Q 1. In which of the following transactions a ‘Transaction charge’ can be deducted?
Online purchases
Systematic transfer plan (STP) transaction
Purchases of Rs 10000 or more
Purchase made on stock exchanges
WRONG ANSWER
CORRECT ANSWER
Purchases of Rs 10000 or more
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.
Q 2. Which of the below is /are FUNDAMENTAL ATTRIBUTES of a scheme ?
The type of scheme
Investment objective(s) of the scheme
Terms of the issue
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
The Offer Document is the most important sources of information on the core aspects of the scheme called its fundamental attributes. The fundamental attributes of the scheme includes:
The type of scheme ie. Open ended / Close ended / Equity / Balanced etc
Investment objective(s) ie. Growth / Income etc
Terms of the issue ie. listing /repurchase / redemption etc.
Q 3. At which price a Close Ended fund can be sold ?
At a price higher than NAV
At a price lower than NAV
At a price same as NAV
At a price which can be higher or lower or same as NAV
WRONG ANSWER
CORRECT ANSWER
At a price which can be higher or lower or same as NAV
EXPLANATION
The only way to sell a Close Ended fund before the fund closing date is by selling it on the stock exchange where it is traded
Prices on the stock exchange for a fund can be higher or lower or same depending on the demand / supply / liquidity etc.
Q 4. Tactical Asset Allocation is suitable only for seasoned investors operating with large investible surpluses – State True or False ?
True
False
CORRECT ANSWER
EXPLANATION
Tactical Asset Allocation is the decision that comes out of calls on the likely behaviour of the market.
It is suitable only for seasoned investors operating with large investible surpluses.
Q 5. Arrange these funds according to their risk sequence – highest to lowest.
Capital protection oriented, Flexible allocation, Monthly income plan
Flexible allocation, Monthly income plan, Capital protection oriented
Monthly income plan, Capital protection oriented, Fixed allocation
Monthly income plan, Fixed allocation, Capital protection oriented
WRONG ANSWER
CORRECT ANSWER
Flexible allocation, Monthly income plan, Capital protection oriented
EXPLANATION
The risk sequence is (highest risk to low risk)
Flexible Allocation – Fixed Allocation – Monthly Income Plans – Capital Protection funds.
Q 6. Which document is NOT required for the KYC process by a mutual fund investor ?
Proof of Income
Proof of Address
Proof of Identity
PAN Card
CORRECT ANSWER
EXPLANATION
For the KYC process (for establishing proof of identity and address) following documents are required:
– Permanent Account Number (PAN) Card
– Proof of Address such as Passport, Voter’s Id etc.
Q 7. There are various risk profiling tools available on the internet. A financial planner can use any of these as risk profiling is just a process – State True or False ?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
Risk profiling is an approach to understand the risk appetite of investors – an essential pre-requisite to advise investors on their investments.
There are various factors which have influence on risk appetite.
Internet risk profiling tools are useful pointers, but it is important to understand the robustness of such tools before using them in the practical world. Some of the tools featured in websites have their limitations. So these tools cannot be always used.
Q 8. Gold futures contract ________ .
are traded in commodity exchanges
are not standardized contracts
are available through mutual funds
None of the above
CORRECT ANSWER
EXPLANATION
Gold futures contracts are standardised and are traded in commodity exchanges like the National Commodities Exchange (NCDEX).
Q 9. The Offer Document will NOT give any information on ________ .
The risk factors of the scheme
The name of stocks in which the scheme is likely to invest
Investment objectives of the scheme
The features of the portfolio of the scheme
WRONG ANSWER
CORRECT ANSWER
The name of stocks in which the scheme is likely to invest
EXPLANATION
Decision on the stocks to invest is a closed door procedure and is decided by the fund managers in association with the research and analysis team.
Q 10. The actual performance of an index fund can be better or worse than its benchmark due to _________ .
Arbitrage error
Tracking error
Systematic risk
Investment objective
WRONG ANSWER
CORRECT ANSWER
Tracking error
EXPLANATION
An index scheme mirrors the index. The fund manager of an index fund invests in the same securities which are in the index and in the same ratio / weightage. However there could be some minor difference and that is due to Tracking Error.
Q 11. _______ is not a fair selling practice by a mutual fund distributor.
Informing the investor of the various investment options
Carefully understanding the clients financial needs
Encouraging the churning of investments
Giving personalised after sales service
WRONG ANSWER
CORRECT ANSWER
Encouraging the churning of investments
EXPLANATION
Churning means frequent buying and selling.
Encouraging over transacting and churning of Mutual Fund investments to earn higher commissions by MF agents is a bad practice.
Q 12. An ongoing bond fund will lose value when the interest rates in the market ______ .
Rise
Fall
remains same
will be equal to yields
CORRECT ANSWER
EXPLANATION
Suppose an investor has invested in a debt security that yields a return of 7 percent. Subsequently, yields in the market for similar securities rise to 8 percent. It stands to reason that the security, which was bought at 7 percent yield, is no longer such an attractive investment. It will therefore lose value.
Q 13. _____ indicates how much money can be generated per unit of mutual fund in case
the scheme is liquidated.
Market price
Exit load
Asset Under Management
Net Asset Value
WRONG ANSWER
CORRECT ANSWER
Net Asset Value
EXPLANATION
The true worth of a unit of the mutual fund scheme is otherwise called Net Asset Value (NAV) of the scheme.
The NAV is also the net realizable value per unit in case the scheme is to be liquidated–how much money could be generated if all the holdings of the scheme are sold and converted into cash.
Q 14. On every new business day in the morning the time stamping machine is set to serial number 1 and the application received on that day are affixed with time stamp and serial number starting from 1 – State True or False ?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
Applications are sequentially numbered from the first number of the machine to the last number of the machine, before a new numbering cycle is started for the machine.
The daily time stamping of application DOES NOT start with serial 1. It starts with the number subsequent to the day before’s last number.
Q 15. An investor who has a long term view and is looking for capital appreciation and also has high risk tolerance should opt for investments in _________.
Gold
Equities
Fixed Deposits
High interest bearing junk bonds
WRONG ANSWER
CORRECT ANSWER
Equities
EXPLANATION
Analysis have shown that returns from Equities (Stocks) tend to be quiet higher over the long term period. However investing in stock market can also be risky.
Q 16. For those investors who find it difficult to pay for insurance cover, Money back policy is recommended – State True or False ?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
Money back policy provides life coverage during the term of policy and the maturity benefits are paid in installments. Its ideal for individuals who need regular income at their disposal and fulfill their financial goals uninterrupted.
