NISM MF Advisor Module - Final

NiSM Mutual Fund Distributors Certification Examination
Revision Manual with Model Questions
EDGE – The Learning Academy

Reliance Mutual Fund
Preface
This book has been prepared to assist the participants of the module – NiSM Mutual Fund
Advisor Module, in retaining the key learning’s of the session.
This book will help the participants to not only prepare for certification exam but also gain a better
understanding on the mutual funds and its significance in the overall financial planning for their
prospective investors.
The participants can use this book as a revision cum reference document while appearing for
exam and use the contents in this book to not only enhance their own understanding of the mutual
fund industry but also of their customers.
The contents of this book are designed to enhance the understanding of the user and aid her/him
in appearing for NiSM Mutual Fund Advisor Module certification exam.
For any further detail, please contact us at rmflearning.support@relianceada.com
We at EDGE – The Learning Academy, wish you all the best and success!
Happy Learning!!!
Page 2 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

Contents
Contents Page No
CHAPTER 1- Concept & Role of Mutual Fund 4
CHAPTER 2- Fund Structure and Constituents 15
CHAPTER 3- Legal and Regulatory Environment 19
CHAPTER 4- Offer Document 26
CHAPTER 5- Fund Distribution and Channel Management Practices 30
CHAPTER 6- Accounting, Valuation and Taxation 33
CHAPTER 7- Investor Services 39
CHAPTER 8- Return, Risk & Performance of Funds 44
CHAPTER 9- Scheme Selection 50
CHAPTER 10- Scheme Selection 53
CHAPTER 11- Helping Investors with Financial Planning 56
CHAPTER 12- Recommending Model Portfolios & Financial Plans 59

CHAPTER 1- Concept & Role of Mutual Fund
• Mutual funds are a vehicle to mobilize moneys from investors, to invest in different markets and securities
• The primary role of mutual funds is to assist investors in earning an income or building their wealth, by
participating in the opportunities available in the securities markets.
• In order to accommodate investor preferences, mutual funds mobilize different pools of money. Each such pool of
money is called a mutual fund scheme. Mutual funds address differential expectations between investors within a
scheme, by offering various options, such as dividend payout option, dividend reinvestment option and growth
option. An investor buying into a scheme gets to select the preferred option also.
• The investment that an investor makes in a scheme is translated into a certain number of ‘Units’ in the scheme.
The number of units multiplied by its face value (Rs10) is the capital of the scheme – its Unit Capital.
• When the profitability metric is positive, the true worth of a unit, also called Net Asset Value (NAV) goes up. When
a scheme is first made available for investment, it is called a ‘New Fund Offer’ (NFO).
• The money mobilized from investors is invested by the scheme as per the investment objective committed. Profits
or losses, as the case might be, belong to the investors. The investor does not however bear a loss higher than
the amount invested by him.
• The relative size of mutual fund companies is assessed by their assets under management (AUM). The AUM
captures the impact of the profitability metric and the flow of unit-holder money to or from the scheme.
• Investor benefits from mutual funds include professional management, portfolio diversification, economies of
scale, liquidity, tax deferral, tax benefits, convenient options, investment comfort, regulatory comfort and
systematic approach to investing.
• Limitations of mutual funds are lack of portfolio customization and an overload of schemes and scheme variants.
• Open-ended funds are open for investors to enter or exit at any time and do not have a fixed maturity. Investors
can acquire new units from the scheme through a sale transaction at their sale price, which is linked to the NAV of
the scheme. Investors can sell their units to the scheme through a re-purchase transaction at their re-purchase
price, which again is linked to the NAV.
• Interval funds combine features of both open-ended and close ended schemes.
• Actively managed funds are funds where the fund manager has the flexibility to choose the investment portfolio,
within the broad parameters of the investment objective of the scheme.
• Passive funds invest on the basis of a specified index, whose performance it seeks to track.
• Gilt funds invest in only treasury bills and government securities

• Diversified debt funds on the other hand, invest in a mix of government and non-government debt securities
• Junk bond schemes or high yield bond schemes invest in companies that are of poor credit quality.
• Fixed maturity plans are a kind of debt fund where the investment portfolio is closely aligned to the maturity of the
scheme.
• Floating rate funds invest largely in floating rate debt securities
• Liquid schemes or money market schemes are a variant of debt schemes that invest only in debt securities of less
than 91-days maturity.
• Diversified equity funds invest in a diverse mix of securities that cut across sectors.
• Sector funds invest in only a specific sector.
• Thematic funds invest in line with an investment theme. The investment is more broad-based than a sector fund;
but narrower than a diversified equity fund.
• Equity Linked Savings Schemes (ELSS) offer tax benefits to investors.
• Equity Income / Dividend Yield Schemes invest in shares that fluctuate less, and therefore dividends represent a
significant part of the returns on those shares.
• Monthly Income Plan seeks to declare a dividend every month.
• Capital Protected Schemes are close-ended schemes, which are structured to ensure that investors get their
principal back, irrespective of what happens to the market.
• Gold funds invest in gold and gold-related securities. They can be structured as Gold Sector Funds or ETF-Gold
Schemes.
• Real estate funds invest in real estate.
• International funds invest abroad. They are often structured as feeder funds linked to a host fund.
• Fund of Funds invest in other funds.
• Exchange Traded Funds are open-end funds that trade in the stock exchange.
• AUM of the industry, as of March 2011 has touched Rs 10125932.98 crore from 832 schemes offered by 38
mutual funds.

Question Time
1. The number of mutual fund schemes in India is about:

A. 100 B. 500 C. 800 D. 2000
2. Open-ended schemes generally offer exit option to investors through a stock exchange
A. True B. False
3. Sector funds invest in a diverse range of sectors

A. True B. False
4. High yield bond schemes invest in junk bonds

A. True B. False
5. Investment objective is closely linked to

A. Scheme B. Option C. Plan D. SIP
6. Investments in mutual funds enable investors to reduce the risk in their portfolios through:
A. Diversification B. Market timing C. Stock selection D. Sector selection
7. If an investor in a closed end fund seeks liquidity, he can:

A. not redeem units before maturity B. Redeem units at ISCs
C. Sell the units on a stock exchange D. Redeem units with the fund
8. An investor in mutual funds faces the disadvantage of:

A. High cost of operations B. Lock-in period
C. Low flexibility in investing D. Overload of choices
9. When investors buy units in an NFO, the amount mobilized by the fund is called:
A. Managed capital B. Initial AUM C. Average AUM D. Unit capital
10. A close-ended mutual fund has a fixed

A. NAV B. Fund size C. Rate of return D. Number of distributors
11. An investor in a close-ended mutual fund can get his/her money back by selling his/her units
A. Back to the fund B. To a special trust at NAV
C. On a stock exchange where the fund is listed
D. To the agent through which he/she subscribed to the units of the fund

12. A mutual fund is not
A. Owned jointly by all investors
B. A company that manages investment portfolios of high net worth individuals
C. A pool of funds used to purchase securities on behalf of investors
D. A collective investment vehicle
13. The most important advantage of a money market mutual fund is

A. Quick capital appreciation B. High regular income
C. Safety of principal D. No loads
14. Debt funds target

A. Low risk and stable income B. Protection of principal
C. High growth with risk D. Long term capital appreciation
15. A mutual fund is:

A. a partnership B. a pass through vehicle
C. a private trust D. an association of persons
16. Which one is more diversified?

A. Fund A which invests in Shares in India B. Fund B which invests in shares in India and USA both
C. Both are equally diversified D. Insufficient information
17. An investor should not invest in a mutual fund if

A. His capital base is large
B. He is able to carry out detailed investment research and monitor the stock market
C. Both the above D. None of the above
18. A gilt fund is a special type of fund that invests

A. In very high quality equity only B. In instruments issued by companies with a sound track record
C. In short term securities D. In government securities only
19. Of the following fund types the highest risk is associated with
A. Balance Funds B. Gilt Funds C. Equity Growth Funds D. Debt Funds
20. The NAV of a Mutual Fund

A. Is always constant B. Keeps going up at a steady rate
C. Fluctuates with market price movements D. Cannot go down at all
21. An open ended Mutual fund is one that has

A. An option to invest in any kind of security B. Units available for sales and purchase at all times
C. An upper limit on its NAV D. A fixed fund size

22. Units from an open ended mutual fund are bought from
A. on the stock exchange B. The fund itself C. AMFI D. The distributor
23. When an investor subscribes to a mutual fund -

A. The investor gets a share in the upside of the asset management company
B. The investor buys a part of the assets or pool of funds outstanding at that time
C. His share in the assets of the fund cannot be determined
24. Which of the following statements is true?

A. Open-end schemes have variable unit capital B. Open end schemes can be listed in the stock
market
C. Closed-end schemes can offer re-purchase facility D. All the above
E. Only (a) and (c)
25. The following are benefits of mutual funds

A. Portfolio diversification B. Reduction of transaction costs C. Liquidity D. All the above
26. The following is not a benefit of mutual funds-

A. Investor has custody of securities where fund invests
B. Investor is able to diversify risk C. Investor can save on costs
27. The following are disadvantages of investing in mutual funds

A. No control over costs B. No tailor made portfolios C. Both the above D. None of the above
28. Open end funds are

A. Obliged to sell new units at all times B. Normally sell new units at all times
C. Do not sell new units
29. Closed end funds are

A. Are listed in the stock exchanges B. Can offer re-purchase facility C. All the above D. None of the above
30. Which of the following statements is true?

A.Open end funds have variable unit capital B. Closed end funds have relatively constant capital
C. Open end funds can be listed in the stock market D. All the above E. A & B
31. Which of the following is true -

A. ‘High yield debt fund’ is another name for ‘Junk bond fund’ B. High yield debt funds are popular in India
C. High yield debt funds are not possible in India within current regulations
D. A and B E. A and C

32. Fixed term plans
A. Are essentially closed-end in nature B. Have to necessarily offer sale and re-purchase prices
C. Do not have a determinable tenor D. None of the above
33. During new fund offer (NFO) Units of an open – ended fund are purchased from the
A. Broker B. The mutual Fund itself C. Depository D. Stock Exchange
34. Ownership of the mutual fund by the unit holders is

A. Beneficial. B. Mutual and beneficial. C. Individual D. Mutual
35. Directly investing in equity shares is better then investing in equity shares through a mutual fund because
of
A. Tailor – made portfolio B. Absence of Distribution expense
C. Control over costs D. All of the above.
36. Identify the CORRECT statements?

A. Investing in a mutual fund is likely to be less risky compared to directly investing in the market.
B. A mutual fund enables a small investor build a diversified portfolio
C. Investment in a mutual fund offers more liquidity. D. All are correct.
37. When you invest in an open-ended mutual fund scheme, which of the following decisions is /are not taken
by you?
A. Which share to buy and which share to sell?
B. What prospective changes would be made to the load structure?
C. At what NAV you should exit? D. The first two decisions.
38. The correct description of a mutual fund is

A. It is a company B. it is a development financial institution
C. It is a financial intermediary D. it is non-banking finance company
39. An open end fund

A. is open for one-time sale of fixed number of units
B. offers repurchase facility subject to certain obvious conditions
C. is always obliged to keep issuing new units at all times
D. offers repurchase facility unconditionally at all times
40. A gilt fend is a special type of fund that invests

A. in dated securities only B. in very high quality equity only
C. Mainly in very high quality corporate bonds D. mainly in high quality money market instruments

41. Which classification of mutual funds does not exits?
A. Pension fund or provident fund B. Closed – end or open – end
C. Load fund or no load fund D. Active fund or passive fund
42. Which of the following is NOT a characteristic of mutual fund

A. Pooling of investments B. market risk C. Uniform unit holder rights D. Safety of principal
43. Each unit holder of a mutual fund is

A. a creditor to that mutual fund B. a debtor to that mutual fund
C. a trustee of that mutual fund D. part owner of the assets of that mutual fund
44. Mutual funds offer the portfolio diversification. This is best expressed by the statement.
A. do not put all eggs in one basket B. one bird in hand is better than two in the bush
C. What goes up must come down D. risk and return always goes hand in hand
45. Fund A invests in shares of companies in India. Fund B invests in shares of companies in India and USA.
We can say that
A. Definitely A is more diversified than B B. Definitely A and B are well-diversified
C. We need more information to identify which of them is better diversified
D. Definitely B is more diversified than A
46. A close ended mutual fund has a fixed

A. market value of assets under management B. net asset value per unit.
C. unit capital and number of units D. number of units.
47. A mutual fund is not

A. A portfolio of stocks, bonds and other securities B. A company that manages investment portfolios
C. A pool of funds used to purchase securities on behalf of investors
D. A collective investment vehicle
48. Mutual fund can benefit from economics of scale because of

A. Portfolio diversification B. Risk reduction C. Large volume of tradesD. None of the above
49. Equity Linked Savings Scheme does not have which of the following features?
A. It entitles the unit holder to tax rebate B. The investment is locked in for 3 years
C. A minimum stated level of investments is made in equity and equity related instruments
D. None of the above
50. An actively managed equity fund expects to

A. Be able to beat the benchmarks B. Earn the same returns as the benchmark
C. Have no benchmarks D. Under-perform when compared with the benchmark

51. In India proportion of mutual fund AUM in comparison to bank deposits is
A. 2% B. 10% C. 25% D. 100%
52. Which classification of mutual fund does not exist?

