Q 1. If a investor has to change his default account, he/she has to do it with ____ .
The KYC Registration agency
AMFI
Either KRA or AMFI
The mutual fund (AMC) directly
WRONG ANSWER
CORRECT ANSWER
The mutual fund (AMC) directly
EXPLANATION
Mutual funds provide investors the facility to register multiple bank accounts to facilitate receiving the redemption, dividends and any other payouts from the fund. An individual investor can register up to five bank accounts. One of the accounts is designated as the default account, and unless otherwise specified all credits are made to this account by the mutual fund.
Investors can change the default bank account at any time by instructing the AMC to do so.
Q 2. Which of these expenses can be charged to a mutual fund scheme by the AMC?
Rent for registered office of the mutual fund
Salaries of fund management team
General administration expenses of the AMC
Fees of custodians and fund administrators
WRONG ANSWER
CORRECT ANSWER
Fees of custodians and fund administrators
EXPLANATION
In addition to the investment and advisory fee, the AMC may charge the mutual fund scheme with recurring expenses which includes fees of custodians and fund administrators.
Q 3. Identify the TRUE statement –
A. It is mandatory for the AMC to disclose the valuation policy
B. The AMC is not accountable for policies and procedures for detecting and preventing incorrect valuation
Only A is true
Only B is true
Both A and B are true
None of the above
CORRECT ANSWER
EXPLANATION
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.
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.
Q 4. An Asset Management Company (AMC) can recover investment management and advisory fees on management of the unclaimed amounts, ________ .
only on the actual expenses incurred in holding the funds
at a maximum rate of 0.50 percent per annum
as per the fee applicable on the scheme from which the redemption was made
No investment management and advisory fees can be charged on unclaimed amounts
WRONG ANSWER
CORRECT ANSWER
at a maximum rate of 0.50 percent per annum
EXPLANATION
AMC is expected to make a continuous effort to remind the investors through letters to claim their uncliamed amounts.
AMC can recover investment management and advisory fees on management of these unclaimed amounts, at a maximum rate of 0.50 percent per annum.
Q 5. The sponsor of a mutual fund can be compared to the Chief Executive of a company – State True or False?
True
False
WRONG ANSWER
CORRECT ANSWER
False
EXPLANATION
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.
Q 6. Which distributor will be covered under the due diligence process of the Asset Management Company as mandated by SEBI?
A distributor who has presence in more than 10 locations
A distributor who has AUM of over Rs. 100 crores from non-institutional investors
A distributor who has received commission of over Rs 25 lakhs from one mutual fund
All of the above
WRONG ANSWER
CORRECT ANSWER
A distributor who has AUM of over Rs. 100 crores from non-institutional investors
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 crores across the industry in the non-institutional category butincluding high net worth individuals (HNIs)
– The commission received of over Rs. 1 Crore p.a. across industry
– The commission received of over Rs. 50 Lakhs from a single mutual fund
Q 7. Can an investor redeem any amount from a Segregated Portfolio. If Yes, than what are the restrictions?
There is no restriction on redemptions from a Segregated Portfolio
Only 25 % of the value of current investments can be redeemed from a Segregated Portfolio
Only 50 % of the value of current investments can be redeemed from a Segregated Portfolio
An investor cannot redeem any amount from a Segregated Portfolio from the AMC
WRONG ANSWER
CORRECT ANSWER
An investor cannot redeem any amount from a Segregated Portfolio from the AMC
EXPLANATION
“Segregated portfolio” means a portfolio, comprising of debt or money market instrument affected by a credit event, that has been segregated in a mutual fund scheme.
No redemption or subscription is allowed in the segregated portfolio.
However, in order to facilitate exit to unitholders in segregated portfolio, AMC shall enable listing of units of segregated portfolio on the recognized stock exchange.
Q 8. Identify the category of mutual fund scheme in which the Net Asset Value (NAV) has to be declared for up to 4 decimal points?
Mid-Cap Funds
Blue Chip Funds
Hybrid Funds
Liquid Funds
WRONG ANSWER
CORRECT ANSWER
Liquid Funds
EXPLANATION
NAV is to be calculated upto 4 decimal places in the case of index funds, liquid funds and other debt funds.
