate) technique prescribed by SEBI is used.
This calculation is based on an assumption that the dividend would be re-invested
in the same scheme at the ex-dividend NAV.
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106. An investor gives a local cheque of Rs. 3 crore for investment in the
Gilt scheme at 11.30 am. What would be the applicable NAV for this
investment?
a. The closing NAV of the day preceding the date of application
b. The closing NAV of the next working day
c. The closing NAV of the application day
d. The NAV of the business day on which the funds are available for
utilization
Ans: (d) Vide SEBI circular dated September 17, 2020, it was decided that with respect to
purchase of units of MF schemes - both Debt and Equity (except liquid and overnight
schemes), closing NAV of the day shall be applicable, on which the funds are available for
utilisation irrespective of the size and time of receipt of such application. Until now,
investors who gave a cheque for below Rs 2,00,000 got the same day's NAV, while those
putting more got the NAV of the day when the cheque was realised.
289
107. The facility of Application Supported by Blocked Amount (ASBA) can
be used for_______________.
a. application for additional purchase of MF units
b. applications by SIP
c. application for New Fund Offers (NFO)
d. Fresh purchase by a new investor of an existing scheme
Ans: (c) Application Supported by Blocked Amount (ASBA) - This is a facility

where the investment application in a New Fund Offer (NFO) is
accompanied by an authorization to the bank to block the amount of the
application money in the investor's bank account. The benefit of ASBA is
that the money goes out of the investor's bank account only on the
allotment. Until then, it keeps earning interest for the investor.
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108. Investors in India are usually highly organized in managing their
financial transactions and taking decisions related to Financial Planning.
State True or False?
a. True
b. False
Ans: (b) Most investors are either not organized, or lack the ability to make
the calculations required for financial planning. A financial planner's service
is therefore invaluable in helping people realize their needs and aspirations.
290
109. Mr. Shah gives a local cheque at 2.30 pm of Rs. 30 lacs for investment
in an Equity Scheme. Which will be the applicable NAV for the allotment of
units to Mr. Shah?
a. NAV of the business day on which the funds are available for utilization
b. The closing NAV of the next business day
c. The closing NAV of the day immediately preceding the date of application
d. Same day NAV if received before the cut-off time.
Ans: (a) Applicable NAV for purchases of Equity oriented funds and debt
funds (except liquid funds) in respect of transaction equal to or more than
Rs. 2 lakhs - Irrespective of the time of receipt of the application, NAV of the
business day on which the funds are available for utilization.
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110. At what price are the bonus units issued to the unit holder?
a. The bonus units are allotted free of cost
b. At the prevailing NAV divided by the bonus ratio
c. The price is decided by the AMC in consultation with the trustees
d. At the prevailing NAV
Ans: (a) In a bonus issue, the investor does not pay anything. The fund
allows new units for free. Thus, in a 1:3 bonus issue, the investor is allotted
1 new unit (free) for every 3 units already held by the investor.
291
111. Which of the following statement is true?
a. Hindu Undivided Families (HUFs) are not allowed to invest in mutual fund
schemes.
b. Foreign investors can invest in Indian mutual fund schemes, provided
they have completed the know-Your-Client (KYC) formalities
c. None of the above
Ans: (b) Foreign investors can invest in equity schemes of MFs registered
with SEBI after completing the KYC process.
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112. If an investor wants to invest a sum of below Rs. 50000 in cash in a
Mutual Fund then a PAN card is not required. True or False?
a. True
b. False
Ans: (a) Small investors, who may not be taxpayers and may not have
PAN/bank accounts, such as farmers, small traders/businessmen/workers
are allowed cash transactions for the purchase of units in mutual funds to
the extent of Rs. 50,000/- per investor, per mutual fund, per financial year.
This is subject to compliance with the Prevention of Money Laundering Act,
2002 and SEBI Circulars on Anti Money Laundering (AML) and other
applicable AML rules, regulations, and guidelines.
292
113. Whose KYC needs to be completed in case of an application by a
minor?
a. The minor
b. The guardian
c. Any family member of the minor
d. No KYC is required in case of applications by minors
Ans: (b) An investment made for a minor (less than 18 years) is done
through a guardian who complies with the KYC and PAN requirements and
all other formalities as if the investment was for themselves.
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114. Identify the plan which could be used in lieu of income distribution cum
capital withdrawal pay-outs?
c. Systematic Investment Plan (SIP)
Ans. (a) The Income distribution cum capital withdrawal (dividend) pay-out option
is for investors wanting a regular income. Systematic Withdrawal Plan(SWP) is a
facility which allows an investor to withdraw a fixed amount at pyre-determined
intervals. Therefore an Income distribution cum capital withdrawal (dividend) pay-
out option is similar to SWP. The difference is that the dividend is paid only when
the fund has a surplus amount and in SWP the amount is compulsarily paid. (The
dividend pay-out plan is renamed as pay-out of income distribution cum capital
withdrawal, dividend re-investment plan is renamed as reinvestment of income
distribution cum capital withdrawal option followed by renaming of dividend
transfer plan to transfer of income distribution cum capital withdrawal plan)
293
115. Which is the Target Scheme in a Systematic Transfer Plan?
a. It is the scheme with the lower NAV
b. It is the scheme with the higher NAV
c. It is the scheme from which funds are transferred
d. It is the scheme to which funds are transferred
Ans. (d) In a Systematic Transfer Plan (STP), the amount that is withdrawn
from a scheme (called the source scheme) is re-invested in some other
scheme (called the target scheme) of the same mutual fund.
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116. When an investor has to change his default bank account with a
mutual fund, he/she has to inform the KYC registration agency for the same.
State whether True or False?
a. True
b. False
Ans. (b) Mutual funds provide investors the facility to register multiple bank
accounts to facilitate receiving the redemption, dividends and any other
accounts. One of the accounts is designated as the default account, and
unless otherwise specified all credits are made to this account by the mutual
fund. Investors can change the default bank account at any time by directly
instructing the Mutual Fund / AMC to do so.
294
117. Which of these are considered as Institutional group of investors?
a. Foreign investors
b. Non-Resident Indians (NRIs)
c. Companies
d. Hindu Undivided Families (HUFS)
Ans. (c) NRIS, HUFs and Foreign investors are considered as individual
investors. Companies are non-individual investors ie. Institutional investors.
(Foreign investors: They can invest in equity schemes of MFs registered
with SEBI after completing the KYC process)
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118. Identify the TRUE statement/s : 1. Once the minor becomes major,
financial transactions are disallowed in their account 2. The Indian
inheritance laws are NOT applicable to mutual fund unit holders 3. A Power
of Attorney (POA) cannot make or change nominations in a mutual fund
a. Only 1 and 2 are true
b. Only 2 and 3 are true
c. Only 1 and 3 are true
d. All 1,2 and 3 are true
Ans. (c) Once the minor becomes major, financial transactions are
disallowed in their account. No debits or redemptions can be made in bank
accounts; mutual funds folios or demat account of minors-turned-major. The
inheritance laws are applicable to the mutual fund unit-holder. A Power of
Attorney holder cannot make a nomination.
295
119. When a NRI applies for mutual fund units, he also has to provide
a. Current overseas address
b. Passport details
c. Investments made in the last one year
d. Countries of residence in the last one year
Ans. (c) In case of NRI investors, an overseas address must also be

provided along with other information.
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120. ________ are responsible for implementation of uniform KYC.
a. Mutual funds
c. KYC Registration Agencies
d. Mutual Fund Distributors
Ans. (c) It is mandatory for all investors in the securities market, including
the mutual fund investors, to be KYC (Know Your Customer) compliant
under the provisions of the Prevention of Money Laundering Act. If the
investor has to go through the KYC process with each mutual fund, then it
would become a repetitive process. SEBI issued regulations for registration
of central KYC Registry Agencies (KRAs). This introduced a common KYC
for investors investing in securities markets.
296
121. An existing investor in mutual funds invests Rs 25,000 in ABC
scheme's direct plan. Calculate the amount that will be the net investment
made in the scheme after accounting for transaction charges).
a. Rs. 24,500
b. Rs. 25,000
c. Rs. 24,750
d. Rs. 24,800
Ans. (b) SEBI has allowed a transaction charge per subscription of Rs. 10,000/-
and above to be paid to distributors of the mutual fund products. The transaction
charge, if any, is deducted by the AMC from the subscription amount and paid to
the distributor; and the balance amount is invested. However, there shall be no
transaction charges on direct investments. Therefore the entire Rs. 25000 will be
invested. (In a Direct Plan, an investor has to invest directly with the AMC, with no
distributor to facilitate the transaction)
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122. Which of these statement/s is/are TRUE? 1. Mutual Funds offer
various options like Growth, Income distribution cum capital withdrawal /
Reinvestment etc. as different investors have different preferences on how
profits are to be handled 2. Interval funds offer better liquidity to investors as
compared to Close-Ended mutual fund
a. Only 1 is True
b. Only 2 is True
c. Both 1 and 2 are true
Ans. (c) Interval funds combine features of both open-ended and close-ended
schemes. They are largely close-ended but become open-ended at pre-specified
intervals. The benefit for investors is that, unlike in a purely close-ended scheme,
they are not completely dependent on the stock exchange to be able to buy or sell
units of the interval fund. The options offered under a scheme allow investors to
structure their investments in line with their liquidity preference and tax position.
297
123. Mr. Amit want to invest in a mutual fund scheme. He has to give the
request for purchase specifying the
a. Units he wants
b. Amount he wants to invest
c. Lots he wants
Ans. (b) Purchase request in a MF scheme can only be given specifying the
amount the investor will be investing. The units allotted will depend on the
NAV of the date of allotment. Re-purchase (Sale) request can be given in
Units to be sold or Amount required.
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124. State whether the statement is True or False - Investment in Income
Distribution cum Capital Withdrawal re-investment option grows faster than
Growth option as the investor gets additional units.
a. Its true for all categories of mutual fund schemes
b. Its false for all categories of mutual fund schemes
c. Its true only for equity funds
d. It depends on whether the fund is open-end or close-end
Ans. (b) In a Re-investment of Income Distribution cum capital withdrawal plan,

the NAV declines to the extent of dividend. The resulting NAV is called ex-dividend
NAV. However, the investor does not receive the dividend in his bank account; the
amount is re-invested in the same scheme and additional units are allotted to the
investor. The reinvestment happens at the ex-dividend NAV. The amount invested
in the fund remains the same. Only the units increases and NAV decreases.
Therefore the growth is same for the Growth Option and Income Distribution cum
Capital Withdrawal Re-investment option.
298
125. Which of these is an important factor while estimating the correct future
value of a financial goal?
a. Inflation Rate
b. Risks which are unexpected
c. Economic Growth
d. Return and Growth
Ans. (a) The formula to calculate the Future Value is : A = P * (1+r)^n Where
A is the future value; P is the present value, r is the rate of inflation and n is
the number of years. Therefore, inflation rate is important for estimating the
future value.
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126. _______ is an example of physical asset.
a. Bank Deposit
b. Shares and Debentures
c. Land and Building
d. Futures and Options
Ans. (c) Land and buildings are physical property. Shares, Debentures,
Bank Deposits, F&O are all financial assets/instruments.
299
127. Which information has to be included in the mutual fund application
form when a Non-Resident Indian (NRI) subscribes for the units?
a. Passport details
b. Countries of residence in the past one year
c. Details of investments made in the last one year
d. Current overseas address
Ans. (d) The information to be provided for mutual fund investments

includes the name(s), nationality, identity proof and KYC compliance,
signatures of all the holder(s), address and communication details of the
first holder. In case of NRI investors, an overseas address must also be
provided.
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128. Ms. Apeksha invests Rs 2 crore in a Gilt scheme at 2 pm with a local
cheque. What would be the applicable NAV for allotment of units?
a. Closing NAV of date of application
b. Closing NAV of next business day
c. Closing NAV of day immediately preceding the date of application
d. NAV of the business day on which the funds are available for utilization
Ans. (d) Irrespective of the time of receipt of application, for all equity
oriented funds and debt funds (except liquid funds) in respect of transaction
of any amount, the applicable NAV will be NAV of the business day on
which the funds are available for utilisation.
300
129. If an investor has to change his default account, he/she has to do it
with
a. The KYC Registration agency
b. AMFI
c. Either KRA or AMFI
d. The mutual fund (AMC) directly
Ans. (d) Mutual funds provide investors the facility to register multiple bank
accounts to facilitate receiving the redemption, dividends and any other
accounts. One of the accounts is designated as the default account, and
unless otherwise specified all credits are made to this account by the mutual
fund. Investors can change the default bank account at any time by
instructing the AMC to do so.
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130. An Asset Management Company (AMC) can recover investment
management and advisory fees on management of the unclaimed amounts,
__________ .
a. only on the actual expenses incurred in holding the funds
b. at a maximum rate of 0.50 percent per annum
c. as per the fee applicable on the scheme from which the redemption was
made
d. No investment management and advisory fees can be charged on
unclaimed amounts
Ans. (b) AMC is expected to make a continuous effort to remind the

