Q 1. Unitholders have the right to inspect key document/s like ________ with respect to their mutual fund investments.
Memorandum & Articles of Association
RTA agreement
Custodial Services Agreement
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
As per Investors’ Rights & Obligations :
Right to Inspect documents – Unit-holders have the right to inspect key documents such as the Trust Deed, Investment Management Agreement, Custodial Services Agreement, RTA agreement and Memorandum & Articles of Association of the AMC.
Q 2. Once the mutual fund units are pledged, the unit holder/s _______ .
Cannot sell the units
Can sell the units bit after a period of 3 months
Cannot sell the units but can switch the units to another scheme
Cannot do additional purchase in the same account
CORRECT ANSWER
EXPLANATION
Banks, NBFCs and other financiers often lend money against the pledge of Units by the Unitholder.
Once units are pledged, the Unit-holder/s cannot sell or switch out the pledged units, until the pledgee gives a written no-objection to release the pledge.
Q 3. Among equity funds, Focused funds carry _______ risks as compared to diversified funds due to ______ .
Lower ; highly concentrated portfolio
Higher ; highly concentrated portfolio
Lower ; lower expenses of the fund
Higher ; investments in debt securities
WRONG ANSWER
CORRECT ANSWER
Higher ; highly concentrated portfolio
EXPLANATION
Among the equity funds, some schemes may have a portfolio concentrated in a few stocks. Such scheme category is known as “Focused funds”. .
These schemes carry higher risk than a diversified fund, due to higher concentration among smaller number of stocks.
Q 4. Which of the following function can an Asset Management Company (AMC) do in-house?
Custodial Services
Broking
Registrar and Transfer Agent
WRONG ANSWER
CORRECT ANSWER
Registrar and Transfer Agent
EXPLANATION
The appointment of Registrar and Transfer Agent (RTA) is done by the AMC. However, It is not compulsory to appoint an RTA. The AMC can choose to handle this activity in-house.
AMC cannot be a custodian or a broker. An independent custodian ensures that the securities are indeed held in the scheme for the benefit of investors, which is an important control aspect.
Q 5. Which debt schemes of mutual funds invest only in debt securities where moneys will be repaid within 91 days?
Money Market Funds
Medium term debt funds
Fixed Maturity Plans
Liquid Funds
WRONG ANSWER
CORRECT ANSWER
Liquid Funds
EXPLANATION
Liquid Fund is an open-ended liquid scheme whose investment is into debt and money market securities with a maturity of up to 91 days only.
An investor seeking the lowest risk ought to go for a liquid scheme. However, the returns in such instruments are low. These schemes are suitable for investors looking for a product to park their funds for very short periods (up to 91 days).
Q 6. Which exam has to be cleared to get the Employee Unique Identification Number (EUIN) from AMFI?
SEBI – VA Mutual Fund Distributors Certification Examination
AMFI – VA Mutual Fund Distributors Certification Examination
NISM – VA Mutual Fund Distributors Certification Examination
NISM – VB Mutual Fund Distributors Certification Foundation
WRONG ANSWER
CORRECT ANSWER
NISM – VA Mutual Fund Distributors Certification Examination
EXPLANATION
Institutions that are into the distribution of mutual funds need to register with AMFI. The employees of these institutions need to clear the NISM Series V-A: Mutual Fund Distributors Certification Examination and obtain an Employee Unique Identification Number (EUIN) from AMFI.
Q 7. Who manages the contributions from investors and takes investment decisions in a mutual fund company?
The Investors
The Trustees
The Asset Management Company (AMC)
The Sponsors
WRONG ANSWER
CORRECT ANSWER
The Asset Management Company (AMC)
EXPLANATION
Fund management is the most critical function in an Asset Management Company. The main function of this team is to invest the investors’ money in line with the stated objective of the scheme and to manage the same effectively.
Q 8. Identify which among the following is the first step in the sequence of creating a mutual fund product?