(NAV for equity and balanced funds is to be calculated upto at least 2 decimal places)
Q 9. In case one of the joint holders dies, than the units will ________ .
be transferred to the HUF of deceased holder
be transferred to nominee/s
continue to be held by surviving joint holders
redeemed automatically
WRONG ANSWER
CORRECT ANSWER
continue to be held by surviving joint holders
EXPLANATION
Once a mutual fund folio is created as a jointly held account there can be no change in the joint holders.
A joint holder cannot be deleted or a new one added, except in the event of death.
In the event of a death of a joint holder. his/her name is deleted and the surviving joint holders can continue with the investment.
Q 10. Identify the false statement/s.
A. Investments in mutual funds can be made on a repatriable basis by NRIs
B. The mutual fund will automatically pay in Dollars when the NRI redeems his investments which were made on a repatriable basis
Only A is false
Only B is false
Both A and B are false
WRONG ANSWER
CORRECT ANSWER
Only B is false
EXPLANATION
For Non-resident investors, payment is made by the AMC in Rupees. In case the investment has been made on a repatriable basis, and the investor wishes to transfer the money abroad, the costs associated with converting the rupees into any foreign currency would be to the account of the investor.
Proceeds of investments made on a repatriable basis can be credited to an NRE (Non-Resident External) or FCNR ( Foreign Currency Non-Resident) account, as required by the investor.
Q 11. Which of the following is true for a monthly income distribution cum capital withdrawal plan (IDCW) of a mutual fund scheme?
The mutual fund guarantees declaring the IDCW, however the amount may differ
The mutual fund guarantees declaring the IDCW amount
The mutual fund cannot guarantee declaring the IDCW amount or frequency
None of the above
WRONG ANSWER
CORRECT ANSWER
The mutual fund cannot guarantee declaring the IDCW amount or frequency
EXPLANATION
The Income distribution cum capital withdrawal (dividend) pay-out option seems attractive for investors wanting a regular income. It should however be kept in mind that even in a mutual fund scheme with a monthly pay-out option, dividend declaration is a function of distributable surplus. If there is no surplus to distribute, dividend cannot be declared.
Therefore, the investor is not assured of dividend in the scheme even when there is a monthly dividend option.
Q 12. ______ is/are frequently used by media and research analysts to check the performance of various schemes of a mutual fund.
Fund Fact Sheet
Annual Accounts of the AMC
Key Information Memorandum (KIM)
Investment Management Agreement
CORRECT ANSWER
EXPLANATION
One of the most popular documents from the mutual fund is the monthly Fund Factsheet. This document is extensively used by investors, fund distributors, fund rating agencies, research analysts, media and others to access information about the various schemes of the mutual fund.
Q 13. The investment range in debt instruments is between ___ of total assets in a Conservative Hybrid Fund.
80 percent and 95 percent
75 percent and 90 percent
50 percent and 65 percent
25 percent and 50 percent
WRONG ANSWER
CORRECT ANSWER
75 percent and 90 percent
EXPLANATION
Conservative Hybrid Fund is an open-ended hybrid scheme investing predominantly in debt instruments.
Investment in debt instruments shall be between 75 percent and 90 percent of total assets while investment in equity and equity instruments shall be between 10 percent and 25 percent of total assets.
Q 14. All transactions of purchase and sale of securities by key personnel of the AMC, who are directly involved in investment operations shall be disclosed to the compliance officer of the member at least on _______ .
Weekly basis
Monthly basis
Half-Yearly basis
Yearly basis
WRONG ANSWER
CORRECT ANSWER
Half-Yearly basis
EXPLANATION
As per the AMFI Code of Ethics – All transactions of purchase and sale of securities by key personnel who are directly involved in investment operations shall be disclosed to the compliance officer of the member at least on half yearly basis and subsequently reported to the Board of Trustees if found having conflict of interest with the transactions of the fund.
Q 15. Management of investments by mutual funds is governed by ______ .