investors through letters to claim their uncliamed amounts. AMC can
recover investment management and advisory fees on management of
these unclaimed amounts, at a maximum rate of 0.50 percent per annum.
301
131. In case one of the joint holders dies, than the units will
a. be transferred to the HUF of deceased holder
b. be transferred to nominee/s
c. continue to be held by surviving joint holders
Ans. (c) Transmission is the process of transferring units to the person entitled to
receive them in the event of the death of the unitholder. In case of joint holding, if
the first holder passes away, the second holder is substituted as the first holder.
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132. On whom is the compliance requirement under Foreign Account Tax
Compliance Act (FATCA) applicable?
a. Only on those mutual funds who have foreign institutions as their
sponsors
b. Only on those mutual funds who are registered with a foreign agency
c. All financial institutions including mutual funds
d. Only Indian mutual funds
Ans. (c) The Foreign Account Tax Compliance Act (FATCA) is a US law that aims
to combat tax evasion by US persons opening accounts offshore. It enhances due
diligence and information reporting requirements for both individual and entity
accounts. On July 9, 2015, India signed Inter-Governmental Agreement (IGA) with
the USA for implementation of FATCA. This is applicable to all financial institutions
including mutual funds. To comply with the requirements of the Foreign Account
Tax Compliance Act (FATCA) and Common Reporting Standards (CRS)
provisions, financial institutions, including mutual funds, are required to undertake
a due diligence process to identify foreign reportable accounts and collect such
information as required under the said provisions and report the same to the US
Internal Revenue Service/any other foreign government or to the Indian Tax
Authorities for onward transmission to the concerned foreign authorities.
302
133. The compliance requirements under the Foreign Account Tax
Compliance Act (FATCA) applies only to mutual funds and not to other
financial institutions - State whether True or False?
a. True
b. False
Ans. (b) The (FATCA) is a US law that aims to combat tax evasion by US
persons opening accounts offshore. It enhances due diligence and
information reporting requirements for both individual and entity accounts.
On July 9, 2015, India signed Inter-Governmental Agreement (IGA) with the
USA for implementation of FATCA. This is applicable to all financial
institutions including mutual funds.
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134. Identify the factor which must be considered to determine the asset
allocation for an investor?
a. Financial goals of the investor and his financial situation
b. AUM of the scheme
c. Scheme expenses
d. Past performance of the scheme
Ans. (a) Asset Allocation is allocation aligned to the financial goals of the
individual. It considers the returns required from the portfolio to achieve the
goals, given the time horizon available for the corpus to be created and the
risk profile of the individual.
303
135. Identify the FALSE statement(s) -
A. Authorised signatories have to sign the request for transactions of
institutional investors in mutual funds
B. Even if the Memorandum of Association and Articles of Association does
not permit invest in mutual funds, the company can invest in mutual fund on
the basis of a Board Resolution
c. Both statements A and b are false
Ans. (b) 1. A company cannot invest in mutual funds if its incorporation

documents ((Memorandum of Association and Articles of Association) do
not provide for investments of this type. 2. The mutual fund can allow
transactions only if the transaction form/slip carries the signature of any
(one or more, as required) of the authorised signatories.
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304
CHAPTER 10: RISK, RETURN & PERFORMANCE
OF FUNDS
1. Long Duration debt scheme invest in debt instruments with Macaulay

duration of _________.
a. Less than 3 years
b. Less than 4 years
c. Less than 5 years
d. More than 7 years
Ans: (d) Macaulay Duration is the weighted average of the time to receive the
cash flows from the bond. Long Duration Fund: An open-ended debt scheme
investing in debt and money market instruments with Macaulay duration greater
than 7 years.
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2. What is the purpose of Credit enhancement in case of securitised
Transaction?
a. Higher Coupon Payment
b. Higher Term
c. Higher Credit Quality
d. Higher Profits
Ans: (c) In securitisation transactions, it is possible to work towards a target credit

rating, which could be much higher than the originator’s own credit rating. This is
possible through a mechanism called “Credit enhancement”. The process of “Credit
Enhancement” is fulfilled by filtering the underlying asset classes and apply selection
criteria, which further diminishes the risks inherent for a particular asset class.
305
3. Identify the TRUE statements.
A. MF scheme with a beta of less than 1 is less risky than market.
B. Diversified stock index has a beta of 1.
C. Unsystematic risk is measured by its beta.
a. Only A is true
b. B and C are true
c. A and B are true
Ans: (c) Beta measures the fluctuation in periodic returns in a scheme, as

compared to fluctuation in periodic returns of a diversified stock index over
the same period. The diversified stock index, by definition, has a Beta of 1.
Schemes, whose beta is more than 1, are seen as more risky than the
market. Beta less than 1 is indicative of a scheme that is less risky than the
market. Systematic risk is measured by its Beta.
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4. A bond issued by a company has a coupon of 7%. The interest rate in the
market for bonds of similar tenor and credit quality is now 8%. An investor
holding the bond will see ________.
a. The market price of the bond going up
b. The market price of the bond going down
c. The coupon of the bond going up
d. No change in the market price
Ans: (b) In the above question, the interest rates have risen in the economy.
If the coupon (interest rate) rises, then the bond with lower coupon is no
longer an attractive investment. It will therefore lose value.
306
5. Identify the TRUE statement/s -
a. Rolling return are the average annualized returns calculated for alternate
holding period
b. Holding period returns (HPR) do not provide an accurate picture of
returns of fund if its initial value is too high or low
c. Both 1 and 2
Ans: (b) Holding period returns is calculated for a fixed period such as one
month, three months, one year, three years or since inception. Holding
period returns may not present an accurate picture of the returns from a
fund if the initial value or the end value used for calculation was too high or
low. To eliminate this impact rolling returns are calculated. Rolling returns is
the average annualized return calculated for multiple consecutive holding
periods in an evaluation period.
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6. Which of these funds has the highest risk?
a. Gilt funds
b. Index funds
c. Money market funds
d. Sector funds
Ans: (d) The sector funds invest in stocks belonging to just one sector of the
economy, in order to take advantages within the said sector. The examples of
such funds are: Pharma fund or Banking fund. Sector funds are very risky
because of the concentration in one sector. If the sector under performs then the
scheme's returns is likely to be poor.
307
7. Return from a fund is 9% and the risk free rate is 5%, the Standard
deviation is 3 & Beta is 1.6. What will be the numerator for calculating the
Sharpe ratio?
a. 3
b. 6
c. 1.6
d. 4
Ans: (d) In a fraction, the number above the line is called the Numerator and
the number below the line is called Denominator. The formula for Sharpe
Ratio is :( Return Earned - Risk free Return) / Standard Deviation
Here the Numerator is 'Return Earned - Risk free Return' and the
Denominator is 'Standard Deviation'
Numerator = Return Earned - Risk free Return
=9-5=4
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8. A major factor affecting the rate of interest of a corporate deposit is
______
a. the assets it has
b. the market share its product has
c. the profits of the company
d. the credit rating assigned to it
Ans: (d) The interest rate offered by Corporate Deposits depends on the
credit rating assigned to it. Higher the credit risk, higher is likely to be the
interest rates offered.
308
9. A company has Earning Per Share (EPS) of Rs. 5 and Price to Earning
(PE) ratio of 30. What will be the market price of the shares of this
company?
a. Rs. 0.60
b. 6
c. Rs. 150
d. Rs. 75
Ans: (c) Price to Earnings Ratio (P/E Ratio) = Market Price / EPS So,
Market Price = PE X EPS = 30 x 5 = Rs. 150.
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10. Who issues the 'Certificate of Deposit'?
a. Government
b. Multinationals
c. Banks
d. Mutual Funds
Ans: (c) Certificates of Deposit are issued by Banks (for 7 days to 1 year) or
Financial Institutions (for 1 to 3 years).
309
11. Which of these assets has the highest risk of loss through theft?
a. Real Estate
b. Commercial papers
c. Shares and Debentures
d. Gold
Ans: (d) Gold suffers one of the highest risks of loss through theft.
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12. Which of the below is used to measure risk-adjusted performance?
a. Sharpe Ratio
b. Standard Deviation
c. R-squared
d. Beta Coefficient
Ans: (a) Some important measures of risk-adjusted returns are Sharpe

Ratio, Treynor Ratio, Alpha etc. (Higher the Sharpe Ratio, better the
scheme is considered to be).
310
13. Mrs. Reena purchases MF units at NAV Rs. 13. After 500 days, she
redeems it at NAV Rs. 15.70. What is the compounded rate of return?
a. 13.69%
b. 14.70%
c. 15.00%
d. 15.88%
Ans: (b) The formula to find the CAGR- Compounded Annual Growth Rate
holding period return is: [(End Price / Bgn Price) ^ (1/n)] - 1
End Price = 15.70; Begin Price = 13; n = time.
We have to find yearly return so 500 / 365 = 1.369
So [(15.70/13)^ 1/1.369] – 1 = (1.207 ^ 0.73) - 1
On the scientific calculator of your computer type 1.207 then use x^y key
and then type 0.73 = 1.147
1.147 - 1 = 0.147 x 100 = 14.7 %
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14. ______ have to make additional disclosures related to credit evaluation
policy, sectors and types of investments in the offer document.
a. ELSS Funds
b. Debt Funds
c. Sectoral Funds
d. Equity Funds
Ans: (b) Debt Funds have to make additional disclosures related to credit
evaluation policy, sectors and types of investments in the offer document.
311
15. Smita is a young investor and her parents advice her to invest in fixed
deposits of banks so that these funds can be used for her retirement. If
Smita follows her parents advice, what risk does she face?
a. She has to select the correct bank which is financially strong
b. There is a high risk of default in her portfolio
c. There is a risk of low returns
d. There is no risk as fixed deposits are quiet safe
Ans: (c) Fixed deposits usually give a low rate of return and when adjusted
against inflation, the return can sometimes be very low or even negative. This
will not help in building her retirement corpus. Smita is a young investor and
has plenty of time in her hand. So she should invest in growth stocks I equity
mutual funds rather than fixed deposits.
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16. Indicate which of these funds have the lowest to highest risk sequence?
A) Liquid Fund B) Credit Risk Fund C) Corporate Bond Fund
a. B-C-A
b. C-A-B
c. A-B-C
d. A-C-B
Ans: (d) Liquid funds are least risky as they invest in high quality debt
instruments. Corporate Bond Funds are little more risky as they predominantly
invest in AA+ and above rated corporate bonds. Credit Risk Funds are much
more risky as they invest in below highest rated corporate bonds. The
minimum investment in corporate bonds shall be 65 percent of total assets only
in AA (excludes AA+ rated corporate bonds) and below rated corporate bonds.
312
17. Beta as a risk measure is relevant for _________.
a. Only Equity Schemes
b. Only Debt Schemes
c. Both Equity and Debt schemes
d. FMP's
Ans: (a) Beta as a measure of risk is relevant only for equity schemes. The
diversified stock index, by definition, has a Beta of 1. Companies or
schemes, whose beta is more than 1, are seen as more risky than the
market. Beta less than 1 is indicative of a company or scheme that is less
risky than the market.
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18. Arbitrage Funds have BASIS risks - True or False?
a. True
b. False
Ans: (a) Arbitrage fund have basis risk ie. the risk that both cash and F&O
position on a company cannot be reversed at the same time. During the
time gap between unwinding of the two positions, the market can move
adverse to the scheme.
313
19. A Mutual Fund scheme has a portfolio of shares whose beta is less than
1. This indicates that the scheme is ________.
a. Very Very risky compared to the market
b. Some what risky than the market
c. Less risky than the market
d. Equally risky as the market
Ans: (c) Beta is a measure of risk of a security or a portfolio. If the Beta

more than 1, this means the security or the portfolio will rise or fall more
than the index. Similarly if the Beta of a scrip or portfolio is less than 1, this
means the security or the portfolio will rise or fall less than the index.
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20. For an investor to get a quick sense of the level of risk involved in a
mutual fund scheme, SEBI suggested a simplified framework known as
_________
a. Risk factors
b. Investor's risk profile
c. Risk-o-meter
d. Fact sheet
Ans: (c) Market regulator SEBI has a system of product labelling in place that
ensures the investor makes investments in mutual fund schemes that
correspond to the investor's risk profile. The product labelling of mutual funds is
based on the concept of 'Riskometer' and this meter depicts the level of risk in
any specific mutual fund scheme. The Riskometer depicted risk areas like -
Low, Moderately Low, Moderate, Moderately High and High Risk.
314
21. Usually Diversified Equity funds are safer than Diversified Debt funds -
True or False?
a. True
b. False
Ans: (b) Under normal circumstances Equity Funds are always riskier than
Debt Funds.
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22. Identify the TRUE statement(s) with respect to risk levels in mutual
funds?
a. Only A is true
b. Only B is true
c. A and B are true
d. A and B are false
Ans: (b) 1. Credit risk funds are more riskier than Corporate bond funds as
they invest in bonds which are rated lower. 2. Gilt funds invest in longer
term debt securities as compared to liquid funds, so the changes in yields
will have a larger impact on them.
315
23. Which of the following is a measure of fluctuation in periodic returns in
an equity mutual fund scheme?
a. Variance
b. Modified duration
c. Jensen's Alpha
d. Sharpe ratio
Ans: (a) Variance measures the fluctuation in periodic returns of a scheme,