A. Closed end or open end B. Load fund or no load fund
C. Pension fund or insurance fund D. Active fund or passive fund
53. A close-ended scheme is quoted on the stock exchange at a discount to its NAV when
A. The markets are bearish B. Investors perceive that the fund will be unable to maintain the NAV
C. The assets of the fund are undervalued D. None of the above
54. A passive fund has the following feature

A. A passive fund tracks the index B. A passive fund matches the performance of the index
C. A passive fund selects the stocks that are present in the index D. All of the above
55. Direct investment in stock market can be a better option than investing through mutual funds if the
investor
A. Wants better returns than those offered by mutual funds
B. Has large capital, knowledge and resources for research
C. Has identified a bullish phase in the stock market D. Wants to invest for the long term
56. Passive fund is expected to

A. Beat the return of the index B. Furnish the returns of the market index
C. Keep the costs low D. Both B and C
57. Mutual funds can also act as a market stabilizer, in countering large inflows or outflows from the foreign
investors.
A. True B. False
58. The scheme earns interest income or dividend income on the investments it holds. Further, when it
purchases and sells investments, it earns capital gains or incurs capital lossess. These are called
__________________ or _____________ as the case may be.
A. Interest Income, Dividend Income. B. Realized Capital Gains, Realized Capital Losses.
C. Valuation Gains , Valuation Lossess D. Scheme Expenses, Scheme Profits.
59. Which of the following statement(s) are FALSE

A. Investments owned by the scheme may be quoted in the market at higher than the cost paid. Such gains in
values on securities held are called valuation gains.
B. There can be Valuation losses when securities are quoted in the market at a price below the cost at which the
scheme acquired them.
C. Only A is correct while B is partially not correct. D. None of the above.

60. When a scheme is first made available for investment, it is called
A. New Fund Offer(NFO) B. Post NFO C. Purchase Fund Now(PFN) D. Permanent Account Number.
61. Which of the following option is not available?

A. Dividend Payout. B. Dividend Re-investment. C. Growth. D. Valuation Gains.
62. Which of the following is correct?

A. The relative size of mutual fund companies is assessed by their assets under management (AUM).
B. When a scheme is first launched, assets under management would be the amount mobilized from investors.
Therefore, if the scheme has a positive profitability metric, its AUM goes up, a negative profitability metric will
pull it down.
C. If the scheme pays any money to the investors, either as dividend or as consideration for buying back the
units of investors, the AUM falls.
D. All of the above.
63. The advantage of Professional Management in Mutual Fund is

A. Investing in line with the investment objective. B. investing based on adequate, research.
C. ensuring that prudent investment process is followed. D. All of the above.
64. Those investments, whose value the investor cannot easily realize in the market, are technically called
______________ and may result in losses for the investor.
A. False Savings B. Illiquid Investments. C. Excess Investments. D. None of the above.
65. Mutual Funds are not liable to pay tax on the income they earn. If the same income were to be earned by
the investor directly, then tax may have to be paid in the same financial year. This advantage in mutual fund
investment is known as.
A. Tax Benefits B. Investment Comfort C. Regulatory Comfort D. Tax Deferral
66. Which is the facility that helps investor invest amounts regularly in mutual funds?
A. Systematic Investment Plan (SIP). B. Systematic Withdrawal Plan (SWP)
C. Systematic Transfer Plan (STP) D. None of the above.
67. Which is the facility that helps investor withdraw amounts regularly in mutual funds?
68. Which is the facility that helps investor move moneys between different kinds of schemes regularly in
mutual funds?

69. Which funds combine features of both open-ended and close-ended schemes. They are largely close-
ended, but become open-ended at pre-specified intervals?
A. Active Funds. B. Passive Funds. C. Hybrid Funds. D. Interval Funds.
70. Which Fund have an investment charter that provides for a reasonable level of investment in both debt
and equity?
A. Active Funds. B. Passive Funds. C. Hybrid Funds. D. Interval Funds.
71. Which fund invest in a mix of government and non-government debt securities?
A. Gilt funds. B. Diversified Debt funds. C. Junk bond Schemes D. Fixed Maturity Plans.
72. Which of the following is not a feature of Floating rate fund?

A. It invests largely in debt securities where the interest rate payable by the issuer changes in line with the
market.
B. the NAVs of such schemes fluctuate lesser that debt funds that invest more in debt securities offering a fixed
rate of interest.
C. Both the above. D. None of the above.
73. Liquid schemes invest only in debt securities where the moneys will be repaid with
A. 180 days B. 364 days C. 91 days D. All of the above
74. Which of the following is an example of Sector fund?

A. Infrastructure fund B. Media and Entertainment Fund C. Banking Fund. D. E.L.S.S
75. The NAV of Equity Income/Dividend Yield Schemes are expected to fluctuate lesser than other categories
of equity schemes.
A. True B. False
76. Arbitrage Funds take contrary positions in different markets/securities, such that the risk is neutrllized,
but a return is earned. Most arbitrage funds take contrary positions between the equity market and the
futures and options market. These are designed to help investors to take positions or protect their risk in
some other security, such as an equity share.
B. True B. False
77. Which of the following is/are Hybrid funds?

A. Liquid Funds B. Monthly Income Plan C. Capital Protected Schemes D. Both B and C
78. In which formats Gold Funds can be structured?

A. Gold Exchange Traded Fund B. Gold Sector Funds. C. Gold ETF-FOF D. All of the above
79. Real Estate Funds invest in

A. Bonds B. Government Securities C. Real Estates D. All of the above.

80. Commodities as an asset class include
A. Food Crops like wheat and chana B. spices like pepper and turmeric
C. fibres like cotton D. All of the above
81. Commodities as an asset class include

A. Industrial metals like copper and aluminium B. Energy products like oil and natural gas
C. precious metals(bullion) like gold and silver D. All of the above
82. In India, mutual fund schemes are not permitted to invest in commodities. Therefore, the commodity
funds in the market are in the nature of Commodity Sector Funds, i.e. funds that invest in shares of
companies that are into commodities.
A. True B. False
83. International funds invest abroad. They are often structured as feeder funds linked to a host fund.
A. True B. False
84. The fund manager in a fund of fund scheme selects:

A. Bonds B. Sectors C. Stocks D. Funds
85. In order to facilitate buy and sell units of ETF in the stock exchange, mutual funds appoints some
intermediaries whose job is to offer price quote for buying and selling units at all times are called
A. Traders B. Jobbers C. Market Makers D. Investors

CHAPTER 2- Fund Structure and Constituents
• Mutual funds in India are governed by SEBI (Mutual Fund) Regulations, 1996, as amended till date.
5
• The regulations permit mutual funds to invest in securities including money market instruments, or gold or gold
related instruments or real estate assets.
• Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more Sponsors, who are the
main persons behind the mutual fund operation.
• Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust, are the investors who invest in
various schemes of the mutual fund.
• In order to perform the trusteeship role, either individuals may be appointed as trustees or a Trustee company
may be appointed. When individuals are appointed trustees, they are jointly referred to as Board of Trustees. A
trustee company functions through its Board of Directors.
• Day to day management of the schemes is handled by an AMC. The AMC is appointed by the sponsor or the
Trustees.
• Although the AMC manages the schemes, custody of the assets of the scheme (securities, gold, gold-related
instruments & real estate assets) is with a Custodian, who is appointed by the Trustees.
• Investors invest in various schemes of the mutual fund. The record of investors and their unit-holding may be
maintained by the AMC itself, or it can appoint a Registrar & Transfer Agent (RTA).
• The sponsor needs to have a minimum 40% share holding in the capital of the AMC.
• The sponsor has to appoint at least 4 trustees – atleast two-thirds of them need to be independent. Prior approval
of SEBI needs to be taken, before a person is appointed as Trustee.
• AMC should have networth of at least Rs10crore. At least 50% of the directors should be independent directors.
Prior approval of the trustees is required, before a person is appointed as director on the board of the AMC.
Question Time
1. The assets of the mutual fund are held by

A. AMC B. Trustees C. Custodian D. Registrar
2. Minimum networth requirement for AMC is

A. Rs 10 crore B. Rs 5 crore C. Rs 4 crore D. Rs 2 crore
3. AMC directors are appointed with the permission of Trustees

A. True B. False

4. Most investor service centres are offices of
A. Trustees C. Registrar C. Custodian D. Fund Accountant
5. Fund accounting activity of a scheme is to be compulsorily outsourced

A. True B. False
6. Which of the following constituents is responsible for executing the trades of the fund manager on the
stock exchange?
A. Brokers B. R & T agents C. Custodian D. Banker
7. In order to be appointed as a constituent of a mutual fund, it is compulsory to be:

A. Registered with SEBI B. Certified by AMFI
C. Listed by Ministry of Company Affairs D. Approved by RBI
8. A mutual fund has been set up by a bank who is the regulator of the sponsor of such a fund?
A. Ministry of Finance B. SEBI C. RBI D. AMFI
9. Which one of the following is NOT appointed by the AMC?

A. The custodian. B. The distributor C. The banker D. The R&T agent
10. Which of the following entities actually represents the mutual fund?
A. The trust B. The AMC C. The custodian D. The sponsor
11. If unit holders seek a change in AMC, they should get the support of investor holding__________.
A. 40% of the unit capital B. 25% of the unit capital
C. 75% of the unit capital D. 50% of the unit capital
12. According to the investment management agreement, what is the power the trustee holds with respect to
an AMC?
A. Trustee can change the staff of the AMC B. Trustee can deny fees to the AMC
C. Trustee can change the AMC for non-performance. D. Trustee can recapitalize the AMC.
13. A mutual fund is owned by

A. The Govt. of India B. SEBI C. All its investors D. AMFI
14. The structure, which is required to be followed by mutual funds in India, is laid down by
A. Financial Ministry B. Securities & Exchange Board of India (SEBI)
C. Fund Sponsor Association of Mutual Funds of India (AMFI) D. RBI
15. The Board of Trustees of a mutual fund:

A. Act as a protector of investor’s interests B. Directly manage the portfolio of securities
C. Do not have the right to dismiss the AMC D. Cannot supervise and direct the working of the AMC

16. The trust that manages a mutual fund is appointed by
A. The Finance Ministry B. RBI C. SEBI D. The sponsor of that mutual fund
17. The custodian of a mutual fund:

A. Is appointed for safekeeping of securities B. Need not be an entity independent of the sponsors
C. Not required to be registered with SEBI D. Does not give or receive deliveries of physical securities
18. Transfer Agents of a mutual fund are not responsible for

A. Issuing and redeeming units of the mutual fund B. Updating investor records
C. Preparing transfer documents D. Investing the funds in securities markets
19. The sponsor of a mutual fund may be compared to

A. director in a Company B. The Chief Executive of a Company
C. Promoter of a Company D. An equity shareholder in a Company
20. The sponsor should have a sound track record and reputation of fairness and integrity in all business
transactions. The requirements are:
A. Sponsor should be carrying on business in financial services for 5 years
B. Sponsor should have positive net worth (share capital plus reserves minus accumulated losses) for each
of those 5 years
C. Latest net worth should be more than the amount that the sponsor contributes to the capital of the AMC
D. The sponsor should have earned profits, after providing for depreciation and interest, in three of the
previous five years, including the latest year.
E. All of the above
21. The role of an AMC is to act as

Promoter B. Investment Manager C. Distribution agent D. Regulator
22. The fund sponsor has to contribute

A. nothing to the AMC B. the total net worth of the MAC
C. at least 40% of the AMC’s net worth D. exactly 50%
23. The AMC and directors are answerable to

A. Stock Exchanges B. The Board of Trustees
C. Agents and distributors D.Stock Brokers
24. The minimum number of trustees who need to be independent persons is -

A One-third B. B One-half C. C Two-third D. Three-fourth

25. What is the minimum number of AMC directors who should be independent?
A. 10% B. B. 25% C. C. 50% D. D. 75%
26. Which of the following statements are not true