Q 17. Which of the following is an important aspect of an OFFER DOCUMENT?
To inform the investors about the AMC’s views on Stock Markets
To inform the investors on the performance of the scheme
To provide a comparison of the schemes
To inform the investors on the detailed information about the scheme
WRONG ANSWER
CORRECT ANSWER
To inform the investors on the detailed information about the scheme
EXPLANATION
Scheme Information Document (SID), Statement of Additional Information (SAI) and Key Information Memorandum (KIM) are part of the Offer Documents. These give detailed information about the mutual fund scheme.
Q 18. ‘Stock Picking’ approach is similar to _______ .
Blended style of investment
Growth style of investment
Top down approach of investment
Bottom up approach of investment
WRONG ANSWER
CORRECT ANSWER
Bottom up approach of investment
EXPLANATION
Value investment style is an approach of picking up stocks, which are priced lower than their intrinsic value, based on fundamental analysis.
A bottom-up approach analyses the company-specific factors first and then evaluates the industry factors and finally the macro-economic scenario and its impact on the companies that are being considered for investment. Stock selection is the key decision in this approach.
(Growth investment style entails investing in high growth stocks i.e. stocks of companies that are likely to grow much faster than the market)
Q 19. Who cannot invest in Mutual Funds in India ?
Minors
HUFs
NRIs
All of the above
CORRECT ANSWER
EXPLANATION
Minors i.e. persons below the age of 18, are not legally eligible to enter into a contract. They need to invest through their guardians.
Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) can invest in Indian MFs as per guidelines.
Q 20. The mechanism used to ensure that the cutoff timing is strictly followed is called _________.
Stamp time
Time verification
Time stamping
Auditing
WRONG ANSWER
CORRECT ANSWER
Time stamping
EXPLANATION
The NAV that is applicable to a transaction depends, among other things, on the day and time at which the transaction request was received at the official point of acceptance. It is therefore very critical to record the time at which a transaction was received and use this information to determine the applicable NAV for a transaction.
Time stamping is the process by which a stamp is put with details like date and exact time of receipt etc. on the transaction form.
Q 21. Identify the FALSE statement :
A. When the mutual fund distributor understands the needs of his investor, one can ignore the investment objective of the mutual fund schemes
B. The best strategy in selecting a mutual fund scheme is that based on its past performance
Only A is false
Only B is false
Both A and B are false
None of the above
WRONG ANSWER
CORRECT ANSWER
Both A and B are false
EXPLANATION
Experience has shown time and again, the top performers during one period may not necessarily remain as a top performer forever or near the other top performers and vice versa. In such a case, simply buying into a scheme due to good returns in the recent past may not be a wise approach.
In order to evaluate various mutual fund schemes, it is important to consider the scheme’s investment objective and strategy. Both of these can help one understand what to expect from the scheme. 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. Therefore, one cannot ignore the investment objectives of the scheme.
Q 22. SEBI has regulations pertaining to restrictions on the investment policies of mutual fund schemes for ensuring that _____ .
The mutual scheme can improve their ratings over a period of time
The scheme returns are better than the benchmark returns
The scheme returns are better than the Nifty/Sensex
The mutual fund scheme has a minimum diversification as per the requirements
WRONG ANSWER
CORRECT ANSWER
The mutual fund scheme has a minimum diversification as per the requirements
EXPLANATION
The investors have no control, over the investment management of the mutual fund. It is in this context that SEBI has laid down regulations pertaining to investment universe, restrictions and portfolio diversification for investment by mutual fund schemes.
Such regulations intend to control the risks taken by the mutual fund managers.
Q 23. The interest rate sensitivity of a bond is determined by its maturity – State whether True or False?
True
False
CORRECT ANSWER
EXPLANATION
The interest rate sensitivity of a bond is primarily determined by its maturity (duration).
Longer-maturity bonds are more sensitive to interest rate changes than shorter-maturity bonds. This happens because a bond’s price moves inversely to interest rates:
– When interest rates rise, bond prices fall.
– When interest rates fall, bond prices rise.
Bonds with a longer maturity have more future cash flows that are affected by changes in interest rates, making them more volatile.
Q 24. Identify the FALSE statement :
1. As per AMFI guidelines, the intermediary has a no right of appeal to AMFI
2. It is not the sole responsibility of the mutual fund distributors for spreading investor awareness
Only 1 is false
Only 2 is false
Both 1 and 2 are false
CORRECT ANSWER
EXPLANATION
One of the role and function of AMFI is : To undertake a nationwide investor awareness programme to promote proper understanding of the concept and working of mutual funds.
Thus, mutual fund distributors are not solely responsible for spreading investor awareness.
As per the AMFI Guidelines & Norms for Intermediaries (AGNI), the intermediary has a right of appeal to AMFI.
Q 25. A fundamental analyst will study the Candle-Stick charts and also the financial statement of a company. State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
Fundamental analysis is a study of the business and financial statements of a firm. It does not study the charts like the Candle-Stick charts.
Charts are studied by the Technical analysts.
Q 26. The market value of a mutual fund scheme’s portfolio is Rs. 15 crores. Its current liabilities are Rs. 2 crore. The unit capital is Rs. 10 crore and face value per unit is Rs 10. Calculate the NAV per unit?
Rs. 15
Rs. 10
Rs. 11.50
Rs. 13
WRONG ANSWER
CORRECT ANSWER
Rs. 13
EXPLANATION
The formula for calculating NAV is: (Total Assets minus Liabilities other than to Unitholders) / No. of outstanding Units
Total assets minus liabilities = 15 cr – 2 cr = Rs 13 cr
Number of outstanding units = Unit Capital / Face value = 10 cr / 10 = 1 crore outstanding units
NAV = 13 cr / 1 cr = Rs. 13
Q 27. A Floating interest rate is _______ .
usually the prime lending rate
The actual yield spread
only payable only on maturity
Base rate + spread
WRONG ANSWER
CORRECT ANSWER
Base rate + spread
EXPLANATION
The interest rate payable on a debt security may be specified as a fixed rate, say 6 percent. Alternatively, it may be a floating rate i.e., a rate linked to some other rate that may be prevailing in the market, say the rate that is applicable to Gilt. Interest rates on floating rate securities (also called floaters) are specified as a “Base + Spread”
For example, 5-year G-Sec + 2 percent, this means that the interest rate that is payable on the debt security would be 2 percent above whatever is the rate prevailing in the market for Government Securities of 5- year maturity.
