Q 1.

The stock exchanges which provide mutual fund trading facilities also have to
provide for settlement guarantee - State True or False ?
True
False

CORRECT ANSWER
Explanation:

Stock Exchanges trading facility for MFs is essentially an order routing system between the
investors and the AMC, the exchanges do not offer Settlement Guarantee.

Responsibility for settlement is that of the AMC.

Q 2.
_______ is not a fair selling practice by a mutual fund distributor.
Informing the investor of the various investment options
Carefully understanding the clients financial needs
Encouraging the churning of investments
Giving personalised after sales service

CORRECT ANSWER
Explanation:

Churning means frequent buying and selling.

Encouraging over transacting and churning of Mutual Fund investments to earn higher
commissions by MF agents is a bad practice.

Q 3.
Who appoints the trustees of a Mutual Fund ?
RBI
SEBI
Sponsor
AMC

CORRECT ANSWER
Explanation:

The sponsor appoints the Trustees.

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

Q 4.
________ is/are included in the Key Information Memorandum (KIM).
Name of the fund manager, trustees etc.
Performance of schemes
Asset allocation plan
All of the above

CORRECT ANSWER
Explanation:
 KIM is essentially a summary of the SID and SAI. It contains the key points of the offer
document that are essential for the investor to know to make a decision on the suitability of the
investment for their needs.

All the above details and more are included in the KIM.

Q 5.
Who cannot invest in Mutual Funds in India ?
Minors
HUFs
NRIs
All of the above

CORRECT ANSWER
Explanation:

Minors i.e. persons below the age of 18, are not legally eligible to enter into a contract. They
need to invest through their guardians.

Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) can invest in Indian MFs as
per guidelines.

Q 6.
State True or False - The Thematic funds will always have a wider exposure than
Sector funds.
True
False

CORRECT ANSWER
Explanation:

Thematic funds invest in line with an investment theme. For example, an infrastructure thematic
fund might invest in shares of companies that are into infrastructure construction plus in toll-
collection, cement, steel, telecom, power etc.

The investment is thus more broad-based than a sector fund.

Sector funds invest in only a specific sector. For example, a banking sector fund will invest in
only shares of banking companies.

Q 7.
The difference between the yield on Gilt and the yield on a non-Government Debt
security is called its ______ .
YTM
Credit Spread
Yield to Call
Risk Spread

CORRECT ANSWER
Explanation:

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

The difference between the yield on Gilt and the yield on a non-Government Debt security is
called its credit spread.
Q 8.
Gold futures contract ________ .
are traded in commodity exchanges
are not standardized contracts
are available through mutual funds
None of the above

CORRECT ANSWER
Explanation:

Gold futures contracts are standardised and are traded in commodity exchanges like the
National Commodities Exchange (NCDEX).

Q 9.
From the listed below, ______ has the highest credit risk .
High yield funds
ELSS Funds
Gilt funds
Index funds

CORRECT ANSWER
Explanation:

Junk bond schemes or high yield bond schemes invest in securities that have a lower credit
rating indicating poor credit quality. This leads to high credit risk / default risk.

Q 10.
What is the role of the custodian ?
To issue account statements to the MF unit holders
To keep the safe custody of the securities of the mutual fund scheme
To issue statement of funds holding to the investors
To execute the buy and sell orders in the stock market

CORRECT ANSWER
Explanation:

The custodian has custody of the assets of the fund. As part of this role, the custodian needs to
accept and give delivery of securities for the purchase and sale transactions of the various
schemes of the fund. Thus, the custodian settles all the transactions on behalf of the mutual
fund schemes.

Q 11.
Usually active funds give higher returns as investors bear a higher fund
management expense - State True or False ?
False
True

CORRECT ANSWER
Explanation:

Higher fund management does not mean better performance.

Also some time passive funds like index funds can give better returns than active funds due to
the fund managers wrong analysis.
Q 12.
By investing in mutual funds an investor uses the services of ______ .
a professional actuary
a professional insurance agent
a professional investment manager
a professional tax planner

CORRECT ANSWER
Explanation:

Mutual Funds employ professional investment experts to manage the money of investors by
investing in suitable stocks / debt etc.