A. Accounts of the schemes need to be maintained independent of the accounts of the AMC.
B. The auditor appointed to audit the scheme accounts needs to be different from the auditor of the AMC.
C. While the scheme auditor is appointed by the Trustees, the AMC auditor is appointed by the AMC.
D. All of the above
27. The appointment of RTA is done by the AMC. It is not compulsory to appoint a RTA. The AMC can choose
to handle this activity inhouse. All RTAs need to register with SEBI.
A. True B. False
28. The AMC’s expenses to pay salaries to employees is borne by:

A. Trustees, not sponsors B. Unit holders, not the AMC
C. AMC, not unit holders D. Distributors, not unit holders

CHAPTER 3- Legal and Regulatory Environment
• SEBI regulates mutual funds, depositories, custodians and registrars & transfer agents in the country.
• AMFI is an industry body, but not a self regulatory organization.
• The AMFI Code of Ethics sets out the standards of good practices to be followed by the Asset Management
Companies in their operations and in their dealings with investors, intermediaries and the public.
• AMFI has framed AGNI, a set of guidelines and code of conduct for intermediaries, consisting of individual
agents, brokers, distribution houses and banks engaged in selling of mutual fund products.
• Investment objective defines the broad investment charter. Investment policy describes in greater detail, the kind
of portfolio that will be maintained. Investment strategies are decided on a day-tod-day basis by the senior
management of the AMC. At least 65% of the corpus should, in the normal course, be invested in the
kind of securities / sectors implied by the scheme’s name.
• Statement of accounts is to be sent to investors within 5 days of closure of the NFO.
• Investor can ask for a Unit Certificate for his Unit Holding. This is different from a Statement of Account.
• NAV has to be published daily, in at least 2 newspapers
• NAV and Re-purchase Price is to be updated in the website of AMFI and the mutual fund
• The investor/s can appoint a nominee, who will be entitled to the Units in the event of the demise of the investor/s.
• The investor can also pledge the units. This is normally done to offer security to a financier.
• Dividend warrants have to be dispatched to investors within 30 days of declaration of the dividend
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• Redemption / re-purchase cheques would need to be dispatched to investors within 10 working days from the
date of receipt of request.
• Unit-holders have proportionate right to the beneficial ownership of the assets of the scheme.
• Investors can choose to change their distributor or go direct. In such cases, AMCs will need to comply, without
insisting on No Objection Certificate from the existing distributor.
• Investors can choose to hold the Units in dematerialised form. The mutual fund / AMC is bound to co-ordinate
with the RTA and Depository to facilitate this.
• In the case of unit-holding in demat form, the demat statement given by the Depository Participant would be
treated as compliance with the requirement of Statement of Account.

• The mutual fund has to publish a complete statement of the scheme portfolio and the unaudited financial results,
within 1 month from the close of each half year. In lieu of the advertisement, the mutual fund may choose to send
the portfolio statement to all Unit-holders.
• Debt-oriented, close-ended / interval, schemes /plans need to disclose their portfolio in their website every month,
by the 3rd working day of the succeeding month.
• Scheme-wise Annual Report, or an abridged summary has to be mailed to all unit-holders within 6 months of the
close of the financial year.
• The Annual Report of the AMC has to be displayed on the website of the mutual fund. The Scheme-wise Annual
Report will mention that Unit-holders can ask for a copy of the AMC’s Annual Report.
• The trustees / AMC cannot make any change in the fundamental attributes of a scheme, unless the requisite
processes have been complied. This includes option to dissenting unit-holders to exit at the prevailing Net Asset
Value, without any exit load. This exit window has to be open for at least 30 days.
• The appointment of the AMC for a mutual fund can be terminated by a majority of the trustees or by 75% of the
Unit-holders (in practice, Unit-holding) of the Scheme.
• 75% of the Unit-holders (in practice, Unit-holding) can pass a resolution to wind-up a scheme
• If an investor feels that the trustees have not fulfilled their obligations, then he can file a suit against the trustees
for breach of trust.
• Under the law, a trust is a notional entity. Therefore, investors cannot sue the trust (but they can file suits against
trustees, as seen above).
• The principle of caveat emptor (let the buyer beware) applies to mutual fund investments.
• The investor can claim his moneys from the scheme within 3 years. Payment will be based on prevailing NAV. If
the investor claims the money after 3 years, then payment is based on the NAV at the end of 3 years
• If a security that was written off earlier is now recovered, within 2 years of closure of the scheme, and if the
amounts are substantial, then the amount is to be paid to the old investors. In other cases, the amount is to be
transferred to the Investor Education Fund maintained by each mutual fund.
• PAN No. and KYC documentation is compulsory for mutual fund investments. Only exception is micro-SIPs.
• Investors need to give their bank account details along with the redemption request.
• Adequate safeguards exist to protect the investors from the possibility of a scheme going bust.

Question Time
1. SEBI regulates
A. Mutual Funds B. Depositories C. Registrar & Transfer Agents D. All the above
2. Investment objective defines the broad investment charter

A. True B. False
3. Statement of Account is to be sent to investors within ___ days of NFO closure

A. 3 B. 5 C. 7 D. 15
4. Within ___ days of dividend declaration, warrants will have to be sent to investors.
A. 7 B. 10 C. 15 D. 30
5. Unit holders can hold their units in demat form

A. True B. False
6. The amount of money remaining with a fund as unclaimed redemption is:

A. Managed by the fund until it is claimed B. Transferred to SEBI
C. Transferred to a trust immediately D. Managed by the fund for a specified period
7. If an investor redeems units from a fund, he is likely to receive an updated statement of account within:
A. 30 days B. 15 days C. 10 days D. 7 days
8. AMFI has the powers with respect to registered ARN-holding distributors to:
A. All of the given options B. Impose penalties C. Issue notices D. Cancel registration
9. The AMFI code of conduct is:

A. Part of the SEBI Mutual fund regulation B. Implemented only by AMFI
C. Applicable only on voluntary basis D. Not approved by SEBI
10. Which of the following entities cannot be sued by the investor?

A. Trust B. Sponsor C. AMC D. Custodian
11. Documents available to investors for inspection do not include

A. Memorandum and Articles of Association of AMC
B. Trust Deed and Investment Management Agreement.
C. R & T agent agreement and Custodial Services Agreement
D. Reports based on which actual investments are made
12. The highest authority among the following is the

A. SEBI B. Company Law Board C. RBI D. Ministry of Finance

13. The entity that SEBI does not regulate is
A. Share registrars B. Mutual funds C. Stock exchanges D. Non-banking finance companies
14. Which of the following is a Self-Regulatory Organisation?

A. The Institute of Chartered Accountants of India (ICAI) B. SEBI C. AMFI D. RBI
15. A Self-Regulatory Organisation can regulate

A. All entities in the market B. Only it’s own members in a limited way
C. Its own members with total jurisdiction D. No entity at all
16. Only one of the following is required to pass the AMFI examination
A. trustees B. officers of SEBI working in the Mutual Fund department
C. employees in a call center dealing with mutual fund investors D. fund managers
17. The amount of authority enjoyed by a Self-regulatory Organisation is defined by

A. The apex regulatory authority B. Company law board C. It’s own members D. RBI
18. The role of AMFI in the mutual funds industry is not to

A. Promote the interests of the unit holders B. Set a Code of Ethics
C. Regulate mutual funds D. Increase public awareness of mutual funds in the county
19. Money Market securities are regulated by

A. RBI B. SEBI C. Ministry of Finance D. Scheduled commercial bank
20. What does AMFI stand for?

A. Association of Mutual Funds of India B. Associate Mutual Funds of India
C. Association of Mutual Funds in India D. Associate Mutual funds in India
21. Scheme-wise Annual Report, or an abridged summary has to be mailed to all unit-holders within 6 months
of the close of the financial year.
A. True B. False
22. Interest payable to investors, in case redemption proceeds are not received by the investor within
23. Investors have a right to receive a copy of

A. Annual financial statement B. offer document C. Key information Memorandum D. All of the above
24. _______ % of investors need to vote to wind up the scheme or terminate the AMC
A. 75% B. 51% C. 50% D. 100%

25. Why can’t the investors sue the trust?
A. they are part of the trust & not a separate entity B. Investors bear the risk while investing in mutual funds
C. They can sue the trust D. Any trust cannot be sued.
26. Which of these is not an investor obligation?

A. Investing in mutual funds B. submission of the Pan card is mandatory
C. It is the investors duty to read the offer document D. None of the above
27. SEBI’s current regulations for mutual funds came into force in
A. 1997 B. 1964
C. 1993 D. 1996
28. Anyone who is aggrieved by a ruling of SEBI, can file an appeal with the Securities Appellate Tribunal.
A. True B. False
29. The objectives of AMFI are as follows:

A. To define and maintain high professional and ethical standards in all areas of operation of mutual fund
industry.
B. To develop a cadre of well trained Agent distributors and to implement a programme of training and
certification for all intermediaries and others engaged in the industry.
C. To undertake nationwide investor awareness programme so as to promote proper understanding of the
concept and working of mutual funds.
D. All of the above
30. In the event of breach of the Code of Conduct by an intermediary, the first sequence by AMFI will be:
A. Write to the intermediary (enclosing copies of the complaint & other documentary evidence) and ask for an
explanation within 3 weeks.
B. Give Warning
C. Cancel Registration.
D. None of the above.
31. The investment objective of a diversified equity scheme might read as follows:
A. “To generate capital appreciation from a portfolio of predominantly equity related securities”
B. “To generate income by investing predominantly in a wide range of debt and money market securities”
C. “To achieve growth by investing in equity and equity related investments, balanced with income
generation by investing in debt and money market instruments”

32. The investment objective of a diversified debt scheme might read as follows:
B. “To generate income by investing predominantly in a wide range of debt and money market
securities”
33. The investment objective of a balanced scheme might read as follows:

B. “To generate income by investing predominantly in a wide range of debt and money market
securities”
34. When a scheme’s name implies investment in a particular kind of security or sector, it should have a
policy that provides for investing at least 65% of its corpus in that security or sector, in normal times.
A. True B. False
35. Which of the following statements are correct:

A. Schemes, other than ELSS, need to allot units or refund moneys within 5 business days of closure of the
NFO.
B. Open-ended schemes, other than ELSS, have to re-open for ongoing sale / re-purchase within 5 business
days of allotment.
C. Statement of accounts are to be sent to investors ,In the case of NFO - within 5 business days of closure
of the NFO and In the case of post-NFO investment – within 10 working days of the investment
36. NAV and re-purchase price are to be updated in the website of AMFI and the mutual fund
A. In the case of Fund of Funds, by 10 am the following day
B. In the case of other schemes, by 9 pm the same day
C. Both the above statements are correct. D. Only B is correct.
37. In the event of delays in dispatching dividend warrants or redemption / repurchase cheques, the AMC has
to pay the unit-holder, interest at the rate of 15% p.a. This expense has to be borne by the AMC i.e. it cannot
be charged to the scheme.
A. True B. False

38. In the case of unit-holding in demat form, the demat statement given by the Depository Participant would
be treated as compliance with the requirement of Statement of Account.
A. True B. False
39. Which of the following is true with respect to Unclaimed Amount

A. The mutual fund has to deploy unclaimed dividend and redemption amounts in the money market. AMC can
recover investment management and advisory fees on management of these unclaimed amounts, at a
maximum rate of 0.50% p.a.
B. If the investor claims the money within 3 years, then payment is based on prevailing NAV i.e. after adding the
income earned on the unclaimed money
C. If the investor claims the money after 3 years, then payment is based on the NAV at the end of 3 years
D. All of the above
40. If some sponsors wish to move out of the business, they need to bring in some other sponsor, acceptable
to SEBI, before they can exit. The new sponsor would need to put in place the entire framework of Trustees,
AMC etc. Therefore, unlike the occasional experience of ‘vanishing companies’ in shares, mutual funds
cannot vanish.
A. True B. False
41. A fund of fund derives its NAV from other funds. Therefore it can publish it NAV by __________.
A. 8 am of the next day B. 9 pm of the same day C. 8 pm of the same day D. 10 am of the next day
42. Which of the following is NOT required to be disclosed to the investors in a mutual fund?
A. Annual report of the AMC B. NAV of the schemes
C. Portfolio of the Scheme D. Annual report of the scheme

CHAPTER 4- Offer Document
• Under the SEBI guidelines, NFOs other than ELSS can remain open for a maximum of 15 days. Allotment of units
or refund of moneys, as the case may be, should be done within 5 business days of closure of the scheme.
Further, open-ended schemes have to re-open for sale / re-purchase within 5 business days of
the allotment.
• Investors get to know the details of any NFO through the Offer Document, which is one of the most important
sources of information about the scheme for investors. Investments by the investor are governed by the principle
of caveat emptor i.e. let the buyer beware.
• Mutual Fund Offer Documents have two parts: (a) Scheme Information Document (SID), which has details of the
scheme (b) Statement of Additional Information (SAI), which has statutory information about the mutual fund that
is offering the scheme.
• In practice, SID and SAI are two separate documents, though the legal technicality is that SAI is part of the SID.
Both documents need to be updated regularly.
• Offer Documents in the market are “vetted” by SEBI, though SEBI does not formally “approve” them.
• KIM is essentially a summary of the SID 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.
Question Time
1. NFOs other than ELSS can be open for a maximum of:

2. Legally, SAI is part of the SID

A. True B. False
3. Offer documents of mutual fund schemes are approved by SEBI

A. True B. False
4. Application form is attached to

A. SID B. SAI C. KIM D. None of the above
5. KIM has to be updated every 6 months

A. True B. False
6. If a scheme has a lock-in period, such information can be found in:

A. KYC B. SID C. SAI D. MIN

7. When a fund launches a new scheme, it first takes the approval of
A. AMFI B. SAT C. Trustees & BOD of the AMC. D. Sponsors
8. Which of the following is NOT found in an offer document?

