Last Day Revision Test 2

Indians No.
1 Practice Test Bank

for clearing NSE-NISM-BSE exams
NISM-Series-V-A: Mutual Fund Distributors Certification

** ** ** ! !** Examination
NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
LAST DAY REVISION TEST NO. 2
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Question 1 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
Correct Answer Rs. 5.8904

Answer Trail commission is always calculated on the current NAV.
Explanation
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 / 365 = Rs. 5.8904
Question 2 According to guidelines given by SEBI, every mutual fund scheme should have a
minimum of investors.
(a) 10
(b) 20
(c) 25
(d) 50
Correct Answer 20
Answer Every mutual fund scheme/plan should have a minimum of 20 investors and no
Explanation single investor shall account for more than 25 percent of the corpus of the
Scheme/Plan(s).
Question 3 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
Correct Answer There is a risk of low returns

Answer Fixed deposits usually give a low rate of return and when adjusted against inflation,
Explanation 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 / equity mutual funds rather than fixed deposits.
Question 4 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
Correct Answer 6 months

Answer Dormant investors are those who have not transacted for previous six months.
Explanation
Question 5 Mr. Mohit has filled up a 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 ddress provided in the application form will be used for all communications
Correct Answer The address provided for KYC compliance

Answer Once the first holder’s PAN is validated for KYC, the address provided in the KYC
Explanation form will override the information provided in the application form.
Question 6 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
Correct Answer All of the above

Answer To comply with the requirements of Foreign Account Tax Compliance Act (FATCA)
Explanation 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.
Question 7 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
Correct Answer All A, B and C

Answer All of the above can invest in Indian mutual funds.
Explanation
Question 8 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
Correct Answer A and C are true

Answer Transmission is the process of transferring units to the person entitled to receive it
Explanation 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.
Question 9 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
Correct Answer Analysing mutual fund performance and making it available to investors
Answer The Registrars and Transfer Agents (RTAs) maintain investor records.
Explanation
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.
Question 10 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
Correct Answer 392.41

Answer Units are allotted as per the current NAV.
Explanation
The amount invested divided by the NAV will give the units allotted.
Rs 30,000 / 76.45 = 392.41
Question 11 AMFI Code of Ethics states that cannot become a distributor of mutual
fund.
(a) Banks
(b) HNIs
(c) Employees of AMC
(d) Empanelled distributors
Correct Answer Employees of AMC

Answer Employees of Asset Management Companies (AMs) cannot become mutual fund
Explanation distributors.
Question 12 Identify the TRUE statement -

(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
Correct Answer The mutual fund investor has the complete freedom to change the distributor any
time he wants
Answer Investors can choose to change their distributor or opt for direct investing.
Explanation
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.
Question 13 Indentify the true statement(s) –

A) A systematic transaction cannot be cancelled
B) Assuming a mutual fund scheme is profitable then the investors can keep
encashing some profits through a Systematic Withdrawal Plan
(a) Only A is true
(b) Only B is true
(c) Both A and B are true
Correct Answer Only B is true

Answer 1. A systematic transaction (like SIP etc) can be stopped.
Explanation
2. Assuming the scheme is profitable, the re-purchase ensures that some of the
profits are being regularly encashed by the investor.
Question 14 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
Correct Answer Software development

Answer The expenses on software development is not for a particular scheme but for the
Explanation AMC as a whole and cannot be charged to a particular scheme.
Question 15 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
Correct Answer Both statements A and B are false

Answer Both taxes and loads reduce investment returns. Therefore, it is important for the
Explanation 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.
Question 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
Correct Answer A-C-B

Answer Liquid funds are least risky as they invest in high quality debt instruements.
Explanation
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.
Question 17 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
Correct Answer Only B is false

Answer NAV is to be calculated upto 4 decimal places in the case of index funds, liquid
Explanation 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.
Question 18 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
Correct Answer long term capital gains only

Answer As per the Income Tax Act -
Explanation
- 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.
- Capital loss, short term or long term, cannot be set off against any other head
of income (e.g. salaries).
Question 19 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
Correct Answer B and C are true

Answer 1) Applications for non-financial transactions like change of address are stamped.
Explanation 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.
Question 20 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
Correct Answer The Trustees

Answer The trustees shall ensure that all transactions entered into by the AMC are in
Explanation compliance with the regulations and the scheme’s objectives and intent.
Question 21 Cut-off timing guidelines are not applicable for _ .

