Q 1. The difference between the yield on Gilt and the yield on a non-Government Debt security is called its ______ .
YTM
Credit Spread
Yield to Call
Risk Spread
WRONG ANSWER
CORRECT ANSWER
Credit Spread
EXPLANATION
The yield on Gilt (Govt. securities) is generally the lowest in the market for a given tenor. Since non-Government issuers can default, they tend to offer higher yields for the same tenor.
The difference between the yield on Gilt and the yield on a non-Government Debt security is called its credit spread.
Q 2. What is the role of the custodian ?
To issue account statements to the MF unit holders
To keep the safe custody of the securities of the mutual fund scheme
To issue statement of funds holding to the investors
To execute the buy and sell orders in the stock market
WRONG ANSWER
CORRECT ANSWER
To keep the safe custody of the securities of the mutual fund scheme
EXPLANATION
The custodian has custody of the assets of the fund. As part of this role, the custodian needs to accept and give delivery of securities for the purchase and sale transactions of the various schemes of the fund. Thus, the custodian settles all the transactions on behalf of the mutual fund schemes.
Q 3. A company has a Earning Per Share (EPS) of Rs 5 and Price to Earning (PE) ratio of 30. What will be the market price of the shares of this company ?
Rs. 0.60
Rs. 6
Rs. 150
Rs. 75
WRONG ANSWER
CORRECT ANSWER
Rs. 150
EXPLANATION
Price to Earnings Ratio (P/E Ratio) = Market Price / EPS
So Market Price = PE X EPS
= 30 x 5
= Rs 150
Q 4. Who should invest more in liquid funds : Mr. A, who has a small business OR Mr. B, who is senior manager with a multinational company?
Mr. A
Mr. B
CORRECT ANSWER
EXPLANATION
Mr. A may need funds for his business anytime so will allocate more amount to liquid funds.
Mr. B has a good high paying job, so he has a regular flow of money in form of salary. He will generally have no liquidity problems so will invest less in liquid funds and more in growth funds.
Q 5. What exception is made for investments by Systematic Invest Plans, if the annual investment is below Rs 50000 ?
KYC is not required to be done
Photo identity is not required
PAN Card is not required
None of the above
WRONG ANSWER
CORRECT ANSWER
PAN Card is not required
EXPLANATION
Providing Permanent Account Number (PAN) is compulsory for all mutual fund investments. Exception has been made for Micro-SIPs i.e. SIPs where annual investment (12 month rolling or April-March financial year) does not exceed Rs 50,000.
Q 6. An investor gives a local cheque of Rs 3 crore for investment in Gilt scheme at 11.30 am. What would be the applicable NAV for this investment ?
The closing NAV of the day preceding the date of application
The closing NAV of the next working day
The closing NAV of the application day
The NAV of the business day on which the funds are available for utilisation
WRONG ANSWER
CORRECT ANSWER
The NAV of the business day on which the funds are available for utilisation
EXPLANATION
Vide SEBI circular dated September 17, 2020, it was decided that with respect to purchase of units of MF schemes – both Debt and Equity (except liquid and overnight schemes), closing NAV of the day shall be applicable, on which the funds are available for utilisation irrespective of the size and time of receipt of such application.
Until now, investors who gave a cheque for below Rs 2,00,000 got the same day’s NAV, while those putting more got the NAV of the day when the cheque was realised.
Q 7. When the distributors are empanelled, the mutual funds should categorize the customer relationship and transactions in which of the following ways ?
Advisory , Sale
Advisory , Execution
Financial Planning, Distribution
Priority Sale, Retail Sale
WRONG ANSWER
CORRECT ANSWER
Advisory , Execution
EXPLANATION
Customer relationship and transactions shall be categorized as:
Advisory – where a distributor represents to offer advice while distributing the product, it will be subject to the principle of ‘appropriateness’ of products to that customer category.
Execution Only – in case of transactions that are not booked as ‘advisory’
Q 8. In which type of fund does an investor face the highest risk of selecting the wrong sector?
Thematic Funds
Sector Funds
Arbitrage Funds
Index Funds
WRONG ANSWER
CORRECT ANSWER
Sector Funds
EXPLANATION
Sector funds suffer from concentration risk – the entire exposure is to a single sector. If that sector does poorly, then the scheme returns are seriously affected. Sector funds are considered to carry the highest risk among the equity mutual funds.
Q 9. State True or False – Gilt schemes have more risks than liquid schemes as their NAV fluctuates more due to changes in the yield market.
True
False
CORRECT ANSWER
EXPLANATION
Gilt schemes, which invest in only long term government securities, have a higher price risk because their NAV can fluctuate a lot more, on account of changes in yield in the market. Greater the proportion of longer maturity securities in the portfolio, higher would be the fluctuation in NAV.
Q 10. Which of the following cycle will a financial planner not consider ?
Business cycle
Karma cycle
Wealth cycle
Life cycle
WRONG ANSWER
CORRECT ANSWER
Karma cycle
EXPLANATION
Karma Cycle is related to birth and rebirth of an individual and is not related to financial planning.
Q 11. The NAV which is applicable for processing a mutual fund transaction depends on ________ .
The type of scheme
The day of transaction
The time of transaction
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
The sale and re-purchase prices are a function of the applicable NAV for the transaction, which in turn will depend upon the cut-off time prescribed for the particular type of scheme and the transaction value.
The cut-off timings are different for different type of funds (Equity/Debt).
Q 12. STT is _________ on transactions in debt or debt-oriented mutual fund (including liquid fund) units.
applicable
not applicable
WRONG ANSWER
CORRECT ANSWER
not applicable
EXPLANATION
STT is applicable only on equity transactions.
Q 13. With respect to KIM – Key Information Memorandum, which of the following statements is NOT true ?
KIM is basically an abridged version of the offer document
KIM basically contains only the names of Sponsor, Trust and AMC and not their functions
The KIM is attached to each and every mutual fund application form
KIM has to be provided only if the investors ask for it
WRONG ANSWER
CORRECT ANSWER
KIM has to be provided only if the investors ask for it
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. 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 14. Which one is the Self Regulatory Organisation (SRO) for the mutual fund industry ?
SEBI
Sponsors
Trustees
None of the above
WRONG ANSWER
CORRECT ANSWER
None of the above
EXPLANATION
The Mutual Funds industry in India is in the process of getting an SRO to oversee its distributors.
(AMFI is not an SRO)
Q 15. State True or False – The Thematic funds will always have a wider exposure than Sector funds.
True
False
CORRECT ANSWER
EXPLANATION
Thematic funds invest in line with an investment theme. For example, an infrastructure thematic fund might invest in shares of companies that are into infrastructure construction plus in toll-collection, cement, steel, telecom, power etc.
The investment is thus more broad-based than a sector fund.
Sector funds invest in only a specific sector. For example, a banking sector fund will invest in only shares of banking companies.