A. Existing schemes of the fund B. Key personnel of the fund
C. Fees and expenses of the scheme D. Features of competing funds
9. The NAV of a fund is Rs. 40. The exit liad is 1%. What is the re-purchase price per unit?
A. Rs. 39.40 B. Rs. 40.40 C. Rs. 39.60 D. Rs. 40
10. The component that is common between offer documents of two schemes of the same mutual fund is:
A. MIN B. SAI C. KIM D. SID
11. A mutual fund scheme was launched on October 15, 2010. When is the SID due for the first regular
update?
A. January-12 B. March-12 C. March-11 D. January-11
12. Which one of the following can change, without changing the fundamental attribute of the fund?
A. Asset allocation B. Fund manager C. Lock-in period D. Investment Objective.
13. Investors need to note that their investment is governed by the principle of caveat emptor i.e. let the buyer
beware. An investor is presumed to have read the Offer Document, even if he has not actually read it.
A. True B. False
14. Which of the following statements are correct?

A. If a scheme is launched in the first 6 months of the financial year (say, April 2010), then the first update of the
SID is due within 3 months of the end of the financial year (i.e. by June 2011).
B. If a scheme is launched in the second 6 months of the financial year (say, October 2010), then the first update
of the SID is due within 3 months of the end of the next financial year (i.e. by June 2012).
C. After First updation, SID is to be updated every year.
15. Which of the following statements are true regarding Update of SAI
A. Regular update is to be done by the end of 3 months of every financial year.
B. Material changes have to be updated on an ongoing basis and uploaded on the websites of the mutual fund
and AMFI.
C. Both the above statements are correct D. None of the above statements are correct.
16. KIM is essentially a summary of the SID 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.
A. True B. False

17. KIM is updated
A. At least once a year. B. after every 3 years C. at the end of every 4 years D. Never
18. The Scheme/Plan shall have a minimum of 20 investors and no single investor shall account for more
than 25% of the corpus of the Scheme/Plan(s).
A. True B. False
19. Which employee(s) of the AMC should sign the Due Diligence Certificate?
A. Compliance Officer B. Chief Executive Officer
C. Managing Director, Whole time Director & Executive Director D. All of the above
20. In case of change in Fundamental Attributes in a Scheme of a Mutual Fund

A. An advertisement is given in one English daily newspaper having nationwide Circulation
B. Apart from above it should be published in a newspaper in the language of the region where the Head
Office of the Mutual Fund is situated
C. The unitholders are given an option for a period of 30 days to exit at the prevailing Net Asset Value
without any exit load.
21. In offer documents which of the following fees and expenses are to be disclosed that will be charged to
the scheme
A. New Fund Offer (NFO) Expenses B. Annual Scheme Recurring Expenses
C. Load Structure D. All of the above.
22. A due diligence certificate does not certify that

A. The draft offer document forwarded to SEBI is in accordance with SEBI regulations
B. All legal requirements connected with launching of the scheme have been complied with
C. Disclosures made in the offer document are true, fair and adequate
D. The AMC guarantees a good performance
23. The following is not required on the cover page of the OD

A. Date on which approved by trustees B. Earliest closing date for New Fund Offer
C. Date the NFO closes C. Date the NFO opens
24. The front page of an offer document need not cover

A. Opening, closing and earliest closing date of the offer B. Disclaimer clause
C. Legal and regulatory compliance D. Price of units
25. The OD should indicate the management of the fund. The management doesn’t include
A. name of trustees B. name of the Fund Manager
C. business experience of the key personnel of the AMC D. registration number of the custodian

26. The first time investor should be well advised to refer to the –
A. Offer document B. Key information memorandum C. Trust deed D. AMFI guidelines
27. What features figure on the cover page of the offer document?
A. Name of Mutual fund B. Name of the scheme C. Glossary of defined terms D. Both (A) & (B)
28. Does name of the scheme indicate its quality or prospects?

A. Yes B. No
29. the offer document contains condensed financial information of all schemes launched in the last
A. 3 years B. 5 years C. 7 years D. 9 years
30. Who prescribes the format for KIM?

A. AMC B. AMFI C. SEBI D. Ministry of finance
31. Which of the following is not part of KIM?

A. Name of Fund Manager & trustee company
B. Expenses with regard to load & recurring expenses.
C. Investor grievance contact D. Address of trustees & directors
32. Is it mandatory of an AMC to disclose ___________ in the KIM?

A. Investment objective
B. Performance of schemes in terms of compounded annualized returns over 1, 3, 5 year period. Along with the
benchmark returns.
C. Plans & options D. All of the above

CHAPTER 5- Fund Distribution and Channel Management Practices
• The changing competitive context has led to the emergence of institutional channels of distribution, to supplement
the individuals who distribute mutual funds. Institutional channels build their reach through employees, agents and
sub-brokers.
• AMCs keep exploring newer channels of distribution to increase the size of assets managed.
• The internet has increased the expectations of advice that investors have from their distributors.
• The stock exchange brokers have become a new channel for distribution of mutual funds. These brokers too need
to pass the prescribed test, get the AMFI Registration No. and get themselves empanelled with AMCs whose
schemes they want to distribute.
• The scheme application forms carry a suitable disclosure to the effect that the upfront commission to distributors
will be paid by the investor directly to the distributor, based on his assessment of various factors including the
service rendered by the distributor.
• AMCs pay a trail commission for the period the investment is held in the scheme.
• Since trail commission is calculated as a percentage on AUM, distributors get the benefit of valuation gains in the
market.
Question Time
1. Institutional distributors build reach through

A. Employees B. Agents C. Sub-brokers D. Any of the above
2. The maximum initial commission that an AMC can pay to distributors is:
A. Nil B. 0.05% C. 1% D. 2%
3. The distributor can charge a fee from the investor.

A. True B. False
4. Stock exchange brokers are permitted to distribute mutual funds without the requirement of passing the
certifying test
A. True B. False
5. Trail commissions are linked to valuation of portfolio in the market

A. True B. False
6. Which of the following cannot be a appointed as a distributor of a mutual fund?

A. Individuals B. AMC employees C. Banks D. Sponsor

7. What is the maximum number of AMCs with whom a mutual fund distributor can be empanelled?
A. 5 B. 20 C. There is no maximum limit D. 10
8. The primary objective of creating a mutual fund trading platform on a stock exchange is to
A. increase the cost of distribution B. increase the number of products
C. increase the reach of mutual fund products C. increase the number of investors
9. Trail commission is paid on the basis of:

A. Original invested amount. B. Minimum value of the invested amount
C. Face value of the invested amount C. Market value of the invested amount
10. Risk factors needs not be carried in which of the following advertisements?
A. Tombstone advertisements B. Awards advertisement
C. NFO advertisement D. Advertisement of existing products
11. An agent's appointment by a fund

A. Requires SEBI's approval B. Is a lengthy and cumbersome process
C. Is mandatorily preceded by an AMFI test D. Does not require any approval
12. Can a distributor have people (sub brokers) working under him?
A. Yes B. No C. With prior SEBI permission D. Only if the AMC permits
13. To become an ARN holder, what are the basic criteria?
A. Should be a graduate B. Should have at least passed his 12th standard exam
C. Should have a sound knowledge of the market D. Should have passed the mandatory NISM exam
14. Name the types of commission paid to distributors

A. Upfront commission B. Trail commission C. Business enhancing commission D.Both (A) &(B)
15. In which type of fund, should annualized returns be shown even if the fund is less than one year?
A. Equity B. Debt C. Exchange traded fund D. Liquid funds
16. Annualized yield must be shown

A. 1 – 2 – 3 years & since inception B. 1 – 3 – 5 years & since inception
C. 1 – 2 – 5 years & since inception D. Only absolute yield must be shown to investors
17. Who appoints the distributors?

A. AMFI B. SEBI C. AMC D. All three
18. The following is not a AMFI recommendation regarding practices for effective selling of mutual funds by
A. agents should be fully aware of important characteristics of schemes they are selling
B. agents need not know their clients well C. agents must understand clients needs D. None of the above

19. MF regulations specifically
A. Prescribe a minimum commission rate for agents B. Prescribe a maximum commission rate for agents
C. Prescribe both minimum and maximum commission rate for agents D. None of the above
20. Under KYD requirements, Bio-metric process consists of taking the impression of the index finger of the
right hand of the ARN holder. This will be done at the POS at the time submission of documents.
A. True B. False
21. Typically, AMCs structure their relationship with distributors as Principal to Principal. Therefore, the AMC
it is not bound by the acts of the distributor, or the distributor’s agents or sub-brokers.
A. True B. False
22. Every person who is into selling of mutual funds should be familiar with the
A. AMFI Code of Ethics (ACE) B. B.AMFI’s Guidelines & Norms for Intermediaries (AGNI).
C. Both the above D. None of the above
23. If a distributor invests his own funds in a mutual fund, which of the following it true?
A. He can invest but only in a joint name B. He cannot invest his own funds
B. He cannot earn commission on his investments D. He cannot invest as a individual
24. The distributors have to disclose all the commissions (in the form of trail commission or any other mode)
payable to them for the different competing schemes of various mutual funds from amongst which the
scheme is being recommended to the investor.
A. True B. False
25. The practice of rebating i.e., sharing part of the commission earned with the investors, is banned.
A. True B. False
26. The following information is prohibited from tombstone advertisements:

A. Declaration of NAV and performance of the scheme.
B. Promise of any returns except in case of assured returns schemes.
C. Comparisons and usage of ranking given by a third party. D. All of the above
27. The dividends declared or paid shall also be mentioned in Rupees per unit along with the face value of
each unit of that scheme and the prevailing NAV at the time of declaration of the dividend.
A. True B. False
28. Only compounded annualized yield shall be advertised, calculated using the prescribed procedure, if the
scheme has been in existence for more than 1 year. All performance calculations shall be based only on NAV
and payouts to the unit holders.
A. True B. False
29. In case of Money Market schemes or cash and liquid plans, wherein investors have very short investment
horizon, the performance can be advertised by simple annualisation of yields if a performance figure is
available for at least 7 days, 15 days and 30 days provided it does not reflect an unrealistic or misleading
picture of the performance or future performance of the scheme.
A. True B. False

CHAPTER 6- Accounting, Valuation and Taxation
• The unit-holders’ funds in the scheme is commonly referred to as “net assets”.
• Net asset includes the amounts originally invested, the profits booked in the scheme, as well as appreciation in
the investment portfolio. It goes up when the market goes up, even if the investments have not been sold.
• A scheme cannot show better profits by delaying payments. While calculating profits, all the expenses that relate
to a period need to be considered, irrespective of whether or not the expense has been paid. In accounting
jargon, this is called accrual principle.
• Similarly, any income that relates to the period will boost profits, irrespective of whether or not it has been actually
received in the bank account. This again is in line with the accrual principle.
• In the market, when people talk of NAV, they refer to the value of each unit of the scheme. Higher the interest,
dividend and capital gains earned by the scheme, higher would be the NAV. Higher the appreciation in the
investment portfolio, higher would be the NAV. Lower the expenses, higher would be the NAV.
• The difference between the NAV and Re-purchase Price is called the “exit load”.
• Schemes can also calibrate the load when investors offer their units for re-purchase. Investors would be
incentivized to hold their units longer, by reducing the load as the unit holding period increased. Such structures
of load are called “Contingent Deferred Sales Charge (CDSC)
• SEBI has banned entry loads. So, the Sale Price needs to be the same as NAV. Exit loads / CDSC in excess of
1% of the redemption proceeds have to be credited back to the scheme immediately i.e. they are not available for
the AMC to bear selling expenses. Exit load structure needs to be the same for all unitholders representing a
portfolio.
• Initial issue expenses need to be met by the AMC. There are limits to the recurring expenses that can be charged
to the scheme. These are linked to the nature of the scheme and its net assets.
• Dividends can be paid out of distributable reserves. SEBI has prescribed a conservative approach to its
calculation.
• 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.
• Investors can hold their units even in a fraction of 1 unit. However, current stock exchange trading systems may
restrict transacting on the exchange to whole units.
• Detailed norms on valuation of debt and equity securities determine the valuation of the portfolio, and therefore
the NAV of every scheme.