Association of Mutual Funds in India (AMFI)
Reserve Bank of India (RBI)
Securities and Exchange Board of India (SEBI)
Both RBI and SEBI
WRONG ANSWER
CORRECT ANSWER
Securities and Exchange Board of India (SEBI)
EXPLANATION
SEBI is the primary regulator for the securities markets in India, which includes mutual funds. They set the rules and regulations that mutual funds must follow to ensure investor protection and market integrity.
AMFI is a self-regulatory body that promotes ethical practices but does not govern mutual fund regulations.
RBI primarily regulates banks and NBFCs, and its role in mutual funds is limited to specific aspects like foreign exchange regulations.
Q 16. The first Account Statement under SIP/STP shall be issued within 10 working days of the initial investment/transfer – State whether True or False?
True
False
CORRECT ANSWER
EXPLANATION
As per SEBI rules for Account Statements – The first Account Statement under Systematic Investment Plan (SIP) / Systematic Transfer Plan (STP) shall be issued within 10 working days of the initial investment/transfer.
Q 17. Identify which of the foll statement/s is/are false in context of benchmarks.
A. An independent agency should calculate the benchmark in a transparent manner
B. The process of choosing a benchmark for an Index Fund is very complex
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
Choice of benchmark is simplest for an index fund. The investment objective is clear on the index that the scheme would track. That index would then be the benchmark for the scheme.
The benchmark should be calculated by an independent agency in a transparent manner, and published regularly. Most benchmarks are constructed by stock exchanges, credit rating agencies, securities research houses or financial publications.
Q 18. Identify the TRUE statement/s –
A. Time stamping is relevant only for Financial transactions and not for Non-Financial transactions
B. Time stamping is relevant for both Financial and Non-Financial transactions
Only A is true
Only B is true
Both A and B are true
None of the above
CORRECT ANSWER
EXPLANATION
Time stamping for financial transactions like purchase and redemptions etc. is very crucial as it determines the NAV at which the transaction will take place.
Time stamping for non-financial transactions like the change of address, investor’s acknowledgement etc. is not crucial. Only date stamping is important for such non-financial transactions.
Q 19. A top performing scheme within a category _______ .
Is the best choice for an investor to invest his funds
May or may not be the top performer in the next years to come
usually remains the top performer for a long period of time
usually be the worst performer in the next years to come
WRONG ANSWER
CORRECT ANSWER
May or may not be the top performer in the next years to come
EXPLANATION
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. In such a case, simply buying into a scheme due to good returns in the recent past may not be a wise approach.
The mutual fund advertisements use the disclaimer: “Past performance may or may not be sustained in future”.
Q 20. Usually most investors might have invested across various asset categories. However the problem with such asset allocation is that _______ .
such asset allocation earns low returns
such asset allocation is done without defining any objective or without any process
such asset allocation increases the portfolio risk
such asset allocation leads to payment of additional taxes
WRONG ANSWER
CORRECT ANSWER
such asset allocation is done without defining any objective or without any process
EXPLANATION
The basic meaning of asset allocation is to allocate an investor’s money across asset categories in order to achieve some objective. In reality, most investors’ portfolios would have the money allocated across various asset categories. However, in many such cases, the same may be done without any process or rationale behind it.
Asset Allocation is a process of allocating money across various asset categories in line with a stated objective. The underlined words are very important. First, it is a “process”, which always involves several steps, and those steps should not be ignored or skipped. Second, the whole idea behind asset allocation is to achieve some objective. Whichever approach one selects, one must go through the steps of the process in order to achieve the objective.
Q 21. A person who wants to retain liquidity in his investments will invest in _____ .
ELSS Schemes
Fixed Deposits
PPFs
Liquid Funds
WRONG ANSWER
CORRECT ANSWER
Liquid Funds
EXPLANATION
A person who wants liquidity should invest in Liquid Funds as they can be redeemed very fast. Redemption is processed within 24 hours, making them the best choice for retaining liquidity.
Equity linked saving schemes (ELSS) have a lock in period of three years
Fixed Deposits and Public Provident Fund (PPF) cannot be easily encashed before maturity.
Q 22. Who issues a due diligence certificate stating compliance with all legal formalities at the time of making a new offer of mutual fund units?
