Chapter 1

Q1) What is the first step of financial planning ?

Ans. Setting Financial Goal

Q2) What is Credit Risk ?

Ans. Risk of default

Q3) When the interest rates increase what happens to the existing bond prices ?

Ans. Bond prices decrease (Inverse relation)

Q4) What is Recency Bias ?

Ans. To extrapolate the event into the future and expect a repeat

Q5) By what method can you decide the risk of an investor ?

Ans. Risk Profiling

Q6) What is Strategic Asset Allocation and What is Tactical Asset Allocation ?

Ans. Strategic Asset Allocation - When you decide your asset allocation based on a strategy.
Tactical Asset Allocation - When you decide your asset allocation based on market trend
or opportunities.
 Chapter 2

Q1) How much is the face value of a mutual fund ?

Ans. Rs. 10 (it cannot be less or more than Rs. 10)

Q2) What is unit Capital?

Ans. Unit capital is Number of units multiplied by face value (or number of units multiplied by Rs.
10)

Q3) What is Net Asset Value ?

Ans. Net Asset value is the current market value of 1 unit of mutual fund.

Q4) What do you understand by Mark to Market ?

Ans. Valuing each security in the investment portfolio of the scheme at its current market price
(we use closing price)

Q5) How can you sell a close ended mutual fund before maturity and at what price ?

Ans. They can be sold on a stock exchange at a price on which buyer is ready to transact (it can
be higher or lower than the NAV)

Q6) Which fund is the riskiest fund in the market ?

Ans. Sector Fund

Q7) Which fund is the Safest fund in the market ?

Ans. Gilt fund (it invest in government securities)

Q8) ELSS have a lock-in of ?

Ans. 3 years from the date of investment.

Q9) How much minimum investment a Gilt fund should have in Government securities ?

Ans. 80%

Q10) How much does a balance hybrid fund invest in the equity and debt category ?

Ans. It maintains an asset allocation of belween 40%-60%

Q12) Credit Risk fund invest in which rated bonds ?

Ans. Only AA Rated bond (nothing above and Nothing below)

Q13) How much minimum investment does an index fund or ETF have in the particular Index ?

Ans. 95%
 CHAPTER 3

Q1) Mutual funds are established as ?

Ans. Trusts

Q2) Who creates a Mutual funds trust?

Ans. Sponsors (Sponsors must contribute minimum 40% of the net worth of the AMC)

Q3) How many minimum trustees a mutual fund should have?

Ans. 4 (Appointed by Sponsors with the Approval of SEBI)

Q4) What is the role of an Asset Management Company ?

Ans. Handle day to day operations (Appointed by Sponsors/Trustees with the Approval of SEBI)

Q5) What are the 2 roles of the custodian ?

Ans. To keep the custody of the assets and to track corporate actions like dividend, bonus, etc.

Q6) Who handles processing of purchase and redemption transactions of the investor ?

Ans. RTAs (Registrars and Transfer Agents)

Q7) Who holds the securities in dematerialised or electronic form on behalf of the investors ?

Ans. Depositories

Q8) Which body recommends and promotes best business practices, code of conduct,
represents the mutual fund Industry and makes the industry data available to all ?

Ans. AMFI (Association of Mutual Funds in India) (It also issues license to distributors)
 CHAPTER 4

Q1) Who regulates Mutual Funds in India?

Ans. SEBI

Q2) The Mutual Fund under all its schemes shall not own more than how many percent of a
company’s paid-up capital ?

Ans. 10%

Q3) Debt mutual funds cannot invest more than 10 percent in debt instruments issued by a
single issuer this limit does not apply to?

Ans. Government Securities

Q4) Can celebrities be a part of a mutual fund scheme Advertisement?

Ans. No celebrities shall form part of the advertisement

Q5) How many nominees can an investor appoint ?

Ans. 3

Q6) Name the web-based centralized grievance redress system of SEBI ?

Ans. SEBI Complaint Redress System (SCORES)

 CHAPTER 5

Q1) Name the three mandatory documents ?

Ans. Scheme Information Document (SID)

Statement of Additional Information (SAI)
Key Information Memorandum (KIM)

Q2) The interim changes are updated through the issuance of which document ?

Ans. Addendum

Q3) A pictorial representation of the risk is known as ___ and in which document it is present ?

Ans. The Riskometer present on the front page of the SID

Q3) How often are SID, SAI and KIM updated ?

Ans. SID and KIM every 6 months and SAI once in a Financial year.

Q4) NAV id disclosed on what basis ?

Ans. Daily (You can find the same on Mutual fund website and AMFI website)

Q5) How often is the Portfolio disclosure published ?

Ans. Every 6 months

Q6) Name the Non-Mandatory Disclosures/Document which is used to track monthly

performance of the mutual fund ?

Ans. Fund Factsheet (It is issued on monthly basis)

 CHAPTER 6

Q1) What is the full form of ARN and EUIN ?

Ans. ARN - AMFI Registration Number

EUIN - Employee Unique Identification Number

Q2) Who issues ARN and EUIN ?

Ans. AMFI

Q3) The commission earned by a mutual fund distributor is known as ?