Q 28. If a mutual fund enters into a transaction for purchase or sale of securities with any of its associates, then the members of Asset Management Company of the mutual fund have to ________ .
Inform the mutual fund unitholders of the intent to undertake the transaction before it is done
Justify the fairness of the transaction to the Board of Trustees
Make certain that the transactions happens at a price that is better than the closing market price
Take the approval of the trustees before undertaking the transactions
WRONG ANSWER
CORRECT ANSWER
Justify the fairness of the transaction to the Board of Trustees
EXPLANATION
As per the AMFI Code of Ethics for Mutual Funds :
Members shall in respect of transactions of purchase and sale of securities entered into with any of their associates or any significant unitholder :
Submit to the Board of Trustees details of such transactions, justifying its fairness to the scheme
Disclose to the unitholders details of the transaction in brief through annual and half yearly reports
Q 29. Different investors of the similar age group should always have the same asset allocation in their investment portfolios – State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
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.
At the same time, many of the financial goals may pertain to the whole families and not just an individual. In such cases, it may not be prudent to categorize investors on the basis of age alone.
Q 30. Mutual funds must publish their unaudited accounts once every six months _________ .
on the AMC website
on the AMFI website
in atleast two English newspaper
on the SEBI website
CORRECT ANSWER
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 31. ______ is responsible for ensuring the valuation of the securities in a mutual fund scheme’s portfolio are true and fair.
Association of Mutual Funds in India (AMFI)
Registrar and Transfer Agent
The auditor of the fund
Asset Management Company (AMC)
WRONG ANSWER
CORRECT ANSWER
Asset Management Company (AMC)
EXPLANATION
As per SEBI Fair Valuation Principles –
The responsibility of true and fairness of valuation of assets/securities and correct NAV shall be of the Asset management company (AMC), irrespective of disclosure of the approved valuation policies and procedures i.e., if the established policies and procedures of valuation do not result in fair/ appropriate valuation, the asset management company shall deviate from the established policies and procedures in order to value the assets/ securities at fair value.
Q 32. The return from a fund is 9 %, Standard Deviation is 0.75 and the Beta is 1.4. The risk free rate of return is 7%. What is the DENOMINATOR in the calculation of the Sharpe Ratio?
9
0.4
7
0.75
WRONG ANSWER
CORRECT ANSWER
0.75
EXPLANATION
In a fraction – Eg. 21 / 38 , the number above the line (21) is called the Numerator and the number below the line (the bottom number 38) 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 which is given as 0.75
Q 33. Long-term capital gains will be taxed after adjusting for _______ , if any.
long-term capital loss only
short-term capital loss only
both long-term and short-term capital loss
WRONG ANSWER
CORRECT ANSWER
both long-term and short-term capital loss
EXPLANATION
As per Income Tax Act :
Long term capital loss can only be set off against long term capital gain.
Short term capital loss is to be set off against short term capital gain or long- term capital gain
Capital loss, short term or long term, cannot be set off against any other head of income (e.g., salaries).
Thus, as per points 1 and 2, Long term capital gains will be taxed after adjusting for both long term and short term capital loss.
Q 34. How can the fundamental attributes of a mutual fund scheme be changed?
The fundamental attributes cannot be changed
The fundamental attributes can be changed but this should be communicated to all the unit holders who should be provided an option to exit the scheme
The fundamental attributes can be changed with the permission of SEBI and AMFI
The fundamental attributes can be changed but only with the consent of 100 percent of unit holders
WRONG ANSWER
CORRECT ANSWER
The fundamental attributes can be changed but this should be communicated to all the unit holders who should be provided an option to exit the scheme
EXPLANATION
As per the rights and responsibilities of Trustees –
The trustees shall not permit a change in the fundamental attributes of the scheme, the trust or fees and expenses or any other change that will affect the interests of the unitholders unless 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 35. _______ can be used in lieu of Income distribution cum capital withdrawal pay-outs.
Systematic Investment Plan
Systematic Transfer Plan
Systematic Withdrawal Plan
All of the above
WRONG ANSWER
CORRECT ANSWER
Systematic Withdrawal Plan
EXPLANATION
The Income distribution cum capital withdrawal (dividend) pay-out option is for investors wanting a regular income.
Systematic Withdrawal Plan(SWP) is a facility which allows an investor to withdraw a fixed amount at pre-determined intervals.
Therefore an Income distribution cum capital withdrawal (dividend) pay-out option is similar to SWP. The difference is that the dividend is paid only when the fund has a surplus amount and in SWP the amount is compulsarily paid.
(The dividend pay-out plan is renamed as pay-out of income distribution cum capital withdrawal, dividend re-investment plan is renamed as reinvestment of income distribution cum capital withdrawal option followed by renaming of dividend transfer plan to transfer of income distribution cum capital withdrawal plan)
Q 36. ______ is the most relevant factor for comparing performance of liquid funds of similar category offered by various mutual fund houses.
Expenses
Maturity
Current NAV
Taxation
CORRECT ANSWER
EXPLANATION
Comparing the Expense Ratio of different schemes is imperative for investors looking for the best liquid mutual fund. These schemes more or less earn similar returns. Hence, a fund with a high expense ratio will significantly reduce the returns generated.
For example, suppose two funds deliver returns of 5% and 5.5%, respectively. Let’s say the expense ratio of the first fund is 0.2%, and the second fund is 0.8%. Therefore, the actual yield will be 4.8% and 4.7%. Hence, a fund with a lower expense ratio may be more profitable for an investor.
Q 37. The trustees of a mutual fund is appointed by the ______ .
Sponsors
SEBI
Asset Management Company (AMC)
Custodian
CORRECT ANSWER
EXPLANATION
The application to SEBI for registration of a mutual fund is made by the Sponsor(s).
The Sponsors then appoints the Trustees.
The operations of the mutual fund trust are governed by a Trust Deed, which is executed between the sponsors and the trustees.
Q 38. Ms Shweta purchases through a distributor 5000 units of a mutual fund scheme at a NAV of Rs 30. The current NAV of the scheme is Rs 28. What will be the trail commission for today if the trail commission rate is 1% per annum
Rs. 13.8356
Rs. 7.2256
Rs. 3.8356
Rs. 26.7463
WRONG ANSWER
CORRECT ANSWER
Rs. 3.8356
EXPLANATION
Trail commission is always calculated on the current NAV.
