Q As per SEBI regulations, a mutual fund scheme should have at

1. least ________ investors.

10
15
20
25

UnAttempted

CORRECT ANSWER:

20

Explanation:
As per SEBI, a Mutual Fund 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(s).

Q Mutual fund units issued against purchase transactions would

2. be subject to levy of stamp duty at ______ of the amount
invested.
0.5%
0.05%
0.005%
0.01%

UnAttempted

CORRECT ANSWER:
 0.005%

Explanation:
With effect from July 1, 2020, mutual fund units issued against
purchase transactions (whether through lump-sum
investments or SIP or STP or switch-ins or
dividend reinvestment) would be subject to levy of stamp duty
@ 0.005% of the amount invested.

Q To whom does the profits or losses made by the mutual fund

3. belong?
The investors
The Asset Management Company
Fund Managers
Trustees

UnAttempted

CORRECT ANSWER:

The investors

Explanation:
The money received 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 unitholders.

No other entity involved in the mutual fund in any capacity

participates in the scheme’s profits or losses. They are all paid
a fee or commission for the contributions they make to
 launching and operating the schemes.

Q What action has to be taken before deleting a default bank

4. account from the registered bank account in a mutaul fund
folio?
A new folio will have to be opened with the same joint
holding as the new default account
Another account has to be designated as the default bank
account
All the nominees of the mutual fund scheme have to sign on
the change form irrespective of the mode of holding

UnAttempted

CORRECT ANSWER:

Another account has to be designated as the default bank

account

Explanation:
If the default bank account is being deleted from the list of
registered accounts, then before that another account has to
be designated as the default bank account.

Q The Asset Management Companies have to disclose the Total

5. Expense Ratios (TER) of the various schemes on their
websites on a ______ basis.
Daily
Weekly
Monthly
Annual
 UnAttempted

CORRECT ANSWER:

Daily

Explanation:
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
Total expense ratio (scheme-wise, date-wise) of all schemes
on their website. The same must also be published on AMFI
website.

Q Financial goals have to be defined in terms of _______ .

6. Time horizon and external funds required
Costs and economic policies
Aspiration and desires
Time horizon and money needed

UnAttempted

CORRECT ANSWER:

Time horizon and money needed

 Explanation:

The first step in goal setting is to identify events in life which

will require funding like - marriage, education, buying a
vehicle 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 timeline as well as amount of

funding required at the time of such events.

Q If the sale and purchase transactions for a year amounted to

7. 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 ________ .
2 months
3 months
6 months
12 months

UnAttempted

CORRECT ANSWER:

6 months

Explanation:
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. 10,000 crore ÷ Rs. 5,000 crore = 2 or 200 percent

This means that investments are held in the portfolio, on

an average for 12 months ÷ 2 i.e. 6 months.

Q Investors tend to extrapolate the current event into the future

8. and expect a repeat. This is an example of ________ bias.
Overconfidence
Recency
Herd Mentality
Familiarity

UnAttempted

CORRECT ANSWER:

Recency

Explanation:
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 lead 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.
Q ________ is a proper benchmark for a balanced hybrid scheme.
9. CRISIL Hybrid 75+25 , Conservative Index
CRISIL Hybrid 25+75 , Aggressive Index
CRISIL Hybrid 50+50 , Moderate Index

UnAttempted

CORRECT ANSWER:

CRISIL Hybrid 50+50 , Moderate Index

Explanation:

CRISIL blended indices for hybrid funds :

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

Q Long Duration debt scheme invests in debt instruments with

10. Macaulay duration _____ .
between 1 year and 3 years
below 1 year
greater than 7 years
6 months and 12 months.
 UnAttempted

CORRECT ANSWER:

greater than 7 years

Explanation:

Macaulay Duration is the weighted average of the time to

receive the cash flows from a bond.

Long Duration Fund : An open-ended debt scheme investing in

debt and money market instruments with Macaulay duration
greater than 7 years.

Q When the asset allocation is maintained as a constant ratio by

11. regular rebalancing of portfolio, it is known as ________ .
Dynamic asset allocation
Flexible asset allocation
Fixed asset allocation
Variable asset allocation

UnAttempted

CORRECT ANSWER:

Fixed asset allocation

 Explanation:

For eg - If a fund has a 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.

Q For which of these documents is Time Stamping mandatory?