as compared to its own average return.
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24. Prediction of equity markets in the short run is easier than in the long
run. True or False?
a. True
b. False
Ans: (b) In the long run, equity markets are a good barometer of the real
economy. In the short run, markets can get over-optimistic or over-
pessimistic, leading to spells of greed and fear and so are very
unpredictable in the short term.
316
25. Of the below options, what is FALSE with respect to Arbitrage Funds?
a. Arbitrage Funds have Basis Risks
b. Arbitrage Funds invest in Equity Markets
c. Arbitrage Funds invest in both Spot and Futures Market
d. Arbitrage Funds are more riskier than Sectoral Funds
Ans: (d) Arbitrage Funds make profits by using the price differences between
two markets - so they are the least risky among Equity Funds. Sectoral Funds
are the most risk funds as they are not diversified. Arbitrage Funds have basis
risk - the risk that both cash and F&O position on a company cannot be
reversed at the same time. During the time gap between unwinding of the two
positions, the market can move adverse to the scheme.
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26. Identify the difference between Sharpe Ratio and Treynor Ratio.
a. Both are same.
b. Sharpe Ratio uses Standard Deviation for its calculations whereas
Treynor Ratio uses Beta.
c. Sharpe Ratio is used for underperforming schemes whereas Treynor
Ratio is used for outperforming schemes.
Ans: (b) Sharpe ratio is calculated as : (Rs minus Rf) / Standard Deviation
Treynor Ratio is calculated as : (Rs minus Rf) / Beta
(Rf is the risk-free rate of return and Rs is the actual return earned).
317
27. _____ is the risk of mis-pricing or improper valuation of derivatives.
a. Counter party Risk
b. Model Risk
c. Basis Risk
d. Credit risk
Ans: (b) Model Risk is the risk of mispricing or improper valuation of

derivatives.
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28. Which of the following type of analysis tracks the price and volume data
related to trading in the security?
a. Situation analysis
b. Technical analysis
c. Fundamental analysis
d. Quantitative analysis
Ans: (b) Technical Analysts believe that price behaviour of a share over a
period of 'time throws uptrends for the future direction of the price. Technical
Analysts therefore study price-volume charts of the company's shares to
decide support levels, resistance levels etc.
318
29. An investor invested in scheme A when the scheme's NAV was Rs.120
per unit. The investor redeemed the investments at the NAV of Rs.135.
Calculate the simple return.
a. 0.1
b. 0.125
c. 0.15
d. 0.1111
Ans: (b) We have to use the Holding Period formula i.e.:

({End Price - Begin Price + Income (If Any)} / (Begin Price))
= ((135 - 120) / 120) = 0.125
0.125 x 100 = 12.50%
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30. Which amongst the following is a measure of risk-adjusted returns of
mutual fund scheme?
a. Standard deviation
b. Beta
c. Variance
d. Sharpe ratio
Ans: (d) Sharpe ratio is a very commonly used measure of risk-adjusted

returns.
319
31. What is the Absolute Return for a Mutual Fund investor if he had bought
at NAV 20 and sold at NAV 40 after two years?
a. 1
b. 0.5
c. 0.25
Ans: (a) Absolute Return or Simple Return is simply the change in the value
of an investment over a period of time. Its not calculated on a yearly basis
etc.
In the above example - A person bought a MF at NAV 20 and sold it after 2
years at NAV 40, then the Absolute Return is: ((Sale Price - Buy Price) I Buy
Price) X 100 = 40 - 20 / 20 = 1 or 100% absolute return.
-----------------------------------------------------------------------------------------------------
32. An Index fund has a beta of 1 - State True or False?
a. True
b. False
Ans: (a) Beta is a measure of risk of a security or a portfolio as compared to

the market i.e. Index. Since an Index fund invests in shares which are a part
of the index, the NAV will rise or fall as per the movements of index. So the
beta is 1.
320
33. Long term debt funds would be sensible in declining interest rate
scenarios - True or False?
a. True
b. False
Ans: (a) As yields in the market goes down, debt securities gain in value.
Therefore, long term debt funds would be sensible in declining interest rate
scenarios.
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34. __________ arises due to a difference in the price movement of the
derivative vis-à-vis that of the security being hedged.
a. Model Risk
b. Interest rate risk
c. Counterparty Risk
d. Basis Risk
Ans: (d) Basis Risk arises due to a difference in the price movement of the
321
35. Which of the following is a measure of market risk?
a. Beta Coefficient
b. Sharpe Ratio
c. Treynor Ratio
Ans: (a) Beta Coefficient is a measure of market risk.

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36. Which of the following scheme categories would be considered the least
risky in terms of credit risk?
a. Dynamic bond
b. Gilt fund
c. Corporate bond fund
d. Credit risk fund
Ans: (b) A Gilt fund invests only in Government Securities and therefore is
virtually risk free.
322
37. Investing in_____ can be a risky prospect during periods of Economic
Turmoil.
a. Gilt Securities
b. Debt Funds
c. Mid Cap Funds
d. Large Cap Funds
Ans: (c) Mid Cap Stocks are intrinsically not as strong as the front line (large
cap) stocks, so they become riskier during periods of economic turmoil.
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38. ____ is a Non-Diversifiable risk.
a. Unsystematic Risk
b. Systematic Risk
Ans: (b) The risks that impact the entire economy are known as Systematic
risks. For eg - Inflation in the economy is a systematic risk that impacts all
the businesses within the country. Such risks cannot be reduced through
diversification by the fund manager or investor. The risks that impact the
specific company are called company specific or unsystematic risks. For
example, a labour strike in a manufacturing plant is a company specific risk.
The company specific risks can be reduced by a fund manager through
diversification across diverse set of companies.
323
39. A Mutual Fund scheme gave an annualised return of 9.86% and the
annualised Standard Deviation of the fund is 3.47. The current risk free
return is 8%. Calculate the Sharpe Ratio.
a. 0.89
b. 0.72
c. 0.49
d. 0.53
Ans: (d) The formula for Sharpe Ratio is: (Rs-Rf) / Standard Deviation i.e.
(Return Earned - Risk free Return) / Standard Deviation
= (9.86 - 8) / 3.47 = 1.86 / 3.47 = 0.53
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40. If a Segregated portfolio is created, it shall be effective
from__________.
a. the day of credit event
b. seven days prior to the credit event
c. one year from the date of the credit event
d. the day that security was bought in the portfolio
Ans: (a) To ensure fair treatment to all investors in case of a credit event
and to deal with the liquidity risk, in December 2018, SEBI permitted
creation of segregated portfolio of debt and money market instruments by
mutual funds schemes. Segregated portfolio shall be effective from the day
of credit event.
324
41. Identify the TRUE statement(s).
A) In an Assured Return scheme, if the scheme is not able to pay the
assured return amount then the guarantor has to pay the same.
B) Investor returns might vary from the scheme returns on account of
choices regarding investment schedule.
C) The returns published in a mutual fund advertisement factor the entry or
exit load, as may be applicable.
a. B and C are true
b. A and C are true
c. A and B are true
Ans: (c) (1) Mutual funds are not permitted to promise any returns unless it
is an assured returns scheme. Assured returns schemes call for a guarantor
who is named in the SID. The guarantor will need to write out a cheque if
the scheme is otherwise not able to pay the assured return.
(2) Investor returns might vary from the scheme returns also on account of
choices regarding investment schedule, i.e., the additional investment being
made during the period or redeeming a portion of the investment. In such a
case, for the same period investor's returns may be different from the
published returns of the scheme.
(3) The returns published in a mutual fund advertisement would be without
factoring in the entry or exit load, as may be applicable.
325
42. To measure the fund managers' performance, the difference between
the scheme's actual return and its optimal return is calculated and this is
known as
a. Alpha
b. Beta
c. Sharpe
d. Treynor
Ans: (a) The difference between a scheme's actual return and its optimal
return is its Alpha-a measure of the fund manager's performance. Alpha,
therefore, measures the performance of the investment in comparison to a
suitable market index.
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43. An existing bond fund will tend to lose value when market interest
rates____________.
a. Rise
b. Fall
c. remains constant
d. are equal to yields
Ans: (a) Suppose an investor has invested in a debt security that yields a
return of 8 %. Subsequently, yields in the market for similar securities rise to
9 %. It stands to reason that the security, which was bought at 8 % yield, is
no longer such an attractive investment. It will therefore lose value.
326
44. A mutual fund manager is planning to invest in Indian pharma
companies as these companies are setting up new manufacturing
capacities. Identify the investment style of the fund manager.
a. Value investment style
b. Cyclical investment style
c. Target investment style
d. Growth investment style
Ans: (d) Growth investment style entails investing in high growth stocks i.e.
stocks of companies that are likely to grow much faster than the market.
-----------------------------------------------------------------------------------------------------
45. Which of these funds has the highest risk?
a. Index Funds
b. Diversified Equity fund
c. Long Duration Funds
d. Gilt Funds
Ans: (b) Equity funds are always riskier than Debt funds. So in the above
question, Index fund and Diversified Equity Fund (Equity funds) will be more
riskier than Gilt fund and Long Duration fund (Debt funds). Among Index
funds and Diversified Equity funds, the latter is usually riskier than the
former.
327
46. Among these funds, which will have the lowest Interest Rate Risk?
a. Money market fund
b. Diversified Equity Fund
c. Pharma Sector fund
d. Dynamic Bond Fund
Ans: (a) Interest rate risk is the risk that an investment's value will change as a
result of a change in interest rates. Interest rate risk is always associated with debt
funds and not equity funds. The interest rate risk varies for bonds with different
maturities. A money market fund is a type of a mutual a fund that invests in high-
quality, short-term debt instruments, cash, and cash equivalents.
-----------------------------------------------------------------------------------------------------
47. In the case of a securitized asset,________________will not be an
originator to a Special Purpose Vehicle (SVP)?
a. non-banking finance company
b. housing finance company
c. commercial bank
d. RBI
Ans: (d) A securitization transaction involves the sale of receivables by the

