Q 1. The additional Total Expense Ratio (TER) charged has to be credited back to the Mutual Fund in which of these situations?
When the performance of the mutual fund declines as compared to previous year
When the inflows from beyond the top 30 cities are redeemed within a period of 1 year from the date of investment.
When the TER of the mutual fund exceeds the limit specified under the regulations
All of the above
WRONG ANSWER
CORRECT ANSWER
When the inflows from beyond the top 30 cities are redeemed within a period of 1 year from the date of investment.
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 2. How will the AMC /R&T agent process an application for subscribing to mutual fund units if the ARN is wrongly mentioned in it?
It will be processed as a direct plan application
It will be rejected as incomplete application
It will be considered as an incomplete application and sent back for completion
It will be treated as a regular plan subject to the error being corrected in the required time frame
WRONG ANSWER
CORRECT ANSWER
It will be treated as a regular plan subject to the error being corrected in the required time frame
EXPLANATION
If the wrong ARN code is mentioned in the application form, then the application will be processed as a Regular Plan.
However, the AMC will contact the investor/distributor for the right ARN code within 30 calendar days of the receipt of the application form. If the error is not rectified within these 30 days, the application will be reprocessed as a direct application without charging any exit load.
Q 3. _______ will help help the investors understand the suitability of a mutual fund scheme to them.
Product Label
Standard Deviation / Beta
Tracking Error
Alpha of the scheme
CORRECT ANSWER
EXPLANATION
The risk levels in different categories of mutual fund schemes can be understood with the help of product labelling of Mutual Funds.
SEBI had introduced product labelling of mutual funds to address the issue of mis-selling and to provide investors an easy understanding of the kind of product/scheme they are investing in and its suitability to them.
All the mutual funds were required to ‘Label’ their schemes on the parameters such as – Nature of scheme, Investment objective, Level of risk depicted by colour code boxes etc.
Q 4. Risk Profilers are used to ascertain the risk appetite of an investor. State whether True or False?
True
False
CORRECT ANSWER
EXPLANATION
Risk Profilers usually revolve around investors answering a few questions, based on which the risk appetite score gets generated.
The risk profilers try to ascertain the risk appetite of the investor so that one does not sell mutual fund schemes that carry a higher risk than what the investor can handle.
Q 5. A Trail Commission is paid _______ .
as long as the investor stays invested in the mutual fund scheme
when the investor invests into the mutual fund scheme
when the investor exits the mutual fund scheme
Trail Commission means no commission
CORRECT ANSWER
EXPLANATION
Trail commission is calculated as a percentage of the net assets attributable to the units sold by the distributor.
A mutual fund distributor is paid trail commission for as long as the investor’s money is held in the fund.
Q 6. No investor can have a holding of more than 20 percent of a scheme – State True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
REQUIREMENT OF MINIMUM INVESTORS IN A SCHEME – The 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 7. In the case of a Sectoral Fund, the minimum investment in equity and equity related instruments of a particular sector of total assets should be _____ .
65%
70%
80%
95%
WRONG ANSWER
CORRECT ANSWER
80%
EXPLANATION
Sectoral fund is an open-ended equity scheme investing in a specific sector such as bank; power etc.
The minimum investment in equity and equity related instruments of a particular sector/ theme shall be 80 percent of total assets.
Q 8. The ARN is allotted to the mutual fund distributors by ______ .
SEBI
NISM
AMC
AMFI
WRONG ANSWER
CORRECT ANSWER
AMFI
EXPLANATION
A major role of AMFI involves the registration of mutual fund distributors, by allotting them AMFI Registration Number (ARN), which is mandatory for becoming a mutual fund distributor.
Q 9. In order to ensure fairness to investors, _____ has prescribed cut-off timing to determine the applicable NAV.
AMFI
SEBI
RBI
Stock Exchange
WRONG ANSWER
CORRECT ANSWER
SEBI
EXPLANATION
SEBI has prescribed cut-off timing to determine the applicable NAV and these timings are uniformly applicable for all mutual funds.
Q 10. Identify the TRUE statement/s :
1. The Indian inheritance laws are NOT applicable to mutual fund unit holders
2. A Power of Attorney (POA) cannot make or change nominations in a mutual fund
Only 1 is true
Only 2 is true
Both 1 and 2 are true
Both 1 and 2 are false
WRONG ANSWER
CORRECT ANSWER
Only 2 is true
EXPLANATION
The inheritance laws are applicable to the mutual fund unit-holder.
