Q 1. Can an investor transact directly through the websites of some mutual fund companies ?
Yes, they can buy / sell units on the MFs website
No, this is not allowed in India
CORRECT ANSWER
EXPLANATION
The internet gave an opportunity to mutual funds to establish direct contact with investors.
Investors can now access the website of the mutual fund and deal directly with the fund.
Q 2. Who issues the ‘Certificate of Deposit’ ?
Government
Multinationals
Banks
Mutual Funds
WRONG ANSWER
CORRECT ANSWER
Banks
EXPLANATION
Certificates of Deposit are issued by Banks (for 7 days to 1 year) or Financial Institutions (for 1 to 3 years)
Q 3. Which of the below documents can be inspected by the unit holder ?
Trust Deed
Custodial Services Agreement
Investment Management Agreement
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
Unit-holders have the right to inspect key documents such as the Trust Deed, Investment Management Agreement, Custodial Services Agreement, RTA agreement and Memorandum & Articles of Association of the AMC.
Q 4. Which tax is payable on the redemption of units of Equity Oriented fund ?
Dividend distribution tax
Securities transaction tax
Wealth tax
Alternate dividend tax
WRONG ANSWER
CORRECT ANSWER
Securities transaction tax
EXPLANATION
STT is payable on sale of units of equity oriented mutual fund.
Q 5. What is the tax applicable on the AMC for the income earned by the mutual fund schemes?
Income earned by a mutual fund is exempt from taxes
10 percent plus surcharge and cess
It is a function of the marginal rate of tax applicable to the respective investor in the mutual fund scheme
It is a function of the type of income since dividends, short term capital gains and long term capital gains attract different tax rates
CORRECT ANSWER
EXPLANATION
As per the prevailing tax laws in India, a mutual fund’s income is exempt from income tax, since mutual funds are constituted as trusts in India for the benefits of the unitholders.
(Income earned by the unit holders ie. mutual fund investors is taxable)
Q 6. What is the ‘Goal Based approach to Financial Planning’ focused on ?
To generate a limited amount of money
An investment plan which is focused on a specific goal
An investment plan with a specific risk profile
A specific option of investment
WRONG ANSWER
CORRECT ANSWER
An investment plan which is focused on a specific goal
EXPLANATION
Goal Based approach to Financial Planning is a financial plan for a specific goal. For example – Investments which will be used for higher studies of a child.
An alternate approach is a “comprehensive financial plan” where all the financial goals of a person are taken together, and the investment strategies worked out on that basis.
Q 7. The first step in developing a model portfolio is _______ .
Deciding the size of portfolio
Selection of the Mutual Fund schemes
Setting of goals
None of the above
WRONG ANSWER
CORRECT ANSWER
Setting of goals
EXPLANATION
Steps for developing a Model Portfolio –
Enable your investor identify his investment needs and goals.
Understand the various financial products – their risk, return, liquidity and maturity profile.
Combine the features of financial products with the investors’ financial needs and determine appropriate mix of investments, technically referred to as asset allocation.
Suggest suitable mutual fund schemes within the asset choices.
Q 8. Which type of funds investment objective could be – “To achieve growth by investing in equity and equity related investments, balanced with income generation by investing in debt and money market instruments”
Arbitrage Fund
Money Market fund
Equity Fund
Balanced Fund
WRONG ANSWER
CORRECT ANSWER
Balanced Fund
EXPLANATION
Balanced Fund provide investors simultaneous exposure to both equity and debt in one portfolio.
A balanced scheme would have an investment objective like:
“To achieve growth by investing in equity and equity related investments, balanced with income generation by investing in debt and money market instruments”
Q 9. When a Mutual fund scheme makes profits or losses, these profits and losses belong to _______ .
The AMC
The Trustees
The Fund Manager
The Investor
WRONG ANSWER
CORRECT ANSWER
The Investor
EXPLANATION
The investor enjoys the profits as well as bears the losses of his investments in Mutual Funds.
Q 10. Mr. X invests in a liquid fund at 4 pm and the funds are not available for investments the same day. What will be the applicable NAV in this case for allotment of units ?
Closing NAV of the day preceding the day funds are available
Closing NAV of the day the funds are available
Closing NAV of the day immediately preceding the date of application
Closing NAV of the day of the date of application
CORRECT ANSWER
EXPLANATION
For Liquid Funds the cut-off time is 1.30 pm
If application received after cut off time on a day and funds are available for utilisation on the same day whether intra-day or otherwise, the closing NAV of the day immediately preceding the next business day is applicable.
If application received up to the cut off on a day and funds are available for utilisation before the cut-off time, without availing any credit facility, whether intra-day or otherwise then closing NAV of the day immediately preceding the day of the receipt of application is applicable.
Irrespective of the time of receipt of applications, where the funds are not available for utilisation before the cut-off time, without availing any credit facility, whether intra- day orotherwise, the closing NAV of the day immediately preceding the day on which the funds are available for utilisation.
Q 11. ________ is/are included in the Key Information Memorandum (KIM).
Name of the fund manager, trustees etc.
Performance of schemes
Asset allocation plan
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
KIM is essentially a summary of the SID and SAI. It contains the key points of the offer document that are essential for the investor to know to make a decision on the suitability of the investment for their needs.
Some of the key items contained in the KIM are asfollows: • Name of the AMC, mutual fund, Trustee, Fund Manager and scheme • Dates of Issue Opening, Issue Closing and Re-opening for Sale and Re-purchase • Investment Objective • Asset allocation pattern of the scheme 104 • The risk profile of the scheme i.e., a snapshot of the risk to the principal invested, the suitable investment horizon for investment and the type ofsecurities that the scheme will invest in. • Plans and Options • Benchmark Index • Dividend Policy • Performance of scheme and benchmark over last 1 year, 3 years, 5 years and since inception. • Expenses of the scheme • Information regarding registration of investor grievances
Therefore, all the options mentioned above are included in the KIM.
Q 12. A company wishes to invest a specific scheme of a Mutual Fund. Which document authorises it to do so ?
The Memorandum of Association
The Articles of Association
Share holders resolution
Specific Board resolution
WRONG ANSWER
CORRECT ANSWER
Specific Board resolution
EXPLANATION
Since institutional investors like Companies etc. are not natural persons, authorised individuals invest on behalf of the institution.
Therefore, someg additional documents are essential and one of them is – Authorisation for the investing institution to invest. This is typically in the form of a Board Resolution.
Q 13. Which is the most appropriate measure of evaluating how closely an index fund is
tracking its benchmark?