originator (a commercial bank, non-banking finance company, housing
finance company, or a manufacturing/service company) to a Special
Purpose Vehicle (SPV), is typically set up in the form of a trust. Investors
are issued rated Pass-Through Certificates (PTCs), the proceeds of which
are paid as consideration to the originator. In this manner, the originator, by
selling his loan receivables to an SPV, receives consideration from investors
much before the maturity of the underlying loans.
328
48. State True or False - The Thematic funds will always have a wider
exposure than Sector funds.
a. True
b. False
Ans: (a) Thematic funds invest in line with an investment theme. Therefore,
the investment is more broad-based than a sector fund. Sector funds invest
in only a specific sector.
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49. The difference between the yield on Gilt and the yield on non-
Government Debt security is called its______________.
a. ΥΤΜ
b. Credit Spread
c. Yield to Call
d. Risk Spread
Ans: (b) The yield on Gilt (Govt. securities) is generally the lowest in the
market for a given tenor. Since non-Government issuers can default, they
tend to offer higher yields for the same tenor. The difference between the
yield on Gilt and the yield on non-Government Debt security is called its
credit spread.
329
50. From the listed below,______________has the highest credit risk.
a. High yield funds
b. ELSS Funds
c. Gilt funds
d. Index funds
Ans: (a) Junk bond schemes or high yield bond schemes invest in securities
that have a lower credit rating indicating poor credit quality. This leads to
high credit risk/default risk.
-----------------------------------------------------------------------------------------------------
51. Usually, active funds give higher returns as investors bear a higher fund
management expense - State True or False?
a. True
b. False
Ans: (b) Higher fund management does not mean better performance. Also
some time passive funds like index funds can give better returns than active
funds due to the fund managers' wrong analysis.
330
52. In which type of fund is the risk of the investor not selecting the correct
sector maximum?
a. Thematic Funds
b. Sector Funds
c. Arbitrage Funds
d. Index Funds
Ans: (b) Sector funds suffer from concentration risk - the entire exposure is
to a single sector. If that sector does poorly, then the scheme returns are
seriously affected. Sector funds are considered to carry the highest risk
among the equity mutual funds.
-----------------------------------------------------------------------------------------------------
53. When the interest rates are rising, the bond funds which have short
average maturity are more likely to outperform - State True or False?
a. True
b. False
Ans: (a) Short-term debt funds help earn higher interest income in a rising
interest rate scenario. Long-term debt funds help investors earn higher
returns from capital gains in falling interest rate scenarios.
331
54. An ongoing bond fund will lose value when the interest rates in the
market__________.
a. Rise
b. Fall
c. remains same
d. will be equal to yields
Ans: (a) Suppose an investor has invested in a debt security that yields a
return of 7 percent. Subsequently, yields in the market for similar securities
rise to 8 percent. It stands to reason that the security, which was bought at a
7 percent yield, is no longer such an attractive investment. It will therefore
lose value.
-----------------------------------------------------------------------------------------------------
55. State True or False - Gilt schemes have more risks than liquid schemes
as their NAV fluctuates more due to changes in the yield market.
a. True
b. False
Ans: (a) Gilt schemes, which invest in only long-term government securities,
have a higher price risk because their NAV can fluctuate a lot more, on
account of changes in yield in the market. The greater the proportion of
longer-maturity securities in the portfolio, the higher would be the fluctuation
in NAV.
332
56. Identify the TRUE statements
A) Unsystematic risk is measured by its Beta.
B) The diversified stock index has a Beta of 1.
C) An investment with a beta of 0.7 will move 7 percent when markets move
by 10 percent.
a. A and B are true
b. B and C are true
c. A and C are true
d. All A, B, and C are true
Ans: (b) 1) Systematic risk is measured by its Beta. 2) The diversified stock index,
by definition, has a Beta of 1. Schemes, whose beta is more than 1, are seen as
riskier than the market. A beta less than 1 is indicative of a scheme that is less
risky than the market. 3) An investment with a beta of 0.7 will move 7 percent
when markets move by 10 percent. This applies to increase as well as fall in
values. An investment with a beta of 1.2 will move by 12 percent both on the
upside and downside when markets move (up/down) by 10%.
-----------------------------------------------------------------------------------------------------
57. ______________ risk arises because of the difference in price
movement of the derivative vis-a-vis that of the security being hedged.
a. Model Risk
b. Basis Risk
c. Market Liquidity Risk
d. Credit Risk
Ans: (b) Basis Risk arises due to a difference in the price movement of the
333
58. Identify the true statement with respect to measuring returns for Mutual
Funds schemes.
1. Simple Return can be calculated using the formula: Sale Price - Cost
Price / Sale Price
2. Compounded Annual Growth Rate 'CAGR' technique has been
prescribed by SEBI when a dividend is paid and compounding is to be
considered
3. CAGR is the recognized standard for calculating returns for an
investment horizon of greater than or equal to 1 year
a. 1 and 2
b. 2 and 3
c. 3 and 1
d. 1, 2 and 3
Ans: (b) 1. Simple Return can be calculated with the following formula: Sale
Price - Cost Price / Cost Price.
2. Whenever a dividend is paid - and compounding is to be considered the
CAGR technique for the reinvestment method, as some call it) prescribed
by SEBI is used.
3. The return is calculated using CAGR if the holding period is over one
year. If returns are less than one year than Simple Return is calculated.
334
59. Which of these statement(s) is/are TRUE?
1. There cannot be a price impact on mutual fund units due to portfolio
rebalancing and/or liquidity demands on account of redemptions.
2. Market liquidity of mutual fund units can get impacted on account of
company/sector-related events.
a. Only 1
b. Only 2
c. Both 1 and 2
Ans: (b) Liquidity Risk is one of the general risk factors involved in Mutual Fund
investments. The liquidity of investments made in the Scheme may be restricted
by trading volumes, settlement periods, and transfer procedures. Although the
investment universe constitutes securities that will have high market liquidity, there
is a possibility that market liquidity could get impacted on account of
company/sector general market-related events and there could be a price impact
on account of portfolio rebalancing and/or liquidity demands on account of
redemptions.
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60. The most appropriate measure of returns for a scheme in existence for
several years is__________.
a. CAGR
b. Annualized Return
c. Dividend Return
d. Simple Return
Ans: (a) CAGR, is the mean annual growth rate of an investment over a specified
period of time longer than one year. It represents one of the most accurate ways
to calculate and determine returns for individual assets, investment portfolios, and
anything that can rise or fall in value over time.
335
61. Identify the TRUE statement(s):
A. A diversified index will have a Beta of 1
B. Unsystematic risk can be measured by Beta
C. A portfolio that has Beta of less than 1 is less risky than the market
a. A and B
b. A and C
c. B and C
d. Only B
Ans: (b) The diversified stock index, by definition, has a Beta of 1.

Companies or schemes, whose beta is more than 1, are seen as riskier
than the market. A beta less than 1 is indicative of a company or scheme
that is less risky than the market. The risks that impact the entire economy
are known as systematic risks. The company-specific risks are also known
as unsystematic risks. Systematic risk is measured by its Beta.
-----------------------------------------------------------------------------------------------------
62. If the fund manager is expecting the interest rates to fall, then the
manager______________
a. would buy fixed-rate instruments of shorter tenor
b. would buy longer-term fixed-rate debt securities
c. would buy floating rate instruments
Ans: (b) When the interest rates fall, the current debt instruments of a longer
duration become more valuable.
336
63. The credit rating of a bond migrates from AAA to AA+. Determine what
will the impact of this migration on the market price of the bond?
a. The bond price will rise
b. The bond price will fall
c. No change in the bond price
d. The price can rise or fall depending on the market conditions
Ans: (b) Fixed income securities are exposed to rating migration risk, which
could impact the price on account of a change in the credit rating. For
example, One notch downgrade of an AAA-rated issuer to AA+ will have a
negative impact on the price of the security and vice-versa for an upgrade of
a AA+ issuer.
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64. A Segregated Portfolio be created out of a debt fund scheme
when_____________.
a. there is a credit event
b. a change occurs in the fund management team
c. interest rates move down
d. interest rates move up
Ans: (a) "Segregated portfolio" means a portfolio, comprising of debt or

money market instrument affected by a credit event that has been
segregated in mutual fund scheme.
337
65. Identify the FALSE statement.
1. Arbitrage funds can invest in both Futures/Options(F&O) and cash
markets
2. The only objective of an Arbitrage fund is to provide capital appreciation
3. Arbitrage funds have lower risk compared to Equity Funds
a. Only 1
b. Only 2
c. Both 2 and 3
d. Both 1 and 3
Ans: (b) Arbitrage funds work on the mispricing of equity shares in the spot and
futures market. The fund manager simultaneously buys shares in the cash market
and sells them in futures or derivatives markets. The difference in the cost price
and the selling price is the return you earn. Their risk level is comparable with that
of a pure debt fund. The returns from an Arbitrage fund are comparable to a debt
fund. There is no capital appreciation.
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66. If the fund manager of a debt fund is expecting the interest rates to rise,
he will__________________.
a. increase the exposure to longer-term fixed-rate debt securities
b. switch the portfolio towards a higher proportion of floating-rate instruments
c. The fund Manager cannot do much as all his money is generally fully
invested
Ans: (b) When interest rates rise, the current debt instruments become less
valuable. So by buying Floating Rate instruments (floating rate i.e. a rate linked to
some other rate that may be prevailing in the market) he can be relatively safer.
338
67. Identify the TRUE statement/s with respect to the risks associated with
short selling and stock lending. 1. There is counterparty risk and liquidity
risk in short selling 2. There is no risk associated with stock lending as the
transaction is done through an approved intermediary
a. Only 1 is true
b. Only 2 is true
c. Both 1 and 2 are true
Ans. (a) Short-selling is the sale of shares or securities that the seller does
not own at the time of trading. Instead, he borrows it from someone who
already owns it. Later, the short seller buys back the stock/security he
shorted and returns the stock/security to the lender to close out the loan.
The inherent risks are Counterparty risk and liquidity risk of the
stock/security being borrowed. The security being short sold might be
illiquid or become illiquid and covering of the security might occur at a much
higher price level than anticipated, leading to losses. Securities Lending is
lending of securities through an approved intermediary to a borrower under
an agreement for a specified period with the condition that the borrower will
return equivalent securities of the same type or class at the end of the
specified period along with the corporate benefits accruing on the securities
borrowed. There are risks inherent in securities lending, including the risk of
failure of the other party. Such failure can result in a possible loss of rights
to the collateral, the inability of the approved intermediary to return the
securities deposited by the lender and the possible loss of corporate
benefits accruing thereon.
-----------------------------------------------------------------------------------------------------
339
68. There is no risk associated with stock lending as the transaction is done
through an approved intermediary - State True or False?
a. True
b. False
Ans. (b) Securities Lending is lending of securities through an approved

intermediary to a borrower under an agreement for a specified period with the
condition that the borrower will return equivalent securities of the same type or
class at the end of the specified period along with the corporate benefits accruing
on the securities borrowed. There are risks inherent in securities lending, including
the risk of failure of the other party. Such failure can result in a possible loss of
rights to the collateral, the inability of the approved intermediary to return the
securities deposited by the lender and the possible loss of corporate benefits
accruing thereon.
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69. 'Stock Picking' approach is similar to
a. Blended style of investment
b. Growth style of investment
c. Top down approach of investment
d. Bottom up approach of investment
Ans. (d) Value investment style is an approach of picking up stocks, which are
priced lower than their intrinsic value, based on fundamental analysis. A bottom-up
approach analyses the company-specific factors first and then evaluates the
industry factors and finally the macro-economic scenario and its impact on the
companies that are being considered for investment. Stock selection is the key
decision in this approach.
(Growth investment style entails investing in high growth stocks i.e. stocks of
companies that are likely to grow much faster than the market)
340
70. What does a portfolio which has beta less than 1 mean?
a. Highly risky as compared to market
b. More risky than market
c. Less risky than market
d. Same risk as that of market
Ans. (c) Beta measures the fluctuation in periodic returns in a scheme, as

compared to fluctuation in periodic returns of a diversified stock index over the
same period. The diversified stock index, by definition, has a Beta of 1.
Companies or schemes or portfolios, whose beta is more than 1, are seen as
more risky than the market. Beta less than 1 is indicative of a company or scheme
that is less risky than the market.
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71. In case of a segregated portfolios, when is the NAV need to be
disclosed?
a. Monthly basis after the credit event
b. Weekly basis after the credit event
c. Daily basis after the credit event
Ans. (c) To ensure fair treatment to all investors in case of a credit event and to
deal with the liquidity risk, in December 2018, SEBI permitted creation of
segregated portfolio of debt and money market instruments by mutual funds
schemes. "Segregated portfolio" means a portfolio, comprising of debt or money
market instrument affected by a credit event, that has been segregated in a
mutual fund scheme. The Net Asset Value (NAV) of the segregated portfolio shall
be declared on a daily basis.
341
72. Which of the following have the highest credit risk?
a. Money Market Fund
b. Junk Bond
c. G-Sec Fund
d. Income Fund
Ans. (b) Junk bonds are a type of bond that carries a higher risk of default.
The issuer of such bonds may not have the adequate cash flow to pay
regular interest or repay the principal amount to the bondholders at the time
of maturity. The bonds issued by financially struggling companies are
termed junk bonds but they pay higher returns to make them attractive to
investors.
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73. ___________ is used to measure fund's risk relative to market index.
a. Tracking error
b. Beta coefficient
c. Treynor ratio
d. Sharpe ratio
Ans. (b) Beta is a commonly used risk measure and calculates the relative
volatility of a stock or Mutual Fund's returns as against its benchmark. For
example, if the Beta of a Mutual Fund scheme is 1, it means the fund moves
in line with the benchmark. Likewise, say the Beta of a fund is higher than 1.
Assume it is 1.5. So, if the NIFTY 50 jumps by 1%, the fund benchmarked
against NIFTY 50 is likely to go up by 1.5%.
342
74. What is required for the termination of the services of an Asset Management
Company (AMC) ?
a. 75% of the mutual funds distributors should approve the termination of the Asset
Management Company
b. 75% of the unitholders should approve the termination of the Asset Management
Company
c. The custodian should approve the termination of the Asset Management Company
d. AMFI should approve the termination of the Asset Management Company
Ans. (b) The appointment of the AMC for the Mutual Fund can be terminated by majority
of the Directors of the Trustee Board or by 75 percent of the Unitholders of the Scheme.
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75. Identify the TRUE statement/s : 1. The Beta of a diversified stock index is
greater than 1 2. An investment with a beta of 0.8 will move 8 percent when
markets move by 10% 3. Beta as a measure of risk is relevant only for equity
schemes.
Ans. (b) Beta measures the fluctuation in periodic returns in a scheme, as

compared to fluctuation in periodic returns of a diversified stock index
(representing the market) over the same period. The diversified stock index, by
definition, has a Beta of 1. Companies or schemes, whose beta is more than 1,
are seen as riskier than the market. Beta less than 1 is indicative of a company or
scheme that is less risky than the market. An investment with a beta of 0.8 will
move 8 percent when markets move by 10 percent. This applies to increase as
well as fall in values. An investment with a beta of 1.2 will move by 12 percent
both on the upside and downside when markets move (up/down) by 10 percent.
Beta as a measure of risk is relevant only for equity schemes.
343
76. The return from a mutual fund scheme is 8.3% and the Standard
Deviation is 0.6. The risk-free rate of return is 5%. Calculate the Sharpe
ratio.
a. 3.5
b. 5.5
c. 4
d. 2.87
Ans. (b) The formula for Sharpe Ratio is: (Rs-Rf) / Standard Deviation ie.
(Return Earned - Risk free Return) / Standard Deviation = (8.3-5)/0.6 = 3.3 /
0.6 = 5.5
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344
CHAPTER 11: MUTUAL FUND SCHEME
PERFORMANCE
1. Which is the ideal benchmark for balanced hybrid scheme?