A Power of Attorney holder cannot make a nomination.
Q 11. The portfolio of a fund of funds consists of ______ .
Equity securities only
Debt securities only
Units of other mutual fund schemes
Money market securities only
WRONG ANSWER
CORRECT ANSWER
Units of other mutual fund schemes
EXPLANATION
A ‘Fund Of Funds’ (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. An FOF Scheme of a primarily invests in the units of another Mutual Fund scheme.
Q 12. _________ would not be an originator to a special purpose vehicle, in case of securitized asset.
Reserve Bank of India (RBI)
Non-banking finance company
A Commercial Bank
Housing finance company
CORRECT ANSWER
EXPLANATION
A securitization transaction involves sale of receivables by the originator (a commercial bank, non-banking finance company, housing finance company, or a manufacturing/service company) to a Special Purpose Vehicle (SPV), typically set up in the form of a trust. Investors are issued rated Pass Through Certificates (PTCs), the proceeds of which are paid as consideration to the originator. (RBI will not be an originator)
In this manner, the originator, by selling his loan receivables to an SPV, receives consideration from investors much before the maturity of the underlying loans.
Q 13. Identify the FALSE statement/s :
1. A mutual fund investing across many countries will keep its benchmark index which is based on US equity markets
2. For Gold ETF, gold prices will be the ideal benchmark
Only 1 is false
Only 2 is false
Both 1 and 2 are false
CORRECT ANSWER
EXPLANATION
The benchmark would depend on where the scheme proposes to invest. Thus, a scheme seeking to invest in China might have the Shanghai Composite Index (Chinese index) as the benchmark. S&P 500 may be appropriate for a scheme that would invest largely in the US market. A scheme that seeks to invest across a number of countries, can structure a synthetic index that would be a blend of the indices relevant to the countries where it proposes to invest.
Gold ETF NAVs closely track the price of gold since it reflects the value of gold held in custody for the units issued. Therefore, gold price would be the benchmark for such funds.
Q 14. Mutual funds CANNOT distribute income / dividend out of ______ .
Dividends which are received from equity investments
Unrealised appreciation in value of investments
Income accruals
Realised gains from sale of investments
WRONG ANSWER
CORRECT ANSWER
Unrealised appreciation in value of investments
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.
Since the investments in the portfolio are not yet sold, the gains in them are on paper – they are not realised. They will be realized when those investments are sold.
Q 15. When does an investor in mutual funds have to provide information under the Foreign Account Tax Compliance Act (FATCA) ?
When the investment is made through a foreign bank account
When the investor’s folio was a NRI account before change
When the investor’s place of birth is other than India
When the investor is a resident of USA or UK only
WRONG ANSWER
CORRECT ANSWER
When the investor’s place of birth is other than India
EXPLANATION
For applicants, including guardians, whose country of birth/citizenship/nationality/tax residency is other than India, the application requires additional information under Foreign Account Tax Compliance Act (FATCA).
Q 16. Recency bias applies to ______ events.
only positive
only negative
both positive and negative
WRONG ANSWER
CORRECT ANSWER
both positive and negative
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 leads people to prefer safe assets. Similarly, a bull market makes people allocate more than what is advised for risky assets.
Q 17. As per SEBI guidelines, _________ is/are vested with the responsibility of developing indices as benchmark for debt mutual fund schemes.
AMFI
Research and rating agencies
The mutual fund themselves
The risk management department of the AMC’s
WRONG ANSWER
CORRECT ANSWER
Research and rating agencies
EXPLANATION
As per the SEBI guidelines, the benchmark for debt (and balanced schemes) should be developed by research and rating agencies recommended by AMFI.
CRISIL, ICICI Securities and NSE have developed various such indices.
Q 18. ______ is used to measure fund’s risk relative to market index.
Tracking error
Beta coefficient
Treynor ratio
Sharpe ratio
WRONG ANSWER
CORRECT ANSWER
Beta coefficient
EXPLANATION
Beta is a commonly used risk measure and calculates the relative volatility of a stock or Mutual Fund’s returns as against its benchmark.
For example, if the Beta of a Mutual Fund scheme is 1, it means the fund moves in line with the benchmark.
Likewise, say the Beta of a fund is higher than 1. Assume it is 1.5. So, if the NIFTY 50 jumps by 1%, the fund benchmarked against NIFTY 50 is likely to go up by 1.5%.
Q 19. Identify the TRUE statement/s.