Total Expense Ratio (TER)
Assets Under Management (AUM)
Tracking error
Treynor ratio
WRONG ANSWER
CORRECT ANSWER
Tracking error
EXPLANATION
Tracking error is a measure of the consistency of the out-performance of the fund manager relative to the benchmark. Earlier it was used as a measure of how closely an index fund tracked the returns from the benchmark to which it was indexed.
Now, the tracking error is used to measure how consistently a fund is able to out-perform its benchmark.
Q 14. The stock exchanges which provide mutual fund trading facilities also have to provide for settlement guarantee – State True or False ?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
Stock Exchanges trading facility for MFs is essentially an order routing system between the investors and the AMC, the exchanges do not offer Settlement Guarantee.
Responsibility for settlement is that of the AMC.
Q 15. By investing in mutual funds an investor uses the services of ______ .
a professional actuary
a professional insurance agent
a professional investment manager
a professional tax planner
WRONG ANSWER
CORRECT ANSWER
a professional investment manager
EXPLANATION
Mutual Funds employ professional investment experts to manage the money of investors by investing in suitable stocks / debt etc.
Q 16. The sponsor needs to contribute a minimum _____ of the net worth of the AMC.
25%
40%
50%
66%
WRONG ANSWER
CORRECT ANSWER
40%
EXPLANATION
The Sponsor is the main body that establishes the Mutual fund. The Sponsor can be compared to a promoter of a company
It should be contributing a minimum of 40 per cent net worth of the AMC.
Q 17. As per the common disclosure – Investments in mutual funds are subject to market risks and therefore ______ .
will provide insurance
will not provide guarantee of returns or capital protection
will provide guarantee of returns
will guarantee capital protection in the long run
WRONG ANSWER
CORRECT ANSWER
will not provide guarantee of returns or capital protection
EXPLANATION
There is NO guarantee of returns or capital protection in a Mutual Fund.
Q 18. When compared to Goal based financial planning, Comprehensive financial planning requires more time commitment – State True or False ?
True
False
CORRECT ANSWER
EXPLANATION
A comprehensive financial plan calls for significantly more time commitment on the part of both the investor and the financial planner.
The comprehensive financial plan captures the estimated inflows from various sources, and estimated outflows for various financial goals, including post-retirement living expenses. The plan can go several decades into the future.
Q 19. The dividend declared on units under lien is paid to _______ .
always to the lien holder
always to the unit holder
the lien holder or the unit holder as per the agreement
Units under lien do not receive any dividends
WRONG ANSWER
CORRECT ANSWER
the lien holder or the unit holder as per the agreement
EXPLANATION
The dividend pay-outs declared on units under lien may be paid to the unitholder or the lender depending upon the agreement.
Q 20. A person who wants to have a risk cover for a long term horizon should opt for _____ .
investment in Gold
Life insurance
Equity Mutual Funds
Bank Fixed Deposits
WRONG ANSWER
CORRECT ANSWER
Life insurance
EXPLANATION
Risk Cover can only be provided by INSURANCE.
Q 21. Key Information Memorandum (KIM) is a summary of ______ .
Only Scheme Information Document (SID)
Only Statement of Additional Information (SAI)
Both SID and SAI
Fund Factsheet
WRONG ANSWER
CORRECT ANSWER
Both SID and SAI
EXPLANATION
While an investor is expected to read all the scheme related documents, circulation of the same along with the application forms is too difficult and costly, especially if the printed forms are to be distributed. In order to ensure the investor gets access to sufficient information in spite of such a constraint, a Key Information Memorandum (KIM) is mandatorily circulated along with the application form.
KIM is essentially a summary of the SID and SAI (Scheme Related Documents) . It contains the key points of these documents that are essential for the investor to know to make a decision on the suitability of the investment for their needs. It is more easily and widely distributed in the market. As per SEBI regulations, every application form is to be accompanied by the KIM.
Q 22. Who specifies the heads of expenses that can be charged to a mutual fund scheme by the Asset Management Company?
SEBI
AMFI
Trustees
RBI
CORRECT ANSWER
EXPLANATION
Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to charge certain operating expenses for managing a mutual fund scheme – such as sales & marketing / advertising expenses, administrative expenses, transaction costs, investment management fees, registrar fees, custodian fees, audit fees – as a percentage of the fund’s daily net assets.
All such costs for running and managing a mutual fund scheme are collectively referred to as ‘Total Expense Ratio’ (TER)
The regulatory limits of TER that can be incurred/charged to the fund by a Mutual Fund AMC have been specified under Regulation 52 of SEBI Mutual Fund Regulations.
Q 23. Where is the performance data for all schemes across the mutual fund industry available?
The Scheme Information Document (SID)
Key Information Memorandum (KIM)
AMFI Website
The Fund Fact Sheet
WRONG ANSWER
CORRECT ANSWER
AMFI Website
EXPLANATION
Each AMC is required to publish a scheme performance dashboard on its website, and update it on a regular basis. The scheme performance data is also available on the AMFI website
AMFI website (www.amfiindia.com) carries the performance data of all the mutual fund schemes.This is an exhaustive resource and one can access the same for various different periods, and fund categories.
Q 24. Identify the information which is NOT included in the Statement of Additional Information (SAI).
Rights of Unit-holders
Transmission procedure
SIP returns of the schemes
Investment Valuation Norms
WRONG ANSWER
CORRECT ANSWER
SIP returns of the schemes
EXPLANATION
Statement of Additional Information (SAI), which has statutory information about the mutual fund or AMC, that is offering the scheme like the Constituents of the mutual fund, Rights of Unit-holders, Investment Valuation Norms, Rights of Unit-holders etc.
It does not contain information on scheme returns etc. This information is available in the Mutual Fund Fact Sheet.
Q 25. A folio which is held by a _______ CANNOT have a nominee.
Minor
Trust
Registered Company
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
Only individual investors can make a nomination. Therefore, a Trust or Registered Company cannot have a nominee.
Also investments by minors cannot have a nomination.
Q 26. Identify the INCORRECT statement/s with respect to investments in real estate.
The minimum amount required (Ticket size) for investing in real estate is high compared to other financial assets
The transaction costs are low for investments in real estate as compared to other financial assets
The real estate market is quiet illiquid and the pricing is not transparent
All of the above are incorrect
WRONG ANSWER
CORRECT ANSWER
The transaction costs are low for investments in real estate as compared to other financial assets
EXPLANATION
Transaction costs, in the form of stamp duty, registration fees, brokerage etc. are high in real estate transactions. Therefore the statement – ‘The transaction costs are low for investments in real estate as compared to other financial assets’ is incorrect.
Real estate is a less liquid asset class. The intermediation chain of real estate agents is largely unorganized in India. . Regulatory risk is high in real estate, as is the risk of litigation and other encumbrances. The transparency level is low even among the real estate development and construction companies.
