Q 1.

An ongoing bond fund will lose value when the interest rates
in the market ______ .
Rise
Fall
remains same
will be equal to yields
CORRECT ANSWER:

Rise

Explanation:
Suppose an investor has invested in a debt security that yields a return of 7
percent. Subsequently, yields in the market for similar securities rise to 8 percent.
It stands to reason that the security, which was bought at 7 percent yield, is no
longer such an attractive investment. It will therefore lose value.

Q 2. The difference between the yield on Gilt and the yield on a

non-Government Debt security is called its ______ .
YTM
Credit Spread
Yield to Call
Risk Spread
CORRECT ANSWER:

Credit Spread

Explanation:
The yield on Gilt (Govt. securities) is generally the lowest in the market for a given
tenor. Since non-Government issuers can default, they tend to offer higher yields
for the same tenor.

The difference between the yield on Gilt and the yield on a non-Government Debt
security is called its credit spread.
Q 3. When a Mutual fund scheme makes profits or losses, these
profits and losses belong to _______ .
The AMC
The Trustees
The Fund Manager
The Investor
CORRECT ANSWER:

The Investor

Explanation:
The investor enjoys the profits as well as bears the losses of his investments in
Mutual Funds.

Q 4. A fundamental analyst will study the Candle-Stick charts and

also the financial statement of a company. State whether True
or False?
True
False
CORRECT ANSWER:

False

Explanation:
Fundamental analysis is a study of the business and financial statements of a
firm. It does not study the charts like the Candle-Stick charts.

Charts are studied by the technical analysts

Q 5. The return from a mutual fund scheme is 8.3% and the

Standard Deviation is 0.6. The risk-free rate of return is 5%.
Calculate the Sharpe ratio.
3.5
5.5
4
2.87
 CORRECT ANSWER:

5.5

Explanation:
The formula for Sharpe Ratio is: (Rs-Rf ) / Standard Deviation

i.e. (Return Earned - Risk free Return) / Standard Deviation

= (8.3 - 5) / 0.6

= 3.3 / 0.6

= 5.5

Q 6. 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
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 7. The trustees of a mutual fund is appointed by the ______ .

Sponsors
SEBI
Asset Management Company (AMC)
Custodian
 CORRECT ANSWER:

Sponsors

Explanation:
The application to SEBI for registration of a mutual fund is made by the
Sponsor(s).

The Sponsors then appoints the Trustees.

The operations of the mutual fund trust are governed by a Trust Deed, which
is executed between the sponsors and the trustees.

Q 8. How can the empanelment of a mutual fund distributor be

terminated?
The empanelment gets automatically terminated on the
completion of the term of empanelment
Asset Management Company can terminate the empanelment
at any time
When all the clients of the distributor shift to Direct Plans
All of the above
CORRECT ANSWER:

Asset Management Company can terminate the empanelment at any time

Explanation:
While empanelling with an AMC, the mutual fund distributor applicant signs a
declaration which gives power to the AMC to terminate the empanelment at any
time

Q 9. 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:

The advertisements can use celebrities for endorsements

 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 If a mutual fund enters into a transaction for purchase or sale

10.
of securities with any of its associates, then the members of
Asset Management Company of the mutual fund have to
________ .
Inform the mutual fund unitholders of the intent to undertake the
transaction before it is done
Justify the fairness of the transaction to the Board of Trustees
Make certain that the transactions happens at a price that is
better than the closing market price
Take the approval of the trustees before undertaking the
transactions
CORRECT ANSWER:

Justify the fairness of the transaction to the Board of Trustees

Explanation:
As per the AMFI Code of Ethics for Mutual Funds:

Members shall in respect of transactions of purchase and sale of securities

entered into with any of their associates or any significant unitholder:

1. Submit to the Board of Trustees details of such transactions, justifying its

fairness to the scheme

2. Disclose to the unitholder’s details of the transaction in brief through annual

and half yearly reports
Q Identify the False statement - -
11.
Mutual funds units which have been purchased on a stock
exchange have a compulsory lock-in period
Mutual funds units can be bought on stock exchanges but they
cannot be sold there
Both of the above are false
CORRECT ANSWER:

Both of the above are false

Explanation:
SEBI has facilitated buying and selling of the units of open-ended mutual funds
through the stock exchanges. The low cost and deeper reach of the stock
exchange network enable an increased level of participation of retail investors in
mutual funds.

Mutual fund units can be bought and sold on stock exchange and they do not
have a lock-in period except some funds like ELSS.

Q Risk Profilers are used to ascertain the risk appetite of an

12.
investor. State whether True or False?
True
False
CORRECT ANSWER:

True

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 Which of the following is true for a monthly income
13.
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
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 Identify the false statement/s. A. Investments in mutual funds

14.
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
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

or FCNR account, as required by the investor.
Q The additional Total Expense Ratio (TER) charged has to be
15.
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
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 Identify the TRUE statement/s. 1. The market liquidity can get

16.
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:

Only 1 is true

Explanation:
Liquidity Risk is one of the general risk factors 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 Which of these funds will generally have a higher fund

17.
management cost?
Debt Fund
Passive Equity Fund
Active Equity Fund
Equity Index Fund
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 Identify the information which is NOT included in the

18.
Statement of Additional Information (SAI).
Rights of Unit-holders
Transmission procedure
SIP returns of the schemes
Investment Valuation Norms
CORRECT ANSWER:

SIP returns of the schemes

Explanation:
Statement of Additional Information (SAI), which has statutory information about
the mutual fund or AMC, that is offering the scheme like the Constituents of the
mutual fund, Rights of Unit-holders, Investment Valuation Norms, Rights of Unit-
holders etc.
 It does not contain information on scheme returns etc. This information is
available in the Mutual Fund Fact Sheet.