1. The market liquidity can get impacted due to market related events and company factors
2. There cannot be a price impact on mutual fund units due to liquidity demands due to redemption or portfolio rebalancing
Only 1 is true
Only 2 is true
Both 1 and 2 are true
Both 1 and 2 are false
CORRECT ANSWER
EXPLANATION
Liquidity Risk is one of the general risk factor involved in Mutual Fund investments.
The liquidity of investments made in the Scheme may be restricted by trading volumes, settlement periods and transfer procedures. Although the investment universe constitutes securities that will have high market liquidity, there is a possibility that market liquidity could get impacted on account of company/sector/general market-related events and there could be a price impact on account of portfolio rebalancing and/or liquidity demands on account of redemptions.
Q 20. The AMC or its Trustees are not liable for any loss to Foreign Investors arising from adverse changes in foreign exchange rates. – State whether True of False?
True
False
CORRECT ANSWER
EXPLANATION
A Mutual Fund Scheme may be denominated in Indian Rupees (INR) which is different from the home currency for Foreign Portfolio Investors in the mutual fund units. The INR value of investments when translated into home currency by Foreign Portfolio Investors could be lower because of the currency movements.
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 21. The indices based on Government securities will be an appropriate benchmark for which type of funds?
Credit Risk Funds
Gilt Funds
Money Market Funds
Liquid Funds
WRONG ANSWER
CORRECT ANSWER
Gilt Funds
EXPLANATION
Gilt funds invest only in Government securities. Therefore, indices based on Government Securities are the appropriate benchmark.
Q 22. In case the units are pledged, the unit holder ______ .
can sell the units after the lockin period
cannot sell the units
cannot sell but can switch the units to another scheme
cannot do additional purchase
WRONG ANSWER
CORRECT ANSWER
cannot sell the units
EXPLANATION
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 23. For which mutual fund distributors is a due diligence process mandated by SEBI?
A mutual fund distributor who services more than 25 investors
A mutual fund distributor who receives commission of over Rs. 50 Lakhs from a single mutual fund
A mutual fund distributor who brings in investments from investors of over Rs. 1 crore for a single mutual fund
All of the above
WRONG ANSWER
CORRECT ANSWER
A mutual fund distributor who receives commission of over Rs. 50 Lakhs from a single mutual fund
EXPLANATION
SEBI has mandated AMCs to put in place a due diligence process to regulate distributors who qualify any one of the following criteria:
Multiple point presence (More than 20 locations)
AUM raised over Rs. 100 crore across industry in the non-institutional category but including high networth individuals (HNIs)
Commission received of over Rs. 1 Crore p.a. across industry
Commission received of over Rs. 50 Lakhs from a single mutual fund.
Q 24. Identify the true statement(s) –
A) Individuals can register upto five bank accounts with a mutual fund
B) A Non-Individual can register upto ten bank accounts with a mutual fund
Only A is correct
Only B is correct
Both A and B are correct
Both A and B are incorrect
WRONG ANSWER
CORRECT ANSWER
Both A and B are correct
EXPLANATION
Mutual funds provide investors the facility to register multiple bank accounts to facilitate receiving the redemption, dividends and any other pay outs from the fund.
An individual investor can register up to five bank accounts and a non-individual investor, ten.
Q 25. Which amongst the following bias can lead to concentrated portfolio?
Familiarity Bias
Herd Mentality
Overconfidence Bias
Recency Bias
CORRECT ANSWER
EXPLANATION
Familiarity Bias – An individual tends to prefer the familiar over the novel, as the popular proverb goes, “A
known devil is better than an unknown angel.” This leads an investor to concentrate the investments in what is familiar, which at times prevents one from exploring better opportunities, as well as from a meaningful diversification.
Q 26. Identify the true statement(s) with respect to benchmark for Sector Funds.
A) Its ideal to benchmark a sector fund against an index representing the respective sector
B) Its advisable to benchmark a sector fund against a diversified fund to get the correct picture
Only A is true
Only B is true
Both A and B are true
CORRECT ANSWER
EXPLANATION
A sector fund would invest in only the concerned sector so the benchmark has to be a similar index. For eg. A Banking Sector fund can be benchmarked against S&P BSE Bankex and an Infrastructure Fund can be benchmarked against Nifty Infrastructure Index to get the correct picture.
Q 27. Which of these funds are suitable for investors who have a long term investment horizon and are looking for growth?
Income Funds
Long duration funds
Equity funds
Liquid funds
WRONG ANSWER
CORRECT ANSWER
Equity funds
EXPLANATION
Although equities as an asset class are volatile investments but over a long duration of time they tend to give good growth.