Q 27. Securities transaction Tax (STT) is applicable on redemption of both Equity mutual funds and Debt mutual funds – State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
STT is not applicable to transactions in debt securities or debt mutual fund schemes.
Q 28. Identify the TRUE statements with respect to measuring returns for mutual fund schemes.
1. The returns published in a mutual fund advertisement should factor the entry or exit load
2. Compounded Annual Growth Rate (CAGR) is the accepted standard of showing returns for investment of holding period of more than one year
3. Simple returns can be calculated by the formula :(Sale price – Cost price / Cost price ) x 100
Only 1 and 2 are true
Only 2 and 3 are true
Only 1 and 3 are true
All 1, 2 and 3 are true
WRONG ANSWER
CORRECT ANSWER
Only 2 and 3 are true
EXPLANATION
As per SEBI rules – The return is calculated using CAGR if the holding period is over one year and simple absolute returns for less than one year
The returns published in a mutual fund advertisement would be without factoring the entry or exit load.
The Simple Return can be calculated with the following formula :
(Sale price – Cost price / Cost price ) x 100
Q 29. Identify the TRUE statement with respect to Time Horizon to the financial goal.
Longer the horizon to the goal, the ability to take risk is higher
Longer the horizon to the goal, the ability to take risk is lower
Shorter the horizon to the goal, the ability to take risk is higher
Time horizon has no link to financial goals
CORRECT ANSWER
EXPLANATION
Investment time horizon : As against the investor’s age, one should consider the time horizon to the respective financial goal for which one is investing. Longer the horizon to the goal, the ability to take risk is higher, whereas one may avoid risks when the goal is in the near future.
Q 30. Which of these is an important factor while estimating the correct future value of a financial goal?
Inflation Rate
Risks which are unexpected
Economic Growth
Return and Gains
CORRECT ANSWER
EXPLANATION
The formula to calculate the Future Value is : A = P * (1 + r) ^ n
Where A is the future value ; P is the present value, r is the rate of inflation and n is the number of years.
Therefore, inflation rate is important for estimating the future value.
Q 31. What happens in the process of Indexation?
In indexation, the impact of capital gains tax is reduced in case of both short term and long term capital gains
In indexation, the mutual fund’s performance is benchmarked against a suitable index
In indexation, the cost of acquisition is adjusted upwards to reflect the impact of inflation
None of the above
WRONG ANSWER
CORRECT ANSWER
In indexation, the cost of acquisition is adjusted upwards to reflect the impact of inflation
EXPLANATION
Indexation means that the cost of acquisition or the cost of purchase is adjusted upwards to reflect the impact of inflation.
For eg. – A stock was purchased at Rs 500 and sold for Rs 800 after 5 years. The long term capital gains is Rs 300 on which tax is to paid. But when adjusted for indexation (as per data released by Central Board of Direct taxes every year), the capital gains will be reduced and the tax will have to be paid on a lower amount.
Q 32. ______ is NOT accepted as a photo identity documentation for Micro SIP.
Debit card with a photo
Permanent Retirement Account Number (PRAN) card issued to National Pension System (NPS)
Employee ID cards issued by companies registered with the Registrar of Companies
Credit card
WRONG ANSWER
CORRECT ANSWER
Credit card
EXPLANATION
Credit card is not accepted because it may not be backed up by a bank account.
Q 33. Identify the TRUE statement with respect to ‘Jensen’s Alpha’ of a mutual fund scheme?
It is a measure of outperformance after adjusting for the risk taken
It is a measure of risk and outperformance is related to returns
It is a measure of simple outperformance, irrespective of the risk taken
None of the above
CORRECT ANSWER
EXPLANATION
Jensen’s Alpha is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return.
It is a risk-adjusted performance measure that represents the average return on a portfolio or investment, above or below that predicted by the capital asset pricing model (CAPM), given the portfolio’s or investment’s beta and the average market return.
Q 34. Sale of units of equity oriented mutual fund (delivery based) will attract Securities Transaction Tax at ______ %.
0.01
0.001
0.017
0.125
WRONG ANSWER
CORRECT ANSWER
0.001
EXPLANATION
When an investor sells units of an equity fund in the stock exchange, or offers them for re-purchase to the fund, he/she will have to incur Securities Transaction Tax (STT).
STT is charged at 0.001% on such sale transactions.
Q 35. ‘Not more than 25% of the Net Assets will be invested in the Derivatives Market’ – This statement best describes the ________ of the mutual fund scheme.
Investment Objective
Investment Interest
Investment Strategy
Investment Policy
WRONG ANSWER
CORRECT ANSWER
Investment Policy
EXPLANATION
Investment objective defines the broad investment charter.
Investment policy describes in greater detail, the kind of portfolio that will be maintained.
The investment policy includes the scheme’s asset allocation and investment style.
Q 36. Who has to ensures the compliance of the information contained in the scheme related documents with regulations?
The Sponsors
The Asset Management Company
SEBI
The Trustees
WRONG ANSWER
CORRECT ANSWER
The Trustees
EXPLANATION
A Compliance Officer signs a due-diligence certificate to the effect that all regulations have been complied with, and that all the intermediaries mentioned in the scheme related documents have the requisite statutory registrations and approvals. The Compliance Officer works closely with the Trustees on various compliance and regulatory issues. It is the responsibility of the compliance officer to report any issue of non-compliance directly and immediately to the trustees.
Q 37. An existing investor in mutual funds invests Rs 25,000 in ABC scheme’s direct plan. Calculate the amount that will be the net investment made in the scheme after accounting for transaction charges ).
Rs. 24,500
Rs. 25,000
Rs. 24,750
Rs. 24,800
WRONG ANSWER
CORRECT ANSWER
Rs. 25,000
EXPLANATION
SEBI has allowed a transaction charge per subscription of Rs. 10,000/- and above to be paid to distributors of the mutual fund products. The transaction charge, if any, is deducted by the AMC from the subscription amount and paid to the distributor; and the balance amount is invested.
However, there shall be no transaction charges on direct investments. Therefore the entire Rs. 25000 will be invested.
(In a Direct Plan, an investor has to invest directly with the AMC, with no distributor to facilitate the transaction)
Q 38. Which intermediary is responsible for implementation of uniform KYC?
Asset Management Company
KYC Registration Agencies
Registrar and Transfer Agents
Depository participants
WRONG ANSWER
CORRECT ANSWER
KYC Registration Agencies
EXPLANATION
It is mandatory for all investors in the securities market, including the mutual fund investors, to be KYC (Know Your Customer) compliant under the provisions of the Prevention of Money Laundering Act.
