Q 1. For units of Equity Linked Savings Scheme (ELSS), the lock-in period is ______ .
three years from the date of original investment, even in case of subsequent purchases by SIP
three years from the date of original investment for each individual unit for purchases made by SIP
There is no lock-in period if tax exemption is claimed
WRONG ANSWER
CORRECT ANSWER
three years from the date of original investment for each individual unit for purchases made by SIP
EXPLANATION
If one is investing in ELSS through SIP then each investment would be locked-in from the date of the respective investment. The lock-in for the entire amount would not get over on completion of 3 years from the date of the first SIP instalment.
Q 2. In the usual course of events, a fund manager will have to provide the maximum liquid assets for _______ .
Gold ETFs
Equity ETFs
Close-end fund
Open-end fund
WRONG ANSWER
CORRECT ANSWER
Open-end fund
EXPLANATION
ETFs and Close-end funds are listed on the stock exchanges and investors can sell their units their. They need not give redemption request to the AMCs. So, the fund manager need not maintain liquid funds for Close-end funds and ETFs.
Open-end funds have to keep a minimum stipulated per cent of their corpus in liquid assets. This has been done to ensure that there is enough liquidity available with the open-ended funds to meet redemption needs.
Q 3. The __________ is used by the fund manager to communicate their views on the economy and the markets to the investors
Key Information Memorandum (KIM)
Statement of Additional Information (SAI)
Scheme Information Document (SID)
Fund Factsheet
WRONG ANSWER
CORRECT ANSWER
Fund Factsheet
EXPLANATION
The fund factsheets are an official source of information of the fund’s objective, performance, portfolio and basic investment requirements issued by the fund house each month. The factsheet is also used by the fund manager to communicate their views on the economy and the markets to the investors and other observers such as research analysts, rating agencies and media.
Q 4. What is the disadvantage of company fixed deposits when compared to bank fixed deposits?
Lower rate of interest
Lower safety
Highly volatile
Difficult to liquidate
WRONG ANSWER
CORRECT ANSWER
Lower safety
EXPLANATION
Company fixed deposits are considered to risky when compared to bank fixed deposits due to the credit risk. A company is a private entity and may default in payment of interest and principal amount. A bank is much more safer than a private company and so its fixed deposits are more safer to invest.
Q 5. The equity share prices of gold mining companies can depend on :
1. The gold reserves of the company
2. The operational efficiency and management of the company
3. International prices of gold
Only 1 and 2
Only 2 and 3
Only 1 and 3
All 1, 2 and 3
WRONG ANSWER
CORRECT ANSWER
All 1, 2 and 3
EXPLANATION
Profitability of gold mining companies is linked to several factors.
For eg. – When gold metal price increases, gold mining companies with large reserves of gold can appreciate
If there are concerns about a company’s management the share prices may see a decline irrespective of the price of gold.
Q 6. Identify the INCORRECT statement with respect to SEBI Complaint Redress System (SCORES).
SCORES enables the market intermediaries and listed companies to receive complaints from investors, redress such complaints and report redressal
SCORES is a web-based centralized grievance redress system
SCORES is completely online, so an investor cannot lodge a physical compliant
If an investor lodges a physical complaint then such complaints are scanned and then uploaded in SCORES for processing
WRONG ANSWER
CORRECT ANSWER
SCORES is completely online, so an investor cannot lodge a physical compliant
EXPLANATION
An investor, who is not familiar with SCORES or does not have access to SCORES, can lodge complaints in physical form at any of the offices of SEBI. Such complaints are scanned and then uploaded in SCORES for processing.
Q 7. Identify the false statement/s with respect to a New Fund Offer (NFO).
1. A Closed-ended mutual fund NFO will have a NFO opening date, a NFO closing date and a scheme Re-opening date
2. A Open-ended mutual fund NFO will have a NFO opening date, a NFO closing date and a scheme Re-opening date
Only 1 is false
Only 2 is false
Both 1 and 2 are false
None of the above
CORRECT ANSWER
EXPLANATION
A Closed-ended mutual fund will not have a Re-opening date. They offer liquidity through its listing on a stock exchange. Investors who which to invest or exit can do it through a stock exchange broker.