The current total value of investments in the above question is Rs. 28 X 5000 units = Rs. 1,40.000
Trail commission for the day = Current value X trail commission rate p.a./365
= 1,40,000 X 1% / 365 days
= 1400 / 365 = Rs. 3.8356
Q 39. The appropriate benchmark for a short term debt scheme will be _______ .
1 Year T-Bill index
Nifty50
10 year dated GoI security
5 year dated GoI security
CORRECT ANSWER
EXPLANATION
Appropriate Benchmarks :
Equity scheme – Sensex or Nifty
Long term debt scheme – 10 year dated GoI security
Short-term debt fund – 1 year T-Bill
Q 40. What is the investment range in equity instruments for a Conservative hybrid fund?
Between 20 percent and 30 percent of total assets
Between 30 percent and 40 percent of total assets
Between 10 percent and 25 percent of total assets
Between 5 percent and 20 percent of total assets
WRONG ANSWER
CORRECT ANSWER
Between 10 percent and 25 percent of total assets
EXPLANATION
Conservative Hybrid Fund is 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 and equity instruments shall be between 10 percent and 25 percent of total assets.
Q 41. A mutual fund scheme’s NAV is said to be cum-dividend from the ________ .
date the dividend is announced till it is paid out
date the dividend is paid
date unit holders approve the dividend
date of notice of meeting
CORRECT ANSWER
EXPLANATION
When a dividend is announced, and until it is paid out, it is referred to as cum-Dividend NAV.
Q 42. One of the objectives of _______ is to undertake nationwide investor awareness programme to promote proper understanding of the concept and working of mutual funds
SEBI
BSE / NSE
AMFI
NISM
WRONG ANSWER
CORRECT ANSWER
AMFI
EXPLANATION
Association of Mutual Funds in India (AMFI) is the association of all the registered Asset Management Companies. One of the objectives of AMFI is to undertake nationwide investor awareness programme to promote proper understanding of the concept and working of mutual funds.
Q 43. AMCs has to put in place a due diligence process to regulate distributors who ______ .
has received commission received of over Rs. 25 Lakhs from a single mutual fund
has raised AUM of over Rs. 25 crores from non-institutional investors
has presence in more than 20 locations
All of the above
WRONG ANSWER
CORRECT ANSWER
has presence in more than 20 locations
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 44. Mutual funds today are benchmarked to the Total Return variant of an Index (TRI) and not to Price Return variant of an Index (PRI). What is the advantage of TRI over PRI?
A) It ensures that the performance comparison is fair
B) Increases transparency
Only A
Only B
Both A and B
WRONG ANSWER
CORRECT ANSWER
Both A and B
EXPLANATION
Earlier, the Mutual Fund schemes were benchmarked to the Price Return variant of an Index (PRI). PRI only captures capital gains of the index constituents. Now the mutual fund schemes are benchmarked to the Total Return variant of an Index (TRI). The Total Return variant of an index takes into account all dividends/interest payments that are generated from the basket of constituents that make up the index in addition to the capital gains.
Such a change was required to ensure that the performance comparison is fair.The shift to TRI has been
another one in the direction of increasing transparency of mutual funds.
Q 45. Investors who have not transacted during the previous ______ are known as dormant investors.
15 months
12 months
9 months
6 months
WRONG ANSWER
CORRECT ANSWER
6 months
EXPLANATION
Dormant means not-active.
Investors who have not transacted during the previous 6 months in a mutual fund are considered dormant investors.
Q 46. In case of a floater Fund, what is the Required Minimum Investment in floating rate investment of total assets invested ?
65%
45%
55%
75%
CORRECT ANSWER
EXPLANATION
Floater Fund in an open-ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives).
Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives) shall be 65 percent of total assets.
Q 47. What is the investment range in debt instruments by a Conservative hybrid fund ?
Between 50 percent and 75 percent of total assets
Between 75 percent and 90 percent of total assets
Between 80 percent and 95 percent of total assets
Between 70 percent and 80 percent of total assets
WRONG ANSWER
CORRECT ANSWER
Between 75 percent and 90 percent of total assets
EXPLANATION
Conservative Hybrid Fund is 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 and equity instruments shall be between 10 percent and 25 percent of total assets.
Q 48. An International Fund is investing in US stocks . What would be the impact on it if US Dollar depreciates against the Indian Rupee?
The NAV of the scheme in Indian Rupees will depreciate
The NAV of the scheme in Indian Rupees will appreciate
No impact on the fund as its investing in stocks and not currency
CORRECT ANSWER
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 49. Identify the true statement(s) –
A) An Addendum must accompany the KIM
B) Addendum is considered to be a part of the Scheme Related Documents
Only A is true
Only B is true
Both A and B are true
None of them are true
WRONG ANSWER
CORRECT ANSWER
Both A and B are true
EXPLANATION
While the SID, SAI and KIM need to be updated periodically, the interim changes are updated through the issuance of an Addendum. The addendum is considered to be a part of the scheme related documents, and must accompany the KIM.
Q 50. An investor already has a folio in a mutual fund scheme where he is a joint holder. Now he wants to do additional investments in the same scheme as a sole holder. How can he make the change?
He will have to do the investments under a new folio and select the mode of holding as single
He can do the investments by mentioning the mode of holding in the application as single to apply only for the fresh investments being made
He can do the investment by changing the mode of holding for the additional units after the investment has been made.
CORRECT ANSWER
EXPLANATION
Once a mutual fund folio is created as a jointly held account there can be no change in the joint holders or mode of holding – except in the event of a death.
Q 51. Dividends which are paid by mutual funds can be paid out of ________ .
Profits of the Asset Management Company
Mark to Market profits
All realised and unrealised gains
Distributable surplus only
WRONG ANSWER
CORRECT ANSWER
Distributable surplus only
EXPLANATION
SEBI guidelines stipulate those dividends can be paid out of distributable reserves. In the calculation of distributable reserves:
– All the profits earned (based on the accrual of income and expenses as detailed above) are treated as available for distribution.
– Valuation gains are ignored. But valuation losses need to be adjusted against the profits.
– That portion of the sale price on new units, which is attributable to valuation gains, is not available as a distributable reserve.
Q 52. When there is a need to withdraw money from a scheme (i.e. repurchase / redemption), the distributor must assess the implications of ______ and ______ on the investors portfolio.
entry loads and exit loads
capital gains tax and exit loads
capital gains tax and entry loads
entry loads and dividend tax
WRONG ANSWER
CORRECT ANSWER
capital gains tax and exit loads
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 53. Indian mutual funds cannot invest in ______ .