Board of Trustees
AMC
Compliance Officer
Custodian
WRONG ANSWER
CORRECT ANSWER
AMC
EXPLANATION
The cover page of Scheme Information Document (SID) has the following standard clause – “The particulars of the Scheme have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds)
Regulations 1996, as amended till date, and filed with SEBI, along with a Due Diligence Certificate from the AMC (Asset Management Company).
Q 23. In whose beneficial interest is a mutual fund managed?
Trustees
Unit holders
Sponsors
AMC
WRONG ANSWER
CORRECT ANSWER
Unit holders
EXPLANATION
An investor (unit holder) in a mutual fund scheme is the beneficial owner of the units one has bought. The mutual fund is managed for the beneficial interest of the unitholders.
Q 24. Distributors can ‘opt-out’ of charging transaction charges _____ .
at AMC level
at investor level
at scheme level
at distributor level
WRONG ANSWER
CORRECT ANSWER
at distributor level
EXPLANATION
Distributors have the option of opting out of charging transaction charges. But such opting out shall be applicable only at distributor level. This means that the distributor cannot choose to charge transaction charge from one investor and not from another.
Q 25. Banks and NBFC’s can lend money against ________ of mutual fund units.
Nomination
Redemption
Pledge
All of the above
WRONG ANSWER
CORRECT ANSWER
Pledge
EXPLANATION
Banks, NBFCs and other financiers often lend money against pledge of Units by the Unitholder.
This is effected through a Pledge Form executed by the unit-holder (pledger). The form has a provision for specifying the party in whose favour the units are pledged (pledgee).
Q 26. The Key Information Memorandum (KIM) is an abridged version of which of these documents?
The yearly statement of the portfolio of the fund
The half yearly statement of the financial statement of the fund
The annual accounts of the fund
Scheme related documents SID and SAI
WRONG ANSWER
CORRECT ANSWER
Scheme related documents SID and SAI
EXPLANATION
KIM is essentially a summary of the Scheme Information Document – SID and Statement of Additional Information -SAI. Scheme related documents consist of SID and SAI.
It contains the key points of these documents that are essential for the investor to know to make a decision on the suitability of the investment for their needs.
Q 27. Which of the below statements is a important advantage of a Exchange Traded Fund (ETF) ?
A person can closely track the current valuation of an ETF and buy/sell the units on a stock exchange at those prices
ETFs generally give higher returns than other Mutual Funds
An investor in an ETF can have a control on where his money can be invested
All of the above
CORRECT ANSWER
EXPLANATION
ETFs are passive funds whose portfolio replicates an index or benchmark such as an equity market index or a commodity index.
The units of the ETF are traded at real time prices that are linked to the changes in the underlying index.
The market price also tracks the NAV very closely.
Q 28. Identify the factor which must be considered to determine the asset allocation for an investor?
Financial goals of the investor and his financial situation
AUM of the scheme
Scheme expenses
Past performance of the scheme
CORRECT ANSWER
EXPLANATION
Asset Allocation is allocation aligned to the financial goals of the individual. It considers the returns required from the portfolio to achieve the goals, given the time horizon available for the corpus to be created and the risk profile of the individual.
Q 29. If a third party payment is to be made for subscribing to a mutual fund scheme, then which of the following is/are essentially required?
The minimum investment has to be Rs. 50,000
The third party has to provide PAN details and also comply with the KYC norms
The third party should also have a folio with the mutual fund
All of the above
WRONG ANSWER
CORRECT ANSWER
The third party has to provide PAN details and also comply with the KYC norms
EXPLANATION
Compliance with the KYC norms and providing the PAN details are mandatory by the third party making the payment irrespective of the amount involved.
The third party need not have a folio with the mutual fund.
Q 30. When an investment is done by a minor, what is rule regarding Know Your Customer (KYC) requirement?
No KYC is required
It depends whether the investment is in equity funds or debt funds
KYC will be required only if the transaction is thorough a stock exchange
KYC of the guardian is required
WRONG ANSWER
CORRECT ANSWER
KYC of the guardian is required
EXPLANATION
An investment made for a minor (less than 18 years) is done through a guardian who has to comply with the KYC and PAN requirements and all other formalities as if the investment was for themselves.