Q 16. The auditor appointed to audit the scheme accounts is the same as the auditor of the AMC accounts – State True or False ?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
The auditor appointed to audit the scheme accounts needs to be different from the auditor of the AMC.
While the scheme auditor is appointed by the Trustees, the AMC auditor is appointed by the AMC.
Q 17. The NAV of a mutual fund unit changes every day due to changes in _______ .
number of investors in the mutual fund
market value of the mutual fund portfolio
the size of the portfolio
the units remaining in the portfolio
WRONG ANSWER
CORRECT ANSWER
market value of the mutual fund portfolio
EXPLANATION
The formula for calculating Net Asset Value –
NAV = (Current value of investments held + Income accrued + Current assets – Current liabilities – Accrued expenses / No. of outstanding units
So when the current value of investment held (ie. market value of portfolio) changes, the NAV will also change.
Q 18. Can Indian mutual funds invest in Real Estate ?
Yes
No
CORRECT ANSWER
EXPLANATION
Real Estate Mutual Funds scheme means a mutual fund scheme that invests directly or indirectly in real estate assets or other permissible assets in accordance with the SEBI (Mutual Funds) Regulations, 1996
So Mutual Funds can invest in real estate directly but currently they are mostly into buying real estate related stocks or in Real Estate Investment Trusts – which invests in property directly.
Q 19. After the New Fund Offer, units of the Close Ended fund can be bought and sold through _______ .
Close Ended fund cannot be bought and sold till the closure of term
the offices / branches of the respective AMC’s
the bank in which the unit holder has an account
Stock Exchanges
WRONG ANSWER
CORRECT ANSWER
Stock Exchanges
EXPLANATION
A close-ended scheme offers liquidity through a listing in a stock exchange.
Q 20. _______ investment style involves buying stocks which are valued lower as per fundamental analysis.
Tactical
Growth
Cyclical
Value
WRONG ANSWER
CORRECT ANSWER
Value
EXPLANATION
Value investment style is an approach of picking up stocks, which are priced lower than their intrinsic value, based on fundamental analysis.
The belief is that the market has not appreciated some aspect of the value in a company’s share – and hence it is cheap. When the market recognizes the intrinsic value, then the price would shoot up.
Q 21. Mohit needs Rs. 2,00,000 in 5 years from now. The interest rate is 7%. The amount required today to be invested can be calculated by using the formula ______ .
200000 / (1+0.07)^5
200000 * (1- 0.07)^5
200000 / (1+0.07)*5
200000 * (1+0.07)*5
CORRECT ANSWER
EXPLANATION
The formula for calculating the Future Value of an investment made today is FV = PV * (1 + r) ^ n
Where FV is the future value ; PV is the present value ; r is the rate of inflation or interest rate ; n is the number of years
Thus the formula for Present value will be PV = FV / (1 + r) ^ n
Subsituting the above numbers : PV = 2,00,000 / (1+0.07)^ 5
Q 22. While empaneling mutual fund distributors, an AMC has to do a due diligence to satisfy the ‘Fit and Proper’ criteria for eligible distributors. Which of the following form a part of this due diligence process?
The eligible distributor should have the requisite Employee to Customer ratio as prescribed by SEBI
The eligible distributor should have strict internal controls to limit investors exposure to an asset class or fund house
Adequate controls to delink sales functions from customer risk and investment objective evaluation
All of the above
WRONG ANSWER
CORRECT ANSWER
Adequate controls to delink sales functions from customer risk and investment objective evaluation
EXPLANATION
At the time of empaneling distributors and during the period i.e., review process, mutual funds/AMCs have to undertake a due diligence process to satisfy ‘fit and proper’ criteria that incorporate, amongst others, the following factors:
Business model, experience and proficiency in the business.
Record of regulatory/statutory levies, fines and penalties, legal suits, customer compensations made; causes for these and resultant corrective actions taken.
Review of associates and subsidiaries on the above factors.
Organizational controls to ensure that the following processes are delinked from sales and relationship management processes and personnel:
Customer risk/investment objective evaluation.
MF scheme evaluation and defining its appropriateness to various customer risk categories.
Q 23. What is the full form of AGNI ?
AMFI Guidelines for New issues and Investments
AMFI Guidelines and Norms for Intermediaries
AMFI Guidelines for New Investors
AMFI Guidelines for Nominations and Investments
WRONG ANSWER
CORRECT ANSWER
AMFI Guidelines and Norms for Intermediaries
EXPLANATION
AMFI has framed a set of guidelines and code of conduct for intermediaries (known as AMFI Guidelines & Norms for Intermediaries (AGNI)), consisting of individual agents, brokers, distribution houses and banks engaged in selling of mutual fund products.
Q 24. Mr. Anand has Rs. 5 lakhs to invest but he may need money in the short term. In which of these funds should he NOT invest?
Liquid Fund
Money-market fund
Index fund
Overnight fund
WRONG ANSWER
CORRECT ANSWER
Index fund
EXPLANATION
When an investor needs money in the short term, he should invest in debt funds like liquid funds, money market funds, overnight fund etc. where he can withdraw money without any risk of capital loss.
He should not invest in an Index fund as its an equity fund and there can be possibility of losses in the short term due to stock market fluctuations.
Q 25. Identify the FALSE statement/s.
1. Arbitrage funds have lower risk as compared to Equity Funds
2. The main objective of an Arbitrage Fund is to provide capital appreciation
3. Arbitrage funds can invest in both Futures/Options(F&O) and cash markets
Only 1 is false
Only 2 is false
Both 2 and 3 are false
Both 1 and 3 are false
WRONG ANSWER
CORRECT ANSWER
Only 2 is false
EXPLANATION
Arbitrage Fund is an open-ended scheme investing in arbitrage opportunities.
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 26. On whom is the compliance requirement under Foreign Account Tax Compliance Act (FATCA) applicable?
Only on those mutual funds who have foreign institutions as their sponsors
Only on those mutual funds who are registered with a foreign agency
All financial institutions including mutual funds
Only Indian mutual funds
WRONG ANSWER
CORRECT ANSWER
All financial institutions including mutual funds
EXPLANATION
The Foreign Account Tax Compliance Act (FATCA) is a US law that aims to combat tax evasion by US persons opening accounts offshore. It enhances due diligence and information reporting requirements for both individual and entity accounts. On July 9, 2015, India signed Inter-Governmental Agreement (IGA) with the USA for implementation of FATCA.
This is applicable to all financial institutions including mutual funds.
To comply with the requirements of the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) provisions, financial institutions, including mutual funds, are required to undertake a due diligence process to identify foreign reportable accounts and collect such information as required under the said provisions and report the same to the US Internal Revenue Service/any other foreign government or to the Indian Tax Authorities for onward transmission to the concerned foreign authorities.
Q 27. How often should the Key Information Memorandum (KIM) be updated ?