Real Estate
Art
Securitised Debt
Gold
WRONG ANSWER
CORRECT ANSWER
Art
EXPLANATION
Investment in Art is not permitted for mutual funds in India.
Q 54. _________ can be used in lieu of dividend payouts.
Systematic Withdrawal Plan (SWP)
Systematic Transfer Plan (STP)
Systematic Investment Plan (SIP)
Total Redemption
CORRECT ANSWER
EXPLANATION
Mutual funds make it convenient for investors to manage their SWPs by registering the amount, periodicity (generally, monthly) and period for their SWP.
Some schemes even offer the facility of transferring only the appreciation or the dividend. In this option, the withdrawal is not fixed but will vary depending upon the availability of appreciation in the specific investment chosen by the investor.
Q 55. Which of the following statement is true with respect to ‘Mark to Market’ ?
Securities in the portfolio are valued at current market prices
Securities in the portfolio are valued at 52 week high prices
Securities in the portfolio are valued at 52 week low prices
Securities in the portfolio are valued at purchase price
CORRECT ANSWER
EXPLANATION
The process of valuing each security in the investment portfolio of the scheme at its current market value is called Mark to Market (MTM). The mark-to-market valuation is done on a daily basis for calculation of daily NAV of a mutual fund scheme.
Q 56. The empanelment of a mutual fund distributor by an Asset Management Company can be terminated ______ .
In case all the investors of the distributors shift to direct plans
When the term of empanelment is over
Any time by the AMC
All of the above
WRONG ANSWER
CORRECT ANSWER
Any time by the AMC
EXPLANATION
The AMC has the power to terminate the empanelment of the mutual fund distributor at any time.
Q 57. What is the investment of a constant amount at regular intervals in a mutual fund scheme called ?
Systematic Withdrawal Plan
Systematic Transfer Plan
Value Investing
Systematic Investment Plan
WRONG ANSWER
CORRECT ANSWER
Systematic Investment Plan
EXPLANATION
It is considered a good practice to invest regularly, particularly into volatile markets such as equity markets. Systematic Investment Plan – SIP is an approach where the investor invests constant amounts at regular
intervals.
Q 58. Long Duration debt scheme invests in debt instruments with Macaulay duration _____ .
between 1 year and 3 years
below 1 year
greater than 7 years
6 months and 12 months.
WRONG ANSWER
CORRECT ANSWER
greater than 7 years
EXPLANATION
Macaulay Duration is the weighted average of the time to receive the cash flows from a bond.
Long Duration Fund : An open-ended debt scheme investing in debt and money market instruments with Macaulay duration greater than 7 years.
Q 59. If the sale and purchase transactions for a year amounted to Rs. 10,000 crore, and the average size of net assets is Rs. 5,000 crore, this means that investments are held in the portfolio, on an average for ________ .
2 months
3 months
6 months
12 months
WRONG ANSWER
CORRECT ANSWER
6 months
EXPLANATION
Portfolio Turnover Ratio is calculated as Value of Purchase and Sale of Securities during a period divided by the average size of net assets of the scheme during the period.
= Rs. 10,000 crore ÷ Rs. 5,000 crore = 2 or 200 percent
This means that investments are held in the portfolio, on an average for 12 months ÷ 2 i.e. 6 months.
Q 60. An investor in the growth option of debt oriented mutual fund receives the benefit of ______ on long term capital gains.
A) Indexation
B) Tax exemption
Only A
Only B
Both A and B
None of the above
WRONG ANSWER
CORRECT ANSWER
None of the above
EXPLANATION
In the Finance Act of 2023, growth option of debt funds was made taxable as short term capital gains (STCG) irrespective of holding period.
(It was defined as funds with exposure to domestic equity less than 35 percent of portfolio. This definition of domestic equity less than 35 percent of portfolio includes debt funds, gold funds, international equity funds – basically any fund answering this criterion).
Q 61. Mutual fund units issued against purchase transactions would be subject to levy of stamp duty at ______ of the amount invested.
0.5%
0.05%
0.005%
0.01%
WRONG ANSWER
CORRECT ANSWER
0.005%
EXPLANATION
With effect from July 1, 2020, mutual fund units issued against purchase transactions (whether through lump-sum investments or SIP or STP or switch-ins or dividend reinvestment) would be subject to levy of stamp duty @ 0.005% of the amount invested.
Q 62. What is fixed in a Closed-end fund?
The Net Asset Value
The Rate of Return
The Unit Capital
The Market Price
WRONG ANSWER
CORRECT ANSWER
The Unit Capital
EXPLANATION
Close-ended Schemes have an NFO Open Date and NFO Close Date. But, they have no Scheme Re-opening Date, because the scheme does not sell or re-purchase units. What ever sale-purchase of units takes place is between the investors on the stock exchange. So the unit capital of a closed-end fund does not change.
(The number of units issued by a scheme multiplied by its face value (Rs. 10) is the capital of the scheme–its Unit Capital)
Q 63. Short term capital loss from an investment can be set off against _____ .
short term capital gains only
short term capital gain or long term capital gain
long term capital gains only
Short term capital loss cannot be set off
WRONG ANSWER
CORRECT ANSWER
short term capital gain or long term capital gain
EXPLANATION
As per the Income Tax Act –
– Short term capital loss is to be set off against short term capital gain or long term capital gain.
– Long term capital loss can only be set off against long term capital gain.
– Capital loss, short term or long term, cannot be set off against any other head of income (e.g. salaries).
Q 64. Identify the TRUE statements with respect to Transmission of mutual fund units –
A) Before the transfer is effected, the mutual fund will insist for an indemnity against future problems for the mutual fund arising out of the transfer
B) Before the transfer is effected, the mutual fund will not insist on the death certificate of the deceased unit-holder
C) Before the transfer is effected, the mutual fund will insist on the KYC documentation from the nominee
A and B are true
B and C are true
A and C are true
All A, B and C are true
WRONG ANSWER
CORRECT ANSWER
A and C are true
EXPLANATION
Transmission is the process of transferring units to the person entitled to receive it in the event of the death of the unit holder.
In case of transmission, before the transfer is effected, the mutual fund will insist on the KYC documentation from the nominee, death certificate of the deceased unit-holder, and an indemnity against future problems for the mutual fund arising out of the transfer.