• Mutual funds are exempt from tax. However, Securities Transaction Tax (STT) is applicable on investments in
equity and equity mutual fund schemes. Additional tax on income distributed (Dividend distribution tax) is
applicable on dividends paid by debt mutual fund schemes.
• Taxability of capital gains, and treatment of capital losses is different between equity and debt schemes, and also
between short term and long term. Upto 1 year investment holding is treated as short term.
• There is no Tax Deducted at Source (TDS) on dividend payments or re-purchase payments to resident investors.
Withholding tax is applicable for some non-resident investors.
• Setting of capital losses against capital gains and other income is subject to limitations to prevent tax avoidance.
• Investment in mutual fund units is exempt from Wealth Tax.
Question Time
1. Net assets of a scheme is nothing but its investment portfolio

A. True B. False
2. The difference between NAV and re-purchase price is

A. Entry Load B. Exit Load C. Expense D. Dividend Stripping
3. NAV of income funds is to be calculated upto ___ decimals

A. 4 B. 3 C. 2 D. 1
4. Securities Transaction Tax is applicable to Equity Schemes

A. True B. False
5. Wealth tax is payable at the applicable rates on equity mutual fund units
A. True B. False
6. if the investor bought units of a debt-oriented mutual fund scheme at Rs 10 and sold them at Rs 15, after a
period of over a year. Assume the government’s inflation index number was 400 for the year in which the
units were bought; and 440 for the year in which the units were sold. The investor would need to pay tax
A. Rs.0.50 per unit B. Rs. 0.80 per unit C. Rs. 5 per unit D. None of the above
7. Which of the following NAVs of an equity fund is as per minimum regulatory requirement?
A. Rs. 12.452 B. Rs. 12.45 C. Rs. 12 D. Rs. 12.4525

8. An investor has sold his investments in a mutual fund two years after buying the units. The profits he
earns are taxable_____________.
A. as dividends B. at a rate of 10% C. as short term capital gains D. as long term capital gains
9. An investor earns long term capital losses from his debt fund investments. He also makes a long term gain
from his MIP investments. Which of the following is true?
A. The loss can be set off only against short term gains B. The loss cannot be set-off
B. The loss can be set off D. Only short term gains are available for set-off
10. The assets of a fund are Rs.200 cr. The current liabilities are Rs.20 cr. The unit capital is Rs. 50 cr. And the
face value per unit is Rs.10. What is the NAV of the fund?
A. Rs. 44 B. Rs. 32 C. Rs. 36 D. Rs. 40
11. Which of the following is a eligible for specific tax concessions?

A. Corporate bonds B. Post Office deposits C. Company deposits D. PPF
12. An investor sells his units in an equity-oriented fund after 6 months, for a profit. What is the taxability of
this gain?
A. Taxable at 20% B. Taxable at 10% C. Taxable at marginal rates D. Taxable at 15%
13. The interest on bank deposits is:

A. Fully exempt from tax. B. Fully taxable C. Exempt from tax up to a limit D. Taxable up to a certain limit
14. An individual investor chooses a dividend reinvestment option in a debt fund. What is the DDT applicable
to the dividends that are reinvested?
A. DDT applies at 12.5% B. DDT applies only for dividend payout option
C. DDT applies at 20% D. DDT does not apply.
15. If there is a loss from sale of mutual funds, this cannot be set off against:
A. income from dividends and interest. B. Income from residential property
C. Income from salary D. Any other head of income
16. Securities transaction Tax (STT) is payable by mutual fund investors on:
A. Sale and repurchase of all units B. Re-purchase of equity-oriented units
C. Sale of equity-oriented units D. Repurchase of all units
17. A mutual fund may transfer investments from one scheme to another
A. Not at all B. At current market rates C. At cost price D. At a fixed premium over market rate

18. In a mutual fund investor's subscriptions are accounted for as
A. Liabilities B. Deposits C. Unit capital D. None of the above
19. Which of the below is a short-term capital asset?

A. Unit of MF held for a period of not more than one year preceding the date of transfer
B. Unit of MF held for a period of less than one year preceding the date of transfer
C. Unit of MF held for a period of less than three years preceding the date of transfer
D. Unit of MF held for a period of not more than three years preceding the date of transfer
20. For a scheme that has a load, the AMC can charge an investment management fee not exceeding
A. 1.50% B. 2.00% C. 1.25% D. 0.50%
21. Net Asset Value (NAV) of a mutual fund scheme is defined as the scheme’s
A. Assets minus liabilities B. Assets per unit C. Assets minus liabilities per unit D. None of the above
22. Contingent deferred sales charge (CDSC)

A. Is higher for investors who stay invested in the scheme longer
B. Is lower for investors who stay invested in the scheme longer
C. Is the same for all investors irrespective of how long they stay invested
D. Is not allowed to be charged to mutual fund investors in India
23. The charge to an investor at the time of redemption of units from the fund is known as
A. Recovery charge B. Repurchase load D. Redemption weight D. Exit load
24. The total net assets of a fund scheme increased from 100 cr to 120 cr. Of this, 5 cr was unrealized gain.
The number of units is 10 cr. The maximum dividend per unit the scheme can declare is:
A. Rs 2 B. Rs 1.50 C. Rs. 0.50 D. Rs. 1
25. All mutual funds assets belong to

A. AMC B. AMFI C. Trustees D. Investors
26. Which of the following statements are correct?

A. Higher the interest, dividend and capital gains earned by the scheme, higher would be the NAV.
B. Higher the appreciation in the investment portfolio, higher would be the NAV.
C. Lower the expenses, higher would be the NAV. D. All of the above
27. NAV need to rounded of to 4 decimal points in case of

A. Liquid funds B. Index Funds C. Debt funds D.All of the above

28. NAV need to rounded of to 2 decimal points in case of
A. Balanced funds B. Equity funds C. Both A & B, D. None of the above
29. What would the total expense that an AMC would charge on their equity fund having an AUM of Rs. 1,000/-
crore?
A. Rs. 25.00 crores B. Rs. 20.50 crores C. Rs. 17.50 crores D. Cannot calculate, incomplete data
30. The process of valuing each security in the investment portfolio of the scheme at its market value is
called ‘mark to market’ i.e. marking the securities to their market value.
A. True B. False
31. A scheme with 1000 unit holders has the following items in its balance sheet - Unit Capital Rs.10,000;
investments at market value Rs.25,000; other assets Rs.3,500; Other liabilities Rs.2,000; issue expenses not
written off Rs.500; reserves Rs.17,000. What is the scheme's NAV per unit?
A. Rs27 B. Rs29 C. Rs10 D. Rs27,000 E. None of the above
32. The unit capital of a mutual fund scheme is Rs.20 million. The market value of investments is Rs.55
million. If the number of units outstanding is 1 million, what is the NAV per unit?
A. Rs. 20 B. Rs. 75 C. Rs. 55 D. Cannot be determined
33. To get the benefit of dividend stripping, the investor would need to
A Buy the securities more than 3 months prior to the record date for the dividend
B Sell the securities more than 9 months of the record date, if purchased within 3 months prior to the record date for
dividend
C Both the above D A or B
34. If the NAV of a scheme is Rs 11.00 per unit, and it were to charge exit load of 1%, the Re-purchase Price
would be
A. Rs 11. 00 B. Rs. 11.11 C. Rs. 10.89 D. None of the above
35. The position since August 1, 2009 is that:

A. SEBI has banned entry loads. So, the Sale Price needs to be the same as NAV.
B. Exit loads / CDSC in excess of 1% of the redemption proceeds have to be credited back to the scheme
immediately i.e. they are not available for the AMC to bear selling expenses.
C. Exit load structure needs to be the same for all unit-holders representing a portfolio.
D. All of the above

36. Which of the following is/are kinds of expenses in mutual fund
A. Initial Issue Expenses B. Recurring Expenses C. Both A & B D. None of the above
37. Which of the following expenses cannot be charged to the scheme?

A. Listing fees and Depository fees B. Service Tax
C. Penalties and fines for infraction of laws. D. None of the above
38. Recurring expense limit (including management fees) for index schemes (including Exchange Traded
Funds) is
A. 1.50% B. 0.75% C. 1.25% D. None of the above
39. Where an individual security that is not traded or thinly traded, represents more than 5% of the net assets
of a scheme, an independent valuer has to be appointed.
A. True B. False
40. Equity-oriented scheme is a mutual fund scheme where at least 65% of the assets are invested in equity
shares of domestic companies.
A. True B. False

CHAPTER 7- Investor Services
• Individual and non-individual investors are permitted to invest in mutual funds in India. Foreign entities and OCBs
are not permitted to invest. Since FIIs are permitted to invest, foreign entities can take this route. The ‘Who can
invest’ section of the Offer Document is the best source to check on eligibility to invest.
• All investments of Rs 50,000 and above need to comply with KYC documentation viz. Proof of Identity, Proof of
Address, PAN Card and Photograph. Once an investor obtains a Mutual Fund Identification Number (MIN) from
CDSL Ventures Ltd, the investor can apply with any mutual fund.
• Micro SIPs i.e. SIPs with annual investment below Rs 50,000 is exempted from the PAN Card requirement.
Simplified documentation has been prescribed in such cases.
• Besides KYC, non-individual investors need to provide additional documentation to support their investment.
Demat makes it possible to trade in Units in the stock exchange.
• Full application form is to be filled for a first time investment in a mutual fund. Thereafter, additional investments in
the same mutual fund are simpler. Only transaction slip would need to be filled.
• Investors can pay for their Unit purchases through cheque / DD, Net-based remittances, ECS / Standing
Instructions or ASBA. MBanking is likely to increase in importance in the days to come. Non-resident investment
on repatriation basis has to be paid through cheque on NRE account, or a banker’s certificate that investment is
made out of moneys remitted from abroad.
• Transaction Slip can be used for re-purchase. Investors can indicate the amount to re-purchase or the number of
units to repurchase.
• Cut-off timings have been specified for different types of schemes and different contexts to determine the
applicable NAV for sale and re-purchase transactions. These are not applicable for NFOs and International
Schemes.
• Time Stamping is a mechanism to ensure that the cut-off timing is strictly followed.
• NSE’s platform is called NEAT MFSS. BSE’s platform is BSE StAR Mutual Funds Platform.
• Dividend payout, Dividend investment and Growth are 3 possible options within a scheme. Each option has
different implications on the investor’s bank account, investor’s taxation and scheme NAV.
• A constant amount is regularly invested in SIP, withdrawn in SWP and transferred between schemes in STP.
These minimize the risk of timing the decisions wrongly.
• Triggers are another way of bring discipline into investing.
• Nomination and Pledge options are available for mutual fund investors.