Q 13.
In which type of fund is the risk of investor not selecting the correct sector
maximum ?
Thematic Funds
Sector Funds
Arbitrage Funds
Index Funds

CORRECT ANSWER
Explanation:

Sector funds suffer from concentration risk - the entire exposure is to a single sector. If that
sector does poorly, then the scheme returns are seriously affected. Sector funds are considered
to carry the highest risk among the equity mutual funds.

Q 14.
_______ investment style involves buying stocks which are valued lower as per
fundamental analysis.
Tactical
Growth
Cyclical
Value

CORRECT ANSWER
Explanation:

Value investment style is an approach of picking up stocks, which are priced lower than their
intrinsic value, based on fundamental analysis.

The belief is that the market has not appreciated some aspect of the value in a company’s share
– and hence it is cheap. When the market recognizes the intrinsic value, then the price would
shoot up.

Q 15.
When the interest rates are rising, the bond funds which have short average
maturity are more likely to outperform - State True or False ?
True
False
 CORRECT ANSWER
Explanation:

Short-term debt funds help earn higher interest income in a rising interest rate scenario.

( Bonds are essentially loans. If prevailing interest rates on loans, including bonds, are rising, bond investors
tend to demand the higher yielding bonds to make more money on their bond investments )

Long term debt funds help investors earn higher returns from capital gains in falling interest
rate scenario.

Q 16.
Tactical Asset Allocation is suitable only for seasoned investors operating with
large investible surpluses - State True or False ?
True
False

CORRECT ANSWER
Explanation:

Tactical Asset Allocation is the decision that comes out of calls on the likely behaviour of the
market.

It is suitable only for seasoned investors operating with large investible surpluses.

Q 17.
The Offer Document will NOT give any information on ________ .
The risk factors of the scheme
The name of stocks in which the scheme is likely to invest
Investment objectives of the scheme
The features of the portfolio of the scheme

CORRECT ANSWER
Explanation:

Decision on the stocks to invest is a closed door procedure and is decided by the fund
managers in association with the research and analysis team.

Q 18.
The dividend declared on units under lien is paid to _______ .
always to the lien holder
always to the unit holder
the lien holder or the unit holder as per the agreement
Units under lien do not receive any dividends

CORRECT ANSWER
Explanation:

The dividend pay-outs declared on units under lien may be paid to the unitholder or the lender
depending upon the agreement.

Q 19.
An ongoing bond fund will lose value when the interest rates in the market ______ .
 Rise
Fall
remains same
will be equal to yields

CORRECT ANSWER
Explanation:

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

Q 20.
The mechanism used to ensure that the cutoff timing is strictly followed is called
_________.
Stamp time
Time verification
Time stamping
Auditing

CORRECT ANSWER
Explanation:

The NAV that is applicable to a transaction depends, among other things, on the day and time at
which the transaction request was received at the official point of acceptance. It is therefore
very critical to record the time at which a transaction was received and use this information to
determine the applicable NAV for a transaction.

Time stamping is the process by which a stamp is put with details like date and exact time of
receipt etc. on the transaction form.

Q 21.
The lock in for Equity Linked Savings Scheme (ELSS Funds) is ______ .
1 year
2 years
3 years
5 years

CORRECT ANSWER
Explanation:

Equity Linked Savings Schemes (ELSS) are diversified equity funds that offer tax benefits to
investors under section 80 C of the Income Tax Act.

The investment is subject to lock-in for a period of 3 years during which it cannot be redeemed,
transferred or pledged.

Q 22.
_______ gives the investor exposure to international assets.
Index funds
ELSS Fund
International Funds
Arbitrage Funds
 CORRECT ANSWER
Explanation:

International funds invest in markets outside India, by holding certain foreign securities in their
portfolio.

Q 23.
Which of the following is an important aspect of an OFFER DOCUMENT?
To inform the investors about the AMC's views on Stock Markets
To inform the investors on the performance of the scheme
To provide a comparison of the schemes
To inform the investors on the detailed information about the scheme

CORRECT ANSWER

Q 24.
Mr. A has a small business and will generally need more allocation to liquid funds
than Mr. B, who is senior manager with a multinational company. - State True or
False ?
True
False

CORRECT ANSWER
Explanation:

Mr. A may need funds for his business anytime so will allocate more amount to liquid funds.