Q 8. In which of the following case can a mutual fund charge the additional expense of 0.30 % of daily net assets of the scheme ?
When the new inflows from beyond top 30 cities is at least i) 30% of the gross new inflows in the scheme OR ii) 15% of the average AUM (Year To Date) of the scheme, which ever is higher
When the new inflows from beyond top 25 cities is at least 30% of the gross new inflows
When the new inflows from beyond top 30 cities is at least 10% of the gross new inflows
When the new inflows from beyond top 15 cities is at least 20% of the gross new inflows
CORRECT ANSWER
EXPLANATION
In addition to the regular limits, the following expenses may be charged to the scheme:
Brokerage and transaction cost which are incurred for the purpose of execution of trade up to 0.12 percent of trade value in case of cash market transactions and 0.05 percent of trade value in case of derivatives transactions.
If the new inflows from beyond top 30 cities are at least a) 30 percent of gross new inflows in the scheme or b) 15 percent of the average assets under management (year to date) of the scheme, whichever is higher, funds can charge the additional expense of up to 0.30 percent of the daily net assets of the scheme.
Q 9. A Closed-end fund will have a _______ .
Fixed Dividend pay-out ratio
Fixed Unit Capital
Fixed Net Asset Value (NAV)
Fixed Asset Under Management (AUM)
WRONG ANSWER
CORRECT ANSWER
Fixed Unit Capital
EXPLANATION
Close-ended Schemes have an NFO Open Date and NFO Close Date. But, they do not have a 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.
Since post-NFO sale and purchase of units happen to or from counter-party in the stock exchange–and not to or from the scheme–the unit capital of the scheme remains stable or fixed
(The number of units issued by a scheme multiplied by its face value (Rs. 10) is the capital of the scheme–its Unit Capital)
(In an Open-End scheme, the ongoing entry and exit of investors imply that the unit capital in an open-ended fund would keep changing on a regular basis)
Q 10. Identify the CORRECT statement/s.
A. Valuation gains are ignored. But valuation losses need to be adjusted against the profits while calculating distributable surplus.
B. The Mark-to-market gains form a part of the distributable reserves in case of mutual fund Income Distribution Cum Capital Withdrawal plan
Only A is correct
Only B is correct
Both A and B is correct
Both A and B are incorrect
CORRECT ANSWER
EXPLANATION
SEBI guidelines stipulate dividends can be paid out of distributable reserves.
Mark-to-market gains are on paper – they are not realised. They will be realized when those investments are sold. So these cannot be included in distributable reserves
Also Valuation gains are ignored. But valuation losses need to be adjusted against the profits.
This conservative approach to calculating distributable reserves ensures that dividend is paid out of real and realized profits, after providing for all possible losses.
Q 11. The return from a mutual fund scheme is 8.3% and the Standard Deviation is 0.6. The risk-free rate of return is 5%. Calculate the Sharpe ratio.
3.5
5.5
4
2.87
WRONG ANSWER
CORRECT ANSWER
5.5
EXPLANATION
The formula for Sharpe Ratio is : ( Rs-Rf ) / Standard Deviation
( Return Earned – Risk free Return ) / Standard Deviation
= (8.3 – 5) / 0.6
= 3.3 / 0.6
= 5.5
Q 12. Opening of time stamping machine needs to be documented and reported to the Asset Management Company (AMC) – State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
The points of acceptance for mutual fund transactions have time stamping machines with tamper-proof seal.
Opening the machine for repairs or maintenance is permitted only by vendors or nominated persons of the mutual fund. Such opening of the machine has to be properly documented and reported to the Trustees.
Q 13. While the SID, SAI and KIM need to be updated periodically, the interim changes are updated by the AMC through the issuance _______ .
Fact Sheet
Director’s Report
Auditor’s Report
Addendum
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 14. In case of an Index Fund, the minimum investment in securities of a particular index (which is being replicated/ tracked) shall be ________ .
80% of the total assets
85% of the total assets
90% of the total assets
95% of the total assets
WRONG ANSWER
CORRECT ANSWER
95% of the total assets
EXPLANATION
Index Funds 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 15. _____ investment styles means buying stocks which are priced lower in the markets than the assessment based on fundamental analysis.