Question Time
1. Foreign nationals are freely permitted to invest in Indian mutual funds

A. True B. False
2. PAN Card is compulsory for all mutual fund investments above Rs 50,000, including SIPs
A. True B. False
3. Investments in mutual fund can be made using

A. Cheque / DD B. Remittance C. ASBA D. Any of the above
4. Cut-off timing guidelines are not applicable for

A. NFOs B. International Funds C. Both the above D. None of the above
5. STP is a combination of SIP and SWP

A. True B. False
6. If you receive an application for investing in a mutual fund, which one of the following investors would you
reject?
A. HUFs B. PIOs C. OCBs D. NRIs
7. An investor buying mutual fund units for the first time uses the:
A. Statement of account B. Application form C. Switch form D. Transaction slip
8. If an investor uses the ASBA facility in NFO transactions, he makes the payment for units:
A. Upfront in advance B. Without making an application
C. Only on allotment of units D.In installments
9. The NAV for an equity fund purchase transaction will be applied based on:
A. Date of the cheque B. Date of realization of cheque
C. Date of the application D. Date on the time stamp
10. A company investing in a mutual fund is required to submit along with the application:
A. A copy of the tax returns B. A copy of the profit and loss account
C. A copy of the balance sheet D. A copy of the board resolution
11. An important benefit of SIPs is:

A. High rates of return
B. B. Lower lock-in period
C. Lower fund expenses
D. Rupee cost averaging

12. KYC norms have to be complied for which of the following mutual fund transactions?
A. All transactions of Rs.50,000 or more in value. B. All transactions
C. All purchase transactions of Rs.50,000 or more in value
D. All purchase, additional purchase, new sip, new stp and switch-in transactions w.e.f 1st Jan, 2011, Except
Micro-SIP.
13. A transaction slip can be used in a mutual fund transaction if:

A. the value of the transaction is less than Rs. 50000 B. it is a first time transaction
C. it is a non-financial transaction D. it is a transaction in an existing folio
14. An investor transaction is completed using the online facility of a mutual fund at 11:30 AM. It is processed
at 4:00 PM. What is the applicable cut-off time for the transaction?
A. 4:00 PM B. 11:30 AM C. 3:00PM D. Cut-off time does not apply to such transactions
15. A company that intends to invest in a mutual fund scheme needs to take approval from:
A. SEBI B. Registrar of Companies C. Board of Directors D. Company Law Board
16. An application for a gilt fund is received with a cheque for Rs. 2 Crore at 11:00 AM. What is the the
applicable NAV?
A. Day of cheque realization B. Previous day C. Next Day D. Same day
17. If an investor conducts a mutual fund transaction on a stock exchange platform, which of the following is
NOT true?
A. The transaction can be settled using a demat account
B. The transaction has to be conducted online
C. The transaction may have to be sent to the R&T agent
D. The transaction will be put through by a borker.
18. PAN is required for:

A. NFO transaction B. All mutual fund transaction
C. Purchase transaction above Rs.50,000 D. Re-purchase transactions
19. A purchase request for an equity fund was accepted at an AMC office on Wednesday, march 11 at 2:30
pm. What is the applicable NAV for the transaction?
A. NAV of March 9 B. NAV of March 11 C. NAV of March 10 D. NAV of March 12
20. What is the proof that the investor has invested in mutual fund units?
A. The investors receive units commensurate with the investment made
B. Investors get an account statement, showing their holdings and their price
C. The receipt of money acts as the proof D. None of the above

21. Which of the following is TRUE of an automatic reinvestment (or growth) plan?
A. The growth plan allows for the automatic reinvestment of all returns
B. The major benefit of automatic reinvestment is compounding
C. An investor who subscribes to the growth option under a scheme can later switch to a dividend option
D. All of these
22. A Systematic Investment Plan

A. Requires the investor to invest a fixed sum periodically
B. Enforces saving in a disciplined and phased manner
C. Provides the benefit of Rupee Cost Averaging D. All of these
23. A systematic withdrawal plan is ideal for

A. Investors with growth as the main investment objective
B. Investors who wish to benefit from market fluctuations
C. Investors who prefer a regular income stream
D. Investors who are not sure about themselves
24. Mutual fund in India do not offer

A. Nomination and transfer facilities B. Redemption of units C. C. Loans against units
D. Providing periodic statements to unit holders regarding their transactions
25. Loan against investors’ holding in a mutual fund can be given by

A. The mutual fund B. Bank or any other lender C. Both the above D. None of the above
26. Foreign investors can invest in equity schemes of MFs registered with SEBI after completing KYC
process.
A. True B. False
27. Investors have to give a declaration stating that the he does not have any existing Micro SIPs which
together with the current application will result in aggregate investments exceeding Rs. 50,000 in a year.
A. True B. False
28. ________________is a process whereby an investor’s holding of investments in physical form (paper), is
converted into a digital record.
A. Investment B. Dematerialisation C. Record Keeping D. Re-materialisation
29. The investor also has the option to convert the demat units into physical form. This process is
called_______________.
A. Investment B. Dematerialisation C. Record Keeping D. Re-materialisation

30. Thus, an investor who has invested Rs 12,000, in a scheme where the applicable sale price is Rs 12, will
be allotted
A. 1200 Units B. 1000 Units C. 100 Units D. 1250 Units
31. For online transactions, the time as per the web server to which the instruction goes, is used in
determining the NAV for sale / repurchase transactions.
A. True B. False
32. The dividend received in the hands of the investor does not bear any tax.
A. True B. False
33. Once Units are pledged, the Unit-holder/s cannot sell or transfer the pledged units, until the pledgee gives
a no-objection to release the pledge.
A. True B. False

CHAPTER 8- Return, Risk & Performance of Funds
• The portfolio is the main driver of returns in a mutual fund scheme. The underlying factors are different for each
asset class.
• Fundamental Analysis and Technical Analysis are two disciplines of securities analysis. Fundamental Analysis
entails review of the company’s fundamentals viz. financial statements, quality of management, competitive
position in its product / service market etc. Technical analysts study price-volume charts of the
company’s share prices.
• It is generally agreed that longer term investment decisions are best taken through a fundamental analysis
approach, while technical analysis comes in handy for shorter term speculative decisions, including intra-day
trading. Even where a fundamental analysis-based decision has been taken on a stock, technical
analysis might help decide when to implement the decision i.e. the timing.
• Growth investment style entails investing in high growth stocks. Value investment style is an approach of picking
up stocks which are valued lower, based on fundamental analysis.
• In a top-down approach, sector allocation is the key decision. Stock selection is important in bottom-up approach.
• The returns in a debt portfolio are largely driven by interest rates and yield spreads.
• If the portfolio manager expects interest rates to rise, then the portfolio is switched towards a higher proportion of
floating rate instruments; or fixed rate instruments of shorter tenor. On the other hand, if the expectation is that
interest rates would fall, then the manager increases the exposure to longer term fixed rate debt securities.
• This additional return offered by a non-government issuer, above the yield that the government offers, is called
yield spread. Better the credit quality, lower the yield spread.
• Gold is a truly international asset, whose quality can be objectively measured. The value of gold in India depends
on the international price of gold (which is quoted in foreign currency), the exchange rate for converting the
currency into Indian rupees, and any duties on the import of gold.
• Unlike gold, which is a global asset, real estate is a local asset. It cannot be transported – and its value is driven
by local factors.
• Returns can be measured in various ways – Simple Returns, Annualised Returns, Compounded Returns,
Compounded Annual Growth Rate. CAGR assumes that all dividend payouts are reinvested in the scheme at the
ex-dividend NAV.
• SEBI guidelines govern disclosures of return by mutual fund schemes.

• Loads and taxes pull the investor’s returns below that earned by the Scheme. Investor returns are also influenced
by various actions of the investor himself.
• Risks in mutual fund schemes would depend on the nature of portfolio, its liquidity, outside liabilities and
composition of unitholders.
• Fluctuation in returns is a measure of risk. Variance and Standard Deviation are risk measures for all kinds of
schemes; beta is relevant for equity; modified duration and weighted average maturity are applicable for debt
schemes.
• Benchmarking is a form of relative returns comparison. It helps in assessing under-performance or out-

performance.
• Choice of benchmark depends on scheme type, choice of investment universe, choice of portfolio concentration
and the underlying exposure.
• Sharpe Ratio, Treynor Ratio and Alpha are bases to evaluate a fund manager’s performance based on risk-
adjusted returns.
• Quantitative measures are based on historical performance, which may or may not be replicated in future.
Scheme evaluation is an art, not a science.
Question Time
1. Fundamental analysis is a evaluation of the strength of the company’s price-volume charts.

A. True B. False
2. In a top-down approach, sector allocation precedes stock selection

A. True B. False
3. Which of the following is a truly international asset class

A. Real Estate B. Equity C. Debt D. Gold
4. Loads and taxes may account for the difference between scheme returns and investor returns.
A. True B. False
5. The most appropriate measure of returns for a scheme in existence for several years is:
A. Simple Return B. Dividend Return C. Annualised Return D. CAGR
6. Risk can be measured by

A. Variance B. Standard Deviation C. Beta D. Any of the above

7. Alpha refers to:
A. Excess return B. Beta C. Sharpe ratio D. Tracking error
8. Which of the following is an appropriate benchmark for a large cap equity fund?
A. S&P CNX Nifty index B. BSE 500 index C. BSE 200 index D. S&P CNX IT index
9. If the PE ratio is very high, it is likely that growth stocks would be:
A. Fairly valued B. Illiquid C. Overvalued D. Undervalued
10. CAGR is used to measure the returns from mutual funds for periods of:
A. equal to one year B. more than five years C. more than one year D. less than one year
11. Investments in equity funds can be expected to be:

A. Risky in the long term B. Risky in the short term C. Riskless in the long term D.Riskless in the short term
12. The primary data used in fundamental analysis of equity is:

A. Financial information B. Trading volume C. Shareholding pattern D. Stock prices
13. The correct indicator of return to the investor would be:

A. Return after expenses B. Return after expenses, load and tax
C. Return after expenses and load D. Portfolio Return.
14. Which of the following risks is not borne by FMP, who holds to maturity?
A. Credit risk B. Liquidity risk C. Default risk D. Market risk
15. A fund manager has sold his holdings while the markets are still going up and is holding cash as a
defensive measure. How is the portfolio likely to perform if the markets correct?
A. Underperform B. Match the market C. Outperform D. Correlated to the market
16. The track record of a fund can be used in evaluating funds that are:
A. Large B. Small C. In existence for a long period D. In existence for a short period
17. The risk in an equity fund can arise from the portfolio that holds:
A. Non-index stocks B. Higher proportion in a few sectors
C. Stocks from several sectors D. Less than 10% in a single stock
18. Which of the following investment exhibits higher volatility in its value?
A. Equity shares B. PPF C. Bonds D. Deposits

19. When the interest rates are going down, the prices of debt securities are likely to:
A. Go down B. Cannot say C. Go up D. Remain unchanged
20. Money market securities have a maturity period of:

A. Less than 91 days B. Less than 182 days
C. Less than or equal to 364 days D. equal to 364 days
21. Dividend yield for a stock is

A. Dividend per share B. Dividend per face value
C. Dividend per share to current market price D. None of the above
22. Of the following, which type of the fund would have a higher P/E multiple in comparison to average
market multiple
A. A value fund B. A growth fund
C. An index fund D. Could be any of the above three, one cannot generalize
23. What are value stocks?

A. They try to give higher returns than the market.
B. They are currently undervalued, but their true potential will be unearthed soon
C. Their earning are correlated with the state of the economy
D. They invest in high risk – high return stocks
24. Which of these analysts involves the study of historical data on the company’s share
price movement?
A. Fundamental analyst B. Technical analyst C. Quantitative analyst D. Security analyst
25. Who is the issuer of certificate of deposit?

A. Co-operative banks B. Scheduled banks C. Reserve bank of India D. Ministry of Finance
26. which of the following tells about how much profit the company earned for each equity share that they
own?
A. Earnings per Share(EPS) B. Price to Earning Ratio(P/E Ratio)
C. Book Value per share D. Price to Book Value
27. Which ratio indicates how much investor in the share market are prepared to pay (to become owners of
the company), in relation to the company’s earnings?

28. Which of the following is an indicator of how much each share is worth, as per the company’s own books
of accounts?
29. Which of the following is an indicator of how much the share market is prepared to pay for each share of
the company, as compared to its book value.
30. It is generally agreed that longer term investment decisions are best taken through a fundamental
analysis approach, while technical analysis comes in handy for shorter term speculative decisions, including
intra-day trading.
A. True B. False
31. Which of the following Portfolio Building approach focuses mainly on sector allocation decisions.
A. Top Down B. Bottom Up C. Growth Style D. Value Style
32. Which of the following Portfolio Building approach focuses mainly on stock picking decisions.
A. Top Down B. Bottom Up C. Growth Style D. Value Style
33. The returns in a debt portfolio are largely driven by

A. Interest rates B. Yield Spreads. C. tenor D. Both A & B
34. It is a used to assess how much a debt security is likely to fluctuate in response to changes in the interest
rates.
A. Interest Rates B. Modified Duration C. Yield Spreads D. ROI
35. Which of the following is truly an International Asset?

A. Debt B. Commodity C. Gold D. Real Estate
36. Which of the following is Measures of Return

A. Simple Return B. Annualised Return C. Compounded Return D. All of the above.

37. Recognising the risks involved in such leveraging, SEBI regulations stipulate that:
A. A mutual fund scheme cannot borrow more than 20% of its net assets
B. The borrowing cannot be for more than 6 months.
C. The borrowing is permitted only to meet the cash flow needs of investor servicing viz. dividend payments or re-
purchase payments.
D.All of the above
38. Mutual Funds are barred from writing options (they can buy options) or purchasing instruments with
embedded written options.
A. True B. False
39. Which of the following suffers from concentration risk?