(a) International Funds
(b) New Fund Offer (NFO)
(c) Both of the above
(d) None of the above
Correct Answer Both of the above

Answer The cut-off timing is not applicable for NFOs and International Schemes.
Explanation
Question 22 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
Correct Answer FALSE

Answer Mutual funds can have their in-house Registrar and Transfer agency.
Explanation
Question 23 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
Correct Answer A = P X (1 + i)^n

Answer The costs in today’s terms, can to be translated into the rupee requirement
Explanation 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.
Question 24 Investments in mutual fund are allowed using .

(a) ASBA
(b) Cheque / DD
(c) Remittance
(d) Any of the above
Correct Answer Any of the above

Question 25 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
Correct Answer TRUE

Answer As per Income Tax rules -
Explanation
Short term capital loss can 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.
Question 26 The purchasing power of currency changes on account of which of the following?
(a) Diversification
(b) Inflation
(c) Compound interest
(d) Asset allocation
Correct Answer Inflation

Answer Inflation, or price inflation is the general rise in the prices of various commodities,
Explanation products, and services that we consume. Inflation erodes the purchasing power of
the money.
Question 27 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
Correct Answer Tracking Error

Answer The difference between an index fund’s return and the market return is the tracking
Explanation 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.
Question 28 Investor’s KYC details are stored in the server of .

(a) AMFI
(b) AMC
(c) KRA
(d) SEBI
Correct Answer KRA

Answer KRA means KYC Registration Agency
Explanation
The KRA after checking the KYC details uploads the details in the server of any
centralised KRA.
Question 29 Tactical Asset Allocation is the decision that comes out of calls on the likely
behaviour of the market - True or False ?
(a) FALSE
(b) TRUE
Correct Answer TRUE

Answer Tactical Asset Allocation is the decision that comes out of calls on the likely
Explanation behaviour of the market.
An investor who decides to go overweight on equities because of expectations of a
rise in share markets, is taking a tactical asset allocation call.
Question 30 Investors have the right to specify upto nominees for their mutual fund
investment folios.
(a) 1
(b) 2
(c) 3
(d) 4
Correct Answer 3
Answer The investors can appoint upto 3 nominees, who will be entitled to the ‘Units’ in the
Explanation 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.
Question 31 Lower the expenses of a Mutual Fund, lower would be the NAV - True or False ?
(a) TRUE
(b) FALSE

Answer NAV is basically the value of Portfolio less the MF expenses. So Lower the expenses,
Explanation higher would be the NAV.
Question 32 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
Correct Answer Debt Funds

Question 33 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
Correct Answer Micro SIPs

Answer Micro-SIPs - SIPs where annual investment (12 month rolling or April-March
Explanation financial year) does not exceed Rs 50,000.
Question 34 How many (maximum) bank accounts can a resident individual investor register
with a mutual fund folio?
(a) 1
(b) 2
(c) 3
(d) 5
Correct Answer 5
Answer Mutual funds provide investors the facility to register multiple bank accounts to
Explanation 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, ten.
Question 35 NAV of Equity funds is to be calculated upto decimals.

(a) 1
(b) 2
(c) 3
(d) 4
Correct Answer 2
Answer NAV for equity and balanced funds is to be calculated upto at least 2 decimal places.
Explanation
NAV is to be calculated upto 4 decimal places in the case of index funds, liquid funds
and other debt funds.
Question 36 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
Correct Answer Only Equity Schemes

Answer Beta as a measure of risk is relevant only for equity schemes.
Explanation
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
Question 37 Which of the following is a truly international asset class?

(a) Gold
(b) Equity Share
(c) Real Estate
(d) Debt
Correct Answer Gold
Question 38 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

Answer Liquid schemes are a variant of debt schemes that invest only in short term debt
Explanation securities. They can invest in debt securities of upto 91 days maturity.
Question 39 STP is a combination of SIP and SWP - True or False ?

(a) TRUE
(b) FALSE
Correct Answer TRUE

Answer In a STP ( Systematic Transfer Plan ), the amount that is withdrawn from a scheme is
Explanation 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.
Question 40 Which among the following investment avenues does not offer income on a regular
basis?
(a) Stocks
(b) Real estate
(c) Debentures
(d) Physical Gold
Correct Answer Physical Gold

Answer Stocks offer regular income in the form of dividends, Real estate gives rent and
Explanation Debentures give interest.
Physical gold give no regular return.
Question 41 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
Correct Answer 80 percent

Answer The ELSS notification requires that atleast 80 percent of the ELSS funds should
Explanation be invested in equity and equity-linked securities.
Question 42 The difference between NAV and re-purchase price is .