Every quarter
Twice in a year
At least once a year
It need not be updated after it is issued once
WRONG ANSWER
CORRECT ANSWER
Twice in a year
EXPLANATION
As per SEBI circular in 2021 – KIM shall be updated at least once in half-year, within one month from the end of the respective half-year, based on the relevant data and information as at the end of September and March and shall be filed with SEBI forthwith through electronic mode only.
Q 28. What does a higher portfolio turnover imply?
It implies higher transaction costs
It implies higher capital gains
It implies lower capital gains
It implies a long term orientation of the fund
CORRECT ANSWER
EXPLANATION
Portfolio Turnover is the value of Purchase and Sale of Securities during a period in a mutual fund scheme.
Purchase and sale of securities entails broking costs for the scheme. Frequent churning of the portfolio would add to the transaction costs.
Q 29. Amongst the distribution channel mentioned below, which one is likely to sell funds of only a single mutual fund house?
Distribution Company
Independent financial advisor
Institutional sales team of the Asset Management Company
Bank
WRONG ANSWER
CORRECT ANSWER
Institutional sales team of the Asset Management Company
EXPLANATION
An independent financial advisor, a bank or a distribution company will sell mutual fund schemes of various mutual fund houses as per their clients requirements and other considerations.
However, an institutional sales team of an Asset Management Company will sell schemes only of the single mutual fund house which has appointed it.
Q 30. Which of these statements is true with respect to Key Information Memorandum (KIM)?
KIM is a document that provides key information of the past performance of the scheme
KIM is the annual newsletter of the mutual fund
KIM provided NAV history of all mutual fund schemes
KIM is a document which must accompany all mutual fund application forms
WRONG ANSWER
CORRECT ANSWER
KIM is a document which must accompany all mutual fund application forms
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.
Q 31. While giving the mutual fund units for re-purchase, the distributor should consider the impact of ______ and ______ on the investor’s portfolio.
Exit Load ; Capital Gains Tax
Exit Load ; Entry Load
Entry Load ; Capital Gains Tax
Entry Load : Beta
CORRECT ANSWER
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.
Q 32. The NFO price of a mutual fund scheme was Rs. 10 and its current Net Asset Value (NAV) is Rs. 8. What would happen if the transactions were to happen at NFO price?
The new investors as well as the existing investors in this scheme would stand to lose
The new investors as well as the existing investors in this scheme would stand to gain
The new investors stand to gain at the cost of existing investors
The new investors stand to lose at the cost of existing investors
WRONG ANSWER
CORRECT ANSWER
The new investors stand to lose at the cost of existing investors
EXPLANATION
If the transactions are taking place at Rs 10 instead of the current NAV of Rs. 8, the new investors will stand to lose as they will have to pay a higher price to buy the units. The existing investors will be at an advantage as they can sell their units at a higher price of Rs 10 instead of Rs 8.
Q 33. State whether the statement is True or False – Investment in Income Distribution cum Capital Withdrawal re-investment option grows faster than Growth option as the investor gets additional units.
Its true for all categories of mutual fund schemes
Its false for all categories of mutual fund schemes
Its true only for equity funds
It depends on whether the fund is open-end or close-end
WRONG ANSWER
CORRECT ANSWER
Its false for all categories of mutual fund schemes
EXPLANATION
In a Re-investment of Income Distribution cum capital withdrawal plan, the NAV declines to the extent of dividend. The resulting NAV is called ex- dividend NAV.
However, the investor does not receive the dividend in his bank account; the amount is re-invested in the same scheme and additional units are allotted to the investor. The reinvestment happens at the ex-dividend NAV. The amount invested in the fund remains the same. Only the units increases and NAV decreases.
Therefore the growth is same for the Growth Option and Income Distribution cum Capital Withdrawal Re-investment option.
Q 34. As per the Advertisement Guidelines for Mutual Funds, Point-to-point returns on a standard investment of Rs. 10,000 shall also be shown in addition to CAGR for a scheme which has been for existence _______ .
More than 5 years
More than 3 years
More than 2 years
Irrespective of years of existence, all mutual fund schemes must show the point to point returns
WRONG ANSWER
CORRECT ANSWER
More than 3 years
EXPLANATION
As per the SEBI Advertisement Guidelines for Mutual Funds, when the mutual fund scheme has been in existence for more than THREE years :
– Performance advertisement of mutual fund schemes shall be provided in terms of CAGR for the past 1 year, 3 years, 5 years and since inception.
– Point-to-point returns on a standard investment of Rs. 10,000 shall also be shown in addition to CAGR for the scheme to provide ease of understanding to retail investors.
Q 35. When will an Indian investor in a US Dollar based fund benefit?
When US Dollar becomes weak
When US Dollar becomes stronger
When US Dollar remains steady
WRONG ANSWER
CORRECT ANSWER
When US Dollar becomes stronger
EXPLANATION
If the investor invests in the US, and the US Dollar becomes stronger during the period of his investment, he benefits; if the US Dollar weakens (i.e., Rupee becomes stronger), he loses or the portfolio returns will be lower.
For eg. An investor invests Rs 80,000 to buy 1000 units of a US fund when the USDINR rate was Rs 80 per Dollar. If the US Dollar becomes stronger against Indian Rupees to say Rs. 82, he will receive Rs 82,000 when he repariates the amount to India. (Assuming the funds NAV remains the same).
Q 36. SEBI Complaint Redress System (SCORES) helps an investor to ______ .
1. Lodge a complaint for a grievance
2. Make a follow-up on the complaint
3. Track the status of redressal of such complaints online
Only 1
Only 1 and 3
Only 1 and 2
All 1, 2 and 3
WRONG ANSWER
CORRECT ANSWER
All 1, 2 and 3
EXPLANATION
SEBI Complaint Redress System (SCORES) is a web-based centralized grievance redress system of SEBI. SCORES enables investors to lodge, follow up on their complaints and track the status of redressal of such complaints online on the website – http://scores.gov.in
Q 37. Which of these can be a benchmark for a Banking Fund?
S&P BSE FMCG Index
S&P BSE Auto
S&P BSE Bankex
S&P BSE 500
WRONG ANSWER
CORRECT ANSWER
S&P BSE Bankex
EXPLANATION
The S&P BSE Bankex index comprises constituents of the S&P BSE 500 that are classified as members of the banks sector as defined by the BSE industry classification system
Q 38. Identify the TRUE statement with respect to a Gilt Fund?
The minimum investment in G-secs (as a percentage of total assets) is 70%
The minimum investment in G-secs (as a percentage of total assets) is 75%
The minimum investment in G-secs (as a percentage of total assets) is 80%
The minimum investment in G-secs (as a percentage of total assets) is 85%
WRONG ANSWER
CORRECT ANSWER
The minimum investment in G-secs (as a percentage of total assets) is 80%
EXPLANATION
Gilt Fund is an open-ended debt scheme investing in government securities across maturity. The minimum investment in G-secs is defined to be 80 percent of total assets (across maturity).