Launching the New Fund Offer (NFO)
Filing of Scheme Information Document (SID) with SEBI for observation
Launch of advertising and public relations campaigns by AMC
Approval of Trustees and AMC board for the new product and drafting of SID
WRONG ANSWER
CORRECT ANSWER
Approval of Trustees and AMC board for the new product and drafting of SID
EXPLANATION
Units in a mutual fund scheme are offered to investors for the first time by a New Fund Offer (NFO).The following are a few key steps leading to the NFO :
AMC decides on a scheme to take to the market. This is decided on the basis of inputs from the Chief Investment Officer (CIO) and the Chief Marketing Officer (CMO)
AMC prepares the Scheme Information Document (SID) for the NFO. This needs to be approved by the Trustees and the Board of Directors (BoD) of the AMC.
The documents are then filed with SEBI.
The AMC decides on a suitable timetable for the issue. launches its advertising and public relations campaigns etc
The Scheme Documents and Application Forms are distributed to market intermediaries, and circulated in the market so that investors can apply in the NFO.
Q 9. The investment objective of a/an ______ is to seek capital appreciation.
Growth Fund
Income Fund
Arbitrage Fund
Liquid Fund
CORRECT ANSWER
EXPLANATION
A Growth fund is a mutual fund which invests in the stocks and aims at achieving capital appreciation through the investment of funds in growth stocks.
Q 10. Which of these are considered as Institutional group of investors ?
Non-Resident Indians (NRIs)
Hindu Undivided Families (HUFs)
High Networth Individuals (HNIs)
Companies
WRONG ANSWER
CORRECT ANSWER
Companies
EXPLANATION
NRIs, HUFs and HNIs are considered as individual investors.
Companies are non-individual investors ie. Institutional investors.
Q 11. For a VALUE FUND, the minimum investment in equity and equity related instruments is 50% of the total assets. State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
A value fund is an open-ended equity scheme following a value investment strategy. Minimum investment in equity & equity related instruments are 65 % of total assets.
(Value investment style is an approach of picking up stocks, which are priced lower than their intrinsic value, based on fundamental analysis. When the market recognizes the intrinsic value, then the price would shoot up)
Q 12. Mr. Amit want to invest in a mutual fund scheme. He has to give the request for purchase specifying the _____ .
Units he wants
Amount he wants to invest
Lots he wants
WRONG ANSWER
CORRECT ANSWER
Amount he wants to invest
EXPLANATION
Purchase request in a MF scheme can only be given specifying the amount the investor will be investing. The units allotted will depend on the NAV of the date of allotment.
Re-purchase (Sale) request can be given in Units to be sold or Amount required.
Q 13. Which of the following is true for unclaimed dividend in mutual fund schemes?
Asset Management Company is expected to make a continuous effort to remind the investors to claim their dues
The responsibility for ensuring that the dues are claimed lies with the distributor in a dividend plan
The responsibility for ensuring that the dues are claimed lies solely with the investor
CORRECT ANSWER
EXPLANATION
AMC is expected to make a continuous effort to remind the investors through letters to claim their dues.
The Annual Report has to mention the unclaimed amount and the number of such investors for each scheme.
Q 14. When a mutual fund distributor empanels with an AMC, he/she has to sign a declaration for ______ .
declaring the rebates given back to the investors
ensuring that all employees who are selling mutual funds will have more than on ARN code
Guarantee of adding a minimum of 25 investors every month
Commitment to abide by statutory codes, guidelines and circulars
WRONG ANSWER
CORRECT ANSWER
Commitment to abide by statutory codes, guidelines and circulars
EXPLANATION
As per the procedure for getting empaneled as a mutual fund distributor with AMC, one of the requirement is :
The applicant needs to sign a declaration, which provides for the following –
Commitment to abide by instructions given, as also statutory codes, guidelines and circulars.
Q 15. In the Mutual Fund industry – every AMC gives an ARN code number to the mutual fund distributor which is to be renewed every three years – True or False?