a. Crisil Hybrid 25+ 75, Aggressive Index
b. Crisil Hybrid 75+ 25, Conservative Index
c. Crisil Hybrid 50+ 50, Moderate Index
d. Any of the Above
Ans: (c) Aggressive Hybrid Fund – CRISIL Hybrid 25+75, Aggressive Index
Balanced Hybrid Fund - CRISIL Hybrid 50+50, Moderate Index
Conservative Hybrid Fund - CRISIL Hybrid 75+25, Conservative Index.
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2. What is negative Alpha?
a. It is indicative of out-performance by the fund manager
b. It is indicative of under-performance by the fund manager
c. It is indicative of over-hedging by the fund manager
d. It is indicative of under-hedging by the fund manager
Ans: (b) The difference between a scheme's actual return and its optimal
return is its Alpha-a measure of the fund manager's performance. Alpha,
therefore, measures the performance of the investment in comparison to a
suitable market index. Positive alpha is indicative of out-performance by the
fund manager; negative alpha might indicate under-performance.
345
3. Which of these statement(s) is/are FALSE with respect to Benchmarks?
A) Portfolio concentration is an important factor while selecting a benchmark
for an equity mutual fund.
B) Choice of investment universe is not an important factor while selecting
an appropriate benchmark for debt mutual funds.
a. Only A is false
b. Only B is false
c. Both A & B are false
Ans: (b) Choice of investment universe is important and drives the choice of
benchmark in debt schemes. For eg ·Liquid schemes invest in securities of
upto 91 days' maturity. Therefore, a short term money market benchmark such
as NSE's MIBOR or CRISIL Liquid Fund Index is suitable. Non-liquid schemes
can use other type indices depending on the nature of their portfolio.
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4. Calculate the Treynor Ratio from the following data : Return from a
mutual fund scheme is 7.5%. The beta is 0.62. The risk free rate of return is
6%.
a. 11.6
b. 4.77
c. 3.08
d. 2.42
Ans: (d) Treynor Ratio = (Return Earned - Risk Free Return) / Beta
= (7.5 - 6) / 0.62 = 1.5 / 0.62 = 2.42
Treynor Ratio is a risk premium per unit of risk. Higher the Treynor Ratio, better
the scheme is considered to be.
346
5. Identify the TRUE statement with respect to 'Tracking Error'.
A. Tracking error is calculated as the standard deviation of the excess returns
generated by the fund.
B. While comparing different index funds, one should invest in a fund with high
tracking error.
a. Only A is true
b. Only B is true
c. Both A & B are true
Ans: (a) Tracking error is a measure of the consistency of the out-performance

of the fund manager relative to the benchmark. The tracking error has to be
low for a consistently out-performing fund. While investing in an Index Fund,
one should invest in a fund with the lowest tracking error.
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6. What should an investor see to evaluate the Consistency of Mutual Fund
scheme performance?
a. Point to Point
b. Standard Deviation
c. Discrete annual returns
d. Beta
Ans: (c) The discrete annual returns help in assessing the consistency of the
fund's performance over different market scenarios. Discretely compounded
interest is calculated and added to the principal at specific intervals (eg:
annually, monthly, or weekly). Continuous compounding uses a natural log-
based formula to calculate and add back accrued interest at the smallest
possible intervals.
347
7. A creditable benchmark of a mutual fund scheme should be in sync with
the_____.
A. Size of scheme B. Investment objective of the scheme
C. Investment strategy of the scheme D. Expenses ratio of the scheme
E. Asset allocation pattern of the scheme
a. B, C and E
b. A, C and D
c. B, D and E
d. A and B
Ans: (a) A credible benchmark should meet the following requirements: It

should be in sync with (a) the investment objective of the scheme; (b) asset
allocation pattern; and (c) investment strategy of the scheme.
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8. Return from a fund is 11.5% and the risk free rate is 7%, the Standard
deviation is 3 & Beta is 1.9. What will be the denominator for calculating the
Sharpe ratio?
a. 4.5
b. 3
c. 1.9
d. 11.5
Ans: (b) The formula for Sharpe Ratio is: (Return Earned - Risk free Return)
/ Standard Deviation. Here the Numerator is 'Return Earned - Risk free
Return' and the Denominator is 'Standard Deviation'. So the Denominator is
Standard Deviation = 3
348
9. The actual performance of an index fund can be better or worse than its
benchmark due to _________.
a. Arbitrage error
b. Tracking error
c. Systematic risk
d. Investment objective
Ans: (b) An index scheme mirrors the index. The fund manager of an index
fund invests in the same securities which are in the index and in the same
ratio or weightage. However, there could be some minor difference and that
is due to Tracking Error.
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10. A Mutual Fund scheme gives a return of 10 % and the beta of that
scheme is 0.5. The risk free return is 7.5%.What is the Treynor Ratio of this
scheme?
a. 0.03
b. 0.05
c. 0.075
d. 0.11
Ans: (b) Treynor Ratio measures the returns earned in excess of that which
would have earned on a riskless investment. Treynor Ratio Formula:
(Return earned on the Scheme - Risk Free Rate) / Beta of the Scheme
= (10 - 7.5) / 0.5 = 5
349
11. Which is the most appropriate measure of evaluating how closely an
index fund is tracking its benchmark?
a. Total Expense Ratio (TER)
b. Assets Under Management (AUM)
c. Tracking error
d. Treynor ratio
Ans: (c) Tracking error is a measure of the consistency of the out-

performance of the fund manager relative to the benchmark. Earlier it was
used as a measure of how closely an index fund tracked the returns from
the benchmark to which it was indexed. Now, the tracking error is used to
measure how consistently a fund is able to out-perform its benchmark.
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12. What would be the most appropriate benchmark for a short term debt
scheme?
a. 10 year dated GOl security
b. 3 year dated Gol security
c. 1 year T-Bill
d. No such benchmark exists
Ans: (c) Appropriate Benchmarks:

# Equity scheme – Sensex or Nifty.
# Long term debt scheme – 10 year dated Gol security.
# Short-term debt fund – 1 year T-Bill.
350
13. Due to _________the Index scheme's performance could be higher or
lower than that of the benchmark.
a. Market Volatility
b. Bull Run
c. Tracking Error
d. Systematic Risks
Ans: (c) Gaps between the scheme performance, and that of the
benchmark, are called tracking errors. An index fund manager would seek
to minimize the tracking error. Due to the tracking error, the scheme
performance could be higher or lower than that of the benchmark.
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14. While deciding on investments for his clients, what should be the right
sequence?
a. Selection of Scheme - Risk Profiling - Making a Model Portfolio
b. Risk Profiling - Making a Model Portfolio - Selection of Scheme
c. Making a Model Portfolio - Risk Profiling - Selection of Scheme
d. Selection of Scheme - Making a Model Portfolio - Risk Profiling
Ans: (b) It is a good practice to first understand the risk exposure that is
appropriate for an investor, then decide how the investor's investments
should be distributed between different asset classes and make a model
portfolio. Once this is over, select the good schemes most suitable as per
the model portfolio.
351
15. The Price Earning (PE) Ratio of a company is 7 and its Earning Per
Share is Rs. 10. What is the Market Price of this company?
a. Rs. 49
b. Rs. 70
c. Rs. 700
d. Rs. 10
Ans: (b) PE Ratio = Market Price / EPS

7 = Market Price / 10
Market Price = 7 x 10 = 70
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16. Gold Future Contracts ______________.
a. are traded on the Commodity Exchanges
b. are not standardised products
c. can be bought through Mutual Funds
Ans: (a) Gold futures contracts are traded in commodity exchanges like the
National Commodities Exchange (NCDEX) and Multi-Commodity Exchange
(MCX). The value of these contracts goes up or down in line with increases
or decreases in gold prices.
352
17. 'Once it is finalized, a mutual fund scheme's benchmark cannot be
changed at a later date'. State whether the statement is True or False.
a. True
b. False
Ans: (b) The fund may choose to change the benchmark. This could be for
various reasons. For instance, the investment objective of the scheme may
change, or the construction of the index may change, or a better index may
become available in the market.
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18. Many AMCs, distribution houses and mutual fund research houses offer
free tools in their website which can be used for evaluating a funds
performance - True or False?
a. True
b. False
Ans: (a) Many AMCs, distribution houses and mutual fund research houses
offer free tools in their website which can be used for evaluating a funds
performance.
353
19. Which of the given statements below aptly fit the description of actively
managed funds?
a. Increased role of fund manager and high running cost
b. Decreased role of fund manager and high running cost
c. Decreased role of fund manager and low running cost
d. Increased role of fund manager and low running cost
Ans: (a) Increased role of fund manager and high running cost applies to
the description of actively managed funds.
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20. Mutual funds today are benchmarked to the Total Return variant of an
Index (TRI) and not to Price Return variant of an Index (PRI). What is the
advantage of TRI over PRI?
A. It ensures that the performance comparison is fair.
B. Increases transparency.
a. True
b. False
Ans: (c) Earlier, the Mutual Fund schemes were benchmarked to the Price
Return variant of an Index (PRI). PRI only captures capital gains of the index
constituents. Now the mutual fund schemes are· benchmarked to the Total
Return variant of an Index (TRI). The Total Return variant of an index takes into
account all dividends/interest payments that are generated from the basket of
constituents that make up the index in addition to the capital gains. Such a
change was required to ensure that the performance comparison is fair. The
shift to TRI has been another one in the direction of increasing transparency of
mutual funds.
354
21. Benchmarking helps in assessing under-performance or out-
performance - True or False?
a. True
b. False
Ans: (a) How well or how bad did a scheme perform can be assessed by
comparing its performance to a pre-defined comparable i.e. benchmark
against which the scheme can be compared.
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22. Stock selection is important in bottom-up approach - True or False?
a. True
b. False
Ans: (a) Stock selection is important in bottom-up approach. In a top-down

approach, sector allocation is the key decision.
355
23. Generally long term investment decisions taken through fundamental
analysis and for shorter term speculative decisions including intra-day
trading one uses Technical Analysis - True or False?
a. True
b. False
Ans: (a) It is generally agreed that longer term investment decisions are
best taken through a fundamental analysis approach. Technical analysis is
generally used for shorter term speculative decisions, including intra-day
trading.
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24. It is generally agreed that longer term investment decisions are best
taken through a fundamental analysis approach. Technical analysis is
generally used for shorter term speculative decisions, including intra-day
trading.
a. True
b. False
Ans: (b) Technical analysis is evaluation of the strength of the company's

price-volume charts. Fundamental Analysis is the study of the company's
fundamentals - financial statements, quality of management, competitive
position in its product / service market etc.
356
25. For which of the following fund can NSE's MIBOR be used as a
benchmark?
a. ELSS Fund
b. Liquid Fund
c. 5 year constant maturity G-sec fund
d. Long duration fund
Ans: (b) NSE's MIBOR (Mumbai Inter-Bank Offered Rate) is based on short
term money market. Liquid schemes invest in securities of upto 91 days'
maturity. Therefore, a short term money market benchmark such as NSE's
MIBOR is suitable.
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26. On which of the following factors does returns from an international fund
depend on?
a. Asset Class performance
b. Foreign currency exchange rates
c. Both A and B
Ans: (c) When an Indian investor invests in equities abroad, he is essentially

taking two exposures: An exposure on the international equity market (asset
class). An exposure to the exchange rate of the rupee. If the investor invests
in the US, and the US Dollar becomes stronger during the period of his
investment, he benefits; if the US Dollar weakens (i.e. Rupee becomes
stronger), he loses or the portfolio returns will be lower.
357
27. Identify the false statement(s).
A) The best strategy in selecting a mutual fund scheme is that based on its
past performance.
B) When an investor wants to redeem from a scheme, the distributor must
suggest redemption from the scheme with the maximum exit load.
a. Only statement A is false
b. Only statement B is false
Ans: (c) A. Experience has shown time and again, the top performers during
one period may not necessarily remain as top performers forever or near the
other top performers and vice versa. In such a case, simply buying into a
scheme due to good returns in the recent past may not be a wise approach.
B. When an investor wants to redeem from a scheme, the distributor must
suggest redemption from the scheme with the minimum exit load.
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28. A person who wants to retain liquidity in his investments will invest
in______.
a. ELSS Schemes
b. Fixed Deposits
c. PPFs
d. Liquid Funds
Ans: (d) A person who wants liquidity should invest in liquid funds as they
can be redeemed very fast. Equity-linked saving schemes (ELSS) have a
lock-in period of three years Fixed Deposits and Public Provident Fund
(PPF) cannot be easily encashed before maturity.
358
29. Which of the following cannot be considered for the purpose of selecting
a scheme's benchmark?
a. Scheme's asset allocation pattern
b. Mutual fund scheme's investment objective
c. Scheme's past returns
d. The investment strategy of the MF scheme
Ans: (c) A credible benchmark should meet the following requirements: It