Q Identify the FALSE statement: 1. As per AMFI guidelines, the

19.
intermediary has a no right of appeal to AMFI 2. It is not the
sole responsibility of the mutual fund distributors for
spreading investor awareness
Only 1 is false
Only 2 is false
Both 1 and 2 are false
CORRECT ANSWER:

Only 1 is false

Explanation:
One of the role and function of AMFI is: To undertake a nationwide investor
awareness programme to promote proper understanding of the concept and
working of mutual funds.

Thus, mutual fund distributors are not solely responsible for spreading investor
awareness.

As per the AMFI Guidelines & Norms for Intermediaries (AGNI), the intermediary
has a right of appeal to AMFI.

Q Identify the false statement/s with respect to a New Fund Offer

20.
(NFO). 1. A Closed-ended mutual fund NFO will have a NFO
opening date, a NFO closing date and a scheme Re-opening
date 2. A Open-ended mutual fund NFO will have a NFO
opening date, a NFO closing date and a scheme Re-opening
date
Only 1 is false
Only 2 is false
Both 1 and 2 are false
None of the above
CORRECT ANSWER:

Only 1 is false
 Explanation:
A Closed-ended mutual fund will not have a Re-opening date. They offer liquidity
through its listing on a stock exchange. Investors who which to invest or exit can
do it through a stock exchange broker.

Q ………… is the most relevant factor for comparing

21.
performance of liquid funds of similar category offered by
various mutual fund houses.
Expenses
Maturity
Current NAV
Taxation
CORRECT ANSWER:

Expenses

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.

For example, suppose two funds deliver returns of 5% and 5.5%, respectively.
Let’s say the expense ratio of the first fund is 0.2%, and the second fund is 0.8%.
Therefore, the actual yield will be 4.8% and 4.7%. Hence, a fund with a lower
expense ratio may be more profitable for an investor.

Q Amongst the distribution channel mentioned below, which

22.
one is likely to sell funds of only a single mutual fund house?
Distribution Company
Independent financial advisor
Institutional sales team of the Asset Management Company
Bank
CORRECT ANSWER:

Institutional sales team of the Asset Management Company

 Explanation:
An independent financial advisor, a bank or a distribution company will sell
mutual fund schemes of various mutual fund houses as per their client’s
requirements and other considerations.

However, an institutional sales team of an Asset Management Company will sell

schemes only of the single mutual fund house which has appointed it.

Q An Asset Management Company (AMC) can recover

23.
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
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 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.

Q Calculate the Average holding period if the portfolio turnover

24.
ratio is 25 percent.
25 months
48 days
40 months
4 Years
CORRECT ANSWER:

4 Years
 Explanation:
Average Holding Period = 12 (months) / Portfolio Turnover Ratio

Here the portfolio turnover ratio is 25 percent i.e., 25/100 = 0.25

Average Holding Period = 12 / 0.25 = 48 months = 4 Years

Q Opening of time stamping machine needs to be documented

25.
and reported to the Asset Management Company (AMC) -
State whether True or False?
True
False
CORRECT ANSWER:

False

Explanation:
The points of acceptance for mutual fund transactions have time stamping
machines with tamper-proof seal.

Opening the machine for repairs or maintenance is permitted only by vendors or

nominated persons of the mutual fund. Such opening of the machine has to be
properly documented and reported to the Trustees.

Q A top performing scheme within a category _______ .

26.
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
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 An Addendum has to be issued for changes in _______ .
27.
Fund Fact Sheet
Half yearly results of the mutual fund
Scheme Information Document (SID)
Statement of Additional Information (SAI)
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 Identify the FALSE statement/s. 1. Arbitrage funds have lower

28.
risk as compared to Equity Funds 2. The main objective of an
Arbitrage Fund is to provide capital appreciation 3. Arbitrage
funds can invest in both Futures/Options(F&O) and cash
markets
Only 1 is false
Only 2 is false
Both 2 and 3 are false
Both 1 and 3 are false
CORRECT ANSWER:

Only 2 is false

Explanation:
Arbitrage Fund is an open-ended scheme investing in arbitrage opportunities.

Arbitrage funds work on the mispricing of equity shares in the spot and futures
market. The fund manager simultaneously buys shares in the cash market and
sells it in futures or derivatives markets. The difference in the cost price and the
selling price is the return you earn.

Their risk level is comparable with that of a pure debt fund. The returns from an
Arbitrage fund is comparable to a debt fund. There is no capital appreciation.
Q In the case of a Sectoral Fund, the minimum investment in
29.
equity and equity related instruments of a particular sector of
total assets should be _____ .
65%
70%
80%
95%
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 Mr. Tarun is in his 30's and has a steady job. He is investing

30.
most of his savings in bank deposits. Due to low rate of return
on bank deposits, he is putting his financial goals at risk.
Which behavioural bias is his portfolio suffering from?
Familiarity bias
Anchoring
Herd mentality
Confidence bias
CORRECT ANSWER:

Familiarity bias

Explanation:
The familiarity bias is when investors tend to invest in what they know and are
comfortable with.