Q 31. Risk profile of an investor is influenced by _______ .
A) the need to take risks
B) the willingness to take risks
C) the ability to take risks
Only C
A and B
A and C
All A, B and C
WRONG ANSWER
CORRECT ANSWER
All A, B and C
EXPLANATION
The investor’s risk appetite is a function of three things—the need to take risks, the ability to take risks, and the willingness to take risks.
Thus, an understanding of the risk profile and the investment risks associated with various mutual fund schemes would be essential for deciding the asset allocation in an investor’s portfolio.
Q 32. As per SEBI Code of Conduct, mutual fund schemes portfolios should be managed in the interest of _______ .
Trustees
Sponsors
Brokers
All classes of unit holders
WRONG ANSWER
CORRECT ANSWER
All classes of unit holders
EXPLANATION
As per SEBI Code of Conduct – Trustees and asset management companies shall carry out the business and invest in accordance with the investment objectives stated in the scheme related documents and take investment decision solely in the interest of unitholders.
Q 33. An investor purchases through a distributor 5000 units of a mutual fund scheme at a NAV of Rs 25. The current NAV of the scheme is Rs 43. What will be the trail commission for today if the trail commission rate is 1% per annum.
Rs. 2150
Rs. 33.1854
Rs. 3.4246
Rs. 5.8904
WRONG ANSWER
CORRECT ANSWER
Rs. 5.8904
EXPLANATION
Trail commission is always calculated on the current NAV.
The current total value of investments in the above question is Rs. 43 X 5000 units = Rs. 2,15.000
Trail commission for the day = Current value X trail commission rate p.a./365
= 215000 X 1% / 365 days
= 2150 / 365 = Rs. 5.8904
Q 34. Identify the false statement(s).
A) The best strategy in selecting a mutual fund scheme is that based on its past performance
B) When an investor wants to redeem from a scheme, the distributor must suggest redemption from the scheme with the maximum exit load
Only statement A is false
Only statement B is false
Both statements A and B are false
WRONG ANSWER
CORRECT ANSWER
Both statements A and B are false
EXPLANATION
Experience has shown time and again, the top performers during one period may not necessarily remain as a top performer forever or near the other top performers and vice versa. In such a case, simply buying into a scheme due to good returns in the recent past may not be a wise approach.
When an investor wants to redeem from a scheme, the distributor must suggest redemption from the scheme with the minimum exit load.
Q 35. In a Corporate Bond fund, the minimum investment in highest rated corporate bonds is ______ percent of the total assets.
50
60
70
80
WRONG ANSWER
CORRECT ANSWER
80
EXPLANATION
Corporate Bond Fund: An open-ended debt scheme predominantly investing in AA+ and above rated corporate bonds. The minimum investment in corporate bonds shall be 80 percent of total assets (only in AA+ and above rated corporate bonds).
Q 36. If an investor wants to get updated monthly performance and portfolio data on mutual funds, which of the following documents should he read?
Scheme Information Document (SID)
Fund Fact Sheet
Key Information Memorandum (KIM)
Statement of Additional Information (SAI)
WRONG ANSWER
CORRECT ANSWER
Fund Fact Sheet
EXPLANATION
The fund fact sheet plays a vital role in giving updated information on the mutual fund schems and usually is published on a monthly basis by all the fund houses.
Factsheet is not a statutory requirement.
Q 37. An investor in India has invested in US Dollar based funds. He/She will benefit when ______ .
The US Dollar becomes weaker
The US Dollar becomes stronger
The US Dollar reamins steady
WRONG ANSWER
CORRECT ANSWER
The US Dollar becomes stronger
EXPLANATION
If the investor invests in the US, and the US Dollar becomes stronger during the period of his investment, he/she will benefit.
For eg. – An investor buys USD 1000 worth of units in a US mutual fund when the exchange rate was Rs 75 for 1 USD. So his investment is Rs 75000
If USD becomes stronger against India Rupee and rises to Rs. 77 and he sells USD 1000 worth of units, his realisation in Indian rupees is 1000 x 77 = Rs 77000. So he earns Rs 2000
(This is assuming all other factors like the NAV of the mutual fund remaining the same)
Q 38. The loss booked from a debt investment of 15 months can be set off against ________ .
