Q 1. In which of the following options does an investor receive the distribution in hand?
Income Distribution cum capital withdrawal option only
Income distribution cum capital withdrawal reinvestment plan only
Income Distribution cum capital withdrawal option and Income distribution cum capital withdrawal reinvestment plan both
Growth
CORRECT ANSWER
EXPLANATION
Most mutual fund schemes offer two options – Income Distribution cum capital withdrawal and Growth. A third option, which is possible, is the Re-investment of Income Distribution cum capital withdrawal Option
In a Pay-out of Income Distribution cum capital withdrawal option, the investor receives the dividend in his bank account.
In a Re-investment of Income Distribution cum capital withdrawal plan the investor does not receive the dividend in his bank account; the amount is re-invested in the same scheme and additional units are allotted to the investor
In a growth option, dividend is not declared. Therefore, nothing is received in the bank account.
Q 2. Identify the TRUE statement/s with respect to the risks associated with short selling and stock lending.
1. There is counterparty risk and liquidity risk in short selling
2. There is no risk associated with stock lending as the transaction is done through an approved intermediary
Only 1 is true
Only 2 is true
Both 1 and 2 are true
CORRECT ANSWER
EXPLANATION
Short-selling is the sale of shares or securities that the seller does not own at the time of trading. Instead, he borrows it from someone who already owns it. Later, the short seller buys back the stock/security he shorted and returns the stock/security to the lender to close out the loan. The inherent risks are Counterparty risk and liquidity risk of the stock/security being borrowed. The security being short sold might be illiquid or become illiquid and covering of the security might occur at a much higher price level than anticipated, leading to losses.
Securities Lending is lending of securities through an approved intermediary to a borrower under an agreement for a specified period with the condition that the borrower will return equivalent securities of the same type or class at the end of the specified period along with the corporate benefits accruing on the securities borrowed. There are risks inherent in securities lending, including the risk of failure of the other party. Such failure can result in a possible loss of rights to the collateral, the inability of the approved intermediary to return the securities deposited by the lender and the possible loss of corporate benefits accruing thereon.
Q 3. Which of the following is INCORRECT with respect to advertisements of Mutual Funds by AMCs.
The advertisements can use celebrities for endorsements
The advertisements can show past performance of the scheme
The advertisements can show the return numbers
All of the above are incorrect
CORRECT ANSWER
EXPLANATION
As per the SEBI Advertisement Code for Mutual Funds – No celebrities shall form part of the advertisement.
(AMFI can use celebrities but individual mutual funds cannot use celebrities)
Q 4. Tactical Asset Allocation decisions are based on which of these factor/s?
Likely behaviour of the markets
Age of the investor
Income 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 is to take advantage of the opportunities presented by various markets at different points of time.
Q 5. From the below mentioned entities associated with a mutual fund, who has to mandatorily contribute to the corpus of the mutual fund?
The Trustees
The Custodians
The Asset Management Company
The Sponsors
WRONG ANSWER
CORRECT ANSWER
The Sponsors
EXPLANATION
The mutual fund trust is created by one or more Sponsors, who are the main persons behind the mutual fund business.
The sponsor is the promoter of the mutual fund. The sponsor brings in capital and creates a mutual fund trust and sets up the AMC.
The sponsor makes an application for registration of the mutual fund and contributes at least 40% of the net worth of the AMC. In other words, every MF needs a sponsor before it can commence operations.
Q 6. The benchmark for a debt mutual fund scheme could be chosen on the basis of Scheme Type and Scheme Size. – State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
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 7. An Addendum has to be issued for changes in _______ .
Fund Fact Sheet
Half yearly results of the mutual fund
Scheme Information Document (SID)
Statement of Additional Information (SAI)
WRONG ANSWER
CORRECT ANSWER
Scheme Information Document (SID)
EXPLANATION
Updation of Scheme Documents—Regulatory provisions :
In case of change in fundamental attributes in terms of Regulation, an addendum to the existing SID shall be issued and displayed on AMC website immediately.