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. As a
result, investors are not diversified across multiple sectors and types of
investments.
Q The ARN is allotted to the mutual fund distributors by ______ .
31.
SEBI
NISM
AMC
AMFI
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 SEBI has regulations pertaining to restrictions on the

32.
investment policies of mutual fund schemes for ensuring that
_____ .
The mutual scheme can improve their ratings over a period of
time
The scheme returns are better than the benchmark returns
The scheme returns are better than the Nifty/Sensex
The mutual fund scheme has a minimum diversification as per
the requirements
CORRECT ANSWER:

The mutual fund scheme has a minimum diversification as per the

requirements

Explanation:
The investors have no control, over the investment management of the mutual
fund. It is in this context that SEBI has laid down regulations pertaining to
investment universe, restrictions and portfolio diversification for investment by
mutual fund schemes.

Such regulations intend to control the risks taken by the mutual fund managers.
Q What is the disadvantage of company fixed deposits when
33.
compared to bank fixed deposits?
Lower rate of interest
Lower safety
Highly volatile
Difficult to liquidate
CORRECT ANSWER:

Lower safety

Explanation:
Company fixed deposits are considered too risky when compared to bank fixed
deposits due to the credit risk. A company is a private entity and may default in
payment of interest and principal amount. A bank is much safer than a private
company and so its fixed deposits are safer to invest.

Q When a mutual fund distributor empanels with an AMC, he/she

34.
has to sign a declaration for ______ .
declaring the rebates given back to the investors
ensuring that all employees who are selling mutual funds will
have more than on ARN code
Guarantee of adding a minimum of 25 investors every month
Commitment to abide by statutory codes, guidelines and
circulars
CORRECT ANSWER:

Commitment to abide by statutory codes, guidelines and circulars

Explanation:
As per the procedure for getting empanelled as a mutual fund distributor with
AMC, one of the requirements is:

The applicant needs to sign a declaration, which provides for the following -

Commitment to abide by instructions given, as also statutory codes, guidelines

and circulars.
Q If an investor has to change his default account, he/she has to
35.
do it with ____ .
The KYC Registration agency
AMFI
Either KRA or AMFI
The mutual fund (AMC) directly
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 From the below mentioned entities associated with a mutual

36.
fund, who has to mandatorily contribute to the corpus of the
mutual fund?
The Trustees
The Custodians
The Asset Management Company
The Sponsors
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 Different investors of the similar age group should always
37.
have the same asset allocation in their investment portfolios -
State whether True or False?
True
False
CORRECT ANSWER:

False

Explanation:
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 Which of these investors CANNOT do CASH investments in

38.
mutual funds up to a limit of Rs. 50,000?
Investments made by a PIO (Person of Indian Origin)
Investments made by Sole Proprietorship firm
Investments made by minors
Investments made by resident Indian investors without PAN
CORRECT ANSWER:

Investments made by a PIO (Person of Indian Origin)

Explanation:
Mutual funds usually do not accept cash. Small investors, who may not be
taxpayers and may not have PAN/bank accounts, such as farmers, small
traders/businessmen/workers are allowed cash transactions for the purchase of
units in mutual funds to the extent of Rs. 50,000/-per investor, per mutual fund,
per financial year.

This facility is available only for resident individuals, sole proprietorships and
minors investing through their guardians.

PIO is not among the eligible investors.

Q How can the fundamental attributes of a mutual fund scheme
39.
be changed?
The fundamental attributes cannot be changed
The fundamental attributes can be changed but this should be
communicated to all the unit holders who should be provided an
option to exit the scheme
The fundamental attributes can be changed with the permission
of SEBI and AMFI
The fundamental attributes can be changed but only with the
consent of 100 percent of unit holders
CORRECT ANSWER:

The fundamental attributes can be changed but this should be

communicated to all the unit holders who should be provided an option to
exit the scheme

Explanation:
As per the rights and responsibilities of Trustees -

The trustees shall not permit a change in the fundamental attributes of the
scheme, the trust or fees and expenses or any other change that will affect the
interests of the unitholders unless written communication is sent to each
unitholder, a notice is given in the newspaper with national circulation and the
unitholders are given the option to exit at NAV without paying an exit load.

Q Redemption proceeds has to be paid to the mutual fund unit

40.
holders within the time specified by _____ from time to time.
AMFI
SEBI
Registrar of Companies
Ministry of Finance
CORRECT ANSWER:

SEBI

Explanation:
The applicable redemption guidelines for mutual funds are set out in SEBI (Mutual
Funds) Regulations, 1996 and as amended from time to time.
Q Ms Shweta purchases through a distributor 5000 units of a
41.
mutual fund scheme at a NAV of Rs 30. The current NAV of the
scheme is Rs 28. What will be the trail commission for today if
the trail commission rate is 1% per annum
Rs. 13.8356
Rs. 7.2256
Rs. 3.8356
Rs. 26.7463
CORRECT ANSWER:

Rs. 3.8356

Explanation:
Trail commission is always calculated on the current NAV.

The current total value of investments in the above question is Rs. 28 X 5000 units
= Rs. 1,40.000

Trail commission for the day = Current value X trail commission rate p.a./365

= 1,40,000 X 1% / 365 days

= 1400 / 365 = Rs. 3.8356

Q The minimum number of investors that a mutual fund scheme

42.
should have :
10 investors
20 investors
50 investors
100 investors
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 Which is the Source Scheme in a Systematic Transfer Plan ?
43.
It is the scheme with the lower NAV
It is the scheme from which funds are transferred
It is the scheme to which funds are transferred
It is the scheme with the higher NAV
CORRECT ANSWER:

It is the scheme from which funds are transferred

Explanation:
In a Systematic Transfer Plan (STP), the amount that is withdrawn from a scheme
(called the source scheme) is re-invested in some other scheme (called the target
scheme) of the same mutual fund.