A. Sector Funds B. Diversified Equity Funds’ C. Mid Cap Funds D. Contra Funds
40. A diversified stock index, by definition, has a beta of

A. -1 B. 0 C. 1 D. None of the above
41. if risk free return is 5%, and a scheme with standard deviation of 0.5 earned a return of 7%, its Sharpe
Ratio would be
A. 4% B. 5% C. 7% D. 0.5%
42. if risk free return is 5%, and a scheme with Beta of 1.2 earned a return of 8%, its Treynor Ratio would be
A. 2.5% B. 5% C. 8% D. 1.2%
43. Which of the following is a measure of the funds manager’s performance

A. Alpha B. Beta C. Delta D. Gamma
44. A value-based fund is likely to choose which type of stocks?

A. Higher priced stocks B. High growth stocks C. High dividend value stocks D. High PE stocks

CHAPTER 9- Scheme Selection
• Asset allocation is the approach of spreading one’s investments between multiple asset classes to diversify the
underlying risk.
• The sequence of decision making in selecting a scheme is: Step 1 – Deciding on the scheme category (based on
asset allocation); Step 2 – Selecting a scheme within the category; Step 3 – Selecting the right option within the
scheme.
• While investing in equity funds, a principle to internalize is that markets are more predictable in the long term,
than in the short term. So, it is better to consider equity funds, when the investment horizon is adequately long.
• In an actively managed diversified fund, the fund manager performs the role of ensuring higher exposure to the
better performing sectors or stocks. An investor, investing or taking money out of a sector fund has effectively
taken up the role of making the sector choices.
• It can be risky to invest in mid-cap / small cap funds during periods of economic turmoil. As the economy
recovers, and investors start investing in the market, the valuations in front-line stocks turn expensive. At this
stage, the mid-cap / small cap funds offer attractive investment opportunities. Over longer periods, some of the
mid/small cap companies have the potential to become largecap companies thus rewarding investors.
• Arbitrage funds are not meant for equity risk exposure, but to lock into a better risk-return relationship than liquid
funds – and ride on the tax benefits that equity schemes offer.
• The comparable for a liquid scheme in the case of retail investors is a savings bank account. Switching some of
the savings bank deposits into liquid schemes can improve the returns for him. Businesses, which in any case do
not earn a return on their current account, can transfer some of the surpluses to liquid schemes.
• Balanced schemes offer the benefit of diversity of asset classes within the scheme. A single investment gives
exposure to both debt and equity.
• Investors need to understand the structure of the gold schemes more closely, before investing.
• Equity investors would like to convince themselves that the sectors and companies where the scheme has taken
higher exposure, are sectors / companies that are indeed promising.
• Debt investors would ensure that the weighted average maturity of the portfolio is in line with their view on interest
rates.
• Investors in non-gilt debt schemes will keep an eye on credit quality of the portfolio – and watch out for sector
concentration in the portfolio, even if the securities have a high credit rating.

• Any cost is a drag on investor’s returns. Investors need to be particularly careful about the cost structure of debt
schemes.
• Amongst index schemes, tracking error is a basis to select the better scheme. Lower the tracking error, the better
it is. Similarly, Gold ETFs need to be selected based on how well they track gold prices.
• Mutual fund research agencies assign a rank to the performance of each scheme within a scheme category
(ranking). Some of these analyses cluster the schemes within a category into groups, based on well-defined
performance traits (rating).
• Seeking to be invested in the best fund in every category in every quarter is neither an ideal objective, nor a
feasible target proposition. Indeed, the costs associated with switching between schemes are likely to severely
impact the investors’ returns.
• The underlying returns in a scheme, arising out of its portfolio and cost economics, is what is available for
investors in its various options viz. Dividend payout, dividend re-investment and growth options.
• Dividend payout option has the benefit of money flow to the investor; growth option has the benefit of letting the
money grow in the fund on gross basis (i.e. without annual taxation). Dividend re investment option neither gives
the cash flows nor allows the money to grow in the fund on gross basis. Taxation and liquidity
needs are a factor in deciding between the options. The advisor needs to understand the investor’s situation
before advising.
• Many AMCs, distribution houses and mutual fund research houses offer free tools in their website to help
understand performance of schemes.
Question Time
1. Equity markets are more predictable in the long term than the short.
A. True B. False
2. Arbitrage funds are meant to give better equity risk exposure

A. True B. False
3. The comparable for a liquid scheme is

A. Equity scheme B. Balanced Scheme C. Gilt Fund D. Savings Bank account
4. Which of the following aspects of portfolio would an investor in a debt scheme give most importance
A. Sector selection B. Stock selection C. Weighted Average Maturity D. Number of securities in portfolio
5. Mutual fund ranking and rating amount to the same.

A. True B. False

6. An investor likes to assume high risks for higher returns. Which of the following funds would he prefer?
A. Large cap fund B. Diversified equity fund C. Small cap growth fund D. Income fund
7. Which of the following funds is likely to have a high level of volatility in the NAV?
A. Long term gilt fund B. Short term debt fund C. Liquid fund D. 91-day FMP
8. The return to the investor in a short term debt fund can be impacted by ___________.
A. cash risk B. liquidity rist. C. Expense ratios D. Market risk
9. If you had to choose the lowest risk option for your investor, which one of the following would you
choose?
A. Balanced funds based on flexible allocation B. Equity funds
C. Balanced funds based on fixed allocation D. Sector funds
10. An investor who is conservative in his risk taking ability should avoid which of the following funds?
A. Liquid funds B. Diversified equity funds C. Sector equity funds D. Monthly income plans.
11. The investment objective of an investor is to earn steady income. Which of the following funds is most
likely to meet that objective?
A. Diversified equity fund B. Equity index fund C. Sector equity fund D. Dynamic bond fund.
12. While choosing a Debt fund, what is an important criteria?

A. Fund age & size B. Portfolio characteristics C. Tax implications D. All of the above
13. Which choosing a Money market fund, what does the investor look at?
A. Cost B. Quality C. Yield D. All of the above
14. While choosing an equity fund, which is an important criteria?

A. Fund age B. Fund manager’s experience C. Cost of investing D. All of the above
15. What is the first step of scheme selection

A. Deciding on the scheme category B. Selecting a scheme within the category
C. Selecting the right option within the scheme D. None of the above
16. What is the second step of scheme selection

17. What is the third step of scheme selection


CHAPTER 10- Scheme Selection
• Physical assets like land, building and gold have value and can be touched, felt and used. Financial assets have
value, but cannot be touched, felt or used as part of their core value. Shares, debentures, fixed deposits, bank
accounts and mutual fund schemes are all examples of financial assets that investors
normally invest in.
• The difference in comfort is perhaps a reason why nearly half the wealth of Indians is locked in physical assets.
• There are four financial asset alternatives to holding gold in physical form – ETF Gold, Gold Sector Fund, Gold
Futures & Gold Deposits.
• Wealth Tax is applicable on gold holding (beyond the jewellery meant for personal use). However, mutual fund
schemes (gold linked or otherwise) and gold deposit schemes are exempted from Wealth Tax.
• Real estate in physical form has several disadvantages. Therefore, investors worldwide prefer financial assets as
a form of real estate investment.
• Bank deposits and mutual fund debt schemes have their respective merits and demerits.
• Pension Funds Regulatory and Development Authority (PFRDA) is the regulator for the New Pension Scheme.
Two kinds of pension accounts are envisaged: Tier I (Pension account), is nonwithdrawable.
Tier II (Savings account) is withdrawable to meet financial contingencies. An active Tier I account is a pre-
requisite for opening a Tier II account.
• The NPS offers fewer portfolio choices than mutual funds. However, NPS offers the convenience of a single
Personal Retirement Account Number (PRAN), which is applicable across all the PFMs where the investor’s
money is invested. Further, the POPs offer services related to moneys invested with any of the PFMs.
Question Time
1. More than 50% of the wealth of Indians is held in physical assets

A. True B. False
2. Gold Futures are superior to ETF Gold as a vehicle for life-long investment in gold.
A. True B. False
3. As regards wealth tax, ETF Gold is superior to physical gold.

A. True B. False
4. The New Pension Scheme is regulated by

A. SEBI B. IRDA C. PFRDA D. AMFI

5. An investor under the new pension scheme can choose which of the following asset classes
A. Equities B. Corporate debt C. Government Securities D. Any of the above
6. Asset class G in the NPS is suitable for investors who like to invest in:
A. Bank Deposits B. Government Securities C. Debentures of Companies D. Equity Shares
7. The price of gold in the spot market is Rs.20,000 per 10 gms. It is expected to go up to Rs.21,000. What is
likely to happen to the price of gold futures?
A. Increased volatility B. Go down C. Go up D. Do not change.
8. Money is paid by the insurer on the death of an insured person, to the

A. nominees of the deceased B. proposer of the policy
C. wife of the policy holder D. children of the deceased
9. The limitation of investing in real estate, to a small investor is that:

A. The liquidity is high B. Meets only income needs
B. Requires higher investment outlay D. The holding period is short
10. An investor who saves for a large expense in a short period of time is likely to choose:
A. A money back policy B. An endowment policy C. A ULIP D. A term Policy
11. Which of the following is a physical asset?

A. Corporate bonds B. Title to property C. Equity Shares D. Bank Deposits
12. An investor in NPS chooses the life cycle option. This means his asset allocation will be based on:
A. Age B. Holding period C. Risk profile D. Amount invested
13. Physical assets have value and can be touched, felt and used.
A. True B. False
14. This practice of taking larger positions based on margin payments is called leveraging.
A. True B. False
15. Wealth Tax is applicable on gold holding (beyond the jewellery meant for personal use). However, mutual
fund schemes (gold linked or otherwise) and gold deposit schemes are exempted from Wealth Tax.
A. True B. False

16. In the event that a bank fails, the deposit insurance scheme of the government comes to the rescue of
small depositors. Upto Rs 1 lakh per depositor in a bank (across branches) will be paid by the insurer. This
limit is inclusive of principal and interest. Mutual fund schemes do not offer any such insurance.
A. True B. False
17. Interest earned in a bank deposit is taxable each year. However, if a unit holder allows the investment to
grow in a mutual fund scheme (which in turn is exempt from tax), then no income tax is payable on year to
year accretions. In the absence of the drag of annual taxation, the money can grow much faster in a mutual
fund scheme.
A. True B. False
18. An investor who is unwilling to invest in equity due to the perceived high risk may benefit from:
A. A complete allocation to an all-debt portfolio. B. A small proportion to a quick-gain trading portfolio.
C. A large proportion in a sector fund D. A small proportion in a diversified equity fund.
19. Which of the following funds will not be chosen by an investor who seeks liquidity?
A. Diversified equity funds B. Open ended income funds C. Liquid funds D. Equity-Linked saving schemes
20. The price of a closed end fund that is listed on a stock exchange tends to be:
A. Different from the NAV B. Unrelated to the NAV C. Higher than the NAV D. Equal to the NAV

CHAPTER 11- Helping Investors with Financial Planning
• Financial planning is a planned and systematic approach to provide for the financial goals that will help people
realise their aspirations, and feel happy.
• The costs related to financial goals, in today’s terms, need to be translated into the rupee requirement in future.
This is done using the formula A = P X (1 + i)n
• The objective of financial planning is to ensure that the right amount of money is available at the right time to meet
the various financial goals of the investor.
• An objective of financial planning is also to let the investor know in advance, if some financial goal is not likely to
be fulfilled.
• The process of financial planning helps in understanding the investor better, and cementing the relationship with
the investor’s family. This becomes the basis for a long term relationship between the investor and the financial
planner.
• A “goal-oriented financial plan” is a financial plan for a specific goal. An alternate approach is a comprehensive
financial plan” where all the financial goals of a person are taken together, and
the investment strategies worked out on that basis
• The Certified Financial Planner – Board of Standards (USA)proposes the following sequence of steps for a
comprehensive financial plan:
• Establish and Define the Client-Planner Relationship
• Gather Client Data, Define Client Goals
• Analyse and Evaluate Client’s Financial Status
• Develop and Present Financial Planning Recommendations and / or Options
• Implement the Financial Planning Recommendations
• Monitor the Financial Planning Recommendations
• Life Cycle and Wealth cycle approaches help understand the investor better.
Question Time
1. Today’s costs can be translated into future requirement of funds using the formula:
A. A = P X (1 + i)n B. A = P / (1 + i)n C. P = A n X (1 + i) D. P = A n X (1 + i)

2. Providing funds for a daughter’s marriage is an example of
A. Goal-oriented Financial Plan B. Comprehensive Financial Plan
C. Financial goal D. None of the above
3. According to the Certified Financial Planner – Board of Standards (USA), the first stage in financial
planning is
A. Analyse and Evaluate Client’s Financial Status
B. Establish and Define the Client-Planner Relationship
C. Gather Client Data, Define Client Goals
D. Develop and Present Financial Planning Recommendations and / or Options
4. Investor can get into long term investment commitments in

A. Distribution Phase B. Transition Phase C. Inter-generational Phase D. Accumulation Phase
5. Distribution phase of Wealth Cycle is a parallel of Retirement phase of Life Cycle

A. True B. False
6. A financial goal, to be actionable has to be defined in terms of:

A. Amount and need B. Amount and time C. Needs and desires D. Need and time
7. The primary objective of financial planning is to provide for:

A. Financial goals B. Tax Saving C. Creating Wealth D. Retirement
8. A loan can be taken to buy an asset provided:
A. Rate of loan is less than rate of return on the asset
B. Rate of loan is unrelated to rate of return on the asset
C. Rate of loan is greater than rate of return on the asset
D. Rate of loan is equal to rate of return on the asset
9. When an investor plans to will his wealth to his heirs, financial planning is:
A. Required for the beneficiaries B. Required only for tax purposes
C. Required for the investor D. Not required
10. The focus on building a retirement corpus should be high ___________.