Q 65. Segregated portfolio means _________ .
a portfolio which is kept aside for a ‘rainy day’ or contingency fund
a portfolio which is created out of debt or money market securities affected by a credit event
a portfolio which is left after removing poor credit quality papers
All of the above
WRONG ANSWER
CORRECT ANSWER
a portfolio which is created out of debt or money market securities affected by a credit event
EXPLANATION
To ensure fair treatment to all investors in case of a credit event and to deal with the liquidity risk, in December 2018, SEBI permitted creation of segregated portfolio of debt and money market instruments by mutual funds schemes.
“Segregated portfolio” means a portfolio, comprising of debt or money market instrument affected by a credit event, that has been segregated in a mutual fund scheme.
Q 66. Who has the responsibility of overseeing legal compliance in a mutual fund?
The Custodian
The Sponsors
The AMC
The Trustees
WRONG ANSWER
CORRECT ANSWER
The Trustees
EXPLANATION
SEBI expects Trustees to perform a key role in ensuring legal compliances and protecting the interest of investors.
Q 67. Long term capital loss from an investment can be set off against _____ .
short term capital gains only
short term capital gain or long term capital gain
long term capital gains only
long term capital loss cannot be set off
WRONG ANSWER
CORRECT ANSWER
long term capital gains only
EXPLANATION
As per the Income Tax Act –
– Short term capital loss is to be set off against short term capital gain or long term capital gain.
– Long term capital loss can only be set off against long term capital gain.
– Capital loss, short term or long term, cannot be set off against any other head of income (e.g. salaries).
Q 68. From which of these can the mutual fund NOT distribute dividends?
Income accruals
Dividends which are received from equity investments
Realized gain from sale of investments
Unrealized appreciation in value of investments
WRONG ANSWER
CORRECT ANSWER
Unrealized appreciation in value of investments
EXPLANATION
SEBI guidelines stipulate that dividends can be paid out of distributable reserves. In the calculation of distributable reserves:
All the profits earned are treated as available for distribution.
Valuation gains are ignored. But valuation losses need to be adjusted against the profits.
That portion of sale price on new units, which is attributable to valuation gains, is not available as a distributable reserve.
Q 69. The units of a Close-ended mutual fund are traded between the unit holders/investors and ______ on the stock exchange.
The Mutual Fund
Other unit holders/investors
Specially appointed market makers to enhance liquidity
The Sponsors
WRONG ANSWER
CORRECT ANSWER
Other unit holders/investors
EXPLANATION
Post-NFO, the sale and purchase transactions of a close ended fund happen on the stock exchange between two different investors, and the mutual fund is not involved in the transaction.
Q 70. The average net assets of a fund were Rs 800 crore and the investment transactions of the fund were Rs 1600 crore. Calculate the Portfolio Turnover Ratio.
10 times
0.5 times
2 times
20 times
WRONG ANSWER
CORRECT ANSWER
2 times
EXPLANATION
Portfolio Turnover Ratio is calculated as Value of Purchase and Sale of Securities during a period divided by the average size of net assets of the scheme during the period.
= 1600 / 800
= 2
Q 71. Who uses the information collected under the Foreign Account Tax Compliance Act (FATCA)?
Foreign Government or foreign agencies
Indian Government
Indian Tax authorities
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) and Common Reporting Standards (CRS) provisions, financial institutions, including mutual funds, are required to undertake due diligence process to identify foreign reportable accounts and collect such information as required under the said provisions and report the same to the US Internal Revenue Service/any other foreign government or to the Indian Govt / Tax Authorities for onward transmission to the concerned foreign authorities.
Q 72. Identify the TRUE statements –
A) A mutual fund scheme with a beta of less than 1 is less risky than market
B) The diversified stock index has a Beta of 1
C) Unsystematic risk is measured by its Beta
Only A is true
B and C are True
A and B are True
All A, B and C are True
WRONG ANSWER
CORRECT ANSWER
A and B are True
EXPLANATION
Beta measures the fluctuation in periodic returns in a scheme, as compared to fluctuation in periodic returns of a diversified stock index (representing the market) over the same period.
The diversified stock index, by definition, has a Beta of 1. Schemes, whose beta is more than 1, are seen as more risky than the market. Beta less than 1 is indicative of a scheme that is less risky than the market.
Systematic risk is measured by its Beta
Q 73. How can an investor remit money in an Indian mutual fund from abroad?
Through Society for Worldwide Interbank Financial Telecommunication (SWIFT)
Through Immediate Payment Service (IMPS)
Through Real time gross settlement (RTGS)
Through National electronic funds transfer (NEFT)
CORRECT ANSWER
EXPLANATION
For investments in mutual funds, remittance can be made directly to the bank account of the scheme through Real Time Gross Settlement (RTGS)/National Electronic Funds Transfer (NEFT) facilities (for transfers within India) or SWIFT transfer (for transfers from abroad).
SWIFT transfers tend to pass through multiple banks in different geographies, and multiple levels within the same bank, resulting in delays.
Q 74. What action has to be taken before deleting a default bank account from the registered bank account in a mutual fund folio?
A new folio will have to be opened with the same joint holding as the new default account
Another account has to be designated as the default bank account
All the nominees of the mutual fund scheme have to sign on the change form irrespective of the mode of holding
WRONG ANSWER
CORRECT ANSWER
Another account has to be designated as the default bank account
EXPLANATION
If the default bank account is being deleted from the list of registered accounts, then before that, another account has to be designated as the default bank account.
Q 75. Which of these statements is true with respect to a Switch transaction?
Switch transaction is allowed only after one year from date of purchase
Switch transaction is similar to a purchase transaction
Switch transaction is similar to a sale transaction
Switch transaction is a redemption from one mutual fund scheme and simultaneous purchase in to another scheme
WRONG ANSWER
CORRECT ANSWER
Switch transaction is a redemption from one mutual fund scheme and simultaneous purchase in to another scheme
EXPLANATION
A switch is a redemption from one scheme and a purchase into another combined into one transaction.
For example, investors who believe that equity markets have peaked and want to book profits can switch out from an equity scheme and switch into a short-term debt fund.
Q 76. What will happen if one of the joint holders of a mutual fund folio dies?
The folio will be cancelled and the amount refunded
The units will be transferred to nominee/s
The units will be transferred to heir of deceased holder
The units will continue to be held by surviving joint holders
WRONG ANSWER
CORRECT ANSWER
The units will continue to be held by surviving joint holders
EXPLANATION
Transmission is the process of transferring units to the person entitled to receive them in the event of the death of the unitholder. If the first holder passes away, the second holder is substituted as the first holder.
Q 77. Inflation Risk is also referred as _______ .