Growth
Blend
Value
Cyclical
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 16. Which is the Source Scheme in a Systematic Transfer Plan ?
It is the scheme with the lower NAV
It is the scheme from which funds are transferred
It is the scheme to which funds are transferred
It is the scheme with the higher NAV
WRONG ANSWER
CORRECT ANSWER
It is the scheme from which funds are transferred
EXPLANATION
In a Systematic Transfer Plan (STP), the amount that is withdrawn from a scheme (called the source scheme) is re-invested in some other scheme (called the target scheme) of the same mutual fund.
For eg. An investor has invested Rs 50,000 in SBI Debt Fund and has a STP to transfer Rs 5000 every month into SBI Mid Cap Fund. Here SBI Debt Fund is the Source fund and SBI Mid Cap Fund is the Target fund.
Q 17. Dividing an individual’s portfolio allocation between Core portfolio and Satellite portfolio is dependent on the risk profile of the investor – State whether True or False?
True
False
CORRECT ANSWER
EXPLANATION
Ideally an investor’s portfolio should be divided into Core and Satellite portfolios. The core portfolio will be invested according to the long-term needs of the investor and the satellite portfolio will be invested to take advantage of expected short-term market movements.
However, the division between core and satellite portfolios will depend upon each investor’s profile. Conservative investors may like a very small proportion of their overall portfolio to be managed tactically and an investor comfortable with taking higher risk may have an even higher exposure to tactical investments.
Q 18. How can the empanelment of a mutual fund distributor be terminated?
The empanelment gets automatically terminated on the completion of the term of empanelment
Asset Management Company can terminate the empanelment at any time
When all the clients of the distributor shift to Direct Plans
All of the above
WRONG ANSWER
CORRECT ANSWER
Asset Management Company can terminate the empanelment at any time
EXPLANATION
While empaneling with an AMC, the mutual fund distributor applicant signs a declaration which gives power to the AMC to terminate the empanelment at any time.
Q 19. Identify the TRUE statement.
A) 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
B) While calculating scheme returns for an investor, if there is an exit load, then the later value of the Net Asset Value (NAV) is taken as NAV minus Exit Load
Only A is true
Only B is true
Both A and B are true
WRONG ANSWER
CORRECT ANSWER
Only B is true
EXPLANATION
If there is an Entry load on a mutual fund scheme then while calculating the scheme returns, the initial value of the net asset value (NAV) is taken as NAV PLUS entry load as the purchase value increases due to entry load.
If there is an exit load on a scheme then while calculating the scheme returns, the later value of the Net Asset Value (NAV) is taken as NAV minus the exit load as the sale value decreases due to the exit load.
(Note – Entry load has now been banned by SEBI)
Q 20. Identify the CORRECT statement/s with respect to Conservative hybrid funds.
A. A Conservative hybrid fund cannot invest in debt securities for which the Macaulay Duration is more than 1 year
B. A Conservative hybrid fund cannot invest more than 25% of their total assets in equity instruments
C. A Conservative hybrid fund cannot invest in debt securities which have lower than AAA rating
Only A and B are correct
Only B is correct
Only A and C are correct
All A, B and C are correct
WRONG ANSWER
CORRECT ANSWER
Only B is correct
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.
The word “conservative” in the name of Conservative hybrid funds category only refers to the equity allocation. Therefore, a Conservative hybrid fund cannot invest more than 25% of their total assets in equity instruments.
Q 21. The dividends is declared on units which are under a lien will be paid to _______ .
the unit holder only
the lien holder only
the unit holder or lien holder as per the agreement
the unit holder or lien holder as per the terms of issue of mutual fund units
WRONG ANSWER
CORRECT ANSWER
the unit holder or lien holder as per the agreement
EXPLANATION
The dividend pay-outs declared on units under lien may be paid to the unitholder or the lender (lien holder) depending upon the agreement.
Q 22. Stamp duty is required to be paid for which of these mutual fund transactions?