Q The investment objective of a/an ………. is to seek capital

44.
appreciation.
Growth Fund
Income Fund
Arbitrage Fund
Liquid Fund
CORRECT ANSWER:

Growth Fund

Explanation:
A Growth fund is a mutual fund which invests in the stocks and aims at achieving
capital appreciation through the investment of funds in growth stocks.

Q Who manages the contributions from investors and takes

45.
investment decisions in a mutual fund company?
The Investors
The Trustees
The Asset Management Company (AMC)
The Sponsors
CORRECT ANSWER:

The Asset Management Company (AMC)

 Explanation:
Fund management is the most critical function in an Asset Management
Company. The main function of this team is to invest the investors’ money in line
with the stated objective of the scheme and to manage the same effectively.

Q When does the market price of close-end mutual fund scheme

46.
converge with the NAV price?
During the New Fund Offer
Before the New Fund Offer
Toward maturity
It never converges
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 What is required for the termination of the services of an

47.
Asset Management Company (AMC) ?
75 % of the mutual funds distributors should approve the
termination of the Asset Management Company
75 % of the unitholders should approve the termination of the
Asset Management Company
The custodian should approve the termination of the Asset
Management Company
AMFI should approve the termination of the Asset Management
Company
CORRECT ANSWER:

75 % of the unitholders should approve the termination of the Asset

Management Company
 Explanation:
The appointment of the AMC for the Mutual Fund can be terminated by majority
of the Directors of the Trustee Board or by 75 percent of the Unitholders of the
Scheme.

Q Identify the TRUE statement with respect to ‘Jensen’s Alpha’

48.
of a mutual fund scheme?
It is a measure of outperformance after adjusting for the risk
taken
It is a measure of risk and outperformance is related to returns
It is a measure of simple outperformance, irrespective of the
risk taken
None of the above
CORRECT ANSWER:

It is a measure of outperformance after adjusting for the risk taken

Explanation:
Jensen's Alpha is used to determine the abnormal return of a security or portfolio
of securities over the theoretical expected return.

It is a risk-adjusted performance measure that represents the average return on

a portfolio or investment, above or below that predicted by the capital asset
pricing model (CAPM), given the portfolio's or investment's beta and the average
market return.
Q In which of the following cases can Goods and Service Tax
49.
(GST) be charged to the mutual fund scheme over and above
the Total Expense Ratio of the scheme ?
GST applicable on AMC fees only can be charged to the
scheme over and above the Total Expense Ratio
GST applicable on any fees must be within the Total Expense
Ratio
GST applicable on distributor commission only can be charged
to the scheme over and above the Total Expense Ratio
GST applicable on AMC fees as well as distributor commission
can be charged to the scheme over and above the Total Expense
Ratio
CORRECT ANSWER:

GST applicable on AMC fees only can be charged to the scheme over and
above the Total Expense Ratio

Explanation:
AMC(s) can charge GST, as per applicable Taxation Laws, to the schemes within
the limits prescribed under SEBI (Mutual Fund) Regulations.

- GST on fees paid on investment management and advisory fees shall be

charged to the scheme in addition to the overall limits specified as per the Total
Expense Ratio (TER) provisions.
- The commission payable to the distributors of mutual funds may be subject to
GST, as applicable in case of the ARN holder. Such tax cannot be charged to the
scheme.

Q Which of the following function can an Asset Management

50.
Company (AMC) do in-house?
Custodial Services
Broking
Registrar and Transfer Agent
CORRECT ANSWER:

Registrar and Transfer Agent

Explanation:
The appointment of Registrar and Transfer Agent (RTA) is done by the AMC.
However, It is not compulsory to appoint an RTA. The AMC can choose to handle
this activity in-house.
 AMC cannot be a custodian or a broker. An independent custodian ensures that
the securities are indeed held in the scheme for the benefit of investors, which is
an important control aspect.

Q The return from a fund is 9 %, Standard Deviation is 0.75 and

51.
the Beta is 1.4. The risk-free rate of return is 7%. What is the
DENOMINATOR in the calculation of the Sharpe Ratio?
9
0.4
7
0.75
CORRECT ANSWER:

0.75

Explanation:
In a fraction - E.g. 21 / 38, the number above the line (21) is called the Numerator
and the number below the line (the bottom number 38) is called the Denominator

The formula for Sharpe Ratio is: (Return Earned - Risk free Return) / Standard
Deviation

Here the Numerator is ‘Return Earned - Risk free Return' and the Denominator
is 'Standard Deviation'

So, the Denominator is the Standard Deviation which is given as 0.75

Q Once the mutual fund units are pledged, the unit holder/s
52.
_______ .
Cannot sell the units
Can sell the units bit after a period of 3 months
Cannot sell the units but can switch the units to another
scheme
Cannot do additional purchase in the same account
CORRECT ANSWER:

Cannot sell the units

 Explanation:
Banks, NBFCs and other financiers often lend money against the pledge of Units
by the Unitholder.

Once units are pledged, the Unit-holder/s cannot sell or switch out the pledged
units, until the pledgee gives a written no-objection to release the pledge.

Q In case one of the joint holders dies, than the units will
53.
________ .
be transferred to the HUF of deceased holder
be transferred to nominee/s
continue to be held by surviving joint holders
be transferred to nominee/s
CORRECT ANSWER:

continue to be held by surviving joint holders

Explanation:
Transmission is the process of transferring units to the person entitled to receive
them in the event of the death of the unitholder.