True – this is as per SEBI rules
False – AMFI issues the ARN code number.
WRONG ANSWER
CORRECT ANSWER
False – AMFI issues the ARN code number.
EXPLANATION
The ARN code is given by the Association of Mutual Funds in India (AMFI)
After obtaining the NISM VA certification and completing KYD requirements, one has to register with AMFI. On registration, AMFI allots an AMFI Registration Number (ARN).
Q 16. Which of the following have the highest credit risk?
Money Market Fund
Junk Bond
G-Sec Fund
Income Fund
WRONG ANSWER
CORRECT ANSWER
Junk Bond
EXPLANATION
Junk bonds are a type of bond that carries a higher risk of default. The issuer of such bonds may not have the adequate cash flow to pay regular interest or repay the principal amount to the bondholders at the time of maturity.
The bonds issued by financially struggling companies are termed junk bonds but they pay higher returns to make them attractive to investors.
Q 17. Which information has to be included in the mutual fund application form when a Non-Resident Indian (NRI) subscribes for the units?
Passport details
Countries of residence in the past one year
Details of investments made in the last one year
Current overseas address
WRONG ANSWER
CORRECT ANSWER
Current overseas address
EXPLANATION
The information to be provided for mutual fund investments includes the name(s), nationality, identity proof and KYC compliance, signatures of all the holder(s), address and communication details of the first holder.
In case of NRI investors, an overseas address must also be provided.
Q 18. In which of the following cases can Goods and Service Tax (GST) be charged to the mutual fund scheme over and above the Total Expense Ratio of the scheme ?
GST applicable on AMC fees only can be charged to the scheme over and above the Total Expense Ratio
GST applicable on any fees must be within the Total Expense Ratio
GST applicable on distributor commission only can be charged to the scheme over and above the Total Expense Ratio
GST applicable on AMC fees as well as distributor commission can be charged to the scheme over and above the Total Expense Ratio
CORRECT ANSWER
EXPLANATION
AMC(s) can charge GST, as per applicable Taxation Laws, to the schemes within the limits prescribed under SEBI (Mutual Fund) Regulations.
– GST on fees paid on investment management and advisory fees shall be charged to the scheme in addition to the overall limits specified as per the Total Expense Ratio (TER) provisions.
– The commission payable to the distributors of mutual funds may be subject to GST, as applicable in case of the ARN holder. Such tax cannot be charged to the scheme.
Q 19. Identify the false statement/s :
A. While evaluating the mutual fund schemes, the expense ratio matters more in debt funds than equity funds
B. An Ultra-short term debt fund has to mandatorily invest in high credit quality debt securities
Only A is false
Only B is false
Both A and B are false
WRONG ANSWER
CORRECT ANSWER
Only B is false
EXPLANATION
Any cost is a drag on investor’s returns. Investors need to be particularly careful about the cost structure of debt schemes, because in the normal course, debt returns can be much lower than equity schemes. So expense ratio is more critical for debt funds.
When the limits are not tightly defined, the fund manager may assume an active role in managing the risk, e.g. an ultra-short term debt fund may take credit risk, since the SEBI regulations only define the permitted maturity profile, which indicates how much interest rate risk the scheme can take.
Q 20. Which of these statement/s is/are TRUE?
1. Mutual Funds offer various options like Growth, Income distribution cum capital withdrawal / Reinvestment etc. as different investors have different preferences on how profits are to be handled
2. Interval funds offer better liquidity to investors as compared to Close-Ended mutual fund
Only 1 is True
Only 2 is True
Both 1 and 2 are true
WRONG ANSWER
CORRECT ANSWER
Both 1 and 2 are true
EXPLANATION
Interval funds combine features of both open-ended and close-ended schemes. They are largely close-ended but become open-ended at pre-specified intervals. The benefit for investors is that, unlike in a purely close-ended scheme, they are not completely dependent on the stock exchange to be able to buy or sell units of the interval fund.