Q 39. Identify the document which authorizes a company to invest in a specific mutual fund?
Resolution passed in the shareholders meeting
Specific Board resolution
As per the Companies Act, a company can invest in any mutual fund scheme as long it is beneficial to the interest of the shareholders, without any special authorisation
As per the Companies Act, a company cannot invest in mutual funds
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, some 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 40. SEBI has to approve the Scheme Related Documents in ______ .
7 days
15 days
1 month
SEBI does not approve the Scheme Related Documents. It only gives its observations
WRONG ANSWER
CORRECT ANSWER
SEBI does not approve the Scheme Related Documents. It only 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 41. Which of these funds has the highest risk ?
Gilt funds
Index funds
Money market funds
Sector funds
WRONG ANSWER
CORRECT ANSWER
Sector funds
EXPLANATION
The sector funds invest in stocks belonging to just one sector of the economy, in order to take advantages within the said sector. The examples of such funds are: Pharma fund or Banking fund.
Sector funds are very risky because of the concentration in one sector. If the sector underperforms then the scheme’s returns is likely to be poor.
Q 42. What is the maximum permissible limit of investment a single investor can have in a scheme?
5% of the corpus
10% of the corpus
20% of the corpus
25% of the corpus
WRONG ANSWER
CORRECT ANSWER
25% of the corpus
EXPLANATION
As per SEBI rules, a Scheme/Plan shall have a minimum of 20 investors and no single investor shall account for more than 25 percent of the corpus of the Scheme/Plan(s).
Q 43. Ultra-short-term debt scheme invests in debt and money market instruments with Macaulay duration between __________ .
1 to 3 months
3 to 6 months
6 to 12 months
1 year to 3 years
WRONG ANSWER
CORRECT ANSWER
3 to 6 months
EXPLANATION
Macaulay Duration is the weighted average of the time to receive the cash flows from a bond.
An open ended ultra-short-term debt scheme invests in debt and money market instruments with Macaulay duration between 3 months and 6 months.
Q 44. The investors of a mutual fund can terminate the AMC or wind up a scheme if _____ % or more of the unit holders agree to it.
50%
60%
70%
75%
WRONG ANSWER
CORRECT ANSWER
75%
EXPLANATION
Mutual fund Investors’ Rights & Obligations –
Rights to terminate appointment of an AMC : 75 percent of unit holders can terminate the appointment of an AMC. Also, 75 percent of the unitholders (unitholding) can pass a resolution to wind up a scheme.
Q 45. Who applies to SEBI for the registration of a Mutual Fund?
The Asset Management Company (AMC)
Board of Trustees
The Sponsors
Chief Fund Manager
WRONG ANSWER
CORRECT ANSWER
The Sponsors
EXPLANATION
The application to SEBI for registration of a mutual fund is made by the sponsors.
Q 46. Identify the TRUE statement with respect to benchmark for Gold ETFs.
CRISIL Gilt fund index is widely used as a benchmark for Gold ETFs
Gold ETFs are benchmarked against gold prices
There can be no benchmark for Gold ETFs
Internationally it is proven that there is no need of any type of benchmark for Gold ETFs
WRONG ANSWER
CORRECT ANSWER
Gold ETFs are benchmarked against gold prices
EXPLANATION
Gold price would be the benchmark for Gold Exchange Traded Funds (ETFs).
Q 47. If an investor in a Multicap Fund wants to know the industry wise allocation of the funds then which document should he refer to?
Fund Factsheet
SID and SAI
Investment management agreement
Annual accounts of the AMC
CORRECT ANSWER
EXPLANATION
One of the most popular document from the mutual fund is the monthly Fund Factsheet. This document is extensively used by investors, fund distributors, fund rating agencies, research analysts, media and others to access information about the various schemes of the mutual fund.
In the factsheet, security wise as well as industry / sector wise allocation is provided for equity schemes.
Q 48. As per SEBI rules, commissions cannot be paid to ______ .
Brokers of the stock exchange
Banks
Sponsor distributors
Investors
WRONG ANSWER
CORRECT ANSWER
Investors
EXPLANATION
As per SEBI rules, a mutual fund distributor has to sign a declaration mentioning – Undertake not to rebate commission back to investors, or attract investors through temptation of rebate/gifts, pass back of commission etc.
Q 49. Which document will an investor look at if he has to know the fundamental attributes of a mutual fund scheme?
Key Information Memorandum (KIM)
Addendum
Scheme Information Document (SID)
Statement of Additional Information (SAI)
WRONG ANSWER
CORRECT ANSWER
Scheme Information Document (SID)
EXPLANATION
The Scheme Information Document contains the fundamental attributes of a scheme under the ‘Information about the scheme’ column.
Q 50. Which of these statement(s) is/are FALSE with respect to Benchmarks?
A) Portfolio concentration is an important factor while selecting a benchmark for an equity mutual fund
B) Choice of investment universe is not an important factor while selecting an appropriate benchmark for debt mutual funds
Only A is false
Only B is false
Both A and B are false
WRONG ANSWER
CORRECT ANSWER
Only B is false
EXPLANATION
Choice of investment universe is important and drives the choice of benchmark in debt schemes.
For eg – Liquid schemes invest in securities of upto 91 days’ maturity. Therefore, a short term money market benchmark such as NSE’s MIBOR or CRISIL Liquid Fund Index is suitable. Non-liquid schemes can use other type indices depending on the nature of their portfolio.
Q 51. What is the investment in equity and equity related instruments in a Balanced Hybrid Fund?
Between 20% to 30% of total assets
Between 10% to 20% of total assets
Between 40% to 60% of total assets
Between 60% to 80% of total assets
WRONG ANSWER
CORRECT ANSWER
Between 40% to 60% of total assets
EXPLANATION
Balanced Hybrid Fund is an open-ended balanced scheme investing in equity and debt instruments. The investment in equity and equity related instruments shall be between 40 percent and 60 percent of total assets while investment in debt instruments shall be between 40 percent and 60 percent.
Q 52. Which of these investors is allowed to do a nomination?
Only SIP investors
Only Equity Mutual Fund investors
Only Institutional Investors
Only Individual Investors
WRONG ANSWER
CORRECT ANSWER
Only Individual Investors
EXPLANATION
Only individual investors can make a nomination.
Q 53. A bond issued by a company has a coupon of 7%. The interest rate in the market for bonds of similar tenor and credit quality is now 8%. An investor holding the bond will see _____ .
The market price of the bond going up
The market price of the bond going down
The coupon of the bond going up
No change in the market price
WRONG ANSWER
CORRECT ANSWER
The market price of the bond going down
EXPLANATION
In the above question, the interest rates have risen in the economy. If the coupon (interest rate) rises, then the bond with lower coupon is no longer an attractive investment. It will therefore lose value.