should be in sync with (1) the investment objective of the scheme; (2) the
asset allocation pattern; and (3) the investment strategy of the scheme.
The scheme's past performance is not considered while selecting the
benchmark.
-----------------------------------------------------------------------------------------------------
30. Choice of benchmark for a Debt Scheme could be chosen on the basis
of:
1. Scheme Size 2. Scheme Type
3. Investment Universe
a. Both 1 and 2
b. Both 2 and 3
c. Both 1 and 3
d. All 1, 2 and 3
Ans: (b) Scheme type and choice of investment universe drive the choice of
benchmark in debt schemes. The size of the scheme is immaterial.
359
31. Identify the true statement(s) with respect to benchmark for mutual fund
schemes.
A) For the International Equity fund, the ideal benchmark will be BSE 500
index as it is a very broad-based index covering 500 companies.
B) For Gold ETF, gold prices will be the ideal benchmark.
d. Neither A nor B is correct
Ans: (b) The gold price would be the benchmark for Gold ETF funds. For
International Funds - The benchmark would depend on where the scheme
proposes to invest. Thus, a scheme seeking to invest in China might have a
Chinese index as the benchmark and a scheme that would invest largely in the US
market can have S&P 500 index as the appropriate benchmark.
-----------------------------------------------------------------------------------------------------
32. _______________investment style involves buying stocks that are
valued lower as per the fundamental analysis.
a. Tactical
b. Growth
c. Cyclical
d. Value
Ans: (d) Value investment style is an approach of picking up stocks, which are
priced lower than their intrinsic value, based on fundamental analysis. The
belief is that the market has not appreciated some aspect of the value in a
company's share - and hence it is cheap. When the market recognizes the
intrinsic value, then the price would shoot up.
360
33. Identify the true statement(s) with respect to benchmark for Sector
Funds.
A) Its ideal to benchmark a sector fund against an index representing the
respective sector.
B) It's advisable to benchmark a sector fund against a diversified fund to get
the correct picture.
Ans: (a) A sector fund would invest in only the concerned sector so the
benchmark has to be a similar index. For eg, A Banking Sector fund can be
benchmarked against S&P BSE Bankex and an Infrastructure Fund can be
benchmarked against Nifty Infrastructure Index to get the correct picture.
-----------------------------------------------------------------------------------------------------
34. The indices based on Government securities will be an appropriate
benchmark for which type of funds?
a. Credit Risk Funds
b. Gilt Funds
c. Money Market Funds
d. Liquid Funds
Ans: (b) Gilt funds invest only in Government securities. Therefore, indices
based on Government Securities are the appropriate benchmark.
361
35. A person wants to create a synthetic index. Guide him as to in which of
these categories the weightage of equity index would be the lowest?
a. Super aggressive hybrid fund
b. Aggressive hybrid fund
c. Balanced hybrid fund
d. Conservative hybrid fund
Ans: (d) In a CRISIL Conservative Hybrid Fund, the equity component will
be only 25% and Debt will be 75%. In an Aggressive Hybrid Fund, the ratio
of Equity and Debt is 75% and 25% and in a Balanced Hybrid Fund, the
ratio is 50% and 50%.
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36. ___________ takes into account all dividends generated from the
basket of constituents that make up the index in addition to the capital
gains.
a. Price return index
b. Dividend return index
c. Total return index
Ans: (c) Earlier, the Mutual Fund schemes were benchmarked to the Price
Return variant of an Index (PRI). PRI only captures capital gains of the
index constituents. With effect from February 1, 2018, the mutual fund
schemes are benchmarked to the Total Return variant of an Index (TRI).
The Total Return variant of an index takes into account all dividends/interest
payments that are generated from the basket of constituents that make up
the index in addition to the capital gains.
362
A) Beta is a measure of risk only for equity schemes.
B) Variance is a measure of risk for both debt and equity schemes.
C) A fall in prices of the debt securities due to default etc. is known as a
'credit event'.
a. Only A and B are true
b. Only A and C are true
c. Only B and C are true
d. All A, B, and C are true
Ans: (d) Variance as a measure of risk is relevant for both debt and equity
schemes. Beta as a measure of risk is relevant only for equity schemes. In the
debt markets, the credit risk arises on account of three things, viz., default, delay
in payments, or rating downgrade. Any of these may result in fall in prices of the
concerned debt securities. Such an event is also called a 'credit event'.
-----------------------------------------------------------------------------------------------------
38. The appropriate benchmark for a mutual fund scheme investing across
many countries would always be an index based on US equity markets -
a. True
b. False
Ans. (b) The benchmark would depend on where the scheme proposes to invest.
Thus, a scheme seeking to invest in China might have the Shanghai Composite
Index (Chinese index) as the benchmark. S&P 500 may be appropriate for a
scheme that would invest largely in the US market. A scheme that seeks to invest
across a number of countries, can structure a synthetic index that would be a
blend of the indices relevant to the countries where it proposes to invest.
363
39. Sharpe Ratio is used to measure fund's risk relative to market index.
a. True
b. False
Ans. (b) Beta is a commonly used risk measure and calculates the relative
volatility of a stock or Mutual Fund's returns as against its benchmark. For
example, if the Beta of a Mutual Fund scheme is 1, it means the fund moves
in line with the benchmark. Likewise, say the Beta of a fund is higher than 1.
Assume it is 1.5. So, if the NIFTY 50 jumps by 1%, the fund benchmarked
against NIFTY 50 is likely to go up by 1.5%.
-----------------------------------------------------------------------------------------------------
40. The appropriate benchmark for debt Schemes having duration / maturity
of more than 1 year will be
a. 1 year T-Bill
b. 10 years dated Gol security
c. 5 years dated Gol security
d. There is no appropriate benchmark
Ans. (b) Appropriate Benchmarks: Equity scheme - Sensex or Nifty Long

term debt scheme (more than 1 year maturity) - 10 year dated Gol security
Short-term debt fund - 1 year T-Bill
364
41. Identify the FALSE statement/s with respect to benchmarks for mutual
fund schemes. A. A Multi-Cap fund can have Nifty 500 index as its
benchmark B. A Multi-Cap fund can have BSE Sensex as its benchmark
a. Only A is false
b. Only B is false
Ans. (b) A Multi-Cap fund invests in Large Cap, Mid Cap and Small Cap stocks as
per proportions stipuated by SEBI. The Nifty 500 index represents top 100 large
cap companies, top 150 Mid-cap companies and top 150 small cap companies.
Therefore, it can be a good benchmark for a Multi-Cap fund. The BSE Sesex has
30 large cap stocks from various sectors and it can be good benchmark for a large
cap fund and not for a multi cap fund.
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42. Which is the most important factor for comparing performance of liquid
funds?
a. The Maturity
b. The Expense Ratio
c. The taxation aspect
d. The NAV
Ans. (a) Comparing the Expense Ratio of different schemes is imperative for
investors looking for the best liquid mutual fund. These schemes more or less
earn similar returns. Hence, a fund with a high expense ratio will significantly
reduce the returns generated. For example, suppose two funds deliver returns of
5% and 5.5%, respectively. Let's say the expense ratio of the first fund is 0.2%,
and the second fund is 0.8%. Therefore, the actual yield will be 4.8% and 4.7%.
Hence, a fund with a lower expense ratio may be more profitable for an investor.
365
43. The performance data for all schemes across the mutual fund industry is
available on
a. The Fund Fact Sheet
b. The Scheme Information Document (SID)
d. AMFI Website
Ans. (d) Each AMC is required to publish a scheme performance dashboard on its
website, and update it on a regular basis. The scheme performance data is also
available on the AMFI website AMFI website (www.amfiindia.com) carries the
performance data of all the mutual fund schemes. This is an exhaustive resource
and one can access the same for various different periods, and fund categories.
-----------------------------------------------------------------------------------------------------
44. Identify the TRUE statements with respect to measuring returns for
mutual fund schemes. 1. The returns published in a mutual fund
advertisement should factor the entry or exit load 2. Compounded Annual
Growth Rate (CAGR) is the accepted standard of showing returns for
investment of holding period of more than one year 3. Simple returns can be
calculated by the formula :(Sale price - Cost price / Cost price) x 100
Ans. (b) As per SEBI rules - The return is calculated using CAGR if the holding
period is over one year and simple absolute returns for less than one year The
returns published in a mutual fund advertisement would be without factoring the
entry or exit load. The Simple Return can be calculated with the following formula:
(Sale price - Cost price / Cost price) x 100
366
45. What is the disadvantage of company fixed deposits when compared to
bank fixed deposits?
a. Lower rate of interest
b. Lower safety
c. Highly volatile
d. Difficult to liquidate
Ans. (b) Company fixed deposits are considered to risky when compared to
bank fixed deposits due to the credit risk. A company is a private entity and
may default in payment of interest and principal amount. A bank is much
more safer than a private company and so its fixed deposits are more safer
to invest.
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46. ________ is/are frequently used by media and research analysts to
check the performance of various schemes of a mutual fund.
a. Fund Fact Sheet
b. Annual Accounts of the AMC
d. Investment Management Agreement
Ans. (a) One of the most popular documents from the mutual fund is the
monthly Fund Factsheet. This document is extensively used by investors,
fund distributors, fund rating agencies, research analysts, media and others
to access information about the various schemes of the mutual fund.
367
47. Identify which of the following statement/s is/are false in context of
benchmarks. A. An independent agency should calculate the benchmark in a
transparent manner B. The process of choosing a benchmark for an Index Fund is
very complex
a. Only A is false
b. Only B is false
Ans. (b) Choice of benchmark is simplest for an index fund. The investment
objective is clear on the index that the scheme would track. That index would then
be the benchmark for the scheme. The benchmark should be calculated by an
independent agency in a transparent manner, and published regularly. Most
benchmarks are constructed by stock exchanges, credit rating agencies,
securities research houses or financial publications.
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48. Identify the FALSE statement/s : 1. A mutual fund investing across many
countries will keep its benchmark index which is based on US equity markets 2.
For Gold ETF, gold prices will be the ideal benchmark
a. Only 1 is false
b. Only 2 is false
Ans. (a) The benchmark would depend on where the scheme proposes to invest.
Thus, a scheme seeking to invest in China might have the Shanghai Composite
Index (Chinese index) as the benchmark. S&P 500 may be appropriate for a
scheme that would invest largely in the US market. A scheme that seeks to invest
across a number of countries, can structure a synthetic index that would be a
blend of the indices relevant to the countries where it proposes to invest. Gold
ETF NAVS closely track the price of gold since it reflects the value of gold held in
custody for the units issued. Therefore, gold price would be the benchmark for
such funds.
368
49. Calculate the Average holding period if the portfolio turnover ratio is 25
percent.
a. 25 months
b. 48 days
c. 40 months
d. 4 Years
Ans. (d) Average Holding Period = 12 (months) / Portfolio Turnover Ratio

Here the portfolio turnover ratio is 25 percent i.e. 25/100 = 0.25 Average
Holding Period = 12/0.25 = 48 months = 4 Years
-----------------------------------------------------------------------------------------------------
50. The equity share prices of gold mining companies can depend on : 1.
The gold reserves of the company 2. The operational efficiency and
management of the company 3. International prices of gold
a. Only 1 and 2
b. Only 2 and 3
c. Only 1 and 3
d. All 1, 2 and 3
Ans. (d) Profitability of gold mining companies is linked to several factors.

For eg. - When gold metal price increases, gold mining companies with
large reserves of gold can appreciate If there are concerns about a
company's management the share prices may see a decline irrespective of
the price of gold.
369
CHAPTER 12: MUTUAL FUND SCHEME
SELECTION
1. If the sale and purchase transactions for a year amounted to Rs. 10,000
crore, and the average size of net assets is Rs. 5,000 crore, this means that
investments are held in the portfolio, on an average for
a. 2 months
b. 3 months
c. 6 months
d. 12 months
Ans: (c) Portfolio turnover ratio is calculated as value of purchase and sale
of securities during a period divided by the average size of net assets of the
scheme during the period. Rs. 10000 cr / Rs. 5000 cr = 2 or 200%.
This means the investments are held in the portfolio on an average for 12
months / 2 = 6 months.
-----------------------------------------------------------------------------------------------------
2. Which strategy can be used to ensure that a mutual fund scheme is
suitable to the investors need and situation?
a. Indexation
b. Dividend Stripping
c. Asset Allocation
d. Tax harvesting
Ans: (c) Asset Allocation is a process of allocating money across various asset
categories in line with a stated objective which is as per the needs and situation of
the investor.
370
3. Which of these statements are false?
A. While evaluating schemes, the Expense Ratio will matter much more in
Debt Funds than Equity mutual funds.
B. A mutual fund with a long track record is always better for investments as
it would give higher returns in the future
C. Ultra short term debt funds always invest in high credit quality debt
securities
a. A and B are false
b. B and C are false
c. A and C are false
d. All A, B and C are false
Ans: (b) 1) Any cost is a drag on investor's returns. Investors need to be