Ans. Trail Commission

Q4) Trail commission is calculated on what basis ?

Ans. Daily

Q4) Transaction charge is applicable on purchase transaction above?

Ans. Rs. 10000

Q5) Name the 4 conditions for Commission Disclosure mandated by SEBI and Due Diligence
Process by AMCs for Distributors ?

● Multiple point presence (More than 20 locations)

● AUM raised over Rs. 100 crores across the industry
● 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

Q6) Are investors allowed to change the distributor without the consent of the previous
distributor?

Ans. Yes, The investor can change his/her distributor or switch to a direct plan by just submitting
a written application at the AMC office.
 CHAPTER 7

Q1) Once an exchange is selected by the AMC can it be changed ?

Ans. Yes, but the reason for change should be recorded in written

Q2) Formula for calculating NAV ?

Ans. (Assets - Liabilities) / Total number of outstanding units

Q3) What is the maximum expense ratio that can be charged in case of liquid fund, index fund,
equity fund and debt fund ?

Ans. Liquid and Index fund - 1%

Equity Funds - 2.25 %
Debt funds - 2 %

Q4) Exit load, if applicable will be added or subtracted from the NAV ?

Ans. Exit load, if applicable will be subtracted from the NAV.

Q5) NAV should be calculated till what decimal place for debt funds and for equity funds?

Ans. Up to 4 decimal places in the case of index funds, liquid funds and other debt funds.
For equity and balanced funds is to be calculated up to at least 2 decimal places

Q6) When is a Segregated Portfolio created ?

Ans. In case of a credit event (i.e. default of a bond/debenture)

 CHAPTER 8

Q1) How do you classify long term and short term capital gains for equity and non-equity ?

Ans. Short-term capital gains -

Holding period less than 12 months for equity or less than 36 months for non-equity
Long-term capital gains -
Holding period more than 12 months for equity or more than 36 months for non-equity

Q2) How do you classify long term and short term capital gains for equity and non-equity ?

Ans. Short-term capital gains -

Holding period less than 12 months for equity or less than 36 months for non-equity
Long-term capital gains -
Holding period more than 12 months for equity or more than 36 months for non-equity

Q3) What is the tax rate on capital gains ?

Ans. For equity : 15% on short-term and 10% on long term

For non-equity : Marginal tax rate in short term and 20% with indexation in long term

Q4) What do you understand about Grandfathering of capital gains?

Ans. Before 2018 there was no long term capital gains on equity

Q5) Do we get any exemption in long term capital gains in equity?

Ans. Yes Rs. 1 lac is exempted from tax in long term capital gains for equity

Q6) Are dividends taxable, if yes what is the tax rate ?

Ans. Yes, Taxable as per the tax slab of the investor (added to their total income)
Q7) Stamp duty is applicable for which transaction and at what rate ?

Ans. Stamp duty is applicable on all purchase transactions for all mutual funds @ 0.005%

Q8) STT is applicable for which transaction and at what rate ?

Ans. STT is applicable on Sale transactions only for equity mutual funds @ 0.001%

Q9) How much tax benefit do we get by investing in ELSS ?

Ans. Rs. 1.50 lac. Under section 80C

Q10) In which case TDS is applicable for resident investors?

Ans. 10 percent on the dividend amount if it exceeds Rs. 5,000

Q11) State the 3 rules of setting off capital gains ?

Ans.
● Capital loss, short term or long term, cannot be set off against any other head of income.
● 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
 CHAPTER 9

Q1) What is an NFO and how long can a NFO remain open ?

Ans. NFO stands for New Fund Offer and a NFO can remain open for maximum 15 days.

Q2) Difference between a direct and a regular plan?

Ans. In a direct plan there is no distributor involved so no commission.

In a regular plan there is a distributor involved so the expense ratio is high (as it includes
commission).

Q3) Difference between IDCW pay-out, IDCW reinvestment and Growth plans?
(IDCW stands for Income Distribution cum capital withdrawal)

Ans. IDCW Pay-out - Dividend received in bank account

IDCW reinvestment - Dividend is taken out but then reinvested (you will receive extra units)
Growth plans - Dividend is never taken out NAV captures all changes

Q4) What do we call the NAV after the Dividend is announced but not taken out and what do we
call it after the dividend is taken out.

Ans. Cum-dividend NAV - Dividend is announced but not taken out

(Price is including the dividend)
Ex-dividend NAV - Dividend is taken out
(Price has fallen as the dividend has been taken out)

Q5) Who are dormant investors ?

Ans. Investors who have not transacted in their account in the last 6 months.

Q6) Can a minor invest in mutual funds ?

Ans. In case of a minor Investment is done through a guardian who complies with the KYC and
PAN requirement
Q7) Full form of FATCA and CRS?

Ans. Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS)

Q8) How many bank accounts can an individual link to their mutual fund folio?

Ans. 5 bank accounts

Q9) What is a switch transaction?

Ans. A switch is redemption from one scheme and a purchase into another combined into one
transaction.

Q10) A foolproof mechanism of capturing the time at which the sale and repurchase
applications are received is known as ?