If the investor has to go through the KYC process with each mutual fund, then it would become a repetitive process. SEBI issued regulations for registration of central KYC Registry Agencies (KRAs). This introduced a common KYC for investors investing in securities markets.
Q 39. Identify the TRUE statement with respect to Systematic Investment Plan (SIP) ?
A SIP cannot be done in an New Fund Offer (NFO)
A SIP can be done only in an existing folio
A SIP can be done in a Close-end fund
A SIP can be used to initiate a fresh purchase of mutual funds
WRONG ANSWER
CORRECT ANSWER
A SIP can be used to initiate a fresh purchase of mutual funds
EXPLANATION
An SIP can be used to initiate a fresh purchase in a scheme and open a folio.
It can be used to make additional purchases in an existing folio. An SIP can also be initiated during a New Fund Offer (NFO).
A Close-end fund does not have SIP facility.
Q 40. Identify which of these is NOT a function of Association of Mutual Funds in India (AMFI) ?
To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the mutual fund Industry
To disseminate information on the mutual fund industry and to undertake studies and research directly and/or in association with other bodies.
To conduct a certification examination for Mutual Fund distributors
To undertake a nationwide investor awareness programme to promote proper understanding of the concept and working of mutual funds.
WRONG ANSWER
CORRECT ANSWER
To conduct a certification examination for Mutual Fund distributors
EXPLANATION
Function of AMFI includes all of the above except – Conducting a certification examination for Mutual Fund distributors.
National Institute of Securities Markets (NISM) conducts the certification examination for Mutual Fund distributors.
Q 41. When the asset allocation is maintained as a constant ratio by regular rebalancing of portfolio, it is known as ________ .
Dynamic asset allocation
Flexible asset allocation
Fixed asset allocation
Variable asset allocation
WRONG ANSWER
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 42. Identify from the following what is not considered as a scheme fundamental attribute?
Type of scheme
Investment objective
Investment pattern
Name of fund manager
WRONG ANSWER
CORRECT ANSWER
Name of fund manager
EXPLANATION
The fund manager and his/her name is not a fundamental attribute of a scheme.
Q 43. The Asset Management Company primarily compensates the mutual fund distributors through ________ .
Commissions
Salaries
Salary + Commission
Share in AMC’s profit
CORRECT ANSWER
EXPLANATION
The mutual fund distributor earns revenue in the form of commission income for distribution of the mutual fund products/schemes. The commission may be linked to either the transaction (Upfront commission) or to the assets under management (Trail Commission).
Q 44. Commodities as an asset class does not include ________ .
Art
Fibers
Spices
Energy products
CORRECT ANSWER
EXPLANATION
Art is not a commodity. It cannot be standardised. Its valued as per the perception of buyer etc.
Fibers (eg. – Cotton yarn), Spices (eg.- Turmeric) and Energy Products ( eg. – Oil) are all commodities.
Q 45. What is the time duration in which SEBI has to approve the scheme related documents?
7 working days
3 working days
14 working days
SEBI does not approve the documents. It gives its observations
WRONG ANSWER
CORRECT ANSWER
SEBI does not approve the documents. It gives its observations
EXPLANATION
SEBI does not approve or disapprove the Scheme Related Documents, it gives its observations. The mutual fund needs to incorporate these observations in these documents. Thus, the Documents in the market are “vetted” by SEBI, and not approved by SEBI.
Q 46. The opening of time stamping machine needs to be documented and reported to _______ .
Sponsors
Trustees
SEBI
Asset Management Company
WRONG ANSWER
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 47. Identify the true statement(s) with respect to Scheme Performance Disclosures?
A) The data related to fund performance of all mutual funds is available on the AMFI website
B) SEBI has mandated disclosure of performance data by all the AMCs
Only A is true
Only B is true
Both A and B are true
Both A and B are false
WRONG ANSWER
CORRECT ANSWER
Both A and B are true
EXPLANATION
AMFI website (www.amfiindia.com) carries the performance data of all the mutual fund schemes.
SEBI has mandated disclosure of performance data by all the asset management companies (AMCs). These disclosures can be accessed through certain scheme documents and website of the fund house.
Q 48. If one wants to know the General Risk Factors, then which document should he read?
Fund Fact Sheet
Documents filed with SEBI
Key information memorandum (KIM)
Scheme Information Document (SID)
WRONG ANSWER
CORRECT ANSWER
Scheme Information Document (SID)
EXPLANATION
The risks in the scheme are listed in the segment on Risk Factors in Section I, Sub-section A of the Scheme Information Document (SID). This section includes standard or general risk factors that affect all mutual fund schemes.
Q 49. Mutual funds must publish their unaudited accounts once every six months ______ .
on the AMFI website
on the AMC website
on the SEBI website
in atleast two English newspaper
WRONG ANSWER
CORRECT ANSWER
on the AMC website
EXPLANATION
As per SEBI rules – The mutual fund shall before the expiry of one month from the close of each half year, shall display the unaudited financial results on AMC website, the advertisement in this reference will be published by the fund in at least one English daily newspaper and one regional language newspaper.
Q 50. An investor is interested in buying some units of a Close ended fund after the NFO is over. How can he buy the same?
He can buy the units on the stock exchange from market makers appointed by the mutual fund
He can buy the units on the stock exchange from other investors who were allotted the units and are interested in selling
He can buy the units from the mutual fund itself when they open the sale at periodic intervals as announced by the fund
He cannot buy units of a close ended fund
WRONG ANSWER
CORRECT ANSWER
He can buy the units on the stock exchange from other investors who were allotted the units and are interested in selling
EXPLANATION
A close-ended scheme offers liquidity through its listing on a stock exchange. Unit holders who are interested in selling can offer their quotes and new investors can buy them.
Q 51. What can happen if an investor has an Overconfidence bias?
He will make careful investment choices
He will take higher risks in his investments
His portfolio will have all good blue chip shares
He will keep the risks low in his investment portfolio
WRONG ANSWER
CORRECT ANSWER
He will take higher risks in his investments
EXPLANATION
Overconfidence : This bias refers to a person’s overconfidence in one’s abilities or judgment. This leads one to
believe that one is far better than others at something, whereas the reality may be quite different.
Under the spell of such a bias, one tends to lower the guards and take on risks without proper assessment.
Q 52. Identify the true statement with respect to ‘Unclaimed Dividend’ in mutual fund schemes.
If the plan is a regular plan, then it is the distributors responsibility that the investor claims the dues
It is the sole responsibility of the investor that he/she claims the dues
The Asset Management Company (AMC) is expected to make a continuous effort to remind the investors through letters to claim their dues.
All of the above are true
WRONG ANSWER
CORRECT ANSWER
The Asset Management Company (AMC) is expected to make a continuous effort to remind the investors through letters to claim their dues.