Q 54. In which of the following cases can Goods and Service Tax (GST) be charged to the mutual fund scheme over and above the Total Expense Ratio of the scheme?
GST applicable on any fees must be within the Total Expense Ratio
GST applicable on distributor commission only can be charged to the scheme over and above the Total Expense Ratio
GST applicable on AMC fees as well as distributor commission can be charged to the scheme over and above the Total Expense Ratio
GST applicable on AMC fees only can be charged to the scheme over and above the Total Expense Ratio
WRONG ANSWER
CORRECT ANSWER
GST applicable on AMC fees only can be charged to the scheme over and above the Total Expense Ratio
EXPLANATION
AMC(s) can charge GST, as per applicable Taxation Laws, to the schemes within the limits prescribed under SEBI (Mutual Fund) Regulations.
– GST on fees paid on investment management and advisory fees shall be charged to the scheme in addition to the overall limits specified as per the Total Expense Ratio (TER) provisions.
– The commission payable to the distributors of mutual funds may be subject to GST, as applicable in case of the ARN holder. Such tax cannot be charged to the scheme.
Q 55. Identify the TRUE statement.
While calculating scheme returns for an investor, if there is an entry load, then the initial value of the Net Asset Value (NAV) is taken as NAV minus Entry Load
While calculating scheme returns for an investor, if there is an exit load, then the later value of the Net Asset Value (NAV) is taken as NAV minus Exit Load
WRONG ANSWER
CORRECT ANSWER
While calculating scheme returns for an investor, if there is an exit load, then the later value of the Net Asset Value (NAV) is taken as NAV minus Exit Load
EXPLANATION
If there is an entry load on a scheme then while calculating the scheme returns, the initial value of the Net Asset Value (NAV) is taken as NAV plus the Entry load as the cost of purchase increases due to the entry load. So entry load has to be added to the NAV and not subtracted.
For redemptions, instead of the later value of NAV (which is used for calculating scheme returns), the amount actually received/receivable by the investor (i.e. NAV minus Exit Load, if any) would need to be used.
Q 56. Which of these funds has the highest risk?
Index Funds
Diversified Equity fund
Long Duration Funds
Gilt Funds
WRONG ANSWER
CORRECT ANSWER
Diversified Equity fund
EXPLANATION
In the Risk-Return Hierarchy of mutual funds, Equity funds are always risker then Debt funds. So in the above question, Index fund and Diversified Equity Fund (Equity funds) will be more risker than Gilt fund and Long Duration fund (Debt funds).
Among Index fund and Diversified Equity fund, the latter is usually more riskier than former.
Q 57. In which of the following cases is the transaction charge to be paid to the mutual fund distributor, deducted from the gross investment of the investor ?
When the investor purchases mutual fund units worth Rs 5000 through a mutual fund distributor
When the investor purchases mutual fund units worth Rs 10000 through a mutual fund distributor
When the investor purchases mutual fund units worth Rs 5000 through the website of the mutual fund
When the investor purchases mutual fund units worth Rs 10000 through the website of the mutual fund
WRONG ANSWER
CORRECT ANSWER
When the investor purchases mutual fund units worth Rs 10000 through a mutual fund distributor
EXPLANATION
To cater to people with small saving potential and to increase reach of mutual fund products in urban areas and smaller towns, SEBI has allowed a transaction charge per subscription of Rs. 10,000/- and above to be paid to distributors of the mutual fund products. However, there shall be no transaction charges on direct investments.
Q 58. As per the Principles of fair valuation of mutual funds, the valuation of the securities shall be ________ .
done aggressively
done conservatively
always rising
reflective of the realizable value of the securities
WRONG ANSWER
CORRECT ANSWER
reflective of the realizable value of the securities
EXPLANATION
As per Principle No.1 of SEBI’s Fair Valuation Principles –
The valuation of investments shall be based on the principles of fair valuation i.e. valuation shall be reflective of the realizable value of the securities/assets. The valuation shall be done in good faith and in true and fair manner through appropriate valuation policies and procedures.
Q 59. SEBI has introduced Mutual Fund Lite framework for ________ managed schemes of mutual funds.
Actively
Passively
Aggressively
Conservatively
WRONG ANSWER
CORRECT ANSWER
Passively
EXPLANATION
SEBI has introduced Mutual Fund Lite framework for passively managed schemes of mutual funds.
Mutual fund Regulation defines “MF Lite” as a mutual fund that is having only such index funds, exchange traded funds, fund of funds or other mutual fund schemes as may be specified by the Board from time to time.
Q 60. Which statement is FALSE with reference to risk appetite?
Risk appetite can be assessed by risk profiling
Preferred risk appetite is different from ideal risk appetite
Risk appetite indicates level of risk that investor is comfortable with
People of same age will have same risk appetite
WRONG ANSWER
CORRECT ANSWER
People of same age will have same risk appetite
EXPLANATION
One of the common factors that many people use to evaluate the investor’s risk profile is the investor’s age. It is popularly believed that younger investors have the potential for taking higher risks compared to old people.
However, this may not be correct as different investors have different financial goals at different age levels. In fact, investors in the same age group may also have different goals. Their financial situations may also differ. In such cases, it may not be prudent to categorize investors on the basis of age alone.
Q 61. Identify the true statement(s) with respect to benchmark for mutual fund schemes.
A) For International Equity fund, the ideal benchmark will be BSE 500 index as it is a very broad based index covering 500 companies
B) For Gold ETF, gold prices will be the ideal benchmark
Only A is correct
Only B is correct
Both A and B are correct
Neither A nor B are correct
WRONG ANSWER
CORRECT ANSWER
Only B is correct
EXPLANATION
Gold price would be the benchmark for Gold ETF funds.
For International Funds – The benchmark would depend on where the scheme proposes to invest. Thus, a scheme seeking to invest in China might have a Chinese index as the benchmark and a scheme that would invest largely in the US market can have S&P 500 index as the appropriate benchmark.
Q 62. A synopsis of the scheme related information documents is found in the _____ .
Statement of Additional Information – SAI
Articles of Association
Trust Deed
Key Information Memorandum – KIM
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 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 63. As per SEBI’s mandate, AMCs has to put in place a due diligence process to regulate distributors. Which of these mutual fund distributors would NOT be subjected to the due diligence process?
AUM raised of Rs. 60 crore across industry in the non-institutional category
Commission received of over Rs. 125 lakhs p.a. across industry
Multiple point presence in more than 25 locations
Commission received of over Rs. 75 Lakhs from a single mutual fund
CORRECT ANSWER
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
In the above question, the mutual fund distributor has raised an AUM of Rs 60 crores across industry in the non-institutional category, which is less than Rs 100 crores as per point (a) above.
Q 64. Identify the false statement(s) –
A) Share certificate is a physical asset
B) Debenture is a physical asset as the paper on which it is printed has value
Statement A is false
Statement B is false
Both statements A and b are false
WRONG ANSWER
CORRECT ANSWER
Both statements A and b are false
EXPLANATION
Shares and Debentures are not physical assets. They are financial assets.