(a) Exit Load
(b) Entry Load
(c) Commission of the MF Agent
(d) Dividend Stripping
Correct Answer Exit Load

Answer The difference between the NAV and Re-purchase Price is called the “exit load”.
Explanation
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.
Question 43 The asset allocation that is worked out for an investor based on risk profiling is
called .
(a) Strategic Asset Allocation
(b) Fixed Asset Allocation
(c) Tactical Asset Allocation
(d) Flexible Asset Allocation
Correct Answer Strategic Asset Allocation

Answer Risk profiling is key to deciding on the strategic asset allocation.
Explanation
For eg - If the investor is an retired/old person he should have more debt in his
portfolio.
Question 44 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
Correct Answer Short Term

Question 45 Interval funds combine features of both open-ended and close-ended schemes -
True or False ?
(a) FALSE
(b) TRUE
Correct Answer TRUE

Answer Interval funds combine features of both open-ended and close-ended schemes.
Explanation They are largely close-ended but become open-ended at pre-specified intervals.
Question 46 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
Correct Answer No
Answer As per the law, every unit has a face value of Rs. 10.
Explanation
Question 47 The ARN number is assigned by .

(a) The AMC
(b) SEBI
(c) AMFI
(d) Stock Exchange
Correct Answer AMFI
Question 48 Arbitrage Funds have BASIS risks - True or False ?

(a) TRUE
(b) FALSE
Correct Answer TRUE

Answer Arbitrage fund have basis risk ie. the risk that both cash and F&O position on a
Explanation 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.
Question 49 Recurring expenses cannot be charged to a Mutual Fund scheme as it drags down
the NAV - True or False ?
(a) TRUE
(b) FALSE

Answer Recurring Expenses can be charged to the scheme.
Explanation
Since the recurring expenses drag down the NAV, SEBI has laid down the expenses
and their limits which can be charged to the scheme.
Question 50 Which amongst the following asset categories can also be purchased for
consumption purposes apart from investment?
(a) Bonds
(b) Real estate
(c) Debentures
(d) Stocks
Correct Answer Real estate

Answer One may invest in a residential property and give it on rent to generate income. This
Explanation 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.
Question 51 Mutual Funds cannot accept cash from investors for investing in their schemes -
True or False ?
(a) TRUE
(b) FALSE

Answer Mutual funds usually do not accept cash.
Explanation
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.
Question 52 All the records of the investors of a Mutual Fund are maintained by the Fund
Manager - True or False ?
(a) TRUE
(b) FALSE

Answer The RTA - Registrar and Transfer Agents maintains investor records. Sometimes the
Explanation AMC itself does this activity.
Question 53 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

Answer An important objective of AMFI is to represent to the Government, Reserve Bank of
Explanation India and other bodies on all matters relating to the Mutual Fund Industry
Question 54 SEBI approval is required for an AMC to appoint a distributor - True or False ?
(a) TRUE
(b) FALSE

Answer No SEBI approval is required. A person has to clear the exam and get an AMFI
Explanation number. Based on this number AMC signs an agreement with the individulas /
companies and appoint them distributors.
Question 55 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
Correct Answer Rs 70
Answer PE Ratio = Market Price / EPS
Explanation
7 = Market Price / 10
Market Price = 7 x 10
= 70
Question 56 In the stage, a persons earning capacity reaches his peak.

(a) Young Married
(b) Pre Retirement
(c) Young Unmarried
(d) Retirement
Correct Answer Pre Retirement

Answer In the Accumulation stage, the investor gets to build his wealth. It covers the
Explanation earning years of the investor i.e. the phases of the life cycle from Young Unmarried
to Pre-Retirement.
Question 57 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
Correct Answer Risk-o-meter

Answer SEBI has a system of product labeling in place that ensures the investor makes
Explanation investments in mutual fund schemes that corresponds to the investors risk profile.
The product labeling of mutual funds is based on the concept of ‘Risk-o-meter’ and
this meter depicts the level of risk in any specific mutual fund scheme.
The ‘Risk-o-meter’ depicts risk areas like – Low, Moderately Low, Moderate,
Moderately high and High risk.
Question 58 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
Correct Answer NAV of the next business day