In case of joint holding, if the first holder passes away, the second holder is
substituted as the first holder.

Q Which of these information is not contained in the Scheme

54.
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:

Names of securities in the scheme's portfolio

Explanation:
The names of securities in the scheme's portfolio is contained in the Fund fact
sheet and not in the SID.
Q 'Not more than 25% of the Net Assets will be invested in the
55.
Derivatives Market' - This statement best describes the
………….. of the mutual fund scheme.
Investment Objective
Investment Interest
Investment Strategy
Investment Policy
CORRECT ANSWER:

Investment Policy

Explanation:
Investment objective defines the broad investment charter.

Investment policy describes in greater detail, the kind of portfolio that will be
maintained.

The investment policy includes the scheme’s asset allocation and investment
style.

Q Identify the TRUE statement. A) While calculating scheme

56.
returns for an investor, if there is an entry load, then the initial
value of the Net Asset Value (NAV) is taken as NAV minus
Entry Load B) While calculating scheme returns for an
investor, if there is an exit load, then the later value of the Net
Asset Value (NAV) is taken as NAV minus Exit Load
Only A is true
Only B is true
Both A and B are true
CORRECT ANSWER:

Only B is true

Explanation:
If there is an Entry load on a mutual fund scheme then while calculating the
scheme returns, the initial value of the net asset value (NAV) is taken as NAV
PLUS entry load as the purchase value increases due to entry load.

If there is an exit load on a scheme then while calculating the scheme returns, the
later value of the Net Asset Value (NAV) is taken as NAV minus the exit load as
the sale value decreases due to the exit load.
Q Identify the TRUE statement/s with respect to the risks
57.
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:

Only 1 is true

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 ……….. is NOT accepted as a photo identity documentation

58.
for Micro SIP.
Debit card with a photo
Permanent Retirement Account Number (PRAN) card issued to
National Pension System (NPS)
Employee ID cards issued by companies registered with the
Registrar of Companies
Credit card
CORRECT ANSWER:

Credit card
 Explanation:
Credit card is not accepted because it may not be backed up by a bank account.

Q Identify the TRUE statement/s: 1. The Beta of a diversified

59.
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
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 The Net Asset Value (NAV) of a segregated portfolio has to be
60.
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:

Daily basis after the credit event

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 Identify the FALSE statement: A. When the mutual fund

61.
distributor understands the needs of his investor, one can
ignore the investment objective of the mutual fund schemes
B. The best strategy in selecting a mutual fund scheme is that
based on its past performance
Only A is false
Only B is false
Both A and B are false
None of the above
CORRECT ANSWER:

Both 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.

In order to evaluate various mutual fund schemes, it is important to consider the

scheme’s investment objective and strategy. Both of these can help one
understand what to expect from the scheme. The suitability of a mutual fund
 scheme to an investor depends upon the features of the scheme and matching it
to the needs of the investor from the investment. Therefore, one cannot ignore
the investment objectives of the scheme.

Q What happens in the process of Indexation?

62.
In indexation, the impact of capital gains tax is reduced in case
of both short term and long term capital gains
In indexation, the mutual fund’s performance is benchmarked
against a suitable index
In indexation, the cost of acquisition is adjusted upwards to
reflect the impact of inflation
None of the above
CORRECT ANSWER:

In indexation, the cost of acquisition is adjusted upwards to reflect the impact

of inflation

Explanation:
Indexation means that the cost of acquisition or the cost of purchase is
adjusted upwards to reflect the impact of inflation.

For e.g. - A stock was purchased at Rs 500 and sold for Rs 800 after 5 years.
The long-term capital gains is Rs 300 on which tax is to paid. But when adjusted
for indexation (as per data released by Central Board of Direct taxes every year),
the capital gains will be reduced and the tax will have to be paid on a lower
amount.

Q In which of the following case can a mutual fund charge the

63.
additional expense of 0.30 % of daily net assets of the scheme
?
When the new inflows from beyond top 30 cities is at least i)
30% of the gross new inflows in the scheme OR ii) 15% of the
average AUM (Year To Date) of the scheme, whichever is higher
When the new inflows from beyond top 25 cities is at least 30%
of the gross new inflows
When the new inflows from beyond top 30 cities is at least 10%
of the gross new inflows
When the new inflows from beyond top 15 cities is at least 20%
of the gross new inflows
 CORRECT ANSWER:

When the new inflows from beyond top 30 cities is at least i) 30% of the gross
new inflows in the scheme OR ii) 15% of the average AUM (Year To Date)
of the scheme, whichever is higher

Explanation:
In addition to the regular limits, the following expenses may be charged to the
scheme:

i. Brokerage and transaction cost which are incurred for the purpose of execution
of trade up to 0.12 percent of trade value in case of cash market transactions and
0.05 percent of trade value in case of derivatives transactions.

ii. If the new inflows from beyond top 30 cities are at least a) 30 percent of gross
new inflows in the scheme or b) 15 percent of the average assets under
management (year to date) of the scheme, whichever is higher, funds can charge
the additional expense of up to 0.30 percent of the daily net assets of the scheme.

Q The portfolio of a fund of funds consists of ______ .

64.
Equity securities only
Debt securities only
Units of other mutual fund schemes
Money market securities only
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 ……………. would not be an originator to a special purpose

65.
vehicle, in case of securitized asset.
Reserve Bank of India (RBI)
Non-banking finance company
A Commercial Bank
Housing finance company
 CORRECT ANSWER:

Reserve Bank of India (RBI)

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 Identify the FALSE statement/s with respect to benchmarks

66.
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
CORRECT ANSWER:

Only B is false

Explanation:
A Multi-Cap fund invests in Large Cap, Mid Cap and Small Cap stocks as per
proportions stipulated by SEBI.