The options offered under a scheme allow investors to structure their investments in line with their liquidity preference and tax position.
Q 21. Identify the true statement with respect to Total Expense Ratio?
The AMC is not allowed to change the Total Expense Ratio of a scheme during its entire life time
The AMC can change the Total Expense Ratio and it need not be communicated to the unit holders as its an internal matter
The AMC can change the Total Expense Ratio and it has to be communicated to all the unit holders
There is no term as – Total Expense Ratio for a mutual fund scheme
WRONG ANSWER
CORRECT ANSWER
The AMC can change the Total Expense Ratio and it has to be communicated to all the unit holders
EXPLANATION
As per SEBI regulations – The AMCs are required to send the update to the investors through email whenever there is a change in the expense ratio.
Q 22. Identify the true statement(s) –
A) Beta is a measure of risk only for equity schemes
B) Variance is a measure of risk for both debt and equity schemes
C) A fall in prices of the debt securities due to default etc is known as a ‘credit event’
Only A and B are true
Only A and C are true
Only B and C are true
All A, B and C are true
WRONG ANSWER
CORRECT ANSWER
All A, B and C are true
EXPLANATION
Variance as a measure of risk is relevant for both debt and equity schemes.
Beta as a measure of risk is relevant only for equity schemes.
In the debt markets, the credit risk arises on account of three things, viz., default, delay in payments, or rating downgrade. Any of these may result in fall in prices of the concerned debt securities. Such an event is also called a ‘credit event’.
Q 23. If a person has to trade in units of a closed-ended mutual fund on the stock exchange platform then the units have to be held in _______ .
Dematerialized form
Physical form
CORRECT ANSWER
EXPLANATION
Trading in mutual fund units on stock exchange platform can be done only in dematerialized form.
Schemes, where the money can be recovered from the mutual fund only on closure of the scheme like a closed-ended fund, are compulsorily listed on a stock exchange. In such schemes, the investor can sell
the detmaterialzed units through the stock exchange platform to recover the prevailing value of the investment.
.
Q 24. Which of these is an important criteria for choosing either Growth option or Dividend option in the same mutual fund scheme?
Returns on the scheme
Fund Manager
Tax status of the investor
Assets Managed by the scheme
WRONG ANSWER
CORRECT ANSWER
Tax status of the investor
EXPLANATION
Mutual funds offer options, whereby the investor can let the money grow in the scheme for several years. By selecting such options, it is possible for the investor to defer the tax liability.
So if the investor wants to differ his tax payments, he should choose the Growth option. However, if the tax liability of the investor is low, he can choose the dividend option so that even the dividend can taxed at a low rate every year.
Q 25. A mutual fund scheme can invest _____ of its net assets in the equity instruments of a single company
5%
10%
15%
25%
WRONG ANSWER
CORRECT ANSWER
10%
EXPLANATION
A mutual fund scheme can invest 10% of the net assets in the equity instruments of a single company as per SEBI (Securities and Exchange Board of India) regulations.
As per SEBI regulations – The Mutual Fund under all its schemes shall not own more than 10 percent of a company’s paid up capital bearing voting rights. Provided no sponsor of a mutual fund, its associate or group company including the Asset Management Company of the fund, through the schemes of the mutual fund or otherwise, individually or collectively, directly or indirectly, have 10 percent or more of the shareholding or voting rights in the asset management company or the trustee company of any other mutual fund.
Q 26. If an investor claims his unclaimed redemption amount after 3 years than the payment will be based on the ________ .
average of the NAVs ie. current NAV and NAV at the time of original redemption
current NAV
NAV at the end of three years
NAV at the time of original redemption
WRONG ANSWER
CORRECT ANSWER
NAV at the end of three years
EXPLANATION
Recovery of unclaimed amounts by the investors is as follows:
If the investor claims the money within 3 years, then payment is based on prevailing NAV i.e. after adding the income earned on the unclaimed money.
If the investor claims the money after 3 years, then payment is based on the NAV at the end of 3 years.