Long term capital loss
Short term capital loss
Short term capital gain or long term capital gain
It cannot be set-off
WRONG ANSWER
CORRECT ANSWER
Short term capital gain or long term capital gain
EXPLANATION
In India, taxation on capital gains is determined based on the holding period of the asset. For debt investments (such as bonds, debt mutual funds, etc.):
– Short-Term Capital Gain (STCG): If held for less than 36 months
– Long-Term Capital Gain (LTCG): If held for 36 months or more
Since the debt investment was held for 15 months, it qualifies as a short-term capital loss (STCL).
Set-Off Rules for Capital Losses:
Short-Term Capital Loss (STCL) can be set off against
– Short-Term Capital Gains (STCG)
– Long-Term Capital Gains (LTCG)
Long-Term Capital Loss (LTCL) can be set off only against LTCG.
Since a 15-month debt investment results in a short-term capital loss, it can be set off against both STCG and LTCG.
Q 39. __________ invest in those securities which have maturity matching the maturity of the scheme.
Fixed Maturity Plans
Exchange Traded Funds
ELSS Funds
High Yield Funds
CORRECT ANSWER
EXPLANATION
Fixed Maturity Plans are a kind of close-ended debt fund where the duration of the investment portfolio is closely aligned to the maturity of the scheme.
Fixed Maturity Plan is ideal when the investor’s investment horizon is in sync with the maturity of the scheme, and the investor is looking for a more predictable return than any conventional debt scheme, and a return that is generally superior to what is available in a fixed deposit.
Q 40. The minimum required investment from an investor in a Specialized Investment Fund (SIF) is _______ .
Rs. 5 Lakhs
Rs. 10 Lakhs
Rs. 25 Lakhs
There is no such restriction
WRONG ANSWER
CORRECT ANSWER
Rs. 10 Lakhs
EXPLANATION
SEBI in its recent amendment to SEBI (Mutual Funds) Regulations, has introduced a new product line under mutual funds known as Specialized Investment Fund (SIF). The minimum required investment amount is Rs. 10 lakhs from the investors across all investment strategies.
SIFs are designed for investors who are more informed about the markets and are willing to take higher risks for potentially higher returns. The minimum investment in the scheme is Rs 10 lakh, and they will offer a higher degree of flexibility to the fund managers compared to mutual fund managers.
Q 41. Identify which of these is not included in the ‘Fundamental Attributes’ of a mutual fund scheme?
Aggregate fees and expenses charged to the scheme
Any safety net or guarantee provided
Exit Loads
Liquidity provisions such as listing, repurchase, redemption
WRONG ANSWER
CORRECT ANSWER
Exit Loads
EXPLANATION
Within the Scheme Information Document, there is an important section on fundamental attributes of a scheme with following parameters on terms of issue :
Terms of Issue –
Liquidity provisions such as listing, repurchase, redemption.
Aggregate fees and expenses charged to the scheme.
Any safety net or guarantee provided.
Exit Loads do not form a part of ‘Fundamental Attributes’ of a scheme.
Q 42. Which of these authorities uses the information collected under FATCA?
Foreign Government
Indian Govenment
Indian Tax Authorities
All of the above
WRONG ANSWER
CORRECT ANSWER
All of the above
EXPLANATION
To comply with the requirements of Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) provisions, financial institutions, including mutual funds, are required to undertake due diligence process to identify foreign reportable accounts and collect such information as required under the said provisions and report the same to the US Internal Revenue Service/any other foreign government or to the Indian Govt / Tax Authorities for onward transmission to the concerned foreign authorities.
Q 43. In a Large Cap mutual fund scheme, the minimum investment limit in equity and equity related instruments of large cap companies is ______ .
90%
80%
70%
60%
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 44. The employees of institutions that are into the distribution of mutual funds need to clear the _______ and obtain an Employee Unique Identification Number (EUIN) from AMFI.