The Nifty500 index represents top 100 large cap companies, top 150 Mid-cap
companies and top 150 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 Which of these statements is true with respect to Key
67.
Information Memorandum (KIM)?
KIM is a document that provides key information of the past
performance of the scheme
KIM is the annual newsletter of the mutual fund
KIM provided NAV history of all mutual fund schemes
KIM is a document which must accompany all mutual fund
application forms
CORRECT ANSWER:

KIM is a document which must accompany all mutual fund application forms

Explanation:
While an investor is expected to read all the scheme related documents,
circulation of the same along with the application forms is too difficult and costly,
especially if the printed forms are to be distributed.

In order to ensure the investor gets access to sufficient information in spite of

such a constraint, a Key Information Memorandum (KIM) is mandatorily
circulated along with the application form.

Q Where is the performance data for all schemes across the

68.
mutual fund industry available?
The Scheme Information Document (SID)
Key Information Memorandum (KIM)
AMFI Website
The Fund Fact Sheet
CORRECT ANSWER:

AMFI Website

Explanation:
Each AMC is required to publish a scheme performance dashboard on its
website, and update it on a regular basis. The scheme performance data is also
available on the AMFI website

AMFI website (www.amfiindia.com) carries the performance data of all the mutual
fund schemes. This is an exhaustive resource and one can access the same for
various different periods, and fund categories.
Q …………. is not included in the fundamental attributes of a
69.
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:

Exit loads

Explanation:
Within the SID, there is an important section on fundamental attributes of a
scheme with following parameters:

1. Type of a scheme

2. Investment Objective

3. Terms of Issue

Exit loads do not form a part of the fundamental attributes of a mutual fund
scheme.

Q Usually, most investors might have invested across various

70.
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
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 On whom is the compliance requirement under Foreign

71.
Account Tax Compliance Act (FATCA) applicable?
Only on those mutual funds who have foreign institutions as
their sponsors
Only on those mutual funds who are registered with a foreign
agency
All financial institutions including mutual funds
Only Indian mutual funds
CORRECT ANSWER:

All financial institutions including mutual funds

Explanation:
The Foreign Account Tax Compliance Act (FATCA) is a US law that aims to
combat tax evasion by US persons opening accounts offshore. It enhances due
diligence and information reporting requirements for both individual and entity
accounts. On July 9, 2015, India signed Inter-Governmental Agreement (IGA) with
the USA for implementation of FATCA.

This is applicable to all financial institutions including mutual funds.

To comply with the requirements of the Foreign Account Tax

Compliance Act (FATCA) and Common Reporting Standards
(CRS) provisions, financial institutions, including mutual
funds, are required to undertake a 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 Tax Authorities for onward
transmission to the concerned foreign authorities.
Q These debt mutual funds have been arranged from lowest risk
72.
to highest risk. Identify the risk which we are discussing: 1.
Liquid Funds 2. Money market funds 3. Medium term bond
funds
Interest Rate Risk
Concentration Risk
Default Risk
Credit Risk
CORRECT ANSWER:

Interest Rate Risk

Explanation:
Interest rate risk is the risk that an investment's value will change as a result of a
change in interest rates.

The interest rate risk varies for bonds with different maturities. Those with longer
maturity would witness higher price fluctuations in comparison to those with
shorter maturities.

Similarly short-term debt funds will have lower interest rate risk when compared
to longer term debt funds.

In the above question, Liquid funds have the shortest duration and so will have
less adverse effect of interest rate risk when compared to Money market funds
and medium-term bond funds.

Q Identify the TRUE statement - A. It is mandatory for the AMC

73.
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:

Only A is true

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 Identify the true statement(s) - A) A systematic transaction

74.
cannot be cancelled B) Assuming a mutual fund scheme is
profitable then the investors can keep encashing some profits
through a Systematic Withdrawal Plan
Only A is true
Only B is true
Both A and B are true
CORRECT ANSWER:

Only B is true

Explanation:
1. A systematic transaction (like SIP etc) can be stopped.

2. Assuming the scheme is profitable, the re-purchase ensures that some of the
profits are being regularly encashed by the investor.

Q Indicate which of these funds have the lowest to highest risk

75.
sequence? A) Liquid Fund B) Credit Risk Fund C) Corporate
Bond Fund
B-C-A
C-A-B
A-B-C
A-C-B
CORRECT ANSWER:

A-C-B

Explanation:
Liquid funds are least risky as they invest in high quality debt instruments.

Corporate Bond Funds are little riskier as they predominantly invest in AA+
and above rated corporate bonds.

Credit Risk Funds are much riskier 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 AMFI Code of Ethics states that ……. cannot become a
76.
distributor of mutual fund.
Banks
HNIs
Employees of AMC
Empanelled distributors
CORRECT ANSWER:

Employees of AMC

Explanation:
Employees of Asset Management Companies (AMCs) cannot become mutual
fund distributors.