In case of other changes in SID, the AMC shall be required to issue an addendum and display the same on its website immediately.
Q 8. Which of these funds will generally have a higher fund management cost?
Debt Fund
Passive Equity Fund
Active Equity Fund
Equity Index Fund
WRONG ANSWER
CORRECT ANSWER
Active Equity Fund
EXPLANATION
In Active Equity Funds the fund manager does a lot of buying / selling which result in higher transaction costs. Also a lot of research work goes into it. So the cost of fund management are higher.
Equity Index Funds or Passive Equity funds invest in a portfolio that mimics a market index. There is no selection risk in index funds because the fund manager has no role in creating the portfolio. For this reason, the costs that an index fund is allowed to charge is also lower since there are no research or other fund management expenses.
Q 9. Which of these information is not contained in the Scheme Information Document (SID)?
Names of securities in the scheme’s portfolio
Investment objective of the scheme
Risk factors of the scheme
Portfolio features
CORRECT ANSWER
EXPLANATION
The names of securities in the scheme’s portfolio is contained in the Fund fact sheet and not in the SID.
Q 10. Which one of these is an advantage of investing in Mutual Funds?
Economies of scale
Portfolio customization
Choice overload
All of the above
CORRECT ANSWER
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.
Q 11. Identify the FALSE statement/s with respect to benchmarks for mutual fund schemes.
A. A Multi-Cap fund can have Nifty 500 index as its benchmark
B. A Multi-Cap fund can have BSE Sensex as its benchmark
Only A is false
Only B is false
Both A and B are false
None of the above
WRONG ANSWER
CORRECT ANSWER
Only B is false
EXPLANATION
A Multi-Cap fund invests in Large Cap, Mid Cap and Small Cap stocks as per proportions stipuated by SEBI.
The Nifty500 index represents top 100 large cap companies, top 150 Mid-cap companies and top 250 small cap companies. Therefore, it can be a good benchmark for a Multi-Cap fund.
The BSE Sensex has 30 large cap stocks from various sectors and it can be good benchmark for a large cap fund and not for a multi cap fund.
Q 12. The minimum number of investors that a mutual fund scheme should have :
10 investors
20 investors
50 investors
100 investors
WRONG ANSWER
CORRECT ANSWER
20 investors
EXPLANATION
Every mutual fund scheme/plan should 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 13. Identify the TRUE statement/s :
1. The Beta of a diversified stock index is greater than 1
2. An investment with a beta of 0.8 will move 8 percent when markets move by 10%
3. Beta as a measure of risk is relevant only for equity schemes.
Only 1 and 2 are true
Only 2 and 3 are true
Only 1 and 3 are true
All 1, 2 and 3 are true
WRONG ANSWER
CORRECT ANSWER
Only 2 and 3 are true
EXPLANATION
Beta measures the fluctuation in periodic returns in a scheme, as compared to fluctuation in periodic returns of a diversified stock index (representing the market) over the same period.
The diversified stock index, by definition, has a Beta of 1. Companies or schemes, whose beta is more than 1, are seen as riskier than the market. Beta less than 1 is indicative of a company or scheme that is less risky than the market.
An investment with a beta of 0.8 will move 8 percent when markets move by 10 percent. This applies to increase as well as fall in values. An investment with a beta of 1.2 will move by 12 percent both on the upside and downside when markets move (up/down) by 10 percent.
Beta as a measure of risk is relevant only for equity schemes.
Q 14. Identify the TRUE statement with respect to Total Expense Ratio (TER).
Disclosure of TER is very critical as there is no regulation capping it
As the TER of mutual fund schemes is highly regulated and therefore no disclosures are required
SEBI has specific and strict regulations regarding the cap for TER as well as the periodic disclosure of the same
None of the above
WRONG ANSWER
CORRECT ANSWER
SEBI has specific and strict regulations regarding the cap for TER as well as the periodic disclosure of the same
EXPLANATION
One of the important factors that impact the scheme’s NAV is the Total Expense Ratio (TER), charged to the scheme.