particularly careful about the cost structure of debt schemes, because in the
normal course, debt returns can be much lower than equity schemes. So
expense ratio is more critical for debt funds.
2) The mutual fund advertisements use the disclaimer: "Past performance
may or may not be sustained in future".There is a reason for that. As
experience has shown time and again, the top performers during one period
may not necessarily remain as a top performer forever or near the other top
performers and vice versa. In such a case, simply buying into a scheme due
to good returns in the recent past may not be a wise approach.
3) When the limits are not tightly defined, the fund manager may assume
an active role in managing the risk, e.g. an ultra-short term debt fund may
take credit risk, since the SEBI regulations only define the permitted
maturity profile, which indicates how much interest rate risk the scheme can
take.
371
4. An investor in India is investing in US Dollar based funds. He/She will
benefit when __________.
a. The US Dollar becomes weaker
b. The US Dollar becomes stronger
c. The US Dollar remains steady
Ans: (b) If the investor invests in the US, and the US Dollar becomes stronger
during the period of his investment, he/she will benefit. For eg. -An investor buys
USD 1000 worth of units in a US mutual fund when the exchange rate was Rs. 75
for 1 USD. So his investment is Rs. 75000.
If USD becomes stronger against India Rupee and rises to Rs. 77 and he sells
USD 1000 worth of units, his realisation in Indian rupees is 1000 x 77 = Rs.
77000. So, he earns Rs. 2000 (This is assuming all other factors like the NAV of
the mutual fund remaining the same).
-----------------------------------------------------------------------------------------------------
5. Identify the TRUE statement -
A. The AMC is not liable for any losses suffered by the foreign portfolio investors
due to adverse currency movements
B. The AMC has to compensate to foreign portfolio investors for any losses
suffered due to adverse currency movements
a. Only A
b. Only B
c. Both A & B
Ans: (a) The AMC does not manage currency risk for Foreign Portfolio Investors
and it is the sole responsibility of the Foreign Portfolio Investors to manage or
reduce currency risk on their own. The Sponsor / Fund / Trustees / AMC are not
liable for any loss to Foreign Investors arising from such changes in exchange
rates.
372
6. Which of these is an important criteria for choosing either Growth option
or Dividend option in the same mutual fund scheme?
a. Returns on the scheme
b. Fund Manager
c. Tax status of the investor
d. Assets Managed by the scheme
Ans: (c) Mutual funds offer options, whereby the investor can let the money
grow in the scheme for several years. By selecting such options, it is
possible for the investor to defer the tax liability. So, if the investor wants to
differ his tax payments, he should choose the Growth option. However, if
the tax liability of the investor is low, he can choose the dividend option so
that even the dividend can taxed at a low rate every year.
-----------------------------------------------------------------------------------------------------
7. Floating interest rate is ______.
a. A rate which is payable only on maturity
b. Base Rate + Spread
c. Prime rate of lending
d. the yield on spread
Ans: (b) Interest rates on floating rate securities are specified as a "Base +
Spread". For example, 5-year G-Sec + 2 percent, this means that the
interest rate that is payable on the debt security would be 2 percent above
whatever is the rate prevailing in the market for Government Securities of 5-
year maturity.
373
8. Arrange these funds according to their risk sequence - highest to lowest.
a. Capital protection oriented, Flexible allocation, Monthly income plan
b. Flexible allocation, Monthly income plan, Capital protection oriented
c. Monthly income plan, Capital protection oriented, Fixed allocation
d. Monthly income plan, Fixed allocation, Capital protection oriented
Ans: (b) Capital gains from equity, debt and hybrid funds are taxable subject
to certain conditions like holding period, etc.
-----------------------------------------------------------------------------------------------------
9. Which of the following cycle will a financial planner not consider?
a. Business cycle
b. Karma cycle
c. Wealth cycle
d. Life cycle
Ans: (b) Karma Cycle is related to birth and rebirth of an individual and is
not related to financial planning.
374
10. Fund Age is a more important criteria to be studied while investing in
________.
a. Debt Schemes
b. Equity Schemes
c. Treasury Bonds
Ans: (b) A Mutual fund scheme with a long history has a track record that
can be studied before deciding on investments. Fund age is very important
for equity schemes, where there are more investment options, and
divergence in performance of schemes within the same category tends to
be more.
-----------------------------------------------------------------------------------------------------
11. Which amongst the following has the highest to lowest risk sequence?
a. Capital Protection Oriented Funds - Monthly Income Plans - Balanced
Funds (Flexible Allocation)
b. Monthly Income Plans - Balanced Funds (Fixed Allocation) - Balanced
Funds (Flexible Allocation)
c. Capital Protection Oriented Funds - Balanced Funds (Flexible Allocation)
- Monthly Income Plans
d. Balanced Funds (Flexible Allocation) - Monthly Income Plans - Capital
Protection Oriented Funds
Ans: (d) The risk hierarchy of the above mentioned schemes is (Highest to
Lowest): Balanced Funds (Flexible Allocation) - Balanced Funds (Fixed
Allocation) – Monthly Income Plans - Capital Protection Oriented Funds.
375
12. Floating rate debt securities tend to hold their values, even if interest
rates fluctuate. State True or False?
a. True
b. False
Ans: (a) A debt instrument with a variable interest rate is known as a

"floater" - a floating rate note's Interest rate is tied to a benchmark. Floating
rate debt securities tend to hold their values, even if interest rates fluctuate.
-----------------------------------------------------------------------------------------------------
13. Mutual Funds gives more investment options as compared to National
Pension Scheme. State True or False?
a. True
b. False
Ans: (a) There are several restrictions in investments for the NPS and so it
offers fewer portfolio choices than mutual funds.
376
14. The size of equity portfolio of a young unmarried investor is determined
by _________.
a. Liquidity Needs
b. Lifestyle
c. Income Needs
d. All of the above
Ans: (d) The size of equity portfolio of a young unmarried investor is

determined by Lifestyle, income needs and liquidity needs.
-----------------------------------------------------------------------------------------------------
15. Monthly Income Plan (MIPs) have no exposure to equity. State True or
False?
a. True
b. False
Ans: (b) MIPs have an element of equity in its portfolio to give a boost to the
fund's return. This can typically range from 5 percent to 30 percent.
377
16. The first step in developing a model portfolio is _______.
a. Deciding the size of portfolio
b. Selection of the Mutual Fund schemes
c. Setting of goals
Ans: (c) Steps for developing a Model Portfolio - i) Enable your investor to
identify his investment needs and goals. ii)Understand the various financial
products - their risk, return, liquidity and maturity profile. iii) Combine the
features of financial products with the investors' financial needs and
determine appropriate mix of investments, technically referred to as asset
allocation. iv) Suggest suitable mutual fund schemes within the asset
choices.
-----------------------------------------------------------------------------------------------------
17. With respect to model portfolio for Senior Citizens, it will not have any
exposure to equity. State True or false?
a. True
b. False
Ans: (b) As per model portfolio for couple in their seventies, with no
immediate family support: 15 percent diversified equity index scheme; 10
percent gold ETF, 30 percent diversified debt fund, 30 percent MIP, 15
percent liquid schemes. This shows some exposure can be taken in
equities.
378
18. Identify which of these statements is / are FALSE?
A. Banks and mutual funds both offer the Gold Deposit Scheme
B. Gold ETFs are closed ended funds
a. Only A is false
b. Only B is false
Ans: (c) The Gold deposit scheme is offered only by banks to mobilise the
idle gold in the country and put it in productive use and to provide the
customer an opportunity to earn interest on the idle gold holdings. All
Exchange Traded Fund are open-ended schemes.
-----------------------------------------------------------------------------------------------------
19. Which is the ideal investment class for an investor who wishes to hedge
against inflation and has a long term perspective?
a. Blue chip Equity Shares
b. Gold
c. Real Estate
d. Government Bonds
Ans: (b) Higher inflation means a weakening rupee which also leads to rise
in gold prices. So, Gold is the best bet to hedge against inflation.
379
20. While making a Comprehensive Financial Plan ___________.
a. High time commitment is required from the investor / client
b. High time commitment is required from the planner
c. High time commitment is required both from the client and planner
d. Not much time commitment as all the planning is done in the computer
Ans: (c) A comprehensive financial plan calls for significantly more time
commitment on the part of both the investor and the financial planner. The steps in
creating a comprehensive financial plan are as follows:
- Establish and Define the Client-Planner Relationship
- Gather Client Data, Define Client Goals
- Analyse and Evaluate Client's Financial Status
- Develop and Present Financial Planning Recommendations and / or Options
- Implement the Financial Planning Recommendations
- Monitor the Financial Planning Recommendations
-----------------------------------------------------------------------------------------------------
21. If an investor wishes to beat the benchmark and is also ready to bear
the risks, then he should opt for Actively managed funds. State True or
False?
a. True
b. False
Ans: (a) Actively managed funds are funds where the fund manager has the
flexibility to choose the investment portfolio. The fund manager invests in
better performing sectors so that the returns are better than the benchmark
index. However, this strategy could also give lower or negative returns if the
fund managers predictions go wrong.
380
22. Amongst the below given options, which one is NOT an example of
Transition Phase?
a. house to be purchased
b. trying to get a better job
c. children's higher education
d. marriage approaching
Ans: (b) Transition is a phase when financial goals are in the horizon. As
funds will be soon required, investors tend to increase the proportion of their
portfolio in liquid assets.
-----------------------------------------------------------------------------------------------------
23. What is the NAV if the value of stocks in a Mutual Fund scheme is Rs.
100 cr, Value of Bonds is Rs. 10 cr, Value of Money Market Instruments is
Rs. 25 cr, Dividend Accrued but not received is Rs. 3 cr and Fees payable is
Rs. 5 cr. The number of outstanding units is 75 lacs.
a. 173.33
b. 177.33
c. 184
d. 186.74
Ans: (b) NAV = (Value of stocks + Value of bonds + Value of money market
instruments + Dividend accrued but not received + Interest accrued but not
received - Fees payable) / No. of outstanding units.
= 100 cr + 10 cr + 25 cr + 3 cr + 0 - 5 cr / 75 lacs
= 133 cr / 75 lacs = 177.33
381
24. _________ is a basis to select the better scheme in Index Funds.
a. Tracking Error
b. Beta
c. 5 year performance
d. Fund Managers past record
Ans: (a) The difference between an index fund's return and the market
return is the tracking error. An index fund manager would seek to minimize
the tracking error. Because of the tracking error, the scheme performance
could be higher or lower than that of the benchmark.
-----------------------------------------------------------------------------------------------------
25. Which of the following is a truly international asset class?
a. Gold
b. Equity Share
c. Real Estate
d. Debt
Ans: (a) Gold is a truly international asset class.
382
26. Gold ETF's are meant only for Fl's and Fll's - True or False ?
a. True
b. False
Ans: (b) Gold Exchange Traded Funds (ETF) can be bought even by retail
investors in small quantities like one unit (one gram).
-----------------------------------------------------------------------------------------------------
27. The __________is the phase when the earning years usually starts.
a. Young Unmarried
b. Young Married
c. Married with one children
d. During graduation
Ans: (a) The young unmarried is the phase when the earning years usually
starts.
383
28. An International Fund is investing in US stocks. What would be the
impact on it if US Dollar depreciates against the Indian Rupee?
a. The NAV of the scheme in Indian Rupees will depreciate
b. The NAV of the scheme in Indian Rupees will appreciate
c. No impact on the fund as its investing in stocks and not currency
Ans: (a) International Equity funds: When an Indian investor invests in

equities abroad, he is essentially taking two exposures:
- An exposure on the international equity market.
- An exposure to the exchange rate of the rupee. If the investor invests in
the US, and the US Dollar becomes stronger during the period of his
investment, he benefits; if the US Dollar weakens (i.e. Rupee becomes
stronger), he loses or the portfolio returns will be lower.
-----------------------------------------------------------------------------------------------------
29. Identify the TRUE statement with respect to benchmark for Gold ETFs.
a. CRISIL Gilt fund index is widely used as a benchmark for Gold
b. ETFs Gold ETFs are benchmarked against gold prices
c. There can be no benchmark for Gold ETFs
d. Internationally it is proven that there is no need of any type of benchmark
for Gold ETFs
Ans: (b) Gold price would be the benchmark for Gold Exchange Traded
Funds (ETFs).
384
30. Which of these funds are suitable for investors who have a long term
investment horizon and are looking for growth?
a. Income Funds
b. Long duration funds
c. Equity funds
d. Liquid funds
Ans: (c) Although equities as an asset class are volatile investments but
over a long duration of time they tend to give good growth. Income funds,
Long duration funds and Liquid funds are all debt funds the returns from
them will only be the interest received. They are more for security and
steady returns and not for growth.
-----------------------------------------------------------------------------------------------------
31. While choosing an Option in a Mutual Fund scheme, taxation and
liquidity needs are a major factor in deciding which option (Growth or
Dividend Payout) to go for. True or False?
a. True
b. False
Ans: (a) While choosing an Option in a Mutual Fund scheme, taxation and
liquidity needs are a major factor in deciding which option (Growth or
Dividend Payout) to go for.
385
32. Accumulation is the phase applicable to __________
a. Young Unemployed
b. Young Unmarried
c. 10th Pass
d. Retired Manager
Ans: (b) Accumulation is the stage when the investor gets to build his
wealth. It covers the earning years of the investor i.e. the phases of the life
cycle from young unmarried to Pre-retirement.
-----------------------------------------------------------------------------------------------------
33. An elderly couple who have no immediate family members should
ideally invest in _______
a. ELSS Funds
b. Debt Funds
c. Sectoral Funds
d. Blue Chip Equity Funds
Ans: (b) Debts funds carry the least amount of risk so they can be
recommended to the elderly couple. The other funds are Equity oriented
and carry huge market risks.
386
34. Gold ETF's cannot be bought by retail investors - True or False?
a. True
b. False
Ans: (b) Gold ETF's can be easily bought by retail investors as the minimum
traded quantity is 1 unit i.e. 1 gram.
-----------------------------------------------------------------------------------------------------
35. Mutual Fund offer various plans/options in accordance to the risk profile
of the investor - True or False?
a. True
b. False
Ans: (b) MF's have various SCHEMES like Large Cap Funds, Mid Cap
Funds. Sectoral Funds etc. to suit varied investment requirements. (Plans
and Options like Dividend / Growth etc. form a part of the scheme).
387
36. You are expecting interest rates (yields) to rise in the markets. Where
would you invest your money considering this forecast?
a. Long Terms Debt Funds
b. Short Term Debt Funds
c. Equity Funds
d. Banking Sector Funds
Ans: (b) If it is expected that interest rates would go up, it would be safer to go
with Short Term Debt Funds. As the rates rise, the short-term bonds would mature,
allowing the fund manager to deploy the proceeds at higher rates.
On the contrary, as interest rates in the market goes down, debt securities gain in
value. Therefore, long term debt funds would be sensible in declining interest rate
scenarios.
-----------------------------------------------------------------------------------------------------
37. An investor who has a long term view and is looking for capital
appreciation and also has high risk tolerance should opt for investments in
_______
a. Gold
b. Equities
c. Fixed Deposits
d. High interest bearing junk bonds
Ans: (b) Analysis have shown that returns from equities (stocks) tend to be
quiet higher over the long term period. However investing in stock market
can also be risky.
388
38. For a Young Unmarried - which of the following phase is applicable?
a. Accumulation
b. Distribution
c. Transfer
Ans: (a) Accumulation is the stage when the investor gets to build his
wealth. It covers the earning years of the investor i.e. the phases of the life
cycle from Young Unmarried to Pre-Retirement.
-----------------------------------------------------------------------------------------------------
39. An investor wishes to invest in debt mutual funds but wants high liquidity
- should he invest in Fixed Maturity Plans ?
a. Yes
b. No
Ans: (b) Fixed maturity plans are a kind of debt fund where the investment
portfolio is closely aligned to the maturity of the scheme. AMCs tend to
structure the scheme around pre-identified investments. So it will not be
easy to liquidate the FMPs.
389
40. The floating rate debt securities tend to hold their value, despite
changes in yield in the debt market - True or False?
a. True
b. False
Ans: (a) Floating rate funds invest largely in floating rate debt securities i.e.
debt securities where the interest rate payable by the issuer changes in line
with the market. Since the interest rate itself keeps adjusting in line with the
market, these floating rate debt securities tend to hold their value, despite
changes in yield in the debt market.
-----------------------------------------------------------------------------------------------------
41.______________ gives the investor exposure to international assets.
a. Index funds
b. ELSS Fund
c. Arbitrage Funds
d. International Funds
Ans: (d) International funds invest in markets outside India, by holding