Answer For all Equity and Debt funds (except Liquid funds) - For investment of Rs 2 lacs and
Explanation 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.
Question 59 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
Correct Answer Short term capital loss is to be set off against short term capital gain or long term
capital gain
Answer A few key provisions of the Income Tax Act are :
Explanation
• Capital loss, short term or long term, cannot be set off against any other head of
income (e.g. salaries)
• 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
Question 60 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
Correct Answer Key Information Memorandum - KIM

Answer KIM is essentially a summary of the SID and SAI.
Explanation
As per SEBI regulations, every application form is to be accompanied by the KIM.
Question 61 Pension Funds Regulatory and Development Authority (PFRDA) is the regulator for
the National Savings System.
(a) TRUE
(b) FALSE

Answer Pension Funds Regulatory and Development Authority (PFRDA) is the regulator for
Explanation the National Pension System.
Question 62 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
Correct Answer the investors who invest in various schemes of the mutual fund.
Answer Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust,
Explanation are the investors who invest in various schemes of the mutual fund.
Question 63 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.
Correct Answer All of the above
Question 64 The Entry / Exit Loads and Taxes do not have an impact on the returns to the
investors - True or False ?
(a) TRUE
(b) FALSE

Answer Loads and taxes pull the investor’s returns below that earned by the Scheme.
Explanation
Question 65 Relaxation in documentation requirements for micro-SIPs is not available for

.
(a) Non Resident Indians
(b) Hindu Undivided Family
(c) Individuals
Correct Answer Hindu Undivided Family

Answer Relaxation in documentation requirements for micro-SIPs is not available for HUFs
Explanation and non-individuals. Such relaxation is available for NRIs.
Question 66 Expenses incurred to launch a new fund can be charged to the fund - True or False ?
(a) TRUE
(b) FALSE

Answer Initial Issue Expenses are one-time expenses that come up when the scheme is
Explanation 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.
Question 67 Usually Diversified Equity funds are safer than Diversified Debt funds - True or False
?
(a) TRUE
(b) FALSE

Answer Under normal circumstances Equity Funds are always riskier than Debt Funds.
Explanation
Question 68 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 train commission rate is 1% per annum.
(a) Rs. 35.6164
(b) Rs. 33.9726
(c) Rs. 19.5543
(d) Rs. 28.1217
Correct Answer Rs. 33.9726

Answer Trail commission is always calculated on the current NAV.
Explanation
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

Question 69 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
Correct Answer 3,3

Answer When the performance of a particular mutual fund scheme is advertised,
Explanation 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
Question 70 Gold Future Contracts .

(a) are traded on the Commodity Exchanges
(b) are not standardised products
(c) can be bought through Mutual Funds
Correct Answer are traded on the Commodity Exchanges

Answer Gold futures contracts are traded in commodity exchanges like the National
Explanation 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.
Question 71 Identify the TRUE statement(s) with respect to risk levels in mutual funds?
A) Corporate bond funds are relatively more riskier than Credit risk fund
B) The NAV of Gilt funds generally fluctuate more than NAV of Liquid funds due to
changes in yield
(a) Only A is true
(b) Only B is true
(c) A and B are true
(d) A and B are false
Correct Answer Only B is true

Answer 1) Credit risk funds are more riskier than Corporate bond funds as they invest in
Explanation 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.
Question 72 A Mutual Fund scheme is know 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
Correct Answer Regular Income

Question 73 ‘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

Answer The fund may choose to change the benchmark. This could be for various reasons.
Explanation 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.
Question 74 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
Correct Answer TRUE

Answer Some key provisions of IT Act related to Capital Gains are:
Explanation
• Capital loss, short term or long term, cannot be set off against any other head of
income (e.g. salaries)
• 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
Question 75 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
Correct Answer Variance

Answer Variance measures the fluctuation in periodic returns of a scheme, as compared to
Explanation its own average return.
Question 76 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.
Correct Answer Trustees

Answer If an investor feels that the trustees have not fulfilled their obligations, then he can
Explanation file a suit against the trustees for breach of trust.
Question 77 Prediction of equity markets in the short run is easier than in the long run - True or
False ?
(a) TRUE
(b) FALSE

Answer In the long run, equity markets are a good barometer of the real economy.
Explanation
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.
Question 78 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
Correct Answer Securities and Exchange Board of India

Answer Securities markets in India are regulated by the Securities and Exchange Board of
Explanation India (SEBI). It regulates, among other entities, mutual funds,
depositories, custodians and registrars and transfer agents (RTAs) in the country.
Question 79 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
Correct Answer Diversified Equity Fund

Answer A Diversified Equity Fund invests mainly in equity for long term capital appreciation.
Explanation
Question 80 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
Correct Answer Arbitrage Funds are more riskier than Sectoral Funds
Answer Arbitrage Funds make profits by using the price differences between two markets -
Explanation 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.
Question 81 The amount which is paid to the distributor at the time the money is invested in a
scheme is called .
(a) Trail Commission
(b) Upfront Commission
(c) Rebate
(d) Fund Incentive
Correct Answer Upfront Commission
Question 82 The cost of fund management are the highest in .