Though the same is very tightly regulated through SEBI regulations, the investor should know about the scheme expense ratio. SEBI has mandated that the Asset Management Companies (AMCs) should prominently disclose on a daily basis, the Total expense ratio (scheme-wise, date-wise) of all schemes.
Q 15. Identify the FALSE statement :
1. When an investor sells his mutual fund units, the re-purchase is done by the mutual fund. Therefore the investor does not have to bear a tax on the capital gains
2. When an investor invests in a debt mutual fund for more than three years, the capital gains will be considered as Long term capital gain
Only 1 is false
Only 2 is false
Both 1 and 2 are false
WRONG ANSWER
CORRECT ANSWER
Both 1 and 2 are false
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.
As per Finance Act 2023, growth option of debt funds was made taxable as short term capital gains (STCG) irrespective of holding period. Therefore there is no Long term capital gain tax in debt funds.
Q 16. Diversified equity funds are less risky compared to Thematic funds in terms of _______ risk.
Duration
Size
Concentration
Style
WRONG ANSWER
CORRECT ANSWER
Concentration
EXPLANATION
A Thematic fund invests in line with an investment theme. For example, an infrastructure thematic fund might invest in shares of companies that are into infrastructure, construction, cement, steel, telecom, power etc.
A Diversified equity fund invests in many sectors and themes as per the investment policy and fund managers decisions.
Thematic funds are risky because of the concentration in one theme. If the theme under-performs then the scheme’s returns is likely to be poor.
Q 17. Ms. Apeksha invests Rs 2 crore in a Gilt scheme at 2 pm with a local cheque. What would be the applicable NAV for allotment of units?
Closing NAV of date of application
Closing NAV of next business day
Closing NAV of day immediately preceding the date of application
NAV of the business day on which the funds are available for utilization
WRONG ANSWER
CORRECT ANSWER
NAV of the business day on which the funds are available for utilization
EXPLANATION
Irrespective of the time of receipt of application, for all equity oriented funds and debt funds (except liquid funds) in respect of transaction of any amount, the applicable NAV will be NAV of the business day on which the funds are available for utilisation.
Q 18. When does the market price of close-end mutual fund scheme converge with the NAV price?
During the New Fund Offer
Before the New Fund Offer
Toward maturity
It never converges
WRONG ANSWER
CORRECT ANSWER
Toward maturity
EXPLANATION
A close-ended scheme offers liquidity through its listing on a stock exchange.
Typically, towards the maturity of the scheme, the market price converges towards the NAV.
Q 19. The Net Asset Value (NAV) of a segregated portfolio has to be declared on a ______ .
Daily basis after the credit event
Weekly basis (on every Saturday) after the credit event
Monthly basis after the credit event
NAV need not be declared
CORRECT ANSWER
EXPLANATION
To ensure fair treatment to all investors in case of a credit event and to deal with the liquidity risk, in December 2018, SEBI permitted creation of segregated portfolio of debt and money market instruments by mutual funds schemes. “Segregated portfolio” means a portfolio, comprising of debt or money market instrument affected by a credit event, that has been segregated in a mutual fund scheme.
The Net Asset Value (NAV) of the segregated portfolio shall be declared on a daily basis.
Q 20. _______ is not included in the fundamental attributes of a mutual fund scheme.
Exit loads
Liquidity provisions such as listing, repurchase, redemption
Aggregate fees and expenses charged to the scheme
Any safety net or guarantee provided
CORRECT ANSWER
EXPLANATION
Within the SID, there is an important section on fundamental attributes of a scheme with following parameters :
Type of a scheme
Investment Objective
Terms of Issue
Exit loads do not form a part of the fundamental attributes of a mutual fund scheme.
Q 21. What is the purpose of ‘credit enhancement’ in case of securitised transaction?
Payment of higher coupon
Generating capital gain
Higher credit worthiness
WRONG ANSWER
CORRECT ANSWER
Higher credit worthiness
EXPLANATION
in securitisation transactions, it is possible to work towards a target credit rating, which could be much higher than the originator’s own credit rating. This is possible through a mechanism called “Credit enhancement”.