EXPLANATION
Right to unclaimed amounts- AMC is expected to make a continuous effort to remind the investors through letters to claim their dues. The Annual Report has to mention the unclaimed amount and the number of such investors for each scheme.
Q 53. The expenses which can be charged by an Asset Management Company to a Mutual Fund scheme are limited by _____ .
Fund Managers
Sponsors
Investors
SEBI
WRONG ANSWER
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 54. Which type of Hybrid Fund has the least exposure to equity?
Aggressive Hybrid Fund
Balanced Hybrid Fund
Conservative Hybrid Fund
Arbitrage Hybrid Fund
WRONG ANSWER
CORRECT ANSWER
Conservative Hybrid Fund
EXPLANATION
An Hybrid fund is classified into Aggressive, Balanced and Conservative depending on the equity exposure of the fund.
Conservative Hybrid Fund: An open-ended hybrid scheme investing predominantly in debt instruments. Investment in debt instruments shall be between 75 percent and 90 percent of total assets while investment in equity instruments shall be between 10 percent and 25 percent of total assets.
Balanced Hybrid Fund: An open-ended balanced scheme investing in equity and debt instruments. The investment in equity related instruments shall be between 40 percent and 60 percent of total assets while investment in debt instruments shall be between 40 percent and 60 percent
Aggressive Hybrid Fund: An open-ended hybrid scheme investing predominantly in equity instruments. Investment in equity instruments shall be between 65 percent and 80 percent of total assets while investment in debt instruments shall be between 20 percent and 35 percent of total assets.
Q 55. The credit rating of a bond migrates from AAA to AA+. Determine what will the impact of this migration on the market price of the bond ?
Bond price will rise
Bond price will fall
No change in the bond price
The price can rise or fall depending on the market conditions
WRONG ANSWER
CORRECT ANSWER
Bond price will fall
EXPLANATION
Fixed income securities are exposed to rating migration risk, which could impact the price on account of change in the credit rating.
For example: One notch downgrade of a AAA rated issuer to AA+ will have a negative impact on the price of the security and vice-versa for an upgrade of a AA+ issuer.
Q 56. When compared to open ended funds, investors in close ended funds face a higher level of _______ .
Credit risk
Liquidity risk
Market risk
Investment risk
WRONG ANSWER
CORRECT ANSWER
Liquidity risk
EXPLANATION
Investors may choose the close-ended funds only if they can keep the money locked-in such schemes. Although they are listed on stock exchanges, many a times there is very low liquidity / volumes and also the price could be lower than NAV.
Anyone, who prefers liquidity option, should consider investing in open-ended funds.
Q 57. Identify the TRUE statement.
1. Retail investors can buy units of Gold ETF
2. Banks as well as Mutual Funds, both offer Gold deposit schemes
3. Gold ETF is a closed ended fund and so the holdings are not for perpetuity
Only statement 1 is true
Only statement 2 is true
Only statement 3 is true
All 1,2 and 3 are true
CORRECT ANSWER
EXPLANATION
Gold ETF’s can be easily bought by retail investors as the minimum traded quantity is 1 unit ie. 1 gram.
The Gold deposit scheme is offered only by banks to mobilise the idle gold in the country and put it in productive use and to provide the customer an opportunity to earn interest on the idle gold holdings.
All Exchange Traded Fund are open-ended schemes.
Q 58. Identify the true statement as per AMFI’s Code of Conduct for Intermediaries of Mutual Funds.
Intermediaries should rebate some of the commission received by them to the investors
Intermediaries should abstain from making negative statements about any Asset Management Company or scheme
Intermediaries should split applications so that they can earn higher transaction charges
WRONG ANSWER
CORRECT ANSWER
Intermediaries should abstain from making negative statements about any Asset Management Company or scheme
EXPLANATION
One of the clause under AMFI’s Code of Conduct for Intermediaries of Mutual Funds is – Abstain from making negative statements about any AMC or scheme and ensure that comparisons, if any, are made with similar and comparable products along with complete facts.
Q 59. Some of the costs incurred by the Asset Management Companies to manage the mutual fund schemes can be charged to _________ in proportion to their holding of units in the scheme.
Distributors
Stock Brokers
Unit holders
Independent Financial Advisors
WRONG ANSWER
CORRECT ANSWER
Unit holders
EXPLANATION
All the investor’s money is pooled together in a scheme. Costs incurred for managing the scheme are shared by all the Unit-holders in proportion to their holding of units in the scheme.
Q 60. 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)
1866.43
477
392.41
3000
WRONG ANSWER
CORRECT ANSWER
392.41
EXPLANATION
Units are allotted as per the current NAV.
The amount invested divided by the NAV will give the units allotted.
Rs 30,000 / 76.45 = 392.41
Q 61. AMFI Code of Ethics states that _______ cannot become a distributor of mutual fund.
Banks
HNIs
Employees of AMC
Empanelled distributors
WRONG ANSWER
CORRECT ANSWER
Employees of AMC
EXPLANATION
Employees of Asset Management Companies (AMCs) cannot become mutual fund distributors.
Q 62. The Securities Transaction Tax levied on re-purchase of units of debt mutual funds is _____ .
0.001 %
0.025 %
0.25%
STT is not applicable
WRONG ANSWER
CORRECT ANSWER
STT is not applicable
EXPLANATION
STT is not applicable to transactions in debt securities or debt mutual fund schemes.
When an investor sells units of an equity fund in the stock exchange, or offers them for repurchase to the fund, he will have to incur Securities Transaction Tax (STT) i.e. STT is applicable only on redemption/switch to other schemes/sale of units of equity oriented mutual funds whether sold on stock exchange or otherwise. STT is not applicable on purchase of units of an equity scheme.
Q 63. What is negative Alpha?
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
WRONG ANSWER
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 64. On what basis will the payment be made to an investor who claims his erstwhile unclaimed redemption amount within three years?
The amount paid will based on the prevailing NAV after adding the income earned on the unclaimed profits
The amount paid will based on the NAV at the time of original redemption plus income earned on the unclaimed amount
The amount paid will based on the NAV at the time of original redemption plus income earned on the unclaimed amount and deducting any penalty on the same
The amount paid will based on the average of the NAV at the time original redemption and todays NAV after accounting for income earned and penalty if any
CORRECT ANSWER
EXPLANATION
Recovery of unclaimed amounts by the investors is as follows:
If the investor claims the money within 3 years, then payment is based on prevailing NAV i.e. after adding the income earned on the unclaimed money.
If the investor claims the money after 3 years, then payment is based on the NAV at the end of 3 years.
Q 65. For which of the following fund can NSE’s MIBOR be used as an benchmark?