Q 27. Identify the TRUE statement(s)
a) In an Assured Return scheme, if the scheme is not able to pay the assured return amount then the guarantor has to pay the same
b) Investor returns might vary from the scheme returns on account of choices regarding investment schedule
c) The returns published in a mutual fund advertisement factor the entry or exit load, as may be applicable.
‘b’ and ‘c’ are true
‘a’ 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
Mutual funds are not permitted to promise any returns, unless it is an assured returns scheme. Assured returns schemes call for a guarantor who is named in the SID. The guarantor will need to write out a cheque, if the scheme is otherwise not able to pay the assured return.
Investor returns might vary from the scheme returns also on account of choices regarding investment schedule, i.e., additional investment being made during the period or redeeming a portion of the investment. In such a case, for the same period investor’s returns may be different from the published returns of the scheme.
The returns published in a mutual fund advertisement would be without factoring the entry or exit load, as may be applicable.
Q 28. The choice of benchmark for a Debt Scheme could be chosen on the basis of :
1. Scheme Size
2. Scheme Type
3. Investment Universe
Both 1 and 2
Both 2 and 3
Both 1 and 3
All 1,2 and 3
WRONG ANSWER
CORRECT ANSWER
Both 2 and 3
EXPLANATION
Scheme type and Choice of investment universe drive the choice of benchmark in debt schemes.
For eg – Liquid schemes invest in securities of up to 91 days’ maturity. Therefore, a short-term money market benchmark such as NSE’s MIBOR or CRISIL Liquid Fund Index is suitable.
Choice of Investment Universe Gilt funds invest only in Government securities. Therefore, indices based on Government Securities are appropriate. Debt funds that invest in a wide range of Government and Non-Government securities need to choose benchmarks that are calculated based on a diverse mix of debt securities.
The size of the scheme is immaterial.
Q 29. 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 plus 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 plus Exit Load
Only A
Only B
Both A and B
CORRECT ANSWER
EXPLANATION
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.
So exit load has to be subtracted from the NAV and not added.
(Note – Entry load has now been banned by SEBI)
Q 30. Asset allocation must primarily match ________ .
Long term value creation
Investment needs
Financial goals
Tax saving needs
WRONG ANSWER
CORRECT ANSWER
Investment needs
EXPLANATION
The investor’s need from the investment will determine the asset class that is most suitable for the investor.
Along with the need from the investment, the investor’s ability to take risk and the investor’s investment horizon is equally important to select the appropriate asset class.
Q 31. If there is a breach of the Code of Conduct by an intermediary and a second violation by the intermediary is proved then the registration of the intermediary is _______ .
Not renewed
Cancelled
Suspended
Withheld
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 32. What is the maximum number of joint holders allowed per mutual fund application?
3
4
5
6
CORRECT ANSWER
EXPLANATION
The maximum number of joint holders allowed per mutual fund application is three.
Q 33. Which transaction of an open ended fund is based on the Net Asset Value (NAV) pricing?
Purchase of units
Redemption of units
Both purchase and redemption of units
WRONG ANSWER
CORRECT ANSWER
Both purchase and redemption of units
EXPLANATION
Purchase and redemption of units are always done based on the NAV of the scheme.
Q 34. The minimum investment limit in equity/equity related instruments of large cap companies for a Large Cap mutual fund scheme is ______ of total assets.
70%
80%
85%
90%
WRONG ANSWER
CORRECT ANSWER
80%
EXPLANATION
A Large Cap Fund is an open-ended equity scheme predominantly investing in large cap stocks. As per SEBI rules on asset allocation, the minimum investment in equity and equity related instruments of large cap companies shall be 80 percent of total assets
Q 35. As per SEBI regulations, a mutual fund scheme should have at least ________ investors.
10
15
20
25
WRONG ANSWER
CORRECT ANSWER
20
EXPLANATION
As per SEBI, a Mutual Fund Scheme/Plan shall have a minimum of 20 investors and no single investor shall account for more than 25 percent of the corpus of the Scheme/Plan(s).
