Sample questions on Mutual Funds

PART I (SUBJECTIVE) SECTION 1 State whether the following are true or false. ( 1 MARK EACH ) 1. Growth and risk are associated with equity funds. True False

2. UTIMF was initially set up by Reserve Bank of India True False

3. A close ended mutual fund has a fixed NAV? True False

4. UTI Act was repealed and UTI Mutual Fund was formed during February 2000? True False

5. If you maintain a flexible ratio of asset allocation, you would keep fixed percentages of equity and debt investments at all times. True False

Fill in the blanks with the most appropriate phrase. (1 MARK EACH) 6. The current Mutual Fund Regulations from SEBI was introduced in the year -----------. 7. For a person to qualify as a sponsor, he must contribute at least ------- % of the AMCs net worth. 8. An offer document contains an AMCs investor grievances history for the past ------- fiscal year/s. 9. As per SEBI guidelines, a security is to be treated as untraded when security is not traded for ----- days. 10. Sharpe and Treynor Ratios are measures of ----------. Tick the most appropriate answer (1 MARK EACH) 11. 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 12. Which of the following is not the right classification of funds? a) Pension and Insurance Funds b) Open ended and closed ended funds c) Load and No load funds d) Tax free and Tax exempt funds

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13. A Mutual fund can benefit from economics of scale because of a) Portfolio diversification b) Risk Reduction c) Large volume of trades d) None of the above 14. Which of the following is incorrect? a) An equity fund would invest in ordinary shares, preference shares and warrants b) A bond fund would mainly buy debt instruments c) An index fund is indexed to inflation index d) A sector fund invests in the shares of companies in a particular industry 15. A money market fund usually invests in a) Government treasury bills of less than one year maturity b) 6-month certificates of deposits of banks c) The inter bank call money market d) All of these 16. Board of Trustees appoint Custodians for a) Making payment to bankers on behalf of the fund b) Selling units of a mutual fund c) Safekeeping of physical securities of the mutual fund or participating in any clearing system. d) None of these 17. By What name is the Phase of year 2004 onwards of mutual fund industry known? a) Growth and SEBI Regulation b) Emergence of private funds c) Emergence of large and uniform industry d) Consolidation and growth 18. If an investor failed to claim the redemption proceeds after 3 years of due date he has the right to receive an amount equal to a) Prevailing NAV b) Face value of the unit c) NAV at end of 3 years after the due date d) Zero. e) Due date NAV plus interest @ 15% p.a. 19. Open ended schemes are sold by a) NSE b) Agencies of banks c) National Distributors d) Both b and c 20. 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

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21. As per SEBI, Non-Performing assets (NPA) of a mutual fund can be defined as a) An equity which is trading below its par value b) An equity share which is yet to be listed on the stock exchange c) A debt security on which either interest or the principle or both amounts are due but not received for one quarter after the due date d) None of these 22. 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 23. A five year deep discount bond would a) Pay interest on a yearly basis b) Pay interest on a quarterly basis c) Be redeemed on maturity at the face value which is higher than the issue price with no payment in between. d) Offer yield tax free 24. An index fund managers tries a) To beat the market by superior stock selection b) To beat the market by superior market timing c) To beat the market by superior asset allocation d) None of these 25. Which of the following instruments would be the most volatile when interest rates fluctuate? a) ICICI / IDBI bonds listed on the NSE b) PPF c) An equity mutual fund d) A balanced fund SECTION 2 Tick the most appropriate answer and give reasons thereof. (3 marks each) 26. A mutual fund is not allowed to invest in the sponsor company, a) >25% of its net assets b) >10% of its net assets c) Not at all d) >5% of net assets 27. The most suitable measure of fund performance for all fund types is a) NAV Change b) Total Return c) Total Return with reinvestment d) None of the above