Q An investor purchases through a distributor 5000 units of a

77.
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
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 Rising Sun Mutual Fund holds shares of AAA Ltd. in its
78.
portfolio. When the NAV of the scheme is calculated on 10th
April, then each share of AAA Ltd. will be valued at ______ .
Average traded price of AAA Ltd. on 10th April across all stock
exchanges
Opening price of AAA Ltd. on 10th April at BSE / NSE
Closing price of AAA Ltd. on 10th April at BSE / NSE
Average traded price of AAA Ltd. on 10th April at BSE / NSE
CORRECT ANSWER:

Closing price of AAA Ltd. on 10th April at BSE / NSE

Explanation:
As per the SEBI rules of valuation for equity shares: The securities shall be valued
at the last quoted closing price on the stock exchange.

(When the securities are traded on more than one recognised stock exchange,
the securities shall be valued at the last quoted closing price on the stock
exchange where the security is principally traded. It would be left to the asset
management company to select the appropriate stock exchange)

Q According to guidelines given by SEBI, every mutual fund

79.
scheme should have a minimum of ____ investors.
10
20
25
50
CORRECT ANSWER:

20

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 Identify the TRUE statements with respect to Transmission of
80.
mutual fund units - A) Before the transfer is effected, the
mutual fund will insist for an indemnity against future
problems for the mutual fund arising out of the transfer B)
Before the transfer is effected, the mutual fund will not insist
on the death certificate of the deceased unit-holder C) Before
the transfer is effected, the mutual fund will insist on the KYC
documentation from the nominee
A and B are true
B and C are true
A and C are true
All A, B and C are true
CORRECT ANSWER:

A and C are true

Explanation:
Transmission is the process of transferring units to the person entitled to
receive it in the event of the death of the unit holder.

In case of transmission, before the transfer is affected, the mutual fund will
insist on the KYC documentation from the nominee, death certificate of the
deceased unit-holder, and an indemnity against future problems for the mutual
fund arising out of the transfer.

Q Smita is a young investor and her parents advise her to invest

81.
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
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 Mr. Mohit has filled up a application form for subscribing to a

82.
mutual fund scheme. However, the address mentioned in the
application form is different from the address provided at the
time of KYC compliance. Which address will be included in
the mutual funds records once the KYC compliance is
validated?
The address provided for KYC compliance
The address provided in the application form
Mr. Mohit can indicate which address is correct
The address provided in the application form will be used for all
communications
CORRECT ANSWER:

The address provided for KYC compliance

Explanation:
Once the first holder’s PAN is validated for KYC, the address provided in the
KYC form will override the information provided in the application form.

Q Which of these statements are TRUE with respect to time

83.
stamping on mutual fund documents? A) Time stamping is
relevant for non-financial mutual fund transactions B) The
daily time stamping of application does not start with serial 1
C) Breakdown of time stamping process or breaking of seal is
mandated to be duly recorded and reported to the Trustees
A and B are true
B and C are true
A and C are true
A, B and C are true
 CORRECT ANSWER:

B and C are true

Explanation:
1) Applications for non-financial transactions like change of address are
stamped. However, here stamping of time is not relevant; the data stamping is
pertinent.

2) Applications are sequentially numbered from the first number of the machine
to the last number of the machine, before a new numbering cycle is started for
the machine. The daily time stamping of application does not start with serial 1.

3) The points of acceptance have time stamping machines with tamper-proof

seal. Opening the machine for repairs or maintenance is permitted only by
vendors or nominated persons of the mutual fund. Such opening of the machine
has to be properly documented and reported to the Trustees.

Q Investors who have not transacted during the previous ______

84.
are known as dormant investors.
15 months
12 months
9 months
6 months
CORRECT ANSWER:

6 months

Explanation:
Dormant means not-active.

Investors who have not transacted during the previous 6 months in a mutual fund
are considered dormant investors.
Q Identify the TRUE statement -
85.
The mutual fund investor has the complete freedom to change
the distributor any time he wants
Once an investor had invested through a distributor, he cannot
change the distributor
Once an investor had invested by online method, he cannot
change the distributor
Once an investor had invested through a distributor, he cannot
invest directly with the mutual fund house
CORRECT ANSWER:

The mutual fund investor has the complete freedom to change the distributor
any time he wants

Explanation:
Investors can choose to change their distributor or opt for direct investing.

This needs to be done through a written request by the investor. In such cases,
AMCs will need to comply,
without insisting on any kind of ‘No Objection Certificate’ from the existing
distributor.

Q Long term capital loss from an investment can be set off

86.
against _____ .
short term capital gains only
short term capital gain or long term capital gain
long term capital gains only
long term capital loss cannot be set off
CORRECT ANSWER:

long term capital gains only

Explanation:
As per the Income Tax Act -

- Short term capital loss is to be set off against short term capital gain or long-
term capital gain.
- Long term capital loss can only be set off against long term capital gain.
- Capital loss, short term or long term, cannot be set off against any other head
of income (e.g., salaries).
Q The NAV of an equity fund is Rs. 76.45 and the face value is
87.
Rs. 10. An investor invests Rs 30,000. How many units will be
allotted to him? (There is no entry load)
1866.43
477
392.41
3000
CORRECT ANSWER:

392.41

Explanation:
Units are allotted as per the current NAV.

The amount invested divided by the NAV will give the units allotted.

Rs 30,000 / 76.45 = 392.41

Q Who uses the information collected under the Foreign

88.
Account Tax Compliance Act (FATCA)?
Foreign Government or foreign agencies
Indian Government
Indian Tax authorities
All of the above
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 Which of these entities can invest in Indian mutual funds? A)
89.
Foreign portfolio investor B) Insurance company C) Salaried
individual
Only C
A and B
B and C
All A, B and C
CORRECT ANSWER:

All A, B and C

Explanation:
All of the above can invest in Indian mutual funds.