Q 36. Which of these is NOT included in the Key Information Memorandum (KIM) ?
Dates of Issue Opening, Issue Closing and Re-opening
Investment Objective
Risk profile of the scheme
Functions of the sponsor, trustee and AMC
WRONG ANSWER
CORRECT ANSWER
Functions of the sponsor, trustee and AMC
EXPLANATION
Some of the key items contained in the KIM are as follows:
Name of the AMC, mutual fund, Trustee, Fund Manager and scheme
Dates of Issue Opening, Issue Closing and Re-opening for Sale and Re-purchase
Investment Objective
Asset allocation pattern of the scheme
Risk profile of the scheme i.e. a snapshot of the risk to the principal invested, the suitable investment horizon for investment and the type of securities that the scheme will invest in.
Plans and Options
Benchmark Index
Dividend Policy
Performance of scheme and benchmark over last 1 year, 3 years, 5 years and since inception.
Expenses of the scheme
Information regarding registration of investor grievances
Q 37. Decisions in Tactical Asset Allocation are taken on the basis of _____ .
likely behaviour of the markets
risk profile of the investor
income level of the investor
All of the above
CORRECT ANSWER
EXPLANATION
In Tactical asset allocation, the allocation between the asset categories changes dynamically. The purpose of such an approach may be to take advantage of the opportunities presented by various markets at different points of time.
Q 38. The expenses on ________ cannot be charged to the mutual fund scheme.
Custodian fees
Depreciation on fixed assets of the Asset Management Company
Trustee Fees
Marketing Expenses
WRONG ANSWER
CORRECT ANSWER
Depreciation on fixed assets of the Asset Management Company
EXPLANATION
The depreciation on fixed assets of the Asset Management Company cannot be charged to a particular mutual fund scheme.
Q 39. What is the role of the custodian of a mutual fund?
To issue statement of funds holding to the investors
To execute the buy and sell orders in the stock market
To keep the safe custody of the securities of the mutual fund scheme
To issue account statements to the Mutual Fund unit holders
WRONG ANSWER
CORRECT ANSWER
To keep the safe custody of the securities of the mutual fund scheme
EXPLANATION
The custodian has custody of the assets of the fund. As part of this role, the custodian needs to accept and give delivery of securities for the purchase and sale transactions of the various schemes of the fund. Thus, the custodian settles all the transactions on behalf of the mutual fund schemes.
Q 40. What is the investment range for the mutual fund house to invest in debt instruments for a Balanced Hybrid Fund?
20 percent and 40 percent
40 percent and 60 percent
10 percent and 30 percent
20 percent and 50 percent
WRONG ANSWER
CORRECT ANSWER
40 percent and 60 percent
EXPLANATION
Balanced Hybrid Fund: An open-ended balanced scheme investing in equity and debt instruments. The investment in equity and equity related instruments shall be between 40 percent and 60 percent of total assets while investment in debt instruments shall be between 40 percent and 60 percent.
Q 41. While giving the mutual fund units for re-purchase, the distributor should consider the impact of Capital Gains Tax and ______ on the investor’s portfolio.
Beta
Entry Load
Exit Load
Sharpe Ratio
WRONG ANSWER
CORRECT ANSWER
Exit Load
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 42. As per the fair valuation principles laid out by SEBI, it is mandatory to disclose the
valuation policy in ______.
Statement of Additional Information
Statement of Accounts sent to investors periodically
Fund fact sheet
The fair valuation principles are not to be put in public
CORRECT ANSWER
EXPLANATION
Disclosure of the valuation policy and procedures approved by the Board of the asset management company shall be made in Statement of Additional Information.
Q 43. The Market Value of a scheme is Rs 579 crores. Dividend accrued but not received is Rs 18 crore. The Expenses payable are Rs 3 crore. The total number of outstanding units is 300 lakhs. What is the NAV of the scheme ?