certain foreign securities in their portfolio.
390
42. Mr. A has a small business and will generally need more allocation to
liquid funds than Mr. B, who is a senior manager with a multinational
company. - State True or False?
a. True
b. False
Ans: (a) Mr. A may need funds for his business anytime so will allocate more
amounts to liquid funds. Mr. B has a good high-paying job, so he has a
regular flow of money in form of salary. He will generally have no liquidity
problems and will invest less in liquid funds and more in growth funds.
-----------------------------------------------------------------------------------------------------
43. When should an investor adopt a strategy of limiting equity exposure to
index funds?
a. In the Accumulation phase
b. In the Retirement phase
c. In the Sudden wealth phase
Ans: (b) Investors in the retirement stage would move the funds to asset
classes that meet their need for easy access to funds or regular periodic
income as the case may be. So the investor will invest more in debt / liquid
funds and very less in equity funds.
391
44. When the Capital Base of an investor rises, his or her risk appetite will
tend to___________.
a. decrease
b. increase
c. remain same
d. change randomly
Ans: (b) Higher the capital base, better the ability to financially take the
downsides that come with risk. For eg - A person with a capital of Rs. 1
crore can take more risks than a person with Rs. 10000.
-----------------------------------------------------------------------------------------------------
45. For those investors who find it difficult to pay for insurance cover, Money
back policy is recommended - State True or False?
a. True
b. False
Ans: (c) Money back policy provides life coverage during the term of the
policy and the maturity benefits are paid in installments. It's ideal for
individuals who need regular income at their disposal and fulfils their
financial goals uninterrupted.
392
46. A person gets sudden wealth by winning a big lottery. Which of the
below options is NOT advisable for him?
a. Investment in STP for investing in equities
b. Investment in the liquid fund for a short period
c. Investment of the full amount inequities
d. Revisiting his financial plan
Ans: (c) In situations of 'Sudden Wealth', it is advisable to initially block the

money by investing in a liquid scheme. An STP (Systematic Transfer Plan)
from the liquid schemes into equity schemes will help the long-term wealth
creation process. One should not invest 100% of the amount in equities at
one go.
-----------------------------------------------------------------------------------------------------
47. In the top-down approach, sector allocation precedes stock selection -
True or False?
a. True
b. False
Ans: (a) In a top-down approach, the portfolio manager decides how to

distribute the investible corpus between countries and sectors. Thereafter,
the good stocks within the identified sectors are selected for investment.
Thus sector allocation is a key decision. In a bottom-up approach, not much
importance is given to the country-allocation and sector-allocation. If a stock
is good, it is picked for investment.
393
48._____________style is an approach of picking up stocks, which are
valued lower, based on fundamental analysis.
a. Dividend Yield
b. Value Investing
c. Growth Investing
d. Top Down Approach
Ans: (b) Value investment style is an approach of picking up stocks, which

are priced lower than their intrinsic value, based on fundamental analysis.
The belief is that the market has not appreciated some aspect of the value
in a company’s share – and hence it is cheap. When the market recognizes
the intrinsic value, then the price would shoot up. Such stocks are also
called value stocks. Investors need a longer investment horizon to benefit
from the price appreciation in such stocks.
-----------------------------------------------------------------------------------------------------
49. For a life-long investment in gold, one should prefer Gold Futures as
against Gold ETF - True or False?
a. FALSE
b. TRUE
Ans: (a) Gold futures contracts are traded in commodity exchanges and
have an expiry date. Gold ETF on the other hand has no expiry date. They
can be bought and the delivery takes place in Demat Form which can be
held as long as you want.
394
50. Identify the FALSE statement: A. The best strategy in selecting a mutual
fund scheme is that based on its past performance B. When the mutual fund
distributor understands the needs of his investor, one can ignore the
investment objective of the mutual fund schemes
a. Only A is false
b. Only B is false
Ans. (c) Experience has shown time and again, the top performers during one
period may not necessarily remain as a top performer forever or near the other top
performers and vice versa. In such a case, simply buying into a scheme due to
good returns in the recent past may not be a wise approach. In order to evaluate
various mutual fund schemes, it is important to consider the scheme's investment
objective and strategy. Both of these can help one understand what to expect from
the scheme. The suitability of a mutual fund scheme to an investor depends upon
the features of the scheme and matching it to the needs of the investor from the
investment. Therefore, one cannot ignore the investment objectives of the
scheme.
-----------------------------------------------------------------------------------------------------
51. Sectoral Funds like Banking Funds etc., have the highest
a. Re-Investment Risk
b. Interest Rate Risk
c. Liquidity Risk
d. Concentration Risk
Ans. (d) The sector funds invest in stocks belonging to just one sector of the
economy, in order to take advantages within the said sector. The examples of
such funds are: Pharma fund, or Banking fund. Sector funds are risky because of
the concentration in one sector. If the sector under-performs then the scheme's
returns is likely to be very poor.
395
52. These debt mutual funds categories have been arranged from lowest risk
to highest risk. Identify the risk which we are discussing: 1. Liquid Funds 2.
Money market funds 3. Medium term bond funds
a. Concentration Risk
b. Credit Risk
c. Interest Rate Risk
d. Default Risk
Ans. (c) Interest rate risk is the risk that an investment's value will change as a
result of a change in interest rates. The interest rate risk varies for bonds with
different maturities. Those with longer maturity would witness higher price
fluctuations in comparison to those with shorter maturities. Similarly short term
debt funds will have lower interest rate risk when compared to longer term debt
funds. In the above question, Liquid funds have the shortest duration and so will
have less adverse effect of interest rate risk when compared to Money market
funds and Medium term bond funds.
-----------------------------------------------------------------------------------------------------
53. Identify the correct statement with respect to top performing scheme within
a category _________ .
a. A top performing scheme may or may not be the top performer in the next
years to come
b. A top performing scheme will remain the top performer for a long period of
time
c. A top performing scheme will be the worst performer in the next years to
come
d. A top performing scheme is the best choice for an investor to invest his
funds
Ans. (c) As experience has shown time and again, the top performers during one
period may not necessarily remain as a top performer forever or near the other top
performers. In such a case, simply buying into a scheme due to good returns in
the recent past may not be a wise approach. The mutual fund advertisements use
the disclaimer: “Past performance may or may not be sustained in future.”
396

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CHAPTER 1: INVESTMENT LANDSCAPE

1. Financial goals should be defined in terms of ___________

Ans: (c) Asset Allocation is a process of allocating money across various

Ans: (b) Overconfidence bias refers to a person's overconfidence in one's

Ans: (b) A goal-Based approach to Financial Planning is a financial plan for

Ans: (d) Risk profiling is an approach to understand the risk appetite of

Ans: (c) Rebalancing is required in both Tactical and Strategic Asset

Ans: (b) Risk profiling is an approach to understand the risk appetite of

Ans: (d) Real Estate is not a commodity as it cannot be standardised. Food

Ans: (a) In behavioural finance, Herd Mentality bias refers to investors'

Ans: (a) The returns on investment without factoring inflation is known as

Ans: (d) The basic meaning of asset allocation is to allocate an investor's

Ans: (b) Overconfidence / Optimism bias refers to a person's

Ans: (b) Every scheme has a pre-announced investment objective.

Ans: (a) The distribution of an investor's portfolio between different asset

Ans: (b) Risk cover can only be provided by insurance.

1. The Profit and Loss made by the Mutual Fund Belongs to

Ans: (b) An investor (unit holder) in a MF scheme is the beneficial owner of

Ans: (a) Floater Fund is an open-ended debt scheme predominantly

Ans: (b) Multi Asset Allocation: An open-ended hybrid scheme investing in

Ans: (d) Arbitrage Fund: An open-ended scheme investing in arbitrage

Ans: (b) Diversified Debt Schemes (Income Funds) invests mainly in

Ans: (A) "To generate income by investing predominantly in a wide range of

Ans: (c) A Gilt fund is an open-ended debt scheme investing in government

Ans: (c) Arbitrage funds take opposite positions in different markets I

Ans: (b) In open-ended balanced scheme the investment in equity and

Ans: (c) A Hybrid fund is classified into Aggressive, Balanced, and

Ans: (d) A contra fund is an open-ended equity scheme following a

Ans: (c) Mutual Funds employ professional investment experts to manage

Ans: (c) The investment in Equity Linked Savings Schemes is subject to

Ans: (a) Retirement Fund is an open-ended retirement solution-oriented

Ans: (c) Balanced Hybrid Fund is an open-ended balanced scheme

Ans: (b) A Large Cap Fund is an open-ended equity scheme predominantly

Ans: (b) Close-ended schemes generally offer exit options to investors

Ans: (a) Every scheme has a pre-announced investment objective.

Ans. (a) Aggressive Hybrid Fund is an open-ended hybrid scheme investing

Ans. (b) Conservative Hybrid Fund is an open-ended hybrid scheme

Ans. (d) Liquid Fund is an open-ended liquid scheme whose investment is

Ans. (c) Conservative Hybrid Fund is an open-ended hybrid scheme

1. As per SEBI Regulations, MF scheme should have atleast ______

Ans: (d) Day to day management of the schemes is handled by an Asset

Ans: (b) Day-to-day management of the schemes is handled by an AMC.

Ans: (a) Asset Management Companies in India are members of the

1. In case of any unresolved complains against AMC, investors can

Ans: (a) As per the SEBI Regulations related to Sales Practices -

Ans: (b) Every mutual fund scheme/plan should have a minimum of 20

Ans: (c) Employees of Asset Management Companies (AMCs) cannot

Ans: (b) An important objective of AMFI is to represent to the Government,

Ans: (b) Pension Funds Regulatory and Development Authority (PFRDA) is

Ans: (d) All advertisements and Sales Literature containing an

Ans: (a) Dividend warrants have to be sent to investors within 30 days of

Ans: (b) Statement of Account is to be sent to investors within 5 days of

Ans: (c) Persons aggrieved by an order of Adjudicating Officer passed

Ans: (d) In Corporate Bond Fund, minimum investment in corporate bonds

Ans: (c) Right to unclaimed amounts- AMC is expected to make a

Ans: (b) In the event of a breach of the Code of Conduct by an intermediary,

Ans: (c) Recovery of unclaimed amounts by the investors is as follows: If

Ans: (d) 75 percent of unit holders can terminate the appointment of an

Ans: (d) AMFI Guidelines and Norms for Intermediaries.

Ans: (d) Pension Funds Regulatory and Development Authority (PFRDA) is

Ans. (d) Fund management is the most critical function in an Asset

Ans. (b) SEBI Complaint Redress System (SCORES) is a web-based

Ans. (b) To terminate the appointment of an Asset Management Company,