SEBI – VA Mutual Fund Distributors Certification Examination
NISM – VB Mutual Fund Distributors Certification Foundation
AMFI – VA Mutual Fund Distributors Certification Examination
NISM – VA Mutual Fund Distributors Certification Examination
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 45. A Mutual Fund scheme gives a return of 10 % and the beta of that scheme is 0.5. The risk free return is 7.5%. What is the Treynor Ratio of this scheme ?
3%
5%
7.5%
10%
WRONG ANSWER
CORRECT ANSWER
5%
EXPLANATION
Treynor Ratio measures the returns earned in excess of that which would have earned on a riskless investment.
Treynor Ratio Formula :
(Return earned on the Scheme – Risk Free Rate) / Beta of the Scheme
= (10 – 7.5) / 0.5
= 5
Q 46. Identify the true statement with respect to ‘Unclaimed Dividend’ and redemption amounts in mutual fund schemes.
The Asset Management Company can charge a penalty from the investors to refund the unclaimed dividend
The Asset Management Company can recover investment management fees from the investor but within the prescribed rates
The Asset Management Company has to transfer the unclaimed amounts to investor education fund
All of the above
WRONG ANSWER
CORRECT ANSWER
The Asset Management Company can recover investment management fees from the investor but within the prescribed rates
EXPLANATION
As per SEBI rules – The mutual fund has to deploy unclaimed dividend and redemption amounts in the money market and in a separate plan of Liquid scheme floated by mutual funds especially for investing the unclaimed amounts.
AMC can recover investment management and advisory fees on management of these unclaimed amounts, at a maximum rate of 0.50 percent per annum and there shall be no exit loads charged on this plan.
Q 47. The Valuation Policy of a mutual fund is mentioned in which document?
Fund Factsheet
Statement of Additional Information (SAI)
Annual accounts of the AMC
Addendum
WRONG ANSWER
CORRECT ANSWER
Statement of Additional Information (SAI)
EXPLANATION
As per the Fair Valuation Principles laid down by SEBI :
Disclosure of the valuation policy and procedures approved by the Board of the asset management company shall be made in Statement of Additional Information, on the website of the asset management company/mutual fund and at any other place where the Board may specify to ensure transparency of valuation norms to be adopted by asset management company.
Q 48. Which is the most important factor for comparing performance of liquid funds ?
The Maturity
The Expense Ratio
The taxation aspect
The NAV
WRONG ANSWER
CORRECT ANSWER
The Expense Ratio
EXPLANATION
Comparing the Expense Ratio of different schemes is imperative for investors looking for the best liquid mutual fund. These schemes more or less earn similar returns. Hence, a fund with a high expense ratio will significantly reduce the returns generated.
Therefore, one should invest in those liquid funds which have the lowest expense ratio.
Q 49. A mutual fund scheme mentions that it will invest not more than 10% of its assets in the money market. This is considered to be the scheme’s ________ .
Investment Policy
Investment Objective
Stock Market Policy
Risk Profile
CORRECT ANSWER
EXPLANATION
The Investment Policy of mutual fund scheme includes the scheme’s asset allocation and investment style.
A mutual fund scheme with the objective of providing liquidity would invest in money market instruments or in debt papers of very short-term maturity. At the same time, a mutual fund scheme that aims to generate capital appreciation over long periods would invest in equity shares. This would reflect in the scheme’s asset allocation, which would be disclosed in the Scheme Information Document (SID).
Q 50. Once the New Fund Offer (NFO) of a Close Ended Fund has closed, a person can buy the listed units of such close ended fund ____________.
At prices usually higher than NAV
At prices usually lower than NAV
At prices which can be higher or lower than NAV
Units of a Close Ended Fund cannot be bought after NFO
WRONG ANSWER
CORRECT ANSWER
At prices which can be higher or lower than NAV
EXPLANATION
After the NFO of a close ended fund, sale and purchase transactions happen on the stock exchange between two different investors, and that the fund is not involved in the transaction.
The transaction price is likely to be different from the NAV. Depending on the demand-supply situation for the units of the scheme on the stock exchange, the transaction price could be higher or lower than the prevailing NAV.