Credit Risk
Liquidity Risk
Purchasing Power Risk
WRONG ANSWER
CORRECT ANSWER
Purchasing Power Risk
EXPLANATION
Inflation, or price inflation is the general rise in the prices of various commodities, products, and services that we consume. Inflation erodes the purchasing power of the money.
Inflation risk is also referred to as purchasing power risk, is the risk that inflation will undermine the real value of cash flows made from an investment.
Q 78. Identify the TRUE statements –
A) Unsystematic risk is measured by its Beta
B) The diversified stock index has a Beta of 1
C) An investment with a beta of 0.7 will move 7 percent when markets move by 10 percent
A and B are true
B and C are true
A and C are true
All A, B and C are true
WRONG ANSWER
CORRECT ANSWER
B and C are true
EXPLANATION
1) Systematic risk is measured by its Beta
2) The diversified stock index, by definition, has a Beta of 1. Schemes, whose beta is more than 1, are seen as more risky than the market. Beta less than 1 is indicative of a scheme that is less risky than the market.
3) An investment with a beta of 0.7 will move 7 percent when markets move by 10 percent. This applies to increase as well as fall in values. An investment with a beta of 1.2 will move by 12 percent both on the upside and downside when markets move (up/down) by 10 percent.
Q 79. ________ ensures that the information contained in the scheme related documents (SID and SAI) are fully complied with.
The Trustees
The Sponsor
The Fund Manager
The AMC
CORRECT ANSWER
EXPLANATION
The trustees shall ensure that all transactions entered into by the AMC are in compliance with the regulations and the scheme’s objectives and intent.
Q 80. In which of these options will the unit balance increase in the mutual fund investors folio without any transaction being done by the investor?
Redemption
Dividend Re-investment option
Dividend Payout option
Growth option
WRONG ANSWER
CORRECT ANSWER
Dividend Re-investment option
EXPLANATION
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.
(The reinvestment happens at the ex-dividend NAV)
Q 81. Which of these statement(s) is/are FALSE?
If an investor holds his investments in a debt fund for more than three years, the capital gain will be considered as a long term capital gain
As the purchase and re-purchase is done with the mutual fund, the investor does not have to pay any capital gain tax
Both ‘a’ and ‘b’ are false
WRONG ANSWER
CORRECT ANSWER
Both ‘a’ and ‘b’ are false
EXPLANATION
In the Finance Act of 2023, growth option of debt funds was made taxable as short term capital gains (STCG) irrespective of holding period. The Long Term capital gains tax was removed.
As the purchase and re-purchase is done with the mutual fund, the investor does not have to pay any capital gain tax – This is false as the difference between the purchase price of the units and the selling price of the units would be treated as capital gain and such capital gains are subject to tax.
Q 82. Whom should the investor approach if his complaint is not resolved by the Asset Management Company (AMC) ?
Securities and Exchange Board of India (SEBI)
Custodian
Company Law Board
Ombudsman
CORRECT ANSWER
EXPLANATION
In the event of any issue with the AMC or mutual fund scheme, the investor can first approach the AMC Investor Service Centre. If the issue is not redressed, even after taking it up at senior levels in the AMC, then the investor can write to SEBI (through SCORES) with the complaint details.
SEBI Complaint Redress System (SCORES) is a web based centralized grievance redress system of SEBI. SCORES enables investors to lodge, follow up on their complaints and track the status of redressal of such complaints online.
Q 83. Who handles the appeals which are made against the rulings of SEBI ?
Company Law Board
AMFI
Securities Appellate Tribunal
High Court
WRONG ANSWER
CORRECT ANSWER
Securities Appellate Tribunal
EXPLANATION
Persons aggrieved by an order of Adjudicating Officer passed under the SEBI Act can prefer an appeal to Securities Appellate Tribunal (SAT) under section 15T of the SEBI Act.
Q 84. Investors tend to extrapolate the current event into the future and expect a repeat. This is an example of ________ bias.
Overconfidence
Recency
Herd Mentality
Familiarity
WRONG ANSWER
CORRECT ANSWER
Recency
EXPLANATION
Recency bias : The impact of recent events on decision making can be very strong. This applies equally to
positive and negative experiences. Investors tend to extrapolate the event into the future and expect a repeat.
A bear market or a financial crisis lead people to prefer safe assets. Similarly, a bull market makes people allocate more than what is advised for risky assets. The recent experience overrides analysis in decision making.
Q 85. Identify the TRUE statement(s) :
a. A diversified index will have a Beta of 1
b. Unsystematic risk can be measured by Beta
c. A portfolio which has Beta of less than 1 is less risky than the market
a and b
a and c
b and c
Only b
WRONG ANSWER
CORRECT ANSWER
a and c
EXPLANATION
The diversified stock index, by definition, has a Beta of 1. Companies or schemes, whose beta is more than 1, are seen as more risky than the market. Beta less than 1 is indicative of a company or scheme that is less risky than the market.
The risks that impact the entire economy are known as systematic risks. The company specific risks are also known as unsystematic risks. Systematic risk is measured by its Beta.
Q 86. The minimum investment in G-Secs (as a percentage of total assets) in case of a Gilt Fund is ______ .
90%
95%
80%
75%
WRONG ANSWER
CORRECT ANSWER
80%
EXPLANATION
An Gilt fund is 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 87. In case of _______ , the Net Asset Value has to be declared for upto 4 decimal points.
Mid Cap and Small Cap Funds
Liquid Funds
Aggressive Hybrid Funds
ELSS Funds
WRONG ANSWER
CORRECT ANSWER
Liquid Funds
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 88. Business model, experience and proficiency in the business is a compulsory criteria for empanelment and review of which of the following category of mutual fund distributors?
Institutional distributors who have points of presence in more than 10 locations
Individual distributors who have points of presence in more than 10 locations
Distributors who have received commission of over Rs. 1 Crore p.a. across industry
All of the above
WRONG ANSWER
CORRECT ANSWER
Distributors who have received commission of over Rs. 1 Crore p.a. across industry
EXPLANATION
SEBI has mandated AMCs to put in place a due diligence process to regulate distributors with respect to ‘Business model, experience and proficiency in the business’ 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 89. Equity Linked Savings Schemes (ELSS) are eligible for deduction under Section 80C of the Income Tax Act. However, such schemes have a lock-in period of _______ from the date of investment.
3 years from the date of allotment of each individual unit
3 years from the date of original investment even in case of subsequent purchases
5 years from the date of allotment of each individual unit
If tax exemption is NOT availed, there will not be any lock-in period
CORRECT ANSWER
EXPLANATION
The lockin period for an ELSS fund is 3 years from the date of allotment of each individual unit.