12. Payment instrument only
Application form only
Transaction slip for buying additional units
Both for Application form / transaction slip and payment
instrument

UnAttempted

CORRECT ANSWER:

Both for Application form / transaction slip and payment

instrument

Explanation:

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.
Q Segregated portfolio means _________ .
13. a portfolio which is kept aside for a ‘rainy day’ or
contingency fund
a portfolio which is created out of debt or money market
securities affected by a credit event
a portfolio which is left after removing poor credit quality
papers
All of the above

UnAttempted

CORRECT ANSWER:

a portfolio which is created out of debt or money market

securities affected by a credit event

Explanation:
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.

Q What is the purpose of ‘credit enhancement’ in case of

14. securitised transaction?
Payment of higher coupon
Generating capital gain
Higher credit worthiness
 UnAttempted

CORRECT ANSWER:

Higher credit worthiness

Explanation:
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 applying selection criteria,
which further diminishes the risks inherent for a particular
asset class.

Q Banks and NBFC's can lend money against ________ of mutual

15. fund units.
Nomination
Redemption
Pledge
All of the above

UnAttempted

CORRECT ANSWER:

Pledge
 Explanation:
Banks, NBFCs and other financiers often lend money against
pledge of Units by the Unitholder.

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).

Q Whom should the investor approach if his complaint is not

16. resolved by the Asset Management Company (AMC) ?
Securities and Exchange Board of India (SEBI)
Custodian
Company Law Board
Ombudsman

UnAttempted

CORRECT ANSWER:

Securities and Exchange Board of India (SEBI)

Explanation:
In the event of any issue with the 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.
Q Inflation Risk is also referred as _______ .
17. Credit Risk
Liquidity Risk
Purchasing Power Risk

UnAttempted

CORRECT ANSWER:

Purchasing Power Risk

Explanation:

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.

Q Which of these statement(s) is/are FALSE?

18. 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
As the purchase and re-purchase is done with the mutual
fund, the investor does not have to pay any capital gain tax
Both 'a' and 'b' are false

UnAttempted
 CORRECT ANSWER:

As the purchase and re-purchase is done with the mutual fund,

the investor does not have to pay any capital gain tax

Explanation:
The difference between the purchase price of the units
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 holding period of more than three

years in case of non-equityoriented funds like debt funds,
whereas the same is more than 1 year in case of equity-
oriented funds)

Q Long term capital gains is NOT taxed in which of these funds?

19. A. Balanced Advantage Funds B. Balanced Funds C.
Diversified Equity Funds
Both A and B
Only C
Only A
Capital gains from all types of mutual funds are taxed
subject to certain conditions

UnAttempted

CORRECT ANSWER:

Capital gains from all types of mutual funds are taxed subject
to certain conditions
 Explanation:

Capital gains from Equity, Debt and Hybrid funds are taxable
subject to certain conditions like the holding period etc.

Q In whose beneficial interest is a mutual fund managed?

20. Trustees
Unit holders
Sponsors
AMC

UnAttempted

CORRECT ANSWER:

Unit holders

Explanation:

An investor (unit holder) in a mutual fund scheme is the

beneficial owner of the units one has bought. The mutual fund
is managed for the beneficial interest of the unitholders.

Q The loss booked from a debt investment of 15 months can be

21. set off against ________ .
Long term capital loss
Short term capital loss
Short term capital gain or long term capital gain
It cannot be set-off
 UnAttempted

CORRECT ANSWER:

Short term capital gain or long term capital gain

Explanation:

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.

Q Which of these statements are false? A) While evaluating

22. 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 and B are false
B and C are false
A and C are false
All A, B and C are false

UnAttempted

CORRECT ANSWER:
 B and C are false

Explanation:
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.

Q Ultra-short-term debt scheme invests in debt and money

23. market instruments with Macaulay duration between
__________ .
1 to 3 months
3 to 6 months
6 to 12 months
1 year to 3 years
 UnAttempted

CORRECT ANSWER:

3 to 6 months

Explanation:

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.

Q Which of these is a physical asset?

24. Gold futures
Real estate fund
Real estate
Mortgaged backed securities

UnAttempted

CORRECT ANSWER:

Real estate
 Explanation:

Real estate means physical property in the form of land and

buildings.

Real estate funds, Gold futures and Mortgaged backed

securities are all financial assets.

Q A mutual fund scheme’s NAV is said to be cum-dividend from

25. the ________ .
date the dividend is announced till it is paid out
date the dividend is paid
date unit holders approve the dividend
date of notice of meeting

UnAttempted

CORRECT ANSWER:

date the dividend is announced till it is paid out

Explanation:
When a dividend is announced, and until it is paid out, it is
referred to as cum-Dividend NAV.