Mr. B has a good high paying job, so he has a regular flow of money in form of salary. He will
generally have no liquidity problems so will invest less in liquid funds and more in growth
funds.

Q 25.
When should an investor adopt a strategy of limiting equity exposure to index funds
?
In the Accumulation phase
In the Retirement phase
In the Sudden wealth phase
None of the above

CORRECT ANSWER
Explanation:

Retirement Phase - This is the stage when the investor needs the funds that have been
accumulated over time. Hence, investors in this stage would move the funds to asset classes
that meet their need for easy access to funds or regular periodic income as the case may be.

So the investor will invest more in debt / liquid funds and very less in equity funds.

Q 26.
State True or False - Gilt schemes have more risks than liquid schemes as their NAV
fluctuates more due to changes in the yield market.
True
False

CORRECT ANSWER
 Explanation:

Gilt schemes, which invest in only long term government securities, have a higher price risk
because their NAV can fluctuate a lot more, on account of changes in yield in the market.
Greater the proportion of longer maturity securities in the portfolio, higher would be the
fluctuation in NAV.

Q 27.
As the Unit Certificates are non-transferable, they do not offer any real transactional
convenience for the Unit-holder - State True or False ?
True
False

CORRECT ANSWER
Explanation:

Since Unit Certificates are non-transferable, they do not offer any real transactional
convenience for the Unit-holder. However, if a Unit-holder asks for it, the AMC is bound to issue
the Unit Certificate within 5 working days of receipt of request

Q 28.
One of the below options is a function of AMFI - which one ?
To manage the investor protection fund
To compute the NAV
To make available the data on AUM, NAV and other data of the mutual fund industry
To regulate insider trading

CORRECT ANSWER
Explanation:

AMFI publishes the AUM, NAVs etc on its website.

(Investor Protection fund is managed as per SEBI guidelines, NAVs are calculated by the AMCs
and SEBI regulates insider trading)

Q 29.
With respect to KIM - Key Information Memorandum, which of the following
statement is NOT true ?
KIM is basically an abridged version of the offer document
KIM basically contains only the names of Sponsor, Trust and AMC and not their
functions
The KIM is attached to each and every mutual fund application form
KIM has to be provided only if the investors ask for it

CORRECT ANSWER
Explanation:

KIM is essentially a summary of the SID and SAI. It contains the key points of the offer
document that are essential for the investor to know to make a decision on the suitability of the
investment for their needs. It is more easily and widely distributed in the market. As per SEBI
regulations, every application form is to be accompanied by the KIM.

Q 30.
 When a Mutual fund scheme makes profits or losses, these profits and losses
belong to _______ .
The AMC
The Trustees
The Fund Manager
The Investor

CORRECT ANSWER
Explanation:

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

Q 31.
The NAV of a mutual fund unit changes every day due to changes in _______ .
number of investors in the mutual fund
market value of the mutual fund portfolio
the size of the portfolio
the units remaining in the portfolio

CORRECT ANSWER
Explanation:

The formula for calculating Net Asset Value -

NAV = (Current value of investments held + Income accrued + Current assets – Current liabilities
– Accrued expenses / No. of outstanding units

So when the current value of investment held (ie. market value of portfolio) changes, the NAV
will also change.

Q 32.
A board resolution for investing in a mutual fund scheme is compulsorily required
by _______ .
Non Resident Indians - NRIs
Hindu Undivided Family - HUF
Institutional Investors
Minors

CORRECT ANSWER
Explanation:

Institutional investors require a authorisation for the investing in any security / asset etc. This is
typically in the form of a Board Resolution.

