NISM SERIES V B - MUTUAL FUND

FOUNDATION EXAM
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

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TEST DETAILS – The NISM Mutual Fund Foundation Module exam is a 50 mark exam with 50% as passing marks.
The question paper will consist of 50 multiple choice questions. There is no negative marking. The time duration is
120 Minutes.

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 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

PRATICE TEST NO. 3

Question 1 Withholding tax on capital gains may be applicable for _______ .

(a) Only investors who are resident in India

(b) Only investors who are non-resident in India

(c) Short term gains only

(d) All investors

Question 2 Investor pays a tax on the dividend that he receives from a mutual fund
scheme at ___________ .

(a) Tax is not applicable

(b) 10%

(c) 15%

(d) 30%

Correct Answer 1 Only investors who are non-resident in India

Answer The capital gains tax, if applicable, is not deducted by the scheme when
Explanation paying the re-purchase proceeds to investors who are resident in India. The
investor has to pay the capital gains tax to the income tax authorities on self-
assessment basis.
In the case of investors who are not resident in India, the scheme may pay the
net re-purchase proceeds after making a deduction for Withholding tax.

Correct Answer 2 Tax is not applicable

Answer The dividend that the unit-holder receives is exempt from tax in the case of
Explanation both equity and debt schemes.
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 3 Application form needs to be attached to ________ .

(a) SID

(b) SAI

(c) KIM

(d) All of the above

Question 4 The maximum transaction charge is ______ per application

(a) Rs 100

(b) Rs 150

(c) Rs 200

(d) Rs 100 in 4 installments

Correct Answer 3 KIM

Answer Key Information Memorandum - KIM is essentially a summary of the SID
Explanation and SAI. It is more easily and widely distributed in the market.
As per SEBI regulations, every application form is to be accompanied by the
KIM.

Correct Answer 4 Rs 150

Answer SEBI permits transaction charge as follows:
Explanation - Rs 150 per investment of Rs10,000 and above from a first time investor in
mutual funds
- Rs 100 per investment of Rs10,000 and above from existing investors in
mutual funds
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 5 _______ are individuals offering investment advice.

(a) Brokerages

(b) NBFCs

(c) Distributors

(d) IFAs

Question 6 NAV of growth option of a scheme went up from Rs 20 to Rs 30. Simple

return on the scheme is _______ .

(a) 25%

(b) 33%

(c) 45%

(d) 50%

Correct Answer 5 IFAs

Answer Independent Financial Advisers (IFAs) are individuals providing investment
Explanation advice.

Correct Answer 6 50%

Answer Formula for Simple Return is :
Explanation ( End Value - Begin Value ) x 100 / Begin Value
= ( 30 - 20 ) x 100 / 20
= 50 %
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 7 SEBI ________ offer documents of mutual fund schemes.

(a) Approves

(b) Approves or disapproves

(c) Vets

(d) Registers

Question 8 Consolidated Account Statement is issued for ________ .

(a) Non-financial transactions

(b) Demat transactions

(c) Financial transactions

(d) All of the above

Correct Answer 7 Vets

Answer SEBI does not approve or disapprove Offer Documents, it gives its
Explanation observations. The mutual fund needs to incorporate these observations in the
Offer Document that is offered in the market.
Thus, the Offer Documents in the market are vetted by SEBI, though SEBI
does not formally “approve” them.

Correct Answer 8 Financial transactions

Answer Consolidated Account Statement (CAS) is a single account statement that
Explanation consolidates financial transactions in all folios of an investor across all
schemes of all mutual funds.
All types of financial transactions like purchase including NFOs, redemption
including maturity, switches, systematic transactions like SIP, SWP and STP,
dividend payouts or reinvestments, merger, bonus transactions etc. are
covered.
Non-financial transactions like updation of address, bank details, nominee
registration etc. are not included.
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 9 Year-wise cash flows going several years into future is a feature of
comprehensive financial plan - State True or False ?

(a) TRUE

(b) FALSE

Question 10 Investor buying a unit from the scheme is called a _____ transaction.

(a) Sale

(b) Re-purchase

(c) Redemption

(d) None of the above

Correct Answer 9 TRUE

Answer The comprehensive financial plan captures the estimated inflows from various
Explanation sources, and estimated outflows for various financial goals, including post-
retirement living expenses. The plan can go several decades into the future.

Correct Answer 10 Sale

Answer When existing investors buy additional units or new investors buy units of the
Explanation open-end scheme, it is called a sale transaction (or subscription).
When investors choose to return any of their units to the scheme and get back
their equivalent value, it is called a re-purchase transaction (or redemption).
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 11 A greater portion of returns from equity asset class is generally through
_____ .