A. New purchases
B. Systematic Investment Plan (SIP)
C. Dividend reinvestment
D. Systematic Transfer Plan (STP)
A,B and D
Only A
B and D
A,B,C and D
WRONG ANSWER
CORRECT ANSWER
A,B,C and D
EXPLANATION
Stamp duty will be applicable to all transactions pertaining to scheme inflows:
Purchase
Additional Purchase
Dividend reinvestment
Systematic Investment Plan (SIP)
Systematic Transfer Plan (STP)
Dividend Transfer Plan (DTP)
Q 23. Which of these statements are TRUE with respect to time stamping on mutual fund documents?
A) Time stamping is relevant for non-financial mutual fund transactions
B) The daily time stamping of application does not start with serial 1
C) Breakdown of time stamping process or breaking of seal is mandated to be duly recorded and reported to the Trustees
A and B are true
B and C are true
A and C are true
A, B and C are true
WRONG ANSWER
CORRECT ANSWER
B and C are true
EXPLANATION
1) Applications for non-financial transactions like change of address are stamped. However, here stamping of time is not relevant; the date stamping is pertinent.
2) Applications are sequentially numbered from the first number of the machine to the last number of the machine, before a new numbering cycle is started for the machine. The daily time stamping of application does not start with serial 1.
3) The points of acceptance have time stamping machines with tamper-proof seal. Opening the machine for repairs or maintenance is permitted only by vendors or nominated persons of the mutual fund. Such opening of the machine has to be properly documented and reported to the Trustees.
Q 24. Identify the true statement with respect to measuring returns for Mutual Funds schemes.
1. Simple Return can be calculated using the formula : Sale Price – Cost Price / Sale Price
2. Compounded Annual Growth Rate ‘CAGR’ technique has been prescribed by SEBI when dividend is paid and compounding is to be considered
3. CAGR is the recognized standard for calculating returns for investment horizon of greater than or equal to 1 year
1 and 2
2 and 3
3 and 1
1,2 and 3
WRONG ANSWER
CORRECT ANSWER
2 and 3
EXPLANATION
Simple Return can be calculated with the following formula : Sale Price – Cost Price / Cost Price
Whenever a dividend is paid – and compounding is to be considered – the CAGR technique (or the reinvestment method, as some call it) prescribed by SEBI is used
The return is calculated using CAGR if the holding period is over one year. If returns are less than one year, than Simple Return is calculated
Q 25. Mr. Suresh invests Rs 2,00,000 in a mutual fund with a facevalue of Rs 10 and NAV of Rs. 50. How many units will be allotted to him?
4000 units
20000 units
Will be lower than 4000 units due to entry load
Will be lower than 20000 units due to entry load
CORRECT ANSWER
EXPLANATION
Units are allotted as per current NAV.
The NAV is Rs 50 and the amount invested is Rs 200000
Units allotted = 200000 / 50 = 4000
(Currently there is no entry load)
Q 26. What is the Total Expense Ratio for an Index fund or an ETF?
Total Expense Ratio shall not exceed 1.00 per cent of the daily net assets.
Total Expense Ratio shall not exceed 2.00 per cent of the daily net assets.
Total Expense Ratio shall not exceed 1.5 per cent of the daily net assets.
Total Expense Ratio shall not exceed 0.50 per cent of the daily net assets.
CORRECT ANSWER
EXPLANATION
In case of an Index fund scheme or Exchange traded fund (ETF), the total expense ratio of the scheme including the investment and advisory fees shall not exceed 1.00 per cent of the daily net assets.
Q 27. In which document is a commentary on the current state of economy and markets is also generally provided?
Statement of Additional Information (SAI)
Key Information Memorandum (KIM)
Fund Fact Sheet
Scheme Information Document (SID)
WRONG ANSWER
CORRECT ANSWER
Fund Fact Sheet
EXPLANATION
Apart from providing information about the schemes in the fund fact sheet, AMCs may also provide periodic
updates on markets and the economy.The factsheet is also used by the fund manager to communicate their views on the economy and the markets to the investors.