Q The expenses of ……….. cannot be charged to a mutual fund

90.
scheme.
custodian fees
software development
registrar services for transfer of units sold
GST - Goods and Service tax
CORRECT ANSWER:

software development

Explanation:
The expenses on software development is not for a particular scheme but for the
AMC as a whole and cannot be charged to a particular scheme.

Q ………. ensures that the information contained in the scheme

91.
related documents (SID and SAI) are fully complied with.
The Trustees
The Sponsor
The Fund Manager
The AMC
CORRECT ANSWER:

The Trustees
 Explanation:
The trustees shall ensure that all transactions entered into by the AMC are in
compliance with the regulations and the scheme’s objectives and intent.

Q Identify the FALSE statement(s) - A) For Index funds, the NAV

92.
is calculated up to 4 decimal points B) The AMC and a mutual
fund scheme of the AMC can have the same auditor
Only A is false
Only B is false
Both A and B are false
CORRECT ANSWER:

Only B is false

Explanation:
NAV is to be calculated up to 4 decimal places in the case of index funds, liquid
funds and other debt funds.

Accounts of the mutual fund schemes need to be maintained independent of the

accounts of the AMC. The auditor appointed to audit the mutual fund scheme
accounts needs to be different from the auditor of the AMC.

Q Identify the false statement(s). A) When an investor wants to

93.
redeem from a scheme, the distributor must suggest
redemption from the scheme with the maximum exit load B)
The mutual fund distributors can ignore the impact of exit
load at the time of repurchase
Only statement A is false
Only statement B is false
Both statements A and B are false
CORRECT ANSWER:

Both statements A and B are false

Explanation:
Both taxes and loads reduce investment returns. Therefore, it is important for
the distributor to consider these two aspects during repurchases/redemptions.
This means that when there is a need to withdraw money from a scheme, the
distributor must assess the implications of capital gains tax and exit loads.

When an investor wants to redeem from a scheme, the distributor must suggest
redemption from the scheme with the minimum exit load.

Q Identify the False statement/s. A. Valuation gains are ignored

94.
but valuation losses need to be adjusted against the profits
 while calculating distributable surplus B. The Mark-to-market
gains form a part of the distributable reserves in case of
mutual fund Income Distribution Cum Capital Withdrawal plan
Only A is false
Only B is false
Both A and B are false
CORRECT ANSWER:

Only B is false

Explanation:
SEBI guidelines stipulate dividends can be paid out of distributable reserves.

Mark-to-market gains are on paper - they are not realised. They will be realized
when those investments are sold. So these cannot be included in distributable
reserves

Also, Valuation gains are ignored. But valuation losses need to be adjusted
against the profits.

This conservative approach to calculating distributable reserves ensures that

dividend is paid out of real and realized profits, after providing for all possible
losses.

Q Which document is used by fund rating agencies and also by

95.
investors to check the performance of various schemes of a
mutual funds?
Key Information Memorandum (KIM)
Scheme Information Document (SID)
Annual accounts of the AMC
Fund Fact Sheet
CORRECT ANSWER:

Fund Fact Sheet

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 The compliance requirements under the Foreign Account Tax
96.
Compliance Act (FATCA) applies only to mutual funds and not
to other financial institutions - State whether True or False?
True
False
CORRECT ANSWER:

False

Explanation:
The (FATCA) is a US law that aims to combat tax evasion by US persons opening
accounts offshore. It enhances due diligence and information reporting
requirements for both individual and entity accounts. On July 9, 2015, India
signed Inter-Governmental Agreement (IGA) with the USA for implementation of
FATCA.

This is applicable to all financial institutions including mutual funds.

Q For a Sector Fund, the minimum investment in equity and

97.
equity related instruments of a particular sector/ theme shall
be 90 percent of total assets. State whether True or False?
True
False
CORRECT ANSWER:

False

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 Liquid Fund is an open-ended liquid scheme whose
98.
investment is into debt and money market securities with a
maturity of up to………….. days only
91
99
75
51
CORRECT ANSWER:

91

Explanation:
Liquid Fund is an open-ended liquid scheme whose investment is into debt and
money market securities with a maturity of up to 91 days only.

An investor seeking the lowest risk ought to go for a liquid scheme. However, the
returns in such instruments are low. These schemes are suitable for investors
looking for a product to park their funds for very short periods (up to 91 days).

Q Identify the action which needs to be taken as per the AMFI

99.
Code of Ethics for Mutual Funds when a mutual fund enters
into a transaction for purchase or sale of securities with any
of its associates?
AMC should make certain that the transactions happens at a
price that is better than the closing market price
AMC should take the approval of the trustees before
undertaking the transactions
AMC should justify the fairness of the transaction to the Board
of Trustees
AMC should inform the mutual fund unitholders of the intent to
undertake the transaction before it is done
CORRECT ANSWER:

AMC should justify the fairness of the transaction to the Board of Trustees

Explanation:
As per the AMFI Code of Ethics for Mutual Funds:

Members shall in respect of transactions of purchase and sale of securities

entered into with any of their associates or any significant unitholder:
 1. Submit to the Board of Trustees details of such transactions, justifying its
fairness to the scheme

2. Disclose to the unitholder’s details of the transaction in brief through annual

and half yearly reports

Q The additional Total Expense Ratio (TER) charged has to be

100.
credited back to the Mutual Fund if the inflows from beyond
the top 30 cities are redeemed within a period of 1 year from
the date of investment. State whether True or False?
True
False
CORRECT ANSWER:

True

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.