The process of “Credit enhancement” is fulfilled by filtering the underlying asset classes and applying selection criteria, which further diminishes the risks inherent for a particular asset class.
Q 22. When is the Scheme Information Document (SID) updated?
Every year
Every month
Every two years
Every six months
WRONG ANSWER
CORRECT ANSWER
Every six months
EXPLANATION
As per SEBI circular in 2021- For the open ended and interval schemes, the SID shall be updated within next six months from the end of the 1st half or 2nd half of the financial year in which schemes were launched, based on the relevant data and information as at the end of previous month. Subsequently, SID shall be updated within one month from the end of the half-year, based on the relevant data and information as at the end of September and March respectively.
Q 23. Which of these is a Passive Fund?
A) Gold Sector Fund
B) Gold Mining Companies Fund
C) Gold Exchange Traded Fund
D) Gilt Funds
Both A and B
Only D
Only C
All A, B, C and D
WRONG ANSWER
CORRECT ANSWER
Only C
EXPLANATION
Passive funds invest on the basis of a specified index; whose performance it seeks to track. For eg. NIfty Index fund.
Exchange Traded Funds (traded on exchanges) are also passive funds that generate returns in line with the index or benchmark.
So, from the above options, only Gold Exchange Traded Fund is a passive fund.
Q 24. Which of these investors is/are exempted from providing PAN details for investments in Mutual Funds?
Systematic investment plans, where annual investment does not exceed Rs 50000
Investors residing in the state of Sikkim
Transactions undertaken on behalf of Central/State government
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
The following categories of investors are exempt from producing PAN:
– In case of transactions undertaken on behalf of Central/State government and by officials appointed by the court.
– Investors residing in the state of Sikkim.
– UN entities/Multilateral agencies exempt from paying taxes/filing tax returns in India.
– Investments (including SIPs and lump sum investments) in Mutual Fund schemes upto Rs. 50,000/- per investor per year per mutual fund.
Q 25. Which of these documents have to be updated once in six months?
Mandatory portfolio disclosures
Scheme Information Document
Fund factsheet
All of the above
WRONG ANSWER
CORRECT ANSWER
Scheme Information Document
EXPLANATION
As per SEBI circular in 2021- For the open ended and interval schemes, the SID shall be updated within next six months from the end of the 1st half or 2nd half of the financial year in which schemes were launched, based on the relevant data and information as at the end of previous month. Subsequently, SID shall be updated within one month from the end of the half-year, based on the relevant data and information as at the end of September and March respectively.
Q 26. An investor chooses a mutual fund scheme based on whether his / her ________ matches with that of the scheme.
Investment period
Investment objective
Investment strategy
WRONG ANSWER
CORRECT ANSWER
Investment objective
EXPLANATION
Every scheme has a pre-announced investment objective. Investors invest in a mutual fund scheme whose investment objective reflects their own needs and preference.
The primary objective of various schemes stems from the basic needs of an investor, viz., safety, liquidity, and returns.
Q 27. Mutual funds have to follow the regulations of Reserve Bank of India (RBI) for investments in _______ .
Securities market
Gold
Money market
Commodity market
WRONG ANSWER
CORRECT ANSWER
Money market
EXPLANATION
RBI regulates the money market and foreign exchange market in the country. Therefore, mutual funds need to comply with RBI’s regulations regarding investment in the money market, investments outside the country etc.
Q 28. To become a mutual fund distributor in India, one has to pass an exam which is conducted by ______ .
Securities and Exchange Board of India – SEBI
National Stock Exchange – NSE NCFM
National Institute of Securities Markets – NISM
Association of Mutual Funds in India’s – AMFI
WRONG ANSWER
CORRECT ANSWER
National Institute of Securities Markets – NISM
EXPLANATION
Distributors need to pass the NISM certification Examination (NISM-Series- V-A: Mutual Fund Distributors (MFD) Certification Examination) and register with AMFI.