A. after retirement B. closer to retirement C. at retirement D. much before retirement
11. A greater allocation to equity can be recommended to an investor in the:

A. Transition phase B. Accumulation phase C. Reaping phase D. Distribution phase

12. Financial planning is:
A. investing funds to receive the highest rate of return possible
B. resorting to tax planning to keep taxes as low as possible
C. planning for retirement with the maximum income possible
D. process of solving financial problems and reaching goals
13. A couple in mid 40s who have children approaching the age of higher education or marriage are in
A. accumulation stage B. transition stage C. reaping stage D. distribution phase
14. A client whose goal of buying a house or funding a child’s education is close at hand is in the:
A. accumulation stage B. transition stage C. reaping stage D. d. distribution stage
15. The basis of genuine investment advice should be

A. The current market situation B. The agent commissions paid by different funds
C. Financial planning to suit the investor's situation D. Planning to complete the agent's annual targets
16. Financial planners and their clients should focus on

A. Allocating funds to asset classes B. Allocating funds to individual securities
C. Tracking stocks, which they feel have potential D. None of the above
17. Where would you place a 53 years old executive planning to retire at age 60?
A. Sudden wealth stage B. Reaping stage C. Accumulation stage D. Transition stage
18. During the reaping phase the investor looks to:

A. building wealth B. cashing out C. transferring wealth D. all of the above

CHAPTER 12- Recommending Model Portfolios & Financial Plans
• There are differences between investors with respect to the levels of risk they are comfortable with (risk appetite).
• Risk profiling is an approach to understand the risk appetite of investors - an essential pre-requisite to advise
investors on their investments. Risk profilers have their limitations.
• Risk profile is influenced by personal information, family information and financial information.
• Spreading one’s exposure across different asset classes (equity, debt, gold, real estate etc.) balances the risk.
• Some international researches suggest that asset allocation and investment policy can better explain portfolio
performance, as compared to being exposed to the right asset classes (asset allocation) is a more critical driver of
portfolio profitability than selection of securities within an asset class (stock selection) and
investment timing.
• Strategic Asset Allocation is the ideal that comes out of the risk profile of the individual. Tactical Asset Allocation
is the decision that comes out of calls on the likely behaviour of the market.
• Financial planners often work with model portfolios – the asset allocation mix that is most appropriate for different
risk appetite levels. The financial planner would have a model portfolio for every distinct client profile.
Question Time
1. Risk appetite of investors is assessed through

A. Risk Appetizers B. Asset Allocators C. Risk Profilers D. Financial Plan
2. The objective of asset allocation is risk management

A. True B. False
3. The asset allocation that is worked out for an investor based on risk profiling is called
A. Tactical Asset Allocation B. Fixed Asset Allocation
C. Flexible Asset Allocation D. Strategic Asset Allocation
4. Model portfolios are a waste of time for financial planners

A. True B. False
5. How much equity would you suggest for a young well settled unmarried individual
A. 100% B. 80% C. 60% D. 40%
6. An asset allocation that is not frequently revised is called:

A. Fixed allocation B. Tactical Allocation C. Flexible allocation D. Floating allocation

7. Return from equity depends on:
A. Company factors B. Economy factors C. Industry factors D. All of the given options
8. The risk appetite of an investor can be expected to:

A. Change with age. B. Remain unchanged C. Change every year D. Change with new events
9. In the asset allocation decision, which step is the last one?

A. financial goal determination B. Scheme Selection C. Asset Allocation D. Return Objective.
10. If flexible asset allocation is chosen, the ratio between the asset classes is likely to:
A. Remain equal B. Change with market changes C. Change every year D. Remain fixed.
11. Profiling is done to ensure that investment options are chosen according to the ability of the investor to:
A. Save B. Accumulate C. Bear Risk D. Expect returns
---End---

Model Questions-Answer Key
Chapter 1
1C 2 B 3 B 4 B 5 A 6 A 7 C 8 D 9 D 10 B
11 C 12 B 13 C 14 A 15 B 16 B 17 C 18 D 19 C 20 C
21 B 22 B 23 B 24 D 25 D 26 A 27 C 28 B 29 C 30 D
31 E 32 A 33 B 34 D 35 D 36 D 37 D 38 C 39 D 40 A
41 A 42 D 43 D 44 A 45 C 46 C 47 B 48 C 49 D 50 A
51 B 52 C 53 B 54 D 55 B 56 D 57 A 58 B 59 D 60 A
61 D 62 D 63 D 64 B 65 D 66 A 67 B 68 C 69 D 70 C
71 B 72 D 73 C 74 C 75 A 76 A 77 D 78 D 79 C 80 D
81 D 82 A 83 A 84 D 85 C
Chapter 2
1C 2A 3A 4B 5B 6A 7A 8C 9A 10 A
11 C 12 C 13 C 14 B 15 A 16 D 17 A 18 D 19 C 20 E
21 B 22 C 23 B 24 C 25 C 26 D 27 A 28 C
Chapter 3
1D 2 A 3 B 4 D 5 A 6 D 7 C 8 A 9 A 10 A
11 D 12 D 13 D 14 A 15 B 16 C 17 A 18 C 19 A 20 C
21 A 22 B 23 D 24 A 25 A 26 C 27 D 28 A 29 D 30 A
31 A 32 B 33 C 34 A 35 D 36 C 37 A 38 A 39 D 40 A
41 D 42 A
Chapter 4
1C 2 A 3B 4C 5B 6B 7C 8D 9C 10 B
11 B 12 B 13 A 14 D 15 C 16 A 17 A 18 A 19 D 20 D
21 D 22 D 23 A 24 C 25 D 26 A 27 D 28 B 29 A 30 C
31 D 32 D
Chapter 5
1D 2A 3A 4B 5A 6B 7C 8C 9D 10 A
11 C 12 A 13 D 14 D 15 D 16 B 17 C 18 B 19 D 20 A
21 A 22 C 23 C 24 A 25 A 26 D 27 A 28 A 29 A
Chapter 6
1B 2 B 3 A 4 A 5 B 6 A 7 B 8 D 9 C 10 C
11 D 12 D 13 B 14 A 15 D 16 B 17 B 18 C 19 A 20 C
21 C 22 B 23 D 24 B 25 D 26 D 27 D 28 D 29 B 30 A
31 A 32 D 33 D 34 C 35 D 36 C 37 C 38 A 39 A 40 A
Chapter 7
1A 2 A 3 D 4C 5A 6C 7B 8C 9D 10 D
11 D 12 D 13 D 14 B 15 C 16 A 17 B 18 B 19 B 20 B
21 D 22 D 23 C 24 C 25 B 26 A 27 A 28 B 29 D 30 B
31 A 32 A 33 A
Chapter 8
1B 2 A 3 D 4 A 5 D 6 D 7 A 8 A 9 C 10 C
11 B 12 A 13 B 14 D 15 C 16 C 17 B 18 A 19 C 20 C
21 C 22 B 23 B 24 B 25 B 26 A 27 B 28 C 29 D 30 A
31 A 32 B 33 D 34 B 35 C 36 D 37 D 38 A 39 D 40 C
41 A 42 A 43 A 44 C
Chapter 9
1A 2B 3D 4C 5B 6C 7A 8C 9C 10 C
11 D 12 D 13 D 14 D 15 A 16 B 17 C
Chapter 10
1A 2B 3A 4C 5D 6B 7C 8A 9C 10 A
11 B 12 A 13 A 14 A 15 A 16 A 17 A 18 D 19 D 20 A
Chapter 11
1A 2C 3B 4D 5A 6B 7A 8A 9A 10 D
11 B 12 D 13 B 14 B 15 C 16 A 17 D 18 B
Chapter 12
1C 2A 3D 4B 5B 6C 7D 8A 9B 10 B
11 C

Notes

Disclaimers
Statutory details & risk factors:
Statutory Details: Reliance Mutual Fund has been constituted as a trust in accordance with the provisions of the Indian Trusts
Act, 1882. Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Company Limited. Investment Manager: Reliance
Capital Asset Management Limited (Registered Office of Trustee & Investment Manager: 'H' Block, 1st Floor, Dhirubhai Ambani
Knowledge City, Koparkhairne, Navi Mumbai - 400 710 The Sponsor, the Trustee and the Investment Manager are incorporated
under the Companies Act 1956. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme
beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to
the corpus.
Risk Factors: Mutual Funds and securities investments are subject to market risks and there is no assurance or
guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units
issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. The
name of the Scheme and does not in any manner indicate either the quality of the Scheme, its future prospects or returns.
Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. The Mutual Fund is
not guaranteeing or assuring any dividend. The Mutual Fund is also not assuring that it will make periodical dividend distributions,
though it has every intention of doing so. All dividend distributions are subject to the availability of the distributable surplus in the
Scheme. For details of scheme features apart from those mentioned above and scheme specific risk factors, please refer to the
provisions of the Scheme Information Document. Scheme Information Document and KIM cum application form is available at all
the DISCs/ Distributors of RMF/www.reliancemutual.com. Please read the Scheme Information Document & Statement of
Additional Information carefully before investing.
.

For any further detail, please contact us at
rmflearning.support@relianceada.com
Compiled by Mr Premal Pipalia

NISM MF Advisor Module - Final

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NiSM Mutual Fund Distributors Certification Examination

Revision Manual with Model Questions

EDGE – The Learning Academy

For any further detail, please contact us at rmflearning.support@relianceada.com

Page 2 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

CHAPTER 1- Concept & Role of Mutual Fund 4

CHAPTER 2- Fund Structure and Constituents 15

CHAPTER 3- Legal and Regulatory Environment 19

CHAPTER 4- Offer Document 26

CHAPTER 5- Fund Distribution and Channel Management Practices 30

CHAPTER 6- Accounting, Valuation and Taxation 33

CHAPTER 7- Investor Services 39

CHAPTER 8- Return, Risk & Performance of Funds 44

CHAPTER 9- Scheme Selection 50

CHAPTER 10- Scheme Selection 53

CHAPTER 11- Helping Investors with Financial Planning 56

CHAPTER 12- Recommending Model Portfolios & Financial Plans 59

Page 3 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

• Gilt funds invest in only treasury bills and government securities

Page 4 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

• Floating rate funds invest largely in floating rate debt securities

• Sector funds invest in only a specific sector.

• Equity Linked Savings Schemes (ELSS) offer tax benefits to investors.

• Monthly Income Plan seeks to declare a dividend every month.

• Real estate funds invest in real estate.

• Fund of Funds invest in other funds.

Page 5 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

1. The number of mutual fund schemes in India is about:

3. Sector funds invest in a diverse range of sectors

4. High yield bond schemes invest in junk bonds

5. Investment objective is closely linked to

7. If an investor in a closed end fund seeks liquidity, he can:

8. An investor in mutual funds faces the disadvantage of:

10. A close-ended mutual fund has a fixed

Page 6 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

13. The most important advantage of a money market mutual fund is

14. Debt funds target

15. A mutual fund is:

16. Which one is more diversified?

17. An investor should not invest in a mutual fund if

18. A gilt fund is a special type of fund that invests

20. The NAV of a Mutual Fund

21. An open ended Mutual fund is one that has

Page 7 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

23. When an investor subscribes to a mutual fund -

24. Which of the following statements is true?

25. The following are benefits of mutual funds

26. The following is not a benefit of mutual funds-

27. The following are disadvantages of investing in mutual funds

28. Open end funds are

29. Closed end funds are

30. Which of the following statements is true?

31. Which of the following is true -

Page 8 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

34. Ownership of the mutual fund by the unit holders is

36. Identify the CORRECT statements?

38. The correct description of a mutual fund is

39. An open end fund

40. A gilt fend is a special type of fund that invests

Page 9 of 64 NiSM Mutual Fund Advisor Module - Revision Manual Source:-www.nism.ac.in

42. Which of the following is NOT a characteristic of mutual fund

43. Each unit holder of a mutual fund is

46. A close ended mutual fund has a fixed