Physical assets include Gold, Building, Art etc.
Q 65. In a mutual fund application form, if ‘Direct’ is mentioned in the space provided for ARN and the choice of regular plan is indicated then the application will be considered as ______ .
Direct plan application
Regular plan application
Incomplete and rejected
Incomplete and sent to the investor for completion
CORRECT ANSWER
EXPLANATION
Investors have the option to invest (purchase or subscribe to mutual fund units) directly without routing the investment through a distributor (Direct Plan). In this case, the investor must mention “Direct” in the space provided in the application form for entering the AMFI Registration Number (ARN).
Q 66. Which of these statement(s) is/are true?
A. In equity investments, the probability of losing money over a long term is lesser than losing money in the short term
B. Fundamental Analysis consists of studying the financial statements of a company and the candle stick charts
Only A is correct
Only B is correct
Both A and B are correct
None of the above
CORRECT ANSWER
EXPLANATION
Historically, equity investing has delivered higher returns than other investment avenues, most of the times, if one considers long investment periods.
Equity share prices generally fluctuate a lot, often without regard to the business fundamentals. However, over long periods of time, the share prices follow the fortunes of the firm. If the profits of the company continue to grow over the years, the share price follows.
(In Fundamental Analysis, one does not study the charts like Candle Stick chart etc. Study of charts is done in Technical Analysis)
Q 67. Where are the ‘Standard Risk Factors’ of a Mutual Fund scheme disclosed?
Fund Fact Sheet
Addendum
Statement of Additional Information (SAI)
Scheme Information Document (SID)
WRONG ANSWER
CORRECT ANSWER
Scheme Information Document (SID)
EXPLANATION
The Scheme Information Document (SID) highlights two broad categories of risks, (1) Standard risk factors, and (2) Specific risk factors.
The standard risk factors are the risks that all mutual fund investments are exposed to whereas there are certain risks specific to individual asset category.
Q 68. Which of these entities can invest in Indian mutual funds?
A) Foreign portfolio investor
B) Insurance company
C) Salaried individual
Only C
A and B
B and C
All A, B and C
WRONG ANSWER
CORRECT ANSWER
All A, B and C
EXPLANATION
All of these can invest in Indian mutual funds.
Foreign Portfolio Investor (FPI) – Yes, FPIs can invest in Indian mutual funds, subject to SEBI regulations and KYC compliance. They usually invest in equity and debt mutual funds.
Insurance Company – Yes, Indian insurance companies can invest in mutual funds as per IRDAI guidelines. Even foreign insurance companies operating in India may invest, subject to RBI and SEBI regulations.
Salaried Individual – Yes, any Indian resident, including salaried individuals, can invest in mutual funds through systematic investment plans (SIPs) or lump sum investments. They just need to complete their KYC process.
Q 69. 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
Only A is false
Only B is false
Both A and B are false
WRONG ANSWER
CORRECT ANSWER
Only B is false
EXPLANATION
NAV is to be calculated upto 4 decimal places in the case of index funds, liquid funds and other debt funds.
Accounts of the mutual fund schemes need to be maintained independent of the accounts of the AMC. The auditor appointed to audit the mutual fund scheme accounts needs to be different from the auditor of the AMC.
Q 70. Where should the change in status of an individual from a Resident to a Non-Resident Indian updated for mutual fund investments?
It should be updated with the Registrar and Transfer Agent
It should be updated with the KYC Registration Agency
It should be updated with the directly with the Mutual Fund
It can be updated with any of the three options provided
WRONG ANSWER
CORRECT ANSWER
It should be updated with the KYC Registration Agency
EXPLANATION
The KYC Registration Agency (KRA) prescribes a ‘Change Form’ to be used to register change, if any, in the information provided at the time of the Know Your Customer (KYC) process. These include: • Change in Name • Change in Status/ Nationality • Change in PAN • Change in permanent address or address for correspondence etc.
Q 71. In case of Exchange Traded Funds (ETFs) , the minimum investment in securities of a particular index (which is being replicated/ tracked) shall be ___ percent of total assets.
100
95
85
75
WRONG ANSWER
CORRECT ANSWER
95
EXPLANATION
Index Funds/Exchange Traded Fund are open-ended scheme replicating/tracking a specific index. The minimum investment in securities of a particular index (which is being replicated/ tracked) shall be 95 percent of total assets.
Q 72. As per AMFI’s code of ethics, an Asset Management Company has to disclose which of the following scheme related information to the unit holders?
A. Investment Pattern
B. Annual portfolio turnover
C. Annual securities transactions
Only B
A and B
B and C
A, B and C
WRONG ANSWER
CORRECT ANSWER
A and B
EXPLANATION
Asset Management Company (AMC) shall disclose to unitholders investment pattern, portfolio details, ratios of expenses to net assets and total income and portfolio turnover wherever applicable in respect of schemes on annual basis.
Q 73. In which of these options can an investor expect a cash flow in his bank account?
Bonus
Dividend Payout
Dividend Reinvestment
Growth
WRONG ANSWER
CORRECT ANSWER
Dividend Payout
EXPLANATION
Only if the investor chooses Dividend Payout option in his mutual fund investments, the money will flow into his bank account when ever the mutual fund pays the dividend.
In a growth option, dividend is not declared. Therefore, nothing is received in the bank account
In a dividend re-investment option, the investor does not receive the dividend in his bank account; the amount is reinvested in the same scheme and additional units are allotted to the investor.
In a bonus issue, the investor does not pay anything. The fund allots new units for free.
Q 74. When is a Consolidated Account Statement (CAS) dispatched to the investor?
When ever the investor asks for a CAS
bi-monthly for dormant investors
Every month, before the 10th working day of the following month
When ever there is a transaction in the folio
WRONG ANSWER
CORRECT ANSWER
Every month, before the 10th working day of the following month
EXPLANATION
A Consolidated Account Statement (CAS) for each calendar month is sent by post/email on or before 10th of the succeeding month provided there has been a financial transaction in the folio in the previous month.
Q 75. Once a New Fund Offer closes, an open ended mutual fund is open for purchases _________ .
by existing investors only
by existing investors on the stock exchange platform only
by both existing and new investors on the stock exchange platform only
by both existing and new investors
WRONG ANSWER
CORRECT ANSWER
by both existing and new investors
EXPLANATION
An Open Ended mutual fund can be purchased by both new and existing investors through the traditional way or through stock exchanges.
Q 76. Financial goals have to be defined in terms of _______ .
Time horizon and external funds required
Costs and economic policies
Aspiration and desires
Time horizon and money needed
WRONG ANSWER
CORRECT ANSWER
Time horizon and money needed
EXPLANATION
The first step in goal setting is to identify events in life which will require funding like – marriage, education, buying a vehicle etc.