Q 29. How often does a mutual fund disclose the information on Total Expense Ratio charged to a mutual fund scheme and where is this published?
Daily – on the mutual fund website
Weekly – on the mutual fund website
Once a month in the fund Factsheet
Once a year when it makes the mandatory disclosures to SEBI and AMFI
CORRECT ANSWER
EXPLANATION
SEBI has mandated that the Asset Management Companies (AMCs) should prominently disclose on a daily basis, the Total expense ratio (scheme-wise, date-wise) of all schemes under a separate head – “Total Expense Ratio of Mutual Fund Schemes” on their website.
Q 30. In India, the Mutual funds are constituted as ______ .
Limited Company
Non-Government Organisation
Self Regulatory Organisations
Trusts
WRONG ANSWER
CORRECT ANSWER
Trusts
EXPLANATION
Mutual funds are constituted as Trusts. Therefore, they are governed by the Indian Trusts Act, 1882
Q 31. Suresh see’s that his friends are investing in a finance scheme which is promising very high returns (a ponzi scheme). He also blindly invests in the same scheme. Which bias is Suresh exhibiting?
Herd mentality
Loss Aversion
Confidence bias
Anchoring
CORRECT ANSWER
EXPLANATION
In behavioral finance, Herd Mentality bias refers to investors’ tendency to follow and copy what other investors are doing. They are largely influenced by emotion and instinct, rather than by their own independent analysis.
This often works against investors interests in the financial markets.
Q 32. Which is the first step that a mutual fund distributor should take in building a mutual fund portfolio for his investors?
He should list the best performing funds for the investor to select
He should set the financial goals of the investor
He should invest the amount in a liquid fund and set a Systematic Transfer Plan in good equity funds
He should list good equity funds with the lowest expense ratio for the investor to select
WRONG ANSWER
CORRECT ANSWER
He should set the financial goals of the investor
EXPLANATION
The selection of a mutual fund scheme for an investor will depend upon the need that the investor has from the investment. The objective could be a financial goal like reaching a certain level of wealth in a specified period of time; or it could be funding a major expense related to an important life event like education of one’s children or funding one’s retirement. The sight of the goal must never be missed.
Therefore, the first step is to set the financial goals.
Q 33. ________ is a proper benchmark for a balanced hybrid scheme.
CRISIL Hybrid 75+25 , Conservative Index
CRISIL Hybrid 25+75 , Aggressive Index
CRISIL Hybrid 50+50 , Moderate Index
WRONG ANSWER
CORRECT ANSWER
CRISIL Hybrid 50+50 , Moderate Index
EXPLANATION
CRISIL blended indices for hybrid funds :
Aggressive Hybrid Fund – CRISIL Hybrid 25+75 , Aggressive Index
Balanced Hybrid Fund – CRISIL Hybrid 50+50 , Moderate Index
Conservative Hybrid Fund – CRISIL Hybrid 75+25 , Conservative Index
Q 34. In which of these cases will the ‘lock-in’ in a retirement fund be lower than the prescribed 5 years ?
When the retirement age is earlier than 5 years from the date of investment
When the age of the investor at the time of making initial investment is not less than 50 years
When the targeted corpus is achieved before 5 years
All of the above
CORRECT ANSWER
EXPLANATION
Retirement Fund is an open-ended retirement solution-oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier). Scheme having a lock-in for at least 5 years or till retirement age whichever is earlier.
Q 35. Long term capital gains is NOT taxed in which of these funds?
A. Balanced Advantage Funds
B. Balanced Funds
C. Diversified Equity Funds
Both A and B
Only C
Only A
Capital gains from all types of mutual funds are taxed subject to certain conditions
WRONG ANSWER
CORRECT ANSWER
Capital gains from all types of mutual funds are taxed subject to certain conditions
EXPLANATION
Long term capital gains tax is applicable for Equity Funds at 10% and Non-equity-oriented funds (Equity between 35% to 65% of portfolio) at 20% with indexation benefits.