Q 28. Identify the duty of a SPONSOR of a mutual fund –
Guards the interest of the mutual fund unit holders
Contributes to the capital of the Asset Management Company
Looks after the day to day administration of the mutual fund
Regularly report to SEBI on the working of the fund
WRONG ANSWER
CORRECT ANSWER
Contributes to the capital of the Asset Management Company
EXPLANATION
The application to SEBI for registration of a mutual fund is made by the sponsor. Thereafter, the sponsor invests in the capital of the AMC.
Q 29. _____ 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 30. The loss booked from a equity investment of 18 months can be set off against ________ .
Long term capital loss only
Long term capital gain only
Short term capital gain only
Short term capital gain or long term capital gain
WRONG ANSWER
CORRECT ANSWER
Long term capital gain only
EXPLANATION
A capital gain or loss from an equity investment of more than than 12 months is considered as Long term.
Long term capital loss can only be set off against long term capital gain.
Q 31. Investments have to be made only through authorized signatories for investments by _______ .
Institutional investors
Hindu Undivided Family (HUF)
Non Resident Indians (NRI)
High net worth individuals (HNI)
CORRECT ANSWER
EXPLANATION
Since institutional investors are not natural persons, authorised individuals invest on behalf of the institution.
Authorisation for the investing institution to invest is typically in the form of a Board Resolution.
Q 32. Identify the TRUE statement with respect to ‘Tracking Error’.
A. Tracking error is calculated as the standard deviation of the excess returns generated by the fund
B. While comparing different index funds, one should invest in a fund with high tracking error
Only A is true
Ony B is true
Both A and B are true
CORRECT ANSWER
EXPLANATION
Tracking error is a measure of the consistency of the out-performance of the fund manager relative to the benchmark. The tracking error has to be low for a consistently out-performing fund.
While investing in an Index Fund, one should invest in a fund with the lowest tracking error.
Q 33. Mr. Sonu reads about the risk factors given in the offer document and invests in an equity mutual fund scheme. After a few days the stock market crashes and NAV of the equity fund goes down. What can Mr. Sonu do in such a situation?
He can appeal to SEBI and get a remedy
He can get a remedy from the AMC
He is not likely to get any remedy from the AMC
He is likely to get a remedy from the trustees of the AMC
WRONG ANSWER
CORRECT ANSWER
He is not likely to get any remedy from the AMC
EXPLANATION
The offer document of a mutual fund cleary states that – ‘Mutual fund investments are subject to market risks’.
When the fund invests in equity market where prices fluctuate a lot, the NAV of the fund is likely to witness huge fluctuations. So the AMC nor SEBI nor anyone else can offer a remedy. The fluctuations are a part of equity markets.
Q 34. Identify the TRUE statement –
A) The AMC is not liable for any losses suffered by the foreign portfolio investors due to adverse currency movements
B) The AMC has to compensate to foreign portfolio investors for any losses suffered due to adverse currency movements
Only A
Only B
Both A and B
CORRECT ANSWER
EXPLANATION
The AMC does not manage currency risk for Foreign Portfolio Investors and it is the sole responsibility of the Foreign Portfolio Investors to manage or reduce currency risk on their own.
The Sponsor/Fund/Trustees/ AMC are not liable for any loss to Foreign Investors arising from such changes in exchange rates.
Q 35. Which document has the statutory information about the mutual fund or AMC, that is offering the scheme.
Scheme Information Document (SID)
Statement of Additional Information (SAI)
Red Herring Prospectus
Fund Fact Sheet
WRONG ANSWER
CORRECT ANSWER
Statement of Additional Information (SAI)
EXPLANATION
Statement of Additional Information (SAI), has statutory information about the mutual fund or AMC, that is offering the scheme. Therefore, a single SAI is relevant for all the schemes offered by a mutual fund.
(Scheme Information Document (SID) has details of the particular scheme)
Q 36. The form for registering a change in the default bank account has to be signed _____ .
by the first holder only
by all the holders of the folio
according to the mode of holding of the folio
by all the holders of the bank account
WRONG ANSWER
CORRECT ANSWER
according to the mode of holding of the folio
EXPLANATION
The form for registering the change in default bank account has to be signed according to the mode of holding of the folio.
Q 37. _______ risk arises because of difference in price movement of the derivative vis-a-vis that of the security being hedged.