The next step is to assign priorities – which of these events are more important than the others
After that, one needs to assign a timeline as well as amount of funding required at the time of such events.
Q 77. When is the Statement of Additional Information (SAI) updated ?
Every month
Before 10th of January and 10th of July every six months
Every three months
Before the end of 3 months of every financial year
WRONG ANSWER
CORRECT ANSWER
Before the end of 3 months of every financial year
EXPLANATION
Updation of SAI – Regular update has to be done by the end of 3 months of every financial year.
(Material changes have to be updated on an ongoing basis and uploaded on the websites of the mutual fund and AMFI)
Q 78. ________ is the risk of mis-pricing or improper valuation of derivatives.
Counterparty Risk
Model Risk
Basis Risk
Credit risk
WRONG ANSWER
CORRECT ANSWER
Model Risk
EXPLANATION
Model Risk is the risk of mis-pricing or improper valuation of derivatives.
Q 79. In case a fund manager is managing more than six funds, then ______ in all performance related advertisements.
the total number of schemes managed by him hs to be disclosed
performance data need not be given
performance data of top 2 and bottom 2 schemes has to be disclosed
performance data of top 3 and bottom 3 schemes has to be disclosed
WRONG ANSWER
CORRECT ANSWER
performance data of top 3 and bottom 3 schemes has to be disclosed
EXPLANATION
When the performance of a particular mutual fund scheme is advertised, the advertisement shall also include the performance data of all the other schemes managed by the fund managers of that particular scheme.
In case the number of schemes managed by a fund manager is more than six, then the AMC may disclose the total number of schemes managed by that fund manager along with the performance data of top 3 and bottom 3 schemes managed by that fund manager in all performance related advertisements
Q 80. A creditable benchmark of a mutual fund scheme should be in sync with the __________ .
A. Size of scheme
B. Investment objective of the scheme
C. Investment strategy of the scheme
D. Expenses ratio of the scheme
E. Asset allocation pattern of the scheme
B, C and E
A, C and D
B, D and E
A and B
CORRECT ANSWER
EXPLANATION
A credible benchmark should meet the following requirements: It should be in sync with (a) the investment objective of the scheme; (b) asset allocation pattern; and (c) investment strategy of the scheme.
Q 81. The AMFI Code of Ethics (ACE) sets out ________ .
The standards of good practices to be followed by the AMCs in their operations and in their dealings with investors, intermediaries and the public.
The standards of good practices to be followed by the AMCs in their operations and in their dealings with mass media
The standards of good practices to be followed by mutual fund distributors in their dealings with AMFI, AMCs and investors
The standards of good practices to be followed by fund managers in their dealings with AMFI and investors
CORRECT ANSWER
EXPLANATION
One of the objectives of the Association of Mutual Funds in India (AMFI) is to promote the investors’ interest by defining and maintaining high ethical and professional standards in the mutual fund industry.
The AMFI Code of Ethics (ACE) sets out the standards of good practices to be followed by the Asset Management Companies (AMCs) in their operations and in their dealings with investors, intermediaries and the public.
Q 82. Who is NOT authorised to attest the documents submitted for Know Your Customer compliance, in case originals are not produced at the time of KYC?
Notary Public
Manager of a Scheduled Commercial Bank
Mutual Fund distributor
Gazetted Officer
WRONG ANSWER
CORRECT ANSWER
Mutual Fund distributor
EXPLANATION
In the KYC process, the supporting documents (identity and address proof) are verified with the original documents. Alternatively, the investor can provide a True Copy attested by a Notary Public, Gazetted Officer or Manager of a Scheduled Commercial Bank.
Q 83. The interim changes in an mutual fund scheme are updated to the investors through ___________ .
Key Information Memorandum (KIM)
Statement of Additional Information (SAI)
Addendum
Scheme Information Document (SID)
WRONG ANSWER
CORRECT ANSWER
Addendum
EXPLANATION
While the SID, SAI and KIM need to be updated periodically, the interim changes are updated through the issuance of Addendum.
The addendum is considered to be a part of the scheme related documents, and must accompany the KIM.
Q 84. Identify the true statement(s) with respect to stamping of application for Non Financial transactions of a mutual fund.
A) Time stamping is relevant
B) Date stamping is pertinent
C) Date and Time stamping is done
All A, B and C are true
Only A and B are true
Only B and C are true
Only A and C are true
WRONG ANSWER
CORRECT ANSWER
Only B and C are true
EXPLANATION
Applications for non-financial transactions like change of address and investor’s acknowledgement are date and time stamped. However, here stamping of time is not relevant; the date stamping is pertinent (relevant).
Q 85. ______ is / are Non Financial transaction(s) in a mutual fund.
A) Switch
B) Pledge of units
C) Nomination
D) Transmission
A, B and C
B, C and D
A, C and D
C and D
WRONG ANSWER
CORRECT ANSWER
B, C and D
EXPLANATION
Pledge of units. Nomination and Transmission are Non Financial transactions in a mutual fund.
A Switch is redemption from one scheme and a purchase into another, combined into one transaction and is a financial transaction.
Q 86. In a Contra Fund, the minimum investment in equity & equity related instruments shall be ________ of total assets.
40 percent
50 percent
55 percent
65 percent
WRONG ANSWER
CORRECT ANSWER
65 percent
EXPLANATION
A contra fund is an open-ended equity scheme following contrarian investment strategy. Minimum investment in equity & equity related instruments shall be 65 percent of total assets.
Q 87. 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?
The address provided for KYC compliance
The address provided in the application form
Mr. Mohit can indicate which address is correct
The address provided in the application form will be used for all communications
CORRECT ANSWER
EXPLANATION
Once the first holder’s PAN is validated for KYC, the address provided in the KYC form will override the information provided in the application form.
Q 88. What is asset allocation?
Deciding which and how many mutual fund schemes to invest in
Finalizing which mutual fund schemes would deliver the highest returns in future
Deciding how to invest money across various asset categories in line with one’s risk profile, financial objectives and current situation
Deciding which asset category would outperform the others and investing in it
WRONG ANSWER
CORRECT ANSWER
Deciding how to invest money across various asset categories in line with one’s risk profile, financial objectives and current situation
EXPLANATION
Asset Allocation is a process of allocating money across various asset categories in line with a stated objective.
The basic meaning of asset allocation is to allocate an investor’s money across asset categories in order to achieve same objective.
Q 89. If a Segregated portfolio is created, it shall be effective from _________ .
the day of credit event
seven days prior to the credit event
one year from the date of the credit event
the day that security was bought in the portfolio
CORRECT ANSWER
EXPLANATION
To ensure fair treatment to all investors in case of a credit event and to deal with the liquidity risk, in December 2018, SEBI permitted creation of segregated portfolio of debt and money market instruments by mutual funds schemes. “Segregated portfolio” means a portfolio, comprising of debt or money market instrument affected by a credit event, that has been segregated in a mutual fund scheme.