Q 36. Which expenses can be charged by the AMC to a mutual fund scheme?
Expenses which are incurred to manage the fund
Expenses which are incurred to launch the fund
Expenses which are incurred by the AMC
Expenses which are incurred by the investors in buying the fund
CORRECT ANSWER
EXPLANATION
Expenses for managing the fund are charged to the fund. Any expense other than investment advisory fee and recurring expenses shall be borne by the asset management company or trustee or sponsors.
Q 37. Smita is a young investor and her parents advice her to invest in fixed deposits of banks so that these funds can be used for her retirement. If Smita follows her parents advice, what risk does she face?
She has to select the correct bank which is financially strong
There is a high risk of default in her portfolio
There is a risk of low returns
There is no risk as fixed deposits are quiet safe
WRONG ANSWER
CORRECT ANSWER
There is a risk of low returns
EXPLANATION
Fixed deposits usually give a low rate of return and when adjusted against inflation, the return can sometimes be very low or even negative. This will not help in building her retirement corpus.
Smita is a young investor and has plenty of time in her hand. So she should invest in growth stocks / equity mutual funds rather than fixed deposits.
Q 38. Mr. X has invested Rs. 2,00,000 in a 370 day FMP and on maturity he received Rs. 2,15,832. What is the capital gain in this transaction?
Rs. 7916
Rs. 13750
Rs. 15832
Insufficient Data
WRONG ANSWER
CORRECT ANSWER
Rs. 15832
EXPLANATION
Capital Gains is calculated as the difference between the sum invested and the sum realized when the units are sold / matured.
So in the above question, capital gain is Rs 215832 – 200000 = Rs. 15832
Q 39. Mr. Shah gives a local cheque at 2.30 pm of Rs 30 lacs for investment in an Equity Scheme. Which will be the applicable NAV for allotment of units to Mr. Shah ?
NAV of the business day on which the funds are available for utilisation
Closing NAV of the next business day
Closing NAV of day immediately preceding the date of application
Same day NAV if received before cut off time.
CORRECT ANSWER
EXPLANATION
Vide SEBI circular dated September 17, 2020, it was decided that with respect to purchase of units of MF schemes – both Debt and Equity (except liquid and overnight schemes), closing NAV of the day shall be applicable, on which the funds are available for utilisation irrespective of the size and time of receipt of such application.
Until now, investors who gave a cheque for below Rs 2,00,000 got the same day’s NAV, while those putting more got the NAV of the day when the cheque was realised.
Q 40. For which of these documents is Time Stamping mandatory?
Payment instrument only
Application form only
Transaction slip for buying additional units
Both for Application form / transaction slip and payment instrument
WRONG ANSWER
CORRECT ANSWER
Both for Application form / transaction slip and payment instrument
EXPLANATION
Time stamping is mandatory for all financial transactions in mutual funds like purchase, redemption etc. The application form, the payment instrument etc. have to be time and date stamped.
Q 41. Which of these investors will settle for lower returns as he/she prefers low level of risks?
A Moderate investor
A Conservative investor
An Aggressive investor
An Adventurous investor
WRONG ANSWER
CORRECT ANSWER
A Conservative investor
EXPLANATION
A conservative investor is someone who wants his money to grow but does not want to risk his principle investment.
Conservative investors choose financial products that do not fluctuate much in value, such as conservative mutual funds.
Q 42. A Certificate of Deposit issued by a bank will be for ________ .
3 days to 2 Years
7 days to 1 Year
45 days
3 years
WRONG ANSWER
CORRECT ANSWER
7 days to 1 Year
EXPLANATION
A Certificate of Deposit is a fixed-income financial tool that is governed by the Reserve Bank of India and is issued in a dematerialized form. It is a type of agreement made between the depositors and the banks, wherein the bank pays an interest on your investment.
Certificates of Deposit are issued by Banks (for 7 days to 1 year) or by Financial Institutions (for 1 to 3 years).
Q 43. A creditable benchmark of a mutual fund scheme should be in sync with the __________ .