Ans. Time Stamping

Q 11) Which categories of investors are exempt from producing PAN ?

Ans.
● In case of transactions undertaken on behalf of the 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 up to
Rs. 50,000/- per investor per year per mutual fund.

Q 12) What is SIP, SWP and STP?

Ans.
● SIP - Systematic Investment Plan
● SWP - Systematic Withdrawal Plan
● STP - Systematic Transfer Plan
 CHAPTER 10
Q1) Spread risk and Basis risk arise in ?

Ans. Floating rate-debt instruments

Q2) What is Fundamental and Technical analysis ?

Ans. Fundamental analysis is a study of the business and financial statements of a firm.
Technical Analysts study price-volume charts.

Q3) What is the formula for EPS (Earning per share) and PE ratio (Price-earning)?

Ans. Earnings per Share (EPS): Net profit after tax ÷ No. of equity shares outstanding
Price to Earnings Ratio (P/E Ratio): Market Price per share ÷ Earnings Per Share (EPS)

Q4) What is the formula for Book value per share and PB ratio (Price to book value) ?

Ans. Book Value per Share: Net Worth ÷ No. of equity shares outstanding
Price to Book Value: Market Price per share ÷ Book Value per share

Q5) Difference between Growth and Value investment style?

Ans. Growth investment style means investing in high growth stocks i.e., stocks of companies
that are likely to grow much faster than the market.
Value investment style is an approach of picking up stocks, which are priced lower than their
intrinsic value, based on fundamental analysis.

Q6) What is Top down and Bottom up portfolio building approach ?

Ans. In a top-down approach, the portfolio manager evaluates the impact of economic factors
first and narrows down on the industries that are suitable for investment and then companies.
A bottom-up approach on the other hand analyses the company-specific factors first and then
evaluates the industry factors and finally the macro-economic scenario.
Q7) What is a Credit Spread?

Ans. The difference between the yield on Gilt and the yield on a nonGovernment Debt security
is called its credit spread.

Q8) Formula for simple return and Annualized return ?

Ans.
Simple return : ((Later value - Initial value) / Initial value)*100

Annualized return : (Simple return * 12) / Period in months

Q9) What does variance and standard deviation measure ?

Ans. Variance and Standard Deviation measure the fluctuation in periodic returns of a scheme
in relation to its own average return.

Q10) What does Beta measure ?

Ans. Systematic risk is measured by its Beta. 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.

Q11) What is Modified Duration ?

Ans. Modified duration measures the sensitivity of value of a debt security to changes in interest
rates. Higher the modified duration, higher is the interest sensitive risk in a debt portfolio.
 CHAPTER 11 & 12

Q1) What is difference between Price Return Index and Total Return Index ?

Ans. PRI only captures capital gains of the index constituents.

The Total Return variant of an index takes into account all dividends/interest payments that
are generated in addition to the capital gains

Q2) What are the basis for choosing a benchmark ?

Ans. Scheme Type

Choice of Investment Universe
Choice of Portfolio Concentration

Q3) Who designs benchmarks for debt and hybrid schemes ?

Ans. CRISIL

Q4) What does Sharpe Ratio measure and what is the formula for the same ?

Ans. Sharpe ratio is used to measure risk-adjusted returns.

Sharpe Ratio = (Total Return - Risk-free return) ÷ Standard Deviation

Q5) What does Treynor Ratio measure and what is the formula for the same ?

Ans. Treynor Ratio measures risk premium per unit of risk

Treynor Ratio = (Total Return - Risk-free return) ÷ Beta

Q4) What is Alpha ?

Ans. Alpha—a measure of the fund manager’s performance. Positive alpha is indicative of
outperformance by the fund manager; negative alpha might indicate under-performance.

Q5) What is Tracking Error ?

Ans. The difference between an index fund’s return and the market return is the tracking error.
Used for passive funds.

Q6) Risk-Return Hierarchy of mutual funds.

Ans. Liquid funds – Debt funds – Hybrid funds – Equity funds

Q7) Risk-Return Hierarchy of debt funds

Ans. Overnight funds (low risk) – Liquid funds – Ultra short duration funds – Low duration funds
– Short duration funds – Medium duration funds – Medium to long duration funds – Long
duration funds (high risk)

Q8) Hierarchy of Credit risk in debt funds

Ans. Gilt fund (low risk) – Banking and PSU fund – Corporate bond fund – Credit risk fund (high
risk)

Q9) Risk-Return Hierarchy of mutual funds.

Ans. Small cap funds – Mid-cap funds – Multi cap funds – Large and mid-cap funds – Large cap
funds
Q10) Risk-Return Hierarchy of mutual funds.

Ans. Small cap funds – Mid-cap funds – Multi cap funds – Large and mid-cap funds – Large cap
funds

Q11) Risk Return Hierarchy of hybrid funds

Ans. Arbitrage fund – Equity savings fund – Conservative hybrid fund – Dynamic asset
allocation fund – Multi asset allocation fund – Balanced hybrid fund – Aggressive hybrid fund

Q12) How to calculate Portfolio Turnover ratio.

Ans. 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.