Q The expenses which can be charged by an Asset Management

26. Company to a Mutual Fund scheme are limited by _____ .
Fund Managers
Sponsors
 Investors
SEBI

UnAttempted

CORRECT ANSWER:

SEBI

Explanation:

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.

Q What is the portfolio of a 'Fund of Funds' made up of ?

27. Money market securities
Equity stocks
Debt securities
Mutual Fund schemes

UnAttempted

CORRECT ANSWER:

Mutual Fund schemes

Explanation:
 Fund of funds is a mutual fund which utilises 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.

Q Identify the TRUE statement.

28. 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
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

UnAttempted

CORRECT ANSWER:

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

Explanation:

If there is an entry load on a scheme then while calculating the

scheme returns, the initial value of the Net Asset Value (NAV)
is taken as NAV plus the Entry load as the cost of purchase
increases due to the 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 scheme returns), the amount actually
received/receivable by the investor (i.e. NAV minus Exit Load,
if any) would need to be used.

Q Identify the TRUE statements - A) A mutual fund scheme with a

29. beta of less than 1 is less risky than market B) The diversified
stock index has a Beta of 1 C) Unsystematic risk is measured
by its Beta
Only A is true
B and C are True
A and B are True
All A, B and C are True

UnAttempted

CORRECT ANSWER:

A and B are True

Explanation:
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.

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

Q The New Fund Offer dates are published in the _______ .

30. Both Key Information Memorandum and Scheme
Information Document
Statement of Additional Information (SAI)
Key Information Memorandum (KIM)
Scheme Information Document (SID)

UnAttempted

CORRECT ANSWER:

Both Key Information Memorandum and Scheme Information

Document

Explanation:
SID has information on relevant NFO dates (opening, closing,
re-opening),

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

Q Which of the below statements is a important advantage of a

31. Exchange Traded Fund (ETF) ?
A person can closely track the current valuation of an ETF
and buy/sell the units on a stock exchange at those prices
ETFs generally give higher returns than other Mutual Funds
An investor in an ETF can have a control on where his
 money can be invested
All of the above

UnAttempted

CORRECT ANSWER:

A person can closely track the current valuation of an ETF and

buy/sell the units on a stock exchange at those prices

Explanation:
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.
The market price also tracks the NAV very closely.

Q As per AMFI’s code of ethics, an Asset Management Company

32. has to disclose which of the following scheme related
information to the unit holders? A. Investment Pattern B.
Annual portfolio turnover C. Annual securities transactions
Only B
A and B
B and C
A, B and C

UnAttempted

CORRECT ANSWER:
 A and B

Explanation:
Asset Management Company (AMC) shall disclose to
unitholders 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.

Q In which of these options can an investor expect a cash flow in

33. his bank account?
Bonus
Dividend Payout
Dividend Reinvestment
Growth

UnAttempted

CORRECT ANSWER:

Dividend Payout

Explanation:

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 re-investment 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.

Q Which statement is FALSE with reference to risk appetite?

34. Risk appetite can be assessed by risk profiling
Preferred risk appetite is different from ideal risk appetite
Risk appetite indicates level of risk that investor is
comfortable with
People of same age will have same risk appetite

UnAttempted

CORRECT ANSWER:

People of same age will have same risk appetite

Explanation:
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.

Q If an investor wants to get updated monthly performance and

35. portfolio data on mutual funds, which of the following
documents should he read?
Scheme Information Document (SID)
Fund Fact Sheet
Key Information Memorandum (KIM)
Statement of Additional Information (SAI)

UnAttempted

CORRECT ANSWER:

Fund Fact Sheet

Explanation:
The fund fact sheet plays a vital role in giving updated
information on the mutual fund schems and usually is
published on a monthly basis by all the fund houses.

Factsheet is not a statutory requirement.

Q For how long is the trail commission paid to the mutual fund
36. distributor?
For the first one year only
For the first three years only
For the first ten years only
Till the money is held in the fund
 UnAttempted

CORRECT ANSWER:

Till the money is held in the fund

Explanation:
A mutual fund distributor is paid trail commission for as long
as the investor’s money is held in the fund.