Income funds, Long duration funds and Liquid funds are all debt funds the returns from them will only be the interest received. They are more for security and steady returns and not for growth.
Q 28. Indicate which of these funds have the lowest to highest risk sequence?
A) Liquid Fund B) Credit Risk Fund C) Corporate Bond Fund
B – C – A
C – A – B
A – B – C
A – C – B
WRONG ANSWER
CORRECT ANSWER
A – C – B
EXPLANATION
Liquid funds are least risky as they invest in high quality debt instruements.
Corporate Bond Funds are little more risky as they predominantly invest in AA+ and above rated corporate bonds.
Credit Risk Funds are much more risky as they invest 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 29. Which of the following information about mutual fund distributors who have multiple points of presence (more than 20 locations) must be disclosed by the AMCs?
A) Distributor-wise gross inflows and net inflows
B) Average assets under management
C) Total commission and expenses paid to distributors
B and C
A and C
A and B
All A, B and C
WRONG ANSWER
CORRECT ANSWER
All A, B and C
EXPLANATION
For mutual fund distributors having multiple point of presence (More than 20 locations), mutual funds / AMCs need to disclose the total commission and expenses paid to distributors, disclosures regarding distributor-wise gross inflows (indicating whether the distributor is an associate or group company of the sponsor(s) of the mutual fund), net inflows, average assets under management and ratio of AUM to gross inflows on their respective website on a yearly basis.
Q 30. With respect to the procedure for getting empanelled as a mutual fund distributor with AMC, the applicant needs to sign a declaration for _______ .
Guarantee of adding a minimum of 5 investors every month
declaring the rebates given back to the investors
ensuring that all employees who are selling mutual funds will have more than on ARN code
Commitment to abide by statutory codes, guidelines and circulars
WRONG ANSWER
CORRECT ANSWER
Commitment to abide by statutory codes, guidelines and circulars
EXPLANATION
The applicant needs to sign a declaration which provides for, among other conditions, the commitment to abide by instructions given, as also statutory codes, guidelines and circulars.
Q 31. What is the investment objective of a mutual fund which seeks to grow in value over a period of time?
Capital Adequacy
Capital Appreciation
Safety of Capital
Regular Returns
WRONG ANSWER
CORRECT ANSWER
Capital Appreciation
EXPLANATION
Equity funds generally grow in value over a period of time and their investment objective is – To generate capital appreciation/income from a portfolio, predominantly invested in equity and equity related instruments
Q 32. Which of these is a physical asset?
Bank Deposits
Units by Real Estate investment Trusts
Real estate
Shares in physical form
WRONG ANSWER
CORRECT ANSWER
Real estate
EXPLANATION
Real estate means physical property in the form of land and buildings.
Units by Real Estate investment Trusts, Bank Deposits and shares in physical form are all financial assets.
Q 33. Which of these statement(s) is/are TRUE?
1. There cannot be a price impact on mutual fund units due to portfolio rebalancing and/or liquidity demands on account of redemptions.
2. Market liquidity of mutual fund units can get impacted on account of company/sector related events
Only 1
Only 2
Both 1 and 2
WRONG ANSWER
CORRECT ANSWER
Only 2
EXPLANATION
Statement 1 is false : Portfolio rebalancing and liquidity demands due to redemptions can cause mutual funds to buy or sell large quantities of securities in the market. This can impact the price of the underlying securities, which in turn affects the Net Asset Value (NAV) of mutual fund units.
Statement 2 is true : If a mutual fund holds stocks or bonds from a specific company/sector, and that sector faces negative events (e.g., regulatory changes, defaults, financial distress), it can lead to Low liquidity (difficulty in selling assets), Drop in NAV due to declining security prices and Higher impact costs for investors trying to redeem their mutual fund units.
Q 34. How is the redemption transaction of a mutual fund priced?
NAV plus exit load
NAV minus exit load
NAV plus entry load
NAV minus entry load
WRONG ANSWER
CORRECT ANSWER
NAV minus exit load
EXPLANATION
Schemes are permitted to keep the re-purchase Price lower than the NAV. The difference between the NAV and re-purchase Price is called the “exit load”.
If the NAV of a scheme is Rs. 11.00 per unit, and it were to charge exit load of 1 percent, the re-purchase Price would be Rs. 11 – 1 percent on Rs. 11 i.e. Rs. 10.89.
Q 35. Calculate the Treynor Ratio from the following data – Return from a mutual fund scheme is 7.5 %. The beta is 0.62. The risk free rate of return is 6%.