Q 33.
Identify the TRUE statements -
A) Unsystematic risk is measured by its Beta
B) The diversified stock index has a Beta of 1
C) An investment with a beta of 0.7 will move 7 percent when markets move by 10
percent
A and B are true
B and C are true
A and C are true
All A, B and C are true
 CORRECT ANSWER
Explanation:
1) Systematic risk is measured by its Beta

2) The diversified stock index, by definition, has a Beta of 1. Schemes, whose beta is more than
1, are seen as more risky than the market. Beta less than 1 is indicative of a scheme that is less
risky than the market.

3) An investment with a beta of 0.7 will move 7 percent when markets move by 10 percent.
This applies to increase as well as fall in values. An investment with a beta of 1.2 will move by
12 percent both on the upside and downside when markets move (up/down) by 10 percent.
Q 34.
The Asset Management Company primarily compensates the mutual fund
distributors through ________ .
Commissions
Salaries
Salary + Commission
Share in AMC's profit

CORRECT ANSWER
Explanation:

The mutual fund distributor earns revenue in the form of commission income for distribution of
the mutual fund products/schemes. The commission may be linked to either the transaction
(Upfront commission) or to the assets under management (Trail Commission).

Q 35.
Identify the true statement as per AMFI’s Code of Conduct for Intermediaries of
Mutual Funds.
Intermediaries should rebate some of the commission received by them to the investors
Intermediaries should abstain from making negative statements about any Asset
Management Company or scheme
Intermediaries should split applications so that they can earn higher transaction
charges

CORRECT ANSWER
Explanation:
One of the clause under AMFI’s Code of Conduct for Intermediaries of Mutual Funds is -
Abstain from making negative statements about any AMC or scheme and ensure that
comparisons, if any, are made with similar and comparable products along with complete facts.
Q 36.
What is the maximum permissible limit of investment a single investor can have in a
scheme?
5% of the corpus
10% of the corpus
20% of the corpus
25% of the corpus

CORRECT ANSWER
Explanation:

As per SEBI rules, a Scheme/Plan shall have a minimum of 20 investors and no single investor
shall account for more than 25 percent of the corpus of the Scheme/Plan(s).
Q 37. Which of these statement is TRUE with respect to Cut-off timings?
Cut-off timings are prescribed by SEBI from time to time
Cut-off timings are agreed upon between the AMC and the Collection centers
Cut-off timings are different from AMC to AMC
Cut-off timings are different for different RTAs

CORRECT ANSWER
Explanation:

SEBI has prescribed cut-off timing to determine the applicable NAV and these timings are
uniformly applicable for all mutual funds.

Q 38.
In case of _______ , the Net Asset Value has to be declared for upto 4 decimal
points.
Mid Cap and Small Cap Funds
Liquid Funds
Aggressive Hybrid Funds
ELSS Funds

CORRECT ANSWER
Explanation:

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

(NAV for equity and balanced funds is to be calculated upto at least 2 decimal places)

Q 39.
The Key Information Memorandum (KIM) is an abridged version of which of these
documents?
The yearly statement of the portfolio of the fund
The half yearly statement of the financial statement of the fund
The annual accounts of the fund
Scheme related documents

CORRECT ANSWER
Explanation:

KIM is essentially a summary of the Scheme Information Document -SID and Statement of
Additional Information -SAI. Scheme related documents consist of SID and SAI.

It contains the key points of these documents that are essential for the investor to know to make
a decision on the suitability of the investment for their needs.

Q 40.
Distributors can 'opt-out' of charging transaction charges _____ .
at AMC level
at investor level
at scheme level
at distributor level

CORRECT ANSWER
Explanation:
 Distributors have the option of opting out of charging transaction charges. But such opting out
shall be applicable only at distributor level. This means that the distributor cannot choose to
charge transaction charge from one investor and not from another.
Q 41.
What is the Net Asset Value (NAV) after dividend payment called?
ex-Dividend NAV
ex-Load NAV
cum-Dividend NAV
Net - NAV

CORRECT ANSWER
Explanation:
After a dividend pay-out, the reduced NAV is called ex-Dividend NAV.