ELSS Fund
Liquid Fund
5 year constant maturity G-sec fund
Long duration fund
WRONG ANSWER
CORRECT ANSWER
Liquid Fund
EXPLANATION
NSE’s MIBOR (Mumbai Inter-Bank Offered Rate) is based on short term money market. Liquid schemes invest in securities of upto 91 days’ maturity. Therefore, a short term money market benchmark such as NSE’s MIBOR is suitable.
Q 66. Which of the statement is true with respect to applicability of TDS in case of capital gains from mutual fund units?
There is NIL TDS on capital gains in mutual fund for all investors
TDS is required to be deducted at 10 percent on all declared dividend
All capital gains from mutual fund investments are subject to TDS @ 10%
TDS is not applicable on capital gains for resident individuals but is applicable for Non Resident Individuals (NRI)
WRONG ANSWER
CORRECT ANSWER
TDS is not applicable on capital gains for resident individuals but is applicable for Non Resident Individuals (NRI)
EXPLANATION
There is no TDS on re-purchase proceeds to resident investors. However, for certain cases of non-resident investments, the same is applicable.
(TDS is required to be deducted at 10 percent on the dividend amount if it exceeds Rs. 5,000)
Q 67. Return from a fund is 11.5% and the risk free rate is 7%, the Standard deviation is 3 & Beta is 1.9. What will be the DENOMINATOR for calculating the Sharpe ratio?
4.5
3
1.9
11.5
WRONG ANSWER
CORRECT ANSWER
3
EXPLANATION
In a fraction, the number above the line is called the Numerator and the number below the line (the bottom number) is called the Denominator
The formula for Sharpe Ratio is : ( Return Earned – Risk free Return ) / Standard Deviation
Here the Numerator is ‘Return Earned – Risk free Return’ and the Denominator is ‘Standard Deviation’
So the Denominator is the Standard Deviation = 3
Q 68. Investments are carried at ________ in a mutual fund portfolio.
Market Value
Face Value
Book Value
Cost Value
CORRECT ANSWER
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.
Q 69. Which information has to be provided by a normal investor to be identified as an existing investor in the mutual fund?
PAN
PEKRN
Folio Number
KYC acknowledgement
WRONG ANSWER
CORRECT ANSWER
Folio Number
EXPLANATION
An existing investor can use the application form to make fresh purchases in other schemes of the same mutual fund or even make additional purchases in a scheme. In this case, the assigned folio number has to be provided and all the personal information already captured under the folio will apply to the new investment being made also.
(The investors who are exempt from providing a PAN for their Mutual Fund investments, should quote their PAN Exempt KYC Reference No. (PEKRN) obtained from KYC Registration Agency)
Q 70. Identify which statement is true?
Investors cannot hold the units of a mutual fund in fraction of 1 unit
Investors can hold the units of a mutual fund in fraction of 1 unit
Investors can hold the units of a mutual fund in market lots of 50 units
Investors can hold the units of a mutual fund in market lots of 100 units
WRONG ANSWER
CORRECT ANSWER
Investors can hold the units of a mutual fund in fraction of 1 unit
EXPLANATION
Investors can hold their units even in a fraction of 1 unit.
For example, a investor is holding 650 units in a dividend re-investment scheme of a mutual fund. On announcement of dividend, when converted into units, could result in say addition of 20.5 units. Thus his total holding will become 650 + 20.5 = 670.50 units – which is a fraction.
Q 71. A mutual fund has to report which of the following information of an investor who comes under the Foreign Account Tax Compliance Act (FATCA)?
The entire investment value of all the folios of the investor
The identity of the account holders
The identity of the beneficial holders
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
To comply with the requirements of Foreign Account Tax Compliance Act (FATCA), the mutual fund application form requires information to be provided if the citizenship/nationality/place of birth/tax residency are places other than India for all categories of investors, the entire investment value of all the folios held, the identity of the investors and their direct and indirect beneficiaries and controlling persons etc.
Q 72. By mistake the ARN number is wrongly mentioned in the application form. How will such an application be processed?
The application will be rejected
It will be returned for rectification
As an Direct Plan application
As a Regular Plan, provided the error being corrected within a time frame
WRONG ANSWER
CORRECT ANSWER
As a Regular Plan, provided the error being corrected within a time frame
EXPLANATION
If the wrong ARN code is mentioned in the application form, then the application will be processed as a Regular Plan.
However, the AMC will contact the investor/distributor for the right ARN code within 30 calendar days of the receipt of the application form. If the error is not rectified within these 30 days, the application will be reprocessed as a direct application without charging any exit load.
Q 73. Identify the FALSE statement(s) –
A – Authorised signatories have to sign the request for transactions of institutional investors in mutual funds
B – Even if the Memorandum of Association and Articles of Association does not permit invest in mutual funds, the company can invest in mutual fund on the basis of a Board Resolution
Statement A is false
Statement B is false
Both statements A and b are false
WRONG ANSWER
CORRECT ANSWER
Statement B is false
EXPLANATION
A company cannot invest in mutual funds if its incorporation documents ( (Memorandum of Association and Articles of Association) do not provide for investments of this type.
The mutual fund can allow transactions only if the transaction form/slip carries the signature of any (one or more, as required) of the authorised signatories.
Q 74. Commodities as an asset class does not include __________ .
Food Crops
Industrial Metals
Gold
Real Estate
WRONG ANSWER
CORRECT ANSWER
Real Estate
EXPLANATION
Real Estate is not a commodity as it cannot be standardised.
Food crops ( Rice, wheat), Industrial Metals (Copper, Nickel) and Gold are all commodities.
Q 75. The New Fund Offer dates are published in the _______ .
Both Key Information Memorandum and Scheme Information Document
Statement of Additional Information (SAI)
Key Information Memorandum (KIM)
Scheme Information Document (SID)
CORRECT ANSWER
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 76. According to guidelines given by SEBI, every mutual fund scheme should have a minimum of ____ investors.
10
20
25
50
WRONG ANSWER
CORRECT ANSWER
20
EXPLANATION
Every mutual fund scheme/plan should have a minimum of 20 investors and no single investor shall account for more than 25 percent of the corpus of the Scheme/Plan(s).
Q 77. In which of these funds is Securities Transaction Tax (STT) not charged?
Fixed Maturity Plans (FMPs)
Equity index ETFs
ELSS – Equity Linked Savings Scheme
Blue chip equity funds
CORRECT ANSWER
EXPLANATION
Securities Transaction Tax is not applicable to transactions in debt securities or debt mutual fund schemes.
Fixed Maturity Plans are close-ended debt funds and STT is not applicable on them.