11.60
4.77
3.08
2.42
WRONG ANSWER
CORRECT ANSWER
2.42
EXPLANATION
Treynor Ratio = (Return Earned – Risk Free Return) / Beta
= (7.5 – 6) / 0.62
= 1.5 / 0.62
= 2.42
Treynor Ratio is a risk premium per unit of risk. Higher the Treynor Ratio, better the scheme is considered to be.
Q 36. ________ is not a mutual fund distribution channel.
Branches of Public sector banks
Branches of Reserve Bank of India
Branches of Private sector banks
Branches of Foreign banks
WRONG ANSWER
CORRECT ANSWER
Branches of Reserve Bank of India
EXPLANATION
Reserve Bank of India or its branches are not involved in the sales and distribution of mutual fund products.
Q 37. Which of these statement(s) is / are TRUE ?
A) The Asset Management Company (AMC) is not accountable for the procedures for detecting incorrect valuation
B) It is mandatory for the AMC to disclose the valuation policy
Only A is true
Only B is true
Both A and B are true
Both A and B are false
WRONG ANSWER
CORRECT ANSWER
Only B is true
EXPLANATION
The responsibility of true and fairness of valuation and correct NAV shall be of the Asset Management Company, irrespective of disclosure of the approved valuation policies and procedures.
Disclosure of the valuation policy and procedures approved by the Board of the AMC shall be made in Statement of Additional Information, on the website of the AMC to ensure transparency of valuation norms to be adopted by asset management company.
Q 38. What does financial goal setting involve?
Determination of risk profile
Estimating the amount required for a major life event
Determining asset allocation
WRONG ANSWER
CORRECT ANSWER
Estimating the amount required for a major life event
EXPLANATION
The first step in financial goal setting is to identify events in life which will require major funding – like child education, marriage, retirement etc.
Asset allocation / Risk profile are looked into later while deciding the investments etc.
Q 39. A person wants to create a synthetic index. Guide him as to in which of these categories the weightage of equity index would be the lowest?
Super aggressive hybrid fund
Aggressive hybrid fund
Balanced hybrid fund
Conservative hybrid fund
WRONG ANSWER
CORRECT ANSWER
Conservative hybrid fund
EXPLANATION
In a CRISIL Conservative Hybrid Fund, the equity component will be only 25% and Debt will be 75%.
In Aggressive Hybrid Fund, the ratio of Equity and Debt is 75% and 25% and in a Balanced Hybrid Fund, the ratio is 50% and 50%.
Q 40. Which of these statement(s) is/are TRUE?
A) If the mutual fund units are held in demat form, they cannot be converted in to physical form
B) When a mutual fund is redeemed or when there is a dividend pay-out, the amount will be credited to the bank account linked to the demat account for those mutual fund investors who opt for demat units
Only A is correct
Only B is correct
Both A and B are correct
WRONG ANSWER
CORRECT ANSWER
Only B is correct
EXPLANATION
The mutual fund investor has the option to convert the demat units into physical form. This process
is called re-materialisation.
Dividends and redemption proceeds will be credited directly to the bank account via. electronic modes such as direct credit, NEFT, NACH facility.
Q 41. How will an application to subscribe mutual fund units be treated if an AMFI Registration Number (ARN) is mentioned in the application form and the choice of Regular Plan is indicated ?
It will be treated as a regular plan application
It will be treated as an incomplete application and rejected
It will be treated as an incomplete application and returned for completion
It will be treated as a direct plan application
CORRECT ANSWER
EXPLANATION
If investment (purchase/repurchase) is routed through a distributor, then it is considered that one has chosen to invest in the Regular Plan.
Mutual Fund distributors shall quote a valid ARN and EUIN in the client’s application / transaction feed, in order to place transactions in Regular Plan and receive commissions.
Q 42. Calculate the Average Holding Period if the portfolio turnover ratio is 50 percent.
50 months
2 Years
3.5 Years
15 Years
WRONG ANSWER
CORRECT ANSWER
2 Years
EXPLANATION
Average Holding Period = 12 (months) / Portfolio Turnover Ratio
Here the Portfolio turnover ratio is 50 percent i.e. 50/100 = 0.5
Average Holding Period = 12 / 0.5 = 24 months = 2 Years
Q 43. Asset allocation means ____________.