Model Risk
Basis Risk
Market Liquidity Risk
Credit Risk
WRONG ANSWER
CORRECT ANSWER
Basis Risk
EXPLANATION
Basis Risk arises due to a difference in the price movement of the derivative vis-à-vis that of the security being hedged.
Q 38. To measure the fund managers’ performance, the difference between scheme’s actual return and its optimal return is calculated and this is known as _____ .
Alpha
Beta
Sharpe
Treynor
CORRECT ANSWER
EXPLANATION
The difference between a scheme’s actual return and its optimal return is its Alpha—a measure of the fund manager’s performance. Alpha, therefore, measures the performance of the investment in comparison to a suitable market index. Positive alpha is indicative of outperformance by the fund manager; negative alpha might indicate under-performance.
Q 39. Which of these is an advantage of Mutual Funds?
Portfolio Customization
Choice Overload
Control Over Costs
Economies of scale
WRONG ANSWER
CORRECT ANSWER
Economies of scale
EXPLANATION
Large investment corpus of a mutual fund leads to various other economies of scale. For instance, costs related to investment research and office space gets spread across investors. Further, the higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers.
Limitations of Mutual Fund –
Lack of Portfolio Customization – A unitholder cannot influence what securities or investments the scheme would invest into.
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.
No Control Over Costs – An individual investor has no control over the costs in a scheme
Q 40. Identify the TRUE statement/s –
Rolling return are the average annualized returns calculated for alternate holding period
Holding period returns (HPR) do not provide an accurate picture of returns of fund if its initial value is too high or low.
Both 1 and 2
None of the above
WRONG ANSWER
CORRECT ANSWER
Holding period returns (HPR) do not provide an accurate picture of returns of fund if its initial value is too high or low.
EXPLANATION
Holding period returns is calculated for a fixed period such as one month, three months, one year, three years or since inception. Holding period returns may not present an accurate picture of the returns from a fund if the initial value or the end value used for calculation was too high or low.
To eliminate this impact rolling returns are calculated. Rolling returns is the average annualized return calculated for multiple consecutive holding periods in an evaluation period.
Q 41. Ms. Janhvi invests Rs 2,00,000 in an equity fund. The face value of this scheme is Rs 10 and the NAV is Rs 40. The exit load is 1%. How many units will be allotted to Ms. Janhvi ?
4950
5000
7474.66
20000
WRONG ANSWER
CORRECT ANSWER
5000
EXPLANATION
Exit load is NOT applicable on purchase of units. Its applicable only on sale of units.
The units will be allotted to Ms. Janhvi as per the NAV which is Rs. 40.
Amount invested is Rs 2,00,000
Units allotted = Amount Invested / NAV
= 200000 / 40
= 5000
Q 42. Identify the FALSE statement/s.
A) When dividend is declared on mutual fund units which are under a lien, this dividend can be paid either to the unit-holder or to the lender depending on the agreement between them
B) Mutual Fund units cannot be pledged by individual investors.
Only A is false
Only B is false
Both A and B are false
Neither A nor B are false
WRONG ANSWER
CORRECT ANSWER
Only B is false
EXPLANATION
Both individuals and non-individuals can pledge their mutual fund units. Banks, NBFCs and other financiers lend money against the pledge of Units by the Unitholder.
The Pay-out (Dividend) of Income Distribution cum capital withdrawal (IDCW) plan declared on units under lien may be paid to the unit- holder or the lender depending upon the agreement.
Note – Dividend option of schemes is now called Income Distribution Cum Capital Withdrawal (IDCW) option.
Q 43. Can an investor change his mutual fund distributor?
Yes, but a permission from AMFI and SEBI is needed for the same
Yes, but the investor has to give a written request to the fund house
Yes, but an upfront fees have to be paid to the existing distributor to cover up his loss of income
No, a change of distributor is not permitted by SEBI
WRONG ANSWER
CORRECT ANSWER
Yes, but the investor has to give a written request to the fund house
EXPLANATION
Investors can choose to change their distributor or opt for direct investing. This needs to be done through a written request by the investor to the AMC.