Q 78. Which type of transactions are allowed on a stock exchange platform for mutual fund trading?
A – Redemptions
B – Fresh subscription
C – Additional purchases
Only B
A, B and C
A and B
B and C
WRONG ANSWER
CORRECT ANSWER
A, B and C
EXPLANATION
Investors can now transact in mutual fund units through the stock exchanges. The units of close-ended funds and ETFs are compulsorily listed on at least one stock exchange. At the same time, units of open-ended funds are also available through special segments on the stock exchanges.
Q 79. 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
Only statement A is false
Only statement B is false
Both statements A and B are false
WRONG ANSWER
CORRECT ANSWER
Both statements A and B are false
EXPLANATION
Both taxes and loads reduce investment returns. Therefore, it is important for the distributor to consider these two aspects during repurchases/redemptions. This means that when there is a need to withdraw money from a scheme, the distributor must assess the implications of capital gains tax and exit loads.
When an investor wants to redeem from a scheme, the distributor must suggest redemption from the scheme with the minimum exit load.
Q 80. Can the fundamental attributes of scheme be changed? If yes – how?
Yes- but with the consent of 100% of the unit holders
Yes – with the permission of SEBI and AMFI
Yes – but this should be communicated to unit holders who should be provided an option to exit the scheme
No – the fundamental attributes cannot be changed as it is based on these attributes that investors have invested their money
WRONG ANSWER
CORRECT ANSWER
Yes – but this should be communicated to unit holders who should be provided an option to exit the scheme
EXPLANATION
The trustees shall not permit a change in the fundamental attributes of the scheme or any other change that will affect the interests of the unit holders unless a written communication is sent to each unitholder, a notice is given in the newspaper with national circulation and the unitholders are given the option to exit at NAV without paying an exit load.
Q 81. Identify the FALSE statement.
1. Arbitrage funds can invest in both Futures/Options(F&O) and cash markets
2. The only objective of an Arbitrage fund is to provide capital appreciation
3. Arbitrage funds have lower risk compared to Equity Funds
Only 1
Only 2
Both 2 and 3
Both 1 and 3
WRONG ANSWER
CORRECT ANSWER
Only 2
EXPLANATION
Arbitrage funds work on the mispricing of equity shares in the spot and futures market. The fund manager simultaneously buys shares in the cash market and sells it in futures or derivatives markets. The difference in the cost price and the selling price is the return you earn.
Their risk level is comparable with that of a pure debt fund. The returns from an Arbitrage fund is comparable to a debt fund. There is no capital appreciation.
Q 82. Identify the TRUE statement –
The mutual fund investor has the complete freedom to change the distributor any time he wants
Once an investor had invested through a distributor, he cannot change the distributor
Once an investor had invested by online method, he cannot change the distributor
Once an investor had invested through a distributor, he cannot invest directly with the mutual fund house
CORRECT ANSWER
EXPLANATION
Investors can choose to change their distributor or opt for direct investing.
This needs to be done through a written request by the investor. In such cases, AMCs will need to comply,
without insisting on any kind of ‘No Objection Certificate’ from the existing distributor.
Q 83. Which of these statement is TRUE with respect to Cut-off timings?
Cut-off timings are prescribed by SEBI from time to time
Cut-off timings are agreed upon between the AMC and the Collection centers
Cut-off timings are different from AMC to AMC
Cut-off timings are different for different RTAs
CORRECT ANSWER
EXPLANATION
SEBI has prescribed cut-off timing to determine the applicable NAV and these timings are uniformly applicable for all mutual funds.
Q 84. A mutual fund application form with multiple holders has to be signed by ______ .
Any of the holders
All the holders
Only the first holder
Only the first two holders
WRONG ANSWER
CORRECT ANSWER
All the holders
EXPLANATION
The application has to be signed by all the holders irrespective of the mode of holding.
Q 85. Mrs. Neeta needs Rs. 5,00,000 in 3 years from now. The interest rate is 6%. By which formula can we calculate the amount which is required to be invested today to achieve the goal?
500000 * (1+0.06)*3
500000 / (1+0.06)^3
500000 / (1+0.06)*3
500000 * (1- 0.06)^3
WRONG ANSWER
CORRECT ANSWER
500000 / (1+0.06)^3
EXPLANATION
Present value formula = F / (1 + r) ^ n
Where F is the future value (500000) ; r is the rate of interest (6% p.a.); and n is the number of years (3)
= 500000 / (1+0.06)^3
Q 86. A summary of the scheme related information documents is found in the _____ .
Statement of Additional Information (SAI)
Key Information Memorandum – KIM
Fact Sheet
Addendum
WRONG ANSWER
CORRECT ANSWER
Key Information Memorandum – KIM
EXPLANATION
Scheme Information Document (SID) and Statement of Additional Information (SAI) contain the details of the particular scheme and the statutory information about the mutual fund or AMC, that is offering the scheme.
Key Information Memorandum – KIM is essentially a summary (synopsis) of the SID and SAI. It contains the key points of these documents that are essential for the investor to know to make a decision on the suitability of the investment for their needs. It is more easily and widely distributed in the market. As per SEBI regulations, every application form is to be accompanied by the KIM.
Q 87. Identify the true statement(s) –
A) A systematic transaction cannot be cancelled
B) Assuming a mutual fund scheme is profitable then the investors can keep encashing some profits through a Systematic Withdrawal Plan
Only A is true
Only B is true
Both A and B are true
WRONG ANSWER
CORRECT ANSWER
Only B is true
EXPLANATION
A systematic transaction (like SIP etc) can be stopped.
Assuming the scheme is profitable, the re-purchase ensures that some of the profits are being regularly encashed by the investor.
Q 88. Which strategy can be used to ensure that a mutual fund scheme is suitable to the investors need and situation ?
Indexation
Dividend Stripping
Asset Allocation
Tax harvesting
WRONG ANSWER
CORRECT ANSWER
Asset Allocation
EXPLANATION
Asset Allocation is a process of allocating money across various asset categories in line with a stated objective which is as per the needs and situation of the investor.
Q 89. Which of these documents is NOT required to be submitted by institutional investors while investing in mutual funds?
Profit and Loss Statement
PAN card copy
List of authorised signatories
Memorandum of Association and Articles of Association
CORRECT ANSWER
EXPLANATION
A Profit and Loss Statement is not required to be submitted by an institutional investor while making investments in mutual funds.
Q 90. For KYC verification, __________ is not accepted as a photo identity documentation for Micro SIP’s.
Credit Card
Employee ID cards issued by companies registered with Registrar of Companies
Card issued to National Pension System (NPS) subscribers
Photo Debit Card
CORRECT ANSWER
EXPLANATION
Credit card is not accepted because it may not be backed up by a bank account.