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28. An investor asks you in what order he should list the following schemes, going from the scheme with the least risk to the one with the highest risk 1. Balanced Fund, 2. A Stock Index Fund, 3. A Liquid Fund, 4. A IT Sector Fund. a) 1,2,3,4 b) 1,3,4,2 c) 3,1,2,4 d) 2,3,1,4 29. An equity fund with weekly average net assets of Rs. 1400 crore may change maximum ongoing expenses (excluding issue/redemption expenses) to the extent of a) Rs. 35.00 crore b) Rs 26.75 crore c) Rs 27.50 crore d) Rs 19.75 crore e) None of the above 30. A fund has a front load of 1% and back-end load of 0.5%. The investor enters at NAV of Rs.10 and exits at NAV of Rs.12.The return of investment earned by him is... a) 20% b) 18.22% c) 18.5% d) None of these 31. An open-end fund with 10000 units outstanding had the following items in its balance sheet: Investments at market value Rs. 100000/Other assets Rs. 20000/Current Liabilities Rs. 25000/Calculate the funds NAV per unit. a) Rs. 9.50 b) Rs. 12 c) Rs. 10 d) Rs. 14.50 e) None of the above 32. Calculate the current yield on a G.Sec with at par value of Rs. 1000, coupon of 11% and market price of Rs. 1010. a) 11.20% b) 10.89% c) 11.21% d) 12.20% e) None of the above 33. NAV of a scheme is Rs 10 on Jan 1, 2006 and was Rs 11 after 10 months. What is the annualized return as per change in NAV method? a) 10% b) 11% c) 12% d) 13% e) None of the above 34. 10 crore units were allotted in a scheme. 2.25% is the entry load charged and Rs.8 crore is the initial issue expenses incurred. What maximum can be charged as expenses towards entry load? a) Rs. 8 crore b) Rs. 6 crore c) Rs. 2.25 crore d) None of the above.

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35. 10 crore units were allotted. Initial Issue expenses of Rs. 8 cr. Entry load 2.25%, no other expenses were incurred, there is no change in value of underlying assets, what will be NAV at time of reopening if the expenses is to be write off within 5 years a) 10 b) 9.775 c) 9.40 d) 10.225

SECTION 3 Tick the appropriate answer with reasons. Also show the complete calculations. (5 marks each) 36. An investor purchased 2000 units of a debt fund on 14/4/92 for Rs 12.24. He sold 700 units on 23/4/2000 for Rs 27.86. What are the capital gains chargeable to tax and how much tax will he have to pay? (Cost of inflationary index for 92-93 was 223 and for 2000-01 it was 406) a) Rs 1093 b) Rs 781.20 c) Rs 718.20 d) Rs 1903 37. An investor purchased 5000 units of a debt fund on 25/9/98 for Rs 14. The entry load in the scheme` is 2.25% and exit load is 1%.He sold them on 17/4/2000 for Rs 28. What are the capital gains chargeable to tax and how much tax will he have to pay? (Cost of inflationary index for 98-99 was 351 and for 2000-01 it was 406) a) Rs 6307 b) Rs 6073 c) Rs 6730 d) Rs 6703 38. Mr X purchased an open-end equity fund unit at Rs 20.The fund had a interim dividend of Rs 2 per unit which was reinvested when NAV was Rs 21. NAV of the fund at year end was Rs 22. Find the total returns with reinvestment. a) 18.9% b) 19.9% c) 20.9% d) 21.9% e) None of the above PART II (DESCRIPTIVE) SECTION 4 3 MARKS EACH 39. What was Jacobs recommendation? 40. Explain the terms Ex-Marks, Beta and Gross Dividend yield. 41. Explain Sharpe Ratio, Treynor Ratio and Tracking error. 42. What are capital gains? What are the taxation norms in India for capital gains earned from mutual funds?

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43. What do you understand by the term Insider Trading? SECTION 5 5 MARKS EACH 44. What is a mutual fund? What are the various classifications of a mutual fund? 45. What is financial Planning? Explain the phrase, Mutual Funds are the sharpest weapons in the armory of a financial planner. 46. What is Risk? What are the various kinds of risks prevalent on mutual fund investments?

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