(a) Inflation

(b) Capital gain

(c) Dividend income

(d) Interest income

Question 12 Where investment is by minor, KYC compliance is required from

_______ .

(a) The minor

(b) The guardian

(c) The minor and guardian

(d) No KYC required

Correct Answer 11 Capital gain

Answer Investors can earn capital gains by selling their shareholding in the company
Explanation at a higher price than their acquisition cost. For eg - Bought shares at Rs 100
and sold at Rs 150. So Rs 50 is the capital gain.
However, if the investment does not work out, then the investor may have to
book capital losses.

Correct Answer 12 The guardian

 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 13 Which of the following is permitted to invest in mutual funds in India?

(a) Individuals

(b) Qualified Foreign Investors

(c) HUF

(d) All of the above

Question 14 Dividend warrants have to be dispatched to investors within ______ days

of declaration of the dividend

(a) 10

(b) 15

(c) 30

(d) 45

Correct Answer 13 All of the above

Answer Individuals and non-individuals are permitted to invest in mutual funds.
Explanation In the case of HUF, the head of the family (called „karta‟) invests on behalf of
the family.
Foreigners are permitted to invest as Qualified Foreign Investors (QFIs). They
may be individuals or non-individuals.

Correct Answer 14 30
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 15 RGESS offers a rebate of ________ of investment upto ______ .

(a) 25%, Rs50,000

(b) 20%, Rs100,000

(c) 50%, Rs 50,000

(d) 50%, Rs100,000

Question 16 Debt oriented schemes need to disclose their portfolio in their website
every month, by the ____ working day of the succeeding ________ .

(a) 7th, quarter

(b) 7th, month

(c) 3rd, quarter

(d) 3rd, month

Correct Answer 15 50%, Rs 50,000

Answer The Rajiv Gandhi Equity Savings Scheme (RGESS) offers a rebate to first
Explanation time retail investors with annual income below Rs 12 lakhs. 50% of the
amount invested can be claimed as a deduction from taxable income.
Although any amount can be invested in such scheme, the benefit is only
available up to Rs 50,000.
Thus, the deduction is limited to 50% of Rs 50,000, i.e., Rs 25,000.

Correct Answer 16 3rd, month

 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 17 Day to day operations of the mutual fund are handled by _______ .

(a) Board of Trustees

(b) AMC

(c) Fund Managers

(d) RTA

Question 18 _______ has the lowest in risk.

(a) Diversified equity funds

(b) Gilt funds

(c) Interval funds

(d) Liquid funds

Correct Answer 17 AMC

Answer Day to day management of the schemes is handled by an Asset Management
Explanation Company (AMC). The AMC is appointed by the sponsor or the Trustees.

Correct Answer 18 Liquid funds

Answer Liquid schemes or money market funds are a variant of debt schemes that
Explanation invest only in debt securities where the moneys will be repaid within 91 days.
These are widely recognized to be the lowest in risk among all kinds of
mutual fund schemes.
.
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 19 The AMC is not bound by the acts of the _________ .

(a) Distributor

(b) Distributor‟s agents

(c) Distributor‟s sub-brokers

(d) All of the above

Question 20 Which of the below are not shown in the Consolidated Account
Statement (CAS) of Mutual Funds ?

(a) Non-financial transactions

(b) Demat transactions

(c) Folios of minors

(d) All of the above

Correct Answer 19 All of the above

Answer AMCs structure their relationship with distributors as Principal to Principal.
Explanation Therefore, the AMC is not bound by the acts of the distributor, or the
distributor‟s agents or sub-brokers.

Correct Answer 20 All of the above

Answer Non-financial transactions like updation of address, bank details, nominee
Explanation registration etc. are not included. Confirmation for non-financial transactions
is sent separately by individual AMCs.
Demat transactions are not covered in CAS. These are part of the demat
statement sent by the DP.
Folios of minors too are not shown in the CAS.
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 21 What is the applicable NAV for Equity schemes where redemption
request are received after 3 pm?

(a) Closing NAV of application date

(b) Closing NAV of next business day

(c) Closing NAV of the day immediately preceding the next business day

(d) None of the above

Question 22 Can an investor apply in Mutual Fund NFO's through ASBA method ?

(a) Yes

(b) No

Correct Answer 21 Closing NAV of next business day

Correct Answer 22 Yes

Answer Application Supported by Blocked Amount (ASBA), which was originally
Explanation envisaged for public issues in the capital market, has now been extended to
mutual fund NFOs.
 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 23 The KYD process is not applicable for existing distributors seeking to
renew their ARN - State True or False ?

(a) TRUE

(b) FALSE

Question 24 Which of the following entities are involved in distributing mutual funds
in India ?

(a) Members of the stock exchange

(b) IFAs

(c) Post-offices

(d) All of the above

Correct Answer 23 FALSE

Answer The KYD process is also applicable for existing distributors seeking to renew
Explanation their ARN.

Correct Answer 24 All of the above

 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

Question 25 As per current regulations, all Mutual Fund schemes launched in a NFO
should have a face value of Rs 10 - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 25 TRUE

 NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3

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NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM - PRACTICE TEST 3