Q 91. An Indian international fund is investing in US stocks . What would be the impact on it if US Dollar appreciates against the Indian Rupee?
No impact on the fund as its investing in stocks and not currency
The NAV of the scheme in Indian Rupees will appreciate
The NAV of the scheme in Indian Rupees will depreciate
WRONG ANSWER
CORRECT ANSWER
The NAV of the scheme in Indian Rupees will appreciate
EXPLANATION
International Equity funds :
When an Indian investor invests in equities abroad, he is essentially taking two exposures:
An exposure on the international equity market.
An exposure to the exchange rate of the rupee. If the investor invests in the US, and the US Dollar becomes stronger during the period of his investment, he benefits; if the US Dollar weakens (i.e. Rupee becomes stronger), he loses or the portfolio returns will be lower.
Q 92. Identify the FALSE statement/s with respect to BENCHMARKS of mutual fund schemes.
A) The right benchmark for a Sector Fund will be an index representing the respective sector
B) All Equity Funds schemes will have similar benchmarks
Only A is false
Only B is false
Both A and B are false
Neither A nor B are false
WRONG ANSWER
CORRECT ANSWER
Only B is false
EXPLANATION
Different type of equity funds will have different benchmarks. For eg. Some equity funds investing in large companies; while there are others that focus on mid-cap stocks or small cap stocks. S&P BSE Sensex and Nifty 50 indices are appropriate benchmarks for those equity funds that invest in large companies. For mid-cap funds, mid-cap indices such as Nifty Midcap 50 or S&P BSE Midcap are considered as better benchmarks.
A sector fund would invest in only the concerned sector. Sectoral / thematic funds select sectora / thematic indices such as S&P BSE Bankex, S&P BSE FMCG Index, Nifty Infrastructure Index, Nifty Energy Index etc.
Q 93. Which of these mutual fund distributors have to mandatorily go through the due diligence process as mandated by SEBI?
Distributors who get investments of over Rs. 1 crore in a single mutual fund
Distributors who receive commission over Rs. 50 lakhs from a single mutual fund
Distributors who service less than 25 investors
All of the above
WRONG ANSWER
CORRECT ANSWER
Distributors who receive commission over Rs. 50 lakhs from a single mutual fund
EXPLANATION
SEBI has mandated AMCs to put in place a due diligence process to regulate distributors who qualify any one of the following criteria:
Multiple point presence (More than 20 locations)
AUM raised over Rs. 100 crore across industry in the non-institutional category but including high networth individuals (HNIs)
Commission received of over Rs. 1 Crore p.a. across industry
Commission received of over Rs. 50 Lakhs from a single mutual fund.
Q 94. The Risk Free Return of a scheme is 7% , the beta is 1.6 and the actual return earned is 9 %. What is the Treynor Ratio of this scheme?
1.25
2.50
1.00074
2
CORRECT ANSWER
EXPLANATION
Treynor Ratio = (Return Earned – Risk Free Return) / Beta
= (9 – 7) / 1.6
= 2 / 1.6
= 1.25
Treynor Ratio is a risk premium per unit of risk. Higher the Treynor Ratio, better the scheme is considered to be.
Q 95. Identify the CORRECT statement/s with respect to investments in Real Estate Investment Trusts (REITs).
REITs are exposed to risks of lower-than-expected distributions
The distributions by the REIT will not be based on the net cash flows available for distribution
Both of the above are correct
None of the above
CORRECT ANSWER
EXPLANATION
Real Estate Investment Trusts (REIT) are trusts registered with SEBI that invest in commercial real estate assets.
REITs are exposed to price-risk, interest rate risk, credit risk, liquidity or marketability risk, reinvestment risk. Also, there is a risk of lower-than-expected distributions. The distributions by the REIT will be based on the net cash flows available for distribution. The amount of cash available for distribution principally depends upon the amount of cash that the REIT receives as dividends or the interest and principal payments from portfolio assets.
Q 96. What is the difference between a mutual fund schemes actual return and its optimal return know as ? This is also a measure of a fund managers performance.
Beta
Sharpe
Basis
Alpha
WRONG ANSWER
CORRECT ANSWER
Alpha
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 out- performance by the fund manager; negative alpha might indicate under-performance.
Q 97. Identify the category of mutual fund scheme in which the Net Asset Value (NAV) has to be declared for up to 4 decimal points ?
Index funds
Large cap funds
Small cap funds
Hybrid funds
CORRECT ANSWER
EXPLANATION
NAV is to be calculated upto 4 decimal places in the case of Index funds, Liquid funds and other Debt funds.
(NAV for equity and balanced funds is to be calculated upto at least 2 decimal places)
Q 98. Identify which of these statement/s is / are CORRECT.
When an unitholder gives a request for an Unit Certificate, it is has to be issued within 5 working days
When an unitholder gives a repurchase request, the re-purchase cheque have to be dispatched to the unitholder within 10 working days
Both of the above are correct
None of the above
WRONG ANSWER
CORRECT ANSWER
Both of the above are correct
EXPLANATION
As per SEBI’s guidelines on turnaround times for investors’ transactions with the mutual fund :
– Unit certificate to be issued within 5 working days of the receipt of request for the certificate.
– The redemption or repurchase proceeds shall be dispatched to the unitholders within 10 working days from the date of redemption or repurchase.
Q 99. Identify the CORRECT statement.
Mutual funds can only be purchased on the stock exchange platform and they cannot be sold
All mutual funds purchased on the stock exchange platform have a mandatory lock-in period
Stock exchange mutual fund trading platform has become another channel for mutual fund companies to reach out to investors
All of the above
WRONG ANSWER
CORRECT ANSWER
Stock exchange mutual fund trading platform has become another channel for mutual fund companies to reach out to investors
EXPLANATION
SEBI has facilitated buying and selling of the units of open-ended mutual funds through the stock exchanges.
Both National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have extended their trading platforms to help the stock exchange brokers become a channel for investors to transact in Mutual Fund units.
Q 100. Identify the CORRECT statement/s.
A mutual fund unit holder can approach the court of law for a matter which was fairly and transparently stated in the Scheme Documents, but he wasn’t aware of it
A mutual fund unit holder can approach the court of law for a provision of law, which was fairly and transparently stated in the Scheme Documents, but he wasn’t aware of it
Both of the above
None of the above
WRONG ANSWER
CORRECT ANSWER
None of the above
EXPLANATION
The principle of caveat emptor (LET THE BUYER BEWARE) applies to mutual fund investments.
So, the unit-holder cannot seek legal protection on the grounds of not being aware, especially when it comes to the provisions of law and matters fairly and transparently stated in the Scheme Documents.