In such cases, AMCs will need to comply, without insisting on any kind of ‘No Objection Certificate’ from the existing distributor.
Q 44. According to the AMFI’s code of conduct for mutual fund intermediaries, if a second violation against the intermediary is proved, their registration will be ______ .
Suspended for 1 year
Suspended for 3 years
With held
Cancelled
WRONG ANSWER
CORRECT ANSWER
Cancelled
EXPLANATION
In the event of breach of the Code of Conduct by an intermediary, the following sequence of steps is initiated by AMFI:
Write to the intermediary and ask for an explanation within 3 weeks.
In case explanation is not received within 3 weeks, or is not satisfactory, AMFI will issue a warning letter indicating that any subsequent violation will result in cancellation of AMFI registration.
If there is a proved second violation by the intermediary, the registration will be cancelled, and intimation sent to all AMCs.
Q 45. Identify the CORRECT statement with respect to a Fund Factsheet.
A Fund Factsheet has to be published only at the time of a New Fund Offer (NFO)
As per SEBI regulations, a Fund Factsheet has to be published on a monthly basis by the AMCs
A Fund Factsheet is published by AMCs on a voluntary basis
All mutual fund distributors have to mandatorily read the Fund Factsheet before recommending a scheme to their investors
WRONG ANSWER
CORRECT ANSWER
A Fund Factsheet is published by AMCs on a voluntary basis
EXPLANATION
The fund factsheets are an official source of information of the fund’s objective, performance, portfolio and basic investment requirements issued by the fund house each month. The factsheet is also used by the fund manager to communicate their views on the economy and the markets to the investors and other observers such as research analysts, rating agencies and media.
It is not mandatory for fund houses to publish factsheets. But most fund houses do so as a way to reach out to the existing and new investors.
Q 46. The additional Total Expense Ratio (TER) charged has to be credited back to the Mutual Fund if the inflows from beyond the top 30 cities are redeemed within a period of 1 year from the date of investment. State whether True or False?
True
False
CORRECT ANSWER
EXPLANATION
Mutual funds can charge additional TER if the new inflows are from beyond top 30 cities (subject to some conditions).
However, the additional TER on account of inflows from beyond the top 30 cities so charged shall be credited back to the scheme in case the said inflows are redeemed within a period of 1 year from the date of investment.
Q 47. Identify the TRUE statement with respect to Trustees of mutual funds.
The Trustees can legally change the Asset Management Company (AMC)
The Asset Management Company (AMC) appoints the Trustees
The Trustees appoint the Sponsors of the Asset Management Company (AMC)
The Trustees have to approve the appointment of the distributors of its mutual fund schemes
CORRECT ANSWER
EXPLANATION
In a mutual fund structure, Trustees act as custodians of investor interests and have the power to oversee the functioning of the Asset Management Company (AMC).
– Trustees ensure that the AMC operates in compliance with SEBI regulations.
– If the AMC is found violating investor protection norms, mismanaging funds, or failing in its duties, the Trustees have the authority to change the AMC and appoint a new one.
– This ensures transparency and accountability in mutual fund operations.
Q 48. ______ is NOT a function of AMFI.
Representing the mutual fund industry to the Government, RBI etc.
Undertaking studies and research of the mutual fund industry
Undertaking investor awareness programs
Conducting certification exams for mutual fund distributors
WRONG ANSWER
CORRECT ANSWER
Conducting certification exams for mutual fund distributors
EXPLANATION
Function of Association of Mutual Funds in India (AMFI) includes all of the above except – Conducting a certification examination for Mutual Fund distributors.
National Institute of Securities Markets (NISM) conducts the certification examination for Mutual Fund distributors.
Q 49. Identify the plan which could be used in lieu of income distribution cum capital withdrawal pay-outs?
Systematic Withdrawal Plan
Systematic Transfer Plan
Systematic Investment Plan
None of the above
CORRECT ANSWER
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 50. The decision to Opt-out from transaction charges can be taken by distributors at each individual client level depending on his relationship with the client. State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
Distributors have the option of opting out of charging transaction charges. But such opting out shall be applicable only at distributor level. This means that the distributor cannot choose to charge transaction charge from one investor and not from another.