(a) Passive Funds
(b) Active Funds
(c) Index Funds
(d) None of the Above
Correct Answer Active Funds

Answer In Active Funds like Diversified Equity Funds, the Fund manager does a lot of buying
Explanation / selling. Also a lot of research work goes into it. So the cost of fund management
are higher.
Question 83 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
Correct Answer TRUE
Question 84 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
Correct Answer An agreement between the AMC and the Distributor

Answer Empanelment with the AMC (or enrolment as an agent of an empanelled
Explanation distributor) is compulsory to be able to sell mutual fund schemes and earn the
commissions.
Question 85 The Stock Exchanges which provide facilities for Mutual Fund trading also do the
functions of Mutual Fund RTAs. - True or False ?
(a) TRUE
(b) FALSE

Answer Stock Exchanges does are not required to do the role of Registrars and Transfer
Explanation Agents (RTA).
Question 86 Open-ended schemes, except ELSS, have to re-open for ongoing sale / re-purchase
within business days of allotment.
(a) 3
(b) 5
(c) 10
(d) 30
Correct Answer 5
Question 87 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
Correct Answer Is linked to the NAV

Answer Trail Commission is calculated on net assets so the distributors benefit from
Explanation increase in net assets arising out of valuation gains in the market.
If the value of portfolio rises the trail commission also rises.
Question 88 Mutual funds can accept cash to the tune of Rs _ from small investors.
(a) No cash can be accepted by a MF
(b) Rs 50,000
(c) Rs 20,000
(d) Rs 5,000
Correct Answer Rs 50,000

Answer Mutual funds usually do not accept cash.
Explanation
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.
Question 89 Asset allocation means .

(a) Distribution of Funds between Fund Managers in a Mutual Fund
(b) Distribution of funds between various asset classes in a portfolio
(c) Distribution of funds between various persons after the death of a person
(d) Distribution of funds between beneficiaries of an AMC
Correct Answer Distribution of funds between various asset classes in a portfolio

Answer The distribution of an investor’s portfolio between different asset classes is called
Explanation asset allocation.
For eg - If an investor wishes to invest Rs 10 lakhs - His funds can be divided and
invested in Equity, Debt and Gold - This is asset allocation.
Question 90 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
Correct Answer Increased role of fund manager and high running cost
Question 91 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
Correct Answer Sharpe Ratio uses Standard Deviation for its calculations whereas Treynor Ratio
uses Beta
Answer Sharpe ratio is calculated as : (Rs minus Rf) ÷ Standard Deviation
Explanation
Treynor Ratio is calcualted as : (Rs minus Rf) ÷ Beta
(Rf - risk-free rate of return and Rs is the actual return earned).
Question 92 Gold ETF's are meant only for FI's and FII's - True or False ?
(a) TRUE
(b) FALSE

Answer Gold Exchange Traded Funds (ETF) can be bought even by retail investors in small
Explanation quantities like one unit (one gram).
Question 93 As per SEBI regulations, every application form is to be accompanied by

.
(a) Key Information Memorandum (KIM)
(b) Scheme Information Document (SID)
(c) Addendum
(d) Statement of Additional Information
Correct Answer Key Information Memorandum (KIM)

Answer As per SEBI regulations, every application form is to be accompanied by the KIM.
Explanation
KIM is essentially a summary of the SID and SAI. It is more easily and widely
distributed in the market.
Question 94 What are the benefits of Dematerialisation?