(After a dividend is announced, and until it is paid out, it is referred to as cum-Dividend NAV)
Q 42.
__________ invest in those securities which have maturity matching the maturity of
the scheme.
Fixed Maturity Plans
Exchange Traded Funds
ELSS Funds
High Yield Funds

CORRECT ANSWER
Explanation:

Fixed Maturity Plans are a kind of close-ended debt fund where the duration of the investment
portfolio is closely aligned to the maturity of the scheme.

Fixed Maturity Plan is ideal when the investor’s investment horizon is in sync with the maturity
of the scheme, and the investor is looking for a more predictable return than any conventional
debt scheme, and a return that is generally superior to what is available in a fixed deposit.

Q 43.
When can mutual funds charge an additional expense of 0.30% of daily net assets of
the scheme?
If the new inflows from beyond top 30 cities are at least (a) 30 percent of gross new
inflows in the scheme or (b) 15 percent of the average assets under management (year to
date) of the scheme, whichever is higher
If the new inflows from beyond top 30 cities are at least (a) 20 percent of gross new
inflows in the scheme or (b) 5 percent of the average assets under management (year to
date) of the scheme, whichever is higher
If the new inflows from beyond top 15 cities are at least (a) 25 percent of gross new
inflows in the scheme or (b) 15 percent of the average assets under management (year to
date) of the scheme, whichever is higher
If the new inflows from beyond top 15 cities are at least (a) 10 percent of gross new
inflows in the scheme or (b) 5 percent of the average assets under management (year to
date) of the scheme, whichever is higher

CORRECT ANSWER
Explanation:

In addition to the normal expenses limit, the following expenses may be charged to the scheme
:
 If the new inflows from beyond top 30 cities are at least :

(a) 30 percent of gross new inflows in the scheme or

(b) 15 percent of the average assets under management (year to date) of the scheme

whichever is higher, funds can charge additional expense of up to 0.30 percent of daily net
assets of the scheme.

Q 44.
_________ can be used in lieu of dividend payouts.
Systematic Withdrawal Plan (SWP)
Systematic Transfer Plan (STP)
Systematic Investment Plan (SIP)
Total Redemption

CORRECT ANSWER
Explanation:

Mutual funds make it convenient for investors to manage their SWPs by registering the amount,
periodicity (generally, monthly) and period for their SWP.

Some schemes even offer the facility of transferring only the appreciation or the dividend. In
this option, the withdrawal is not fixed but will vary depending upon the availability of
appreciation in the specific investment chosen by the investor.

Q 45.
Which of these statements is true with respect to a Switch transaction?
Switch transaction is allowed only after one year from date of purchase
Switch transaction is similar to a purchase transaction
Switch transaction is similar to a sale transaction
Switch transaction is a redemption from one mutual fund scheme and simultaneous
purchase in to another scheme

CORRECT ANSWER
Explanation:

A switch is a redemption from one scheme and a purchase into another combined into one
transaction.

For example, investors who believe that equity markets have peaked and want to book profits
can switch out from an equity scheme and switch into a short-term debt fund.

Q 46.
Some of the costs incurred by the Asset Management Companies to manage the
mutual fund schemes can be charged to _________ in proportion to their holding of
units in the scheme.
Distributors
Stock Brokers
Unit holders
Independent Financial Advisors

CORRECT ANSWER
 Explanation:

All the investor's money is pooled together in a scheme. Costs incurred for managing the
scheme are shared by all the Unit-holders in proportion to their holding of units in the scheme.

Q 47.
What are the guidelines issued by AMFI for intermediaries known as?
SEBI Brokers and Intermediaries guidelines
Know Your Distributor guidelines
AMFI Guidelines & Norms for Intermediaries (AGNI)

CORRECT ANSWER
Explanation:

AMFI has framed a set of guidelines and code of conduct for intermediaries (known as AMFI
Guidelines & Norms for Intermediaries (AGNI)), consisting of individual agents, brokers,
distribution houses and banks engaged in selling of mutual fund products.

Q 48.
Identify the TRUE statement(s) for an Equity Linked Saving Scheme (ELSS).
1. In Dividend Reinvestment option of an ELSS fund, the units acquired on account
of dividend would be free from any lock-in
2. In Dividend Reinvestment option of an ELSS fund, the units acquired on account
of dividend would be subject to a three year lock in from the date of allotment
3. ELSS cannot pay any dividend as its under lock-in
Only 1
Only 2
Only 3
Only 2 and 3

CORRECT ANSWER
Explanation:

If one opts for dividend reinvestment plan, each time a dividend is reinvested, the same would
also attract a 3-year lock-in.