Segregated portfolio shall be effective from the day of credit event.
Q 90. The expenses of _______ cannot be charged to a mutual fund scheme.
custodian fees
software development
registrar services for transfer of units sold
GST – Goods and Service tax
WRONG ANSWER
CORRECT ANSWER
software development
EXPLANATION
The expenses on software development is not for a particular scheme but for the AMC as a whole and cannot be charged to a particular scheme.
Q 91. Non resident Indian (NRI) applications should be accompanied by cheque drawn on _______ for repatriable investments.
NRE Account only
NRO Account only
NRE and NRO Account only
Local Account
CORRECT ANSWER
EXPLANATION
Non resident Indian (NRI) / Person of Indian Origin (PIO) residents abroad have the facility of investing on a repatriable basis i.e., when they sell their investments, the sale proceeds can be transferred abroad. Alternatively, they can invest on a non-repatriable basis, in which case the proceeds from the sale of those investments cannot be remitted abroad.
NRI/PIO applications need to be accompanied by a cheque drawn on an NRO/NRE account (for non-repatriable investment) or NRE account (for repatriable investment).
Q 92. The format of Key Information Memorandum (KIM) is as per the regulations related to ___________ .
Securities Market
Risk Management Systems
Scheme Related Documents
Valuation of a mutual fund
WRONG ANSWER
CORRECT ANSWER
Scheme Related Documents
EXPLANATION
KIM is essentially a summary of the two Scheme related documents – Scheme Information Document (SID) and Statement of Additional Information (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 93. The distributable reserve of Income Distribution cum Capital Withdrawal of a mutual fund scheme is calculated as _________ .
All the profits earned (excluding the Marked to Market profits) Less the accrued expenses Less the Mark to Market losses
All the profits earned (including the Marked to Market profits) Less the accrued expenses Less the Mark to Market losses
Only the dividend received
Only the Capital Gains
CORRECT ANSWER
EXPLANATION
Distributable Reserve: This represents the portion of a mutual fund’s profits that can be distributed to investors. It’s crucial to understand that unrealized gains (Marked to Market profits) are not part of the distributable reserve. This is a key principle in mutual fund accounting. Distributions should come from realized gains.
Realized Profits: These are the profits actually earned from selling investments. This is what forms the basis of the distributable reserve.
Marked to Market (MTM) Profits/Losses: These are unrealized gains or losses based on the current market value of the fund’s holdings. While MTM is important for calculating the Net Asset Value (NAV) of the fund, it’s not used for calculating the distributable reserve. Including MTM profits would mean distributing money that the fund hasn’t actually received yet.
Accrued Expenses: These are expenses that the fund has incurred but not yet paid. They are deducted from profits before calculating the distributable reserve.
Therefore, the distributable reserve includes realized profits (profits earned from actual sales), less any accrued expenses and less any MTM losses (as these would offset realized gains). MTM gains are specifically excluded.
Q 94. Which of these is NOT included in the Statement of Account issued by a mutual fund?
The Unit Balance
The NAV at the time of issue of the statement
All the transactions done during the period of the statement
The securities in which the money was invested
WRONG ANSWER
CORRECT ANSWER
The securities in which the money was invested
EXPLANATION
Mutual funds issue the Statement of Account and this shows for each transaction (sale/re-purchase) during that period, the value of the transaction, the relevant NAV and the number of units transacted. Besides, it also provides the closing balance of units held in that folio and the value of those units based on the latest NAV.
It does not show in which stocks / debt etc. the money is invested.
Q 95. The function of mutual fund scheme related documents includes ______ .
Providing all the scheme related information to the investors
Providing a comparison of various mutual fund schemes
Both of the above
None of the above
CORRECT ANSWER
EXPLANATION
The legal documents that provide the information that the investor requires are available in the scheme related documents (Scheme Information Document, Statement of Additional Information) and the Key Information Memorandum.
Scheme related documents can be used for making an informed investment decision. The suitability of a mutual fund scheme to an investor depends upon the features of the scheme and matching it to the needs of the investor from the investment.
These documents do not provide any comparison of the various mutual fund schemes currently available in the market.
Q 96. Identify which of these is NOT a benefit of investing in mutual funds?
Choice Overload
Economies of scale
Diversification of portfolio
All of the above
CORRECT ANSWER
EXPLANATION
Choice Overload – There are multiple mutual fund schemes offered by several mutual fund houses and multiple options within those schemes which makes it difficult for investors to choose between them.
Q 97. ________ is prohibited as per the AMFI Code of Ethics.
Inter-Scheme transfer of securities
Front running in those securities in which the mutual fund is dealing
Transaction in securities through associated brokers
Distribution of mutual fund schemes through Sponsor or its associates
WRONG ANSWER
CORRECT ANSWER
Front running in those securities in which the mutual fund is dealing
EXPLANATION
Front running means buying or selling of any securities ahead of transaction of the fund, with access to information regarding the transaction which is not public and which is material to making an investment decision, so as to derive unfair advantage.
As per the AMFI code of ethics – Members or any of their directors, officers or employees shall not indulge in front running.
Q 98. Identify the TRUE statement with respect to Equity Linked Savings Scheme (ELSS).
A) In an ELSS – Income Distribution and Cash Withdrawal (IDCW) option -Reinvestment Plan, there would be no lock-in for the units acquired on account of IDCW
B) In an ELSS – Income Distribution and Cash Withdrawal (IDCW) option -Reinvestment Plan, the units acquired on account of IDCW would have a three year lock-in from the date of allotment
C) In an ELSS – Income Distribution and Cash Withdrawal (IDCW) option, no dividends can be paid due to the three year lock-in period
Only A is true
Only B is true
Only C is true
All A, B and C are true
WRONG ANSWER
CORRECT ANSWER
Only B is true
EXPLANATION
Income Distribution and Cash Withdrawal (IDCW) plan was earlier known as the Dividend Payout Plan
Equity Linked Savings Scheme is an open-ended equity linked saving scheme with a statutory lock-in of 3 years and tax benefit. The scheme has a lock-in period of three years from the date of investment.
If one opts for (dividend) Income distribution cum capital withdrawal reinvestment plan, each time a dividend is reinvested, the same would also attract a 3-year lock-in.
(Most AMCs have done away with this option in case of ELSS. They only allow growth option or dividend pay- out)
Q 99. ___________ is not a financial asset.
A Picasso painting
Insurance
ETF Gold
Real Estate Fund
CORRECT ANSWER
EXPLANATION
A painting is a physical asset whereas Insurance, mutual funds, ETFs are financial assets.
Q 100. Identify the information which is NOT included in the Statement of Additional Information (SAI) ?
Tax, Legal & General Information
Current SIP returns of the mutual fund schemes
Investment Valuation Norms
Rights of Unit-holders
WRONG ANSWER
CORRECT ANSWER
Current SIP returns of the mutual fund 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.