188
198
208
218
WRONG ANSWER
CORRECT ANSWER
198
EXPLANATION
Total Market Value = Rs 579 crore
Add : Dividend Accrued of Rs 18 crore
Less: Expenses Payable of Rs 3 crore
= Rs. 594 cr
Divided by Units 300 lakhs
NAV = 198
Q 44. Identify the FALSE statement :
1. The investor does not have to bear a tax on the capital gains as the re-purchase of units is done by the mutual fund
2. Capital gains will be considered as Long term capital gain in case of debt funds only if the holding period is more than 3 years
Both 1 and 2 is false
Only 1 is false
Only 2 is false
CORRECT ANSWER
EXPLANATION
Re-purchase transactions are treated as a sale of units by the investor. Therefore, there will be an element of capital gain (or capital loss) and it will be taxed accordingly.
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.
Q 45. A mutual fund scheme shall not invest more than 10 percent of its total NAV in debt instruments. This rule is not applicable for which type of debt instrument?
Triparty repo on Government securities
Treasury Bills
Government Securities
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
Restrictions pertaining to investment in Debt Securities:
A mutual fund scheme shall not invest more than 10 percent of its total NAV in debt instruments comprising money market instruments and non-money market instruments issued by a single issuer which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act.
However such limit shall not be applicable for investments in Government Securities, Treasury bills and Triparty repo on Government securities or treasury bills.
Q 46. Identify the transactions on which Securities Transaction Tax (STT) is applicable
Purchase transactions of debt mutual funds
Purchase transactions of equity mutual funds
Redemption transactions of debt mutual funds
Redemption transactions of equity mutual funds
WRONG ANSWER
CORRECT ANSWER
Redemption transactions of equity mutual funds
EXPLANATION
STT is not applicable to transactions in debt securities or debt mutual fund schemes. STT is also not applicable on purchase of units of an equity scheme.
STT is applicable on sale/redemption of equity mutual funds.
Q 47. Gold prices are used as benchmark for ________ .
Gold Savings Fund
Gilt Funds
Gold Mining Companies fund
All of the above
CORRECT ANSWER
EXPLANATION
The performance of Gold ETFs / Gold saving funds would track the price of gold. Therefore, gold prices will the appropriate benchmark for these funds.
The performance of Gold sector funds or Gold mining companies fund is linked to the profitability of the gold companies and not to gold prices.
Q 48. The NAV which is applicable for processing an investor transaction depends on whether the transaction is received within the _________ .
Asset Management Company’s office timings
R&T Agents office timings
Stock Markets timing
Cut-off time for the scheme
WRONG ANSWER
CORRECT ANSWER
Cut-off time for the scheme
EXPLANATION
The sale and re-purchase prices are a function of the applicable NAV for the transaction. The applicable NAV depends on the cut-off time prescribed for the particular type of scheme and the transaction value.
Q 49. Identify the TRUE statement/s with respect to Addendum.
An Addendum must accompany the KIM
Addendum is considered to be a part of the Scheme Related Documents
Both of the above are true
None of the above are true
WRONG ANSWER
CORRECT ANSWER
Both of the above are true
EXPLANATION
The addendum is considered to be a part of the scheme related documents and must accompany the KIM.
Any interim changes in the Scheme Information Document (SID), Statement of Additional Information (SAI) and Key Information Memorandum (KIM) are updated through the issuance of an Addendum.
Q 50. Identify which of these are Non-Financial transactions?
A) Transmission B) Nomination C) Pledge D) Switch
Transmission, Nomination, Switch
Transmission, Nomination, Pledge
Transmission, Pledge, Switch
Nomination, Pledge, Switch
WRONG ANSWER
CORRECT ANSWER
Transmission, Nomination, Pledge
EXPLANATION
Pledge of units. Nomination and Transmission are Non Financial transactions in a mutual fund.
A Switch is redemption from one scheme and a purchase into another, combined into one transaction and is a financial transaction.