So even for a SIP investment, each SIP will have a lockin for 3 years.
Q 90. What is the Net Asset Value (NAV) after dividend payment called?
ex-Dividend NAV
ex-Load NAV
cum-Dividend NAV
Net – NAV
CORRECT ANSWER
EXPLANATION
After a dividend pay-out, the reduced NAV is called ex-Dividend NAV.
(After a dividend is announced, and until it is paid out, it is referred to as cum-Dividend NAV)
Q 91. Mohit is currently studying but wants to start a business after 5 years. The present cost of starting such a business is Rs. 10 lakhs. The inflation in the economy is 9%. Which formula should be used to calculate the amount which Mohit will need 5 years down the line?
10,000,00 * (1+0.09)^5
10,000,00 / (1+0.09)^5
10,000,00 * (1+0.09)*5
10,000,00 * (1*0.09)^5
CORRECT ANSWER
EXPLANATION
The formula for calculating the Future Value of an investment made today is FV = PV * (1 + r) ^ n
The PV ie. Present Value is Rs. 10 lakhs. The inflation rate (r) is 9% ie. 0.09 and time (n) is 5 years
Subsituting in the formula :
FV = 10,000,00 * (1+0.09)^5
Q 92. No redemption or subscription is allowed in a Segregated Portfolio – State whether True or False?
True
False
CORRECT ANSWER
EXPLANATION
“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.
No redemption or subscription is allowed in the segregated portfolio.
However, in order to facilitate exit to unitholders in segregated portfolio, AMC shall enable listing of units of segregated portfolio on the recognized stock exchange.
Q 93. What will be the minimum investment in corporate bonds (AA and below rated) in a Credit Risk fund?
50% of of total assets
55% of of total assets
60% of of total assets
65% of of total assets
WRONG ANSWER
CORRECT ANSWER
65% of of total assets
EXPLANATION
Credit Risk Fund is an open-ended debt scheme investing in below highest rated corporate bonds. The minimum investment in corporate bonds shall be 65 percent of total assets (only in AA (excludes AA+ rated corporate bonds) and below rated corporate bonds).
Q 94. Mr. Prakash has made an one time investment in a mutual fund scheme through a distributor. He has done no other subsequent transactions. How will the trail commission payable to the distributor be calculated ?
The NAV as on the date of purchase X Number of units X Rate of trail commission X Number of days the investment is held / 365
The NAV as on the date of calculation of trail commission X Number of units X Rate of trail commission X Number of days the investment is held / 365
Average of all NAVs from the date of purchase to the date of calculation of trail commission X Number of units X Rate of trail commission X Number of days the investment is held / 365
Face value of unit X Number of units X Rate of trail commission X Number of days the investment is held / 365
WRONG ANSWER
CORRECT ANSWER
The NAV as on the date of calculation of trail commission X Number of units X Rate of trail commission X Number of days the investment is held / 365
EXPLANATION
Trail commission is calculated as a percentage of the net assets attributable to the Units sold by the distributor. The commission payable is calculated on the daily balances and paid out periodically to the distributor as per the agreement entered into with AMC. As the trail commission is calculated on net assets, distributors benefit from increase in net assets arising out of valuation gains in the market.
The formula for calculating the trail commission for a day is : Value of Net Assets as on the date of calculating trail commission x Trail commission Rate / 365
Trail commission for each day is added to get the total trail commission for a period.
Value of net assets for the day will be the Number of Units held x the NAV of the day.
Q 95. Identify the documents which have to filed with SEBI before launch of a mutual fund New Fund Offer (NFO).
List of benchmarks for the NFO
Addendum
Scheme Information Document
Fund Factsheet
WRONG ANSWER
CORRECT ANSWER
Scheme Information Document
EXPLANATION
Units in a mutual fund scheme are offered to investors for the first time through a New Fund Offer (NFO).
AMC prepares the Scheme Information Document (SID) for the NFO. This needs to be approved by the Trustees and the Board of Directors of the AMC. SID is then then filed with SEBI.
(The interim changes in SID, SAI and KIM are updated through the issuance of an Addendum. Fund Factsheet contains the basic information of each scheme, the fund’s performance relative to the benchmark etc. )
Q 96. The Fund Manager of a ‘ Fund of Fund ‘ has to select _______ for investments.
Right Stocks
Sectors
Funds
All of the above
WRONG ANSWER
CORRECT ANSWER
Funds
EXPLANATION
A ‘Fund of funds’ is a pooled investment fund that invests in other types of funds. In other words, its portfolio contains different underlying portfolios of other funds.
Q 97. The Market Value of stocks of a scheme is Rs 240 crores. Dividend accrued but not received is Rs 30 crore. The Expenses payable are Rs 10 crore. The total number of outstanding units is 120 lakhs. What is the NAV of the scheme ?
175.80
216.66
224.70
311.74
WRONG ANSWER
CORRECT ANSWER
216.66
EXPLANATION
Total Market Value = Rs 240 crore
Add Dividend Accrued of Rs 30 crore
Less Expenses Payable of Rs 10 crore
Divided by Units 120 lakhs ie. 1.20 crore units
260 / 1.2
= 216.66 NAV
Q 98. Calculate the NAV for the following information : Value of stock 200 cr, Value of money market instruments – Rs 25 cr, Dividend accrued but not received – Rs 10 cr, Amount receivable on sale of shares – Rs 5 cr, Amount payable on purchase of shares: Rs. 10.5 cr, Fees payable – Rs 1 cr. No. of outstanding units:3 cr
75.83
80.77
76.16
79.17
WRONG ANSWER
CORRECT ANSWER
76.16
EXPLANATION
NAV = (Value of stocks + Value of money market instruments + Dividend accrued but not received + Amount receivable on sale of shares – Amount payable on purchases of shares – Fees payable) / No. of outstanding units
= 200 cr + 25 cr + 10 cr + 5 cr – 10.5 cr – 1 cr / 3 cr
= 228.5 cr / 3 cr
= 76.16
Q 99. The risk of encroachment will be the most in _______ .
Art work
Land
Gold
Building
WRONG ANSWER
CORRECT ANSWER
Land
EXPLANATION
Encroachment basically means a movement into or an entry to another’s property without right or permission.
Encroachment generally happens the most on an open land.
Q 100. KIM has to be updated ________.
Once in a year
Once in two years
Every month
Twice in a year
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.