Distribution of funds between Fund Managers in a Mutual Fund
Distribution of funds between various asset classes in a portfolio
Allocating a portfolio to cash
Allocating mutual funds to investors
WRONG ANSWER
CORRECT ANSWER
Distribution of funds between various asset classes in a portfolio
EXPLANATION
The distribution of an investor’s portfolio between different asset classes is called asset allocation.
For eg – If an investor wishes to invest Rs 10 lakhs – His funds can be divided and invested in Equity, Debt and Gold – This is asset allocation.
Q 44. What is the NAV if the value of stocks in a Mutual Fund scheme is Rs 100 cr, Value of Bonds is Rs 10 cr, Value of Money Market Instruments is Rs 25 cr, Dividend Accrued but not received is Rs 3 cr and Fees payable is Rs 5 cr. The number of outstanding units is 75 lacs.
173.33
177.33
184
186.74
WRONG ANSWER
CORRECT ANSWER
177.33
EXPLANATION
NAV = (Value of stocks + Value of bonds + Value of money market instruments + Dividend accrued but not received + Interest accrued but not received – Fees payable) / No. of outstanding units
= 100 cr + 10 cr + 25 cr + 3 cr + 0 – 5 cr / 75 lacs
= 133 cr / 75 lacs
= 177.33
Q 45. Which entity processes the purchase and redemption transactions of investors of an open-ended fund ?
The Custodian
The Broker / Mutual Fund Agent
AMFI
The R & T Agent
WRONG ANSWER
CORRECT ANSWER
The R & T Agent
EXPLANATION
The Registrar and Transfer Agency (RTA) maintains investor records as well as allots or redeems units, processes purchase/redemption/switch requests, dividends, etc. It also generates the account statement that an investor receives.
Q 46. What is the regulatory requirement with respect to a change in the controlling interest in an AMC ?
The unitholders have to be given the option to exit
A minimum of 50% of the unitholders have to approve the change in controlling interest
The trustees have to give the unitholders the option to wind-up the scheme
All of the above
CORRECT ANSWER
EXPLANATION
A change in the control of the AMC directly or indirectly can be made only with the prior approval of the trustees and SEBI. A written communication about the change in the control of the AMC is sent to each unitholder and an advertisement is given.
The unitholders are given the option to exit on the prevailing Net Asset Value (NAV) without any exit load within a time period not less than 30 calendar days from the date of communication.
Q 47. The investment in equity and equity related instruments is between _________ in a Balanced Hybrid Fund.
Between 65 percent and 80 percent of total assets
Between 50 percent and 75 percent of total assets
Between 40 percent and 60 percent of total assets
Between 10 percent and 25 percent of total assets
WRONG ANSWER
CORRECT ANSWER
Between 40 percent and 60 percent of total assets
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 Conservative Hybrid Fund, its between10 percent and 25 percent of total assets.
In Aggressive Hybrid Fund, its between 65 percent and 80 percent of total assets.
Q 48. Identify the FALSE statement/s.
A) During redemption, the mutual fund distributor should guide the investor to redeem those schemes which have the highest exit load
B) The best strategy in selecting a mutual fund scheme for investment is that based on its past performance
Only A is false
Only B is false
Both A and B are false
Neither A nor B are false
WRONG ANSWER
CORRECT ANSWER
Both A and B are false
EXPLANATION
The mutual fund advertisements use the disclaimer: “Past performance may or may not be sustained in future”. There is a reason for that. As 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.
When an investor wants to redeem from a scheme, the distributor must suggest redemption from the scheme with the minimum exit load.
Q 49. The _______ is the promoter of a Mutual Fund.
Trust
AMC
Sponsor
Custodian
WRONG ANSWER
CORRECT ANSWER
Sponsor
EXPLANATION
Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more Sponsors, who are the main persons behind the mutual fund business.
Q 50. When an institutional investor is not allowed to invest in equity markets than the mutual fund distributor can sell _________ to such an investor.
Corporate Bond Fund
Equity Savings Fund
Multi Asset Allocation Fund
Arbitrage Fund
WRONG ANSWER
CORRECT ANSWER
Equity Savings Fund
EXPLANATION
Institutional investors, particularly foreign institutional investors (FIIs), may face restrictions on direct investments in Indian equity markets. However, they can still gain exposure to Indian equities through certain regulated investment vehicles.
Equity Savings Funds: These funds are a type of mutual fund that typically invests a portion of their assets in equities while maintaining a significant allocation in debt instruments. This structure allows them to provide some level of equity exposure with reduced risk. Since these funds are managed by Indian mutual fund houses, they can be accessible to institutional investors under specific regulatory frameworks.