A) No inconvenience of safekeeping paper certificates
B) Reduction in paper work
C) Auto credit of bonus units etc.
(a) A and C
(b) B and C
(c) A and B
(d) All A, B and C
Correct Answer All A, B and C

Answer Dematerialisation is a process whereby an investor’s holding of investments in
Explanation physical form (paper), is converted into a digital record.
The investor 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.
Question 95 Dividend Distribution Tax (DDT) on Equity oriented mutual fund schemes for
Corporate Investors is .
(a) 10%
(b) 25%
(c) 30%
(d) NIL TAX
Correct Answer NIL TAX

Answer In the Union Budget presented by the Finance Minister in February 2020, the
Explanation dividend distribution tax has been done away with.
Question 96 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
Correct Answer 198

Answer Total Market Value = Rs 579 crore
Explanation
Add Dividend Accrued of Rs 18 crore
Less Expenses Payable of Rs 3 crore
Divided by Units 300 lakhs
NAV = 198
Question 97 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 thro' their guardians
(c) can invest only in long term capital gain funds
(d) can invest in specific 'Minors Only' Mutual Funds
Correct Answer can invest thro' their guardians

Answer Minors i.e. persons below the age of 18 are not legally eligible to contract, they
Explanation need to invest through their Parents/Lawful guardians.
Question 98 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
Correct Answer To buy a high priced lottery ticket

Question 99 The is the phase when the earning years usually starts.
(a) Young Unmarried
(b) Young Married
(c) Married with one children
(d) During graduation
Correct Answer Young Unmarried
Question 100 ‘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 Fund
Correct Answer Diversified debt scheme

Practice Question Banks also available for :
NISM
NISM Series I: Currency Derivatives Certification Exam NISM

Series V A: Mutual Fund Distributors Certification Exam
NISM Series VI: NISM Series VI - Depository Operations Certification Exam
NISM Series VII: Securities Operations and Risk Management
NISM Series VII: Equity Derivatives Certification Exam
NISM Series III A: Securities Intermediaries Compliance certification Exam
NISM Series X A : Investment Adviser (Level 1) Certification Exam
NISM Series X B: Investment Adviser (Level 2) Certification Exam
And many more ..
NCFM
NCFM Financial Markets: A Beginners Module

NCFM Capital Market (Dealers) Module
NCFM Derivative Market (Dealers) Module
BSE
Certificate on Security Market (BCSM)

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Indians No.

1 Practice Test Bank

NISM-Series-V-A: Mutual Fund Distributors Certification

LAST DAY REVISION TEST NO. 2

Correct Answer Rs. 5.8904

Correct Answer There is a risk of low returns

Correct Answer 6 months

Correct Answer The address provided for KYC compliance

Correct Answer All of the above

Question 7 Which of these entities can invest in Indian mutual funds?

Correct Answer All A, B and C

Correct Answer A and C are true

Question 9 Which of these is NOT a function of Registrars and Transfer Agents ?

Correct Answer 392.41

Correct Answer Employees of AMC

Question 12 Identify the TRUE statement -

Question 13 Indentify the true statement(s) –

Correct Answer Only B is true

Question 14 The expenses of cannot be charged to a mutual fund scheme.

Correct Answer Software development

Question 15 Identify the false statement(s).

Correct Answer Both statements A and B are false

Correct Answer A-C-B

Question 17 Identify the FALSE statement(s) –

Correct Answer Only B is false

Correct Answer long term capital gains only

Correct Answer B and C are true

Correct Answer The Trustees

Question 21 Cut-off timing guidelines are not applicable for _ .

Correct Answer Both of the above

Correct Answer FALSE

Correct Answer A = P X (1 + i)^n

Question 24 Investments in mutual fund are allowed using .

Correct Answer Any of the above

Correct Answer TRUE

Correct Answer Inflation

Question 27 is a basis to select the better scheme in Index Funds.

Correct Answer Tracking Error

Question 28 Investor’s KYC details are stored in the server of .

Correct Answer KRA

Correct Answer TRUE

Correct Answer FALSE

Question 32 have to make additional disclosures related to credit evaluation

Correct Answer Debt Funds

Correct Answer Micro SIPs

Question 35 NAV of Equity funds is to be calculated upto decimals.

Question 36 Beta as a risk measure is relevant for .

Correct Answer Only Equity Schemes

Question 37 Which of the following is a truly international asset class?

Correct Answer Gold

Correct Answer FALSE

Question 39 STP is a combination of SIP and SWP - True or False ?

Correct Answer TRUE

Correct Answer Physical Gold

Correct Answer 80 percent

Question 42 The difference between NAV and re-purchase price is .

Correct Answer Exit Load

Correct Answer Strategic Asset Allocation

Correct Answer Short Term

Correct Answer TRUE

Question 47 The ARN number is assigned by .

Correct Answer AMFI

Question 48 Arbitrage Funds have BASIS risks - True or False ?