Investment strategy of the scheme
Asset allocation pattern of the scheme
Investment objective of the scheme
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
A credible benchmark should meet the following requirements: It should be in sync with (a) the investment objective of the scheme (i.e., the securities or variables that go into the calculation of the benchmark should be representative of the kind of portfolio implicit in the scheme’s investment objective); (b) asset allocation pattern; and (c) investment strategy of the scheme.
Q 44. Identify which of these statement/s is/are CORRECT?
A. Investors can be categorized on the basis of their age and investors of same age should always have the same asset allocation in their investment portfolios
B. Only after considering the individual’s risk profile, the asset allocation should be done between core portfolio and satellite portfolio.
Only statement A is correct
Only statement B is correct
Both statements A and B are correct
None of the above
WRONG ANSWER
CORRECT ANSWER
Only statement B is correct
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.
Different investors have different financial goals at different age levels. In fact, investors in the same age group may also have different goals. Their financial situations may also differ. At the same time, many of the financial goals may pertain to the whole families and not just an individual. In such cases, it may not be prudent to categorize investors on the basis of age alone.
Q 45. __________ is a Passive Fund.
Gold Sector Fund
Gold Exchange Traded Fund (ETF)
ELSS Fund
Gilt Fund
WRONG ANSWER
CORRECT ANSWER
Gold Exchange Traded Fund (ETF)
EXPLANATION
Passive funds invest on the basis of a specified index; whose performance it seeks to track. For eg. NIfty Index fund.
Exchange Traded Funds (traded on exchanges) are passive funds that generate returns in line with the index or benchmark.
So, from the above options, only Gold Exchange Traded Fund is a passive fund.
Q 46. The main document which authorises a company to invest in a particular Mutual Fund scheme is __________.
The Articles of Association
The Memorandum of Association
Share holder Resolution
Specific Board Resolution
WRONG ANSWER
CORRECT ANSWER
Specific Board Resolution
EXPLANATION
The Board resolution authorises the company to invest in mutual fund schemes.
Q 47. The transaction costs are low for investments in real estate as compared to other financial assets. State whether True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
Transaction costs, in the form of stamp duty, registration fees, brokerage etc. are high in real estate transactions.
Q 48. Mr. Mehta is a stock market investor. The stock market had crashed recently. Mr. Mehta pulls back all his investment from the stock markets because he fears that the markets will fall again. Which bias is Mr. Mehta exhibiting?
Recency Bias
Overconfidence Bias
Confirmation Bias
Herd mentality
CORRECT ANSWER
EXPLANATION
Recency bias : The impact of recent events on decision making can be very strong.
The recent experience overrides analysis in decision making. For example, a rise in prices of equities will make people think only about a further rise which would lead to more investment being made in equities. This increases the risk. On the other hand, a fall in prices in an asset would make people stay away thinking it would fall further which could lead to loss of opportunities.
Q 49. Identify the true statement with respect to measuring returns for Mutual Funds schemes.
A. Compounded Annual Growth Rate ‘CAGR’ technique has been prescribed by SEBI when dividend is paid and compounding is to be considered
B. CAGR is the recognized standard for calculating returns for investment horizon of greater than or equal to 1 year
C. Simple Return can be calculated using the formula : Sale Price – Cost Price / Cost Price * 100
Only A and B are correct
Only A and C are correct
Only B and C are correct
All A, B and C are correct
WRONG ANSWER
CORRECT ANSWER
All A, B and C are correct
EXPLANATION
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
Simple Return can be calculated with the following formula : Sale Price – Cost Price / Cost Price * 100
Q 50. Statement of Additional Information (SAI) has to be regularly updated and the updation has to be done by the end of 3 months every financial year – State whether True or False?
True
False
CORRECT ANSWER
EXPLANATION
Updation of Scheme Documents—Regulatory provisions
Updation of SAI : Regular update has to be done by the end of 3 months of every financial year. Material changes have to be updated on an ongoing basis and uploaded on the websites of the mutual fund and AMFI.