Q Identify the TRUE statement/s -

37. Rolling return are the average annualized returns
calculated for alternate holding period
Holding period returns (HPR) do not provide an accurate
picture of returns of fund if its initial value is to high or low.
Both 1 and 2
None of the above

UnAttempted

CORRECT ANSWER:

Holding period returns (HPR) do not provide an accurate

picture of returns of fund if its initial value is to high or low.

Explanation:
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.

Q What is asset allocation?

38. Deciding which and how many mutual fund schemes to
invest in
Finalizing which mutual fund schemes would deliver the
highest returns in future
Deciding how to invest money across various asset
categories in line with one’s risk profile, financial objectives
and current situation
Deciding which asset category would outperform the others
and investing in it

UnAttempted

CORRECT ANSWER:

Deciding how to invest money across various asset categories

in line with one’s risk profile, financial objectives and current
situation

Explanation:
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.

Q Which of these funds has the highest risk ?

39. Gilt funds
Index funds
Money market funds
Sector funds

UnAttempted

CORRECT ANSWER:

Sector funds

Explanation:
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 underperforms then the scheme’s
returns is likely to be poor.

Q Which of these statement(s) is/are FALSE with respect to

40. 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
Only A is false
 Only B is false
Both A and B are false

UnAttempted

CORRECT ANSWER:

Only B is false

Explanation:
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.

Q The opening of time stamping machine needs to be

41. documented and reported to _______ .
Sponsors
Trustees
SEBI
Asset Management Company

UnAttempted

CORRECT ANSWER:

Trustees
 Explanation:
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.

Q What is negative Alpha?

42. It is indicative of outperformance by the fund manager
It is indicative of under-performance by the fund manager
It is indicative of over-hedging by the fund manager
It is indicative of under-hedging by the fund manager

UnAttempted

CORRECT ANSWER:

It is indicative of under-performance by the fund manager

Explanation:
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 outperformance by the fund manager; negative
alpha might indicate under-performance.
Q Securities and Exchange Board of India (SEBI) functions does
43. not include which of the following?
Regulation of Stock Exchanges
Enforcing compliance of its regulations
Making regulations for the Mutual Fund industry
Approving the fund managers which have been appointed
by the AMC

UnAttempted

CORRECT ANSWER:

Approving the fund managers which have been appointed by

the AMC

Explanation:

An approval of SEBI is not required by the AMC while

appointing the fund managers.

Q _____ is not a fair selling practice by a mutual fund distributor.

44. Informing the investor of the various investment options
Carefully understanding the clients financial needs
Encouraging the churning of investments
Giving personalised after sales service

UnAttempted

CORRECT ANSWER:
 Encouraging the churning of investments

Explanation:

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.

Q Identify the TRUE statement. A) While calculating scheme

45. returns for an investor, if there is an entry load, then the initial
value of the Net Asset Value (NAV) is taken as NAV plus 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 plus Exit Load
Only A
Only B
Both A and B

UnAttempted

CORRECT ANSWER:

Only A

Explanation:

If there is an exit load on a scheme then while calculating the

 scheme returns, the later value of the Net Asset Value (NAV) is
taken as NAV minus the exit load as the sale value decreases
due to the exit load.

So exit load has to be subtracted from the NAV and not added.

Q Once a New Fund Offer closes, an open ended mutual fund is

46. open for purchases _________ .
by existing investors only
by existing investors on the stock exchange platform only
by both existing and new investors on the stock exchange
platform only
by both existing and new investors

UnAttempted

CORRECT ANSWER:

by both existing and new investors

Explanation:

An Open Ended mutual fund can be purchased by both new

and existing investors through the traditional way or through
stock exchanges.

Q An investor in India is investing in US Dollar based funds.

47. He/She will benefit when ______ .
The US Dollar becomes weaker
The US Dollar becomes stronger
 The US Dollar reamins steady

UnAttempted

CORRECT ANSWER:

The US Dollar becomes stronger

Explanation:

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)

Q How is the redemption transaction of a mutual fund priced?

48. NAV plus exit load
NAV minus exit load
NAV plus entry load
NAV minus entry load
 UnAttempted

CORRECT ANSWER:

NAV minus exit load

Explanation:
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.

Q Identify the TRUE statement with respect to 'Tracking Error'.

49. 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
Only A is true
Ony B is true
Both A and B are true

UnAttempted

CORRECT ANSWER:

Only A is true
 Explanation:
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.

Q Investments are carried at ________ in a mutual fund portfolio.

50. Market Value
Face Value
Book Value
Cost Value

UnAttempted

CORRECT ANSWER:

Market Value

Explanation:
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.