(Note - Currently the dividend reinvestment plan in ELSS has been abolished)

Q 49.
Where should the change in status of an individual from a Resident to a Non-
Resident Indian updated for mutual fund investments?
It should be updated with the Registrar and Transfer Agent
It should be updated with the KYC Registration Agency
It should be updated with the directly with the Mutual Fund
It can be updated with any of the three options provided

CORRECT ANSWER
Explanation:

The KYC Registration Agency (KRA) prescribes a 'Change Form' to be used to register change,
if any, in the information provided at the time of the Know Your Customer (KYC) process. These
include: • Change in Name • Change in Status/ Nationality • Change in PAN • Change in
permanent address or address for correspondence etc.
Q 50.
The choice of benchmark for a Debt Scheme could be chosen on the basis of :
1. Scheme Size
2. Scheme Type
3. Investment Universe
Both 1 and 2
Both 2 and 3
Both 1 and 3
All 1,2 and 3

CORRECT ANSWER
Explanation:

Scheme type and choice of investment universe drive the choice of benchmark in debt
schemes. The size of the scheme is immaterial.

Q 51.
On what basis will the payment be made to an investor who claims his erstwhile
unclaimed redemption amount within three years?
The amount paid will based on the prevailing NAV after adding the income earned on
the unclaimed profits
The amount paid will based on the NAV at the time of original redemption plus income
earned on the unclaimed amount
The amount paid will based on the NAV at the time of original redemption plus income
earned on the unclaimed amount and deducting any penalty on the same
The amount paid will based on the average of the NAV at the time original redemption
and todays NAV after accounting for income earned and penalty if any

CORRECT ANSWER
Explanation:
Recovery of unclaimed amounts by the investors is as follows:

• 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.

• If the investor claims the money after 3 years, then payment is based on the NAV at the end of
3 years.
Q 52.
The indices based on Government securities will be an appropriate benchmark for
which type of funds?
Credit Risk Funds
Gilt Funds
Money Market Funds
Liquid Funds

CORRECT ANSWER
Explanation:
Gilt funds invest only in Government securities. Therefore, indices based on
Government Securities are the appropriate benchmark.
Q 53.
Identify the true statement with respect to investments in mutual funds through
Stock Exchanges?
Stock exchanges have now become another important channel for mutual fund
 companies to sell their units to investors
One can buy mutual fund units on stock exchange but cannot sell them on stock
exchange
The mutual fund units purchased through a stock exchange have a mandatory lock-in
period of 30 days
None of the above are true

CORRECT ANSWER
Explanation:

SEBI has facilitated buying and selling of the units of mutual funds through the stock
exchanges. Exchanges have developed mutual fund transaction engines for the purpose. The
low cost and deeper reach of the stock exchange network enables increased level of
participation of retail investors in mutual funds.

Q 54.
In which of these cases will the 'lock-in' in a retirement fund be lower than the
prescribed 5 years ?
When the retirement age is earlier than 5 years from the date of investment
When the age of the investor at the time of making initial investment is not less than 50
years
When the targeted corpus is achieved before 5 years
All of the above

CORRECT ANSWER
Explanation:
Retirement Fund is an open-ended retirement solution-oriented scheme having a lock-in of 5
years or till retirement age (whichever is earlier). Scheme having a lock-in for at least 5 years or
till retirement age whichever is earlier.
Q 55.
Mr. X has invested Rs. 2,00,000 in a 370 day FMP and on maturity he received Rs.
2,15,832. What is the capital gain in this transaction?
Rs. 7916
Rs. 13750
Rs. 15832
Insufficient Data

CORRECT ANSWER
Explanation:

Capital Gains is calculated as the difference between the sum invested and the sum realized
when the units are sold / matured.

So in the above question, capital gain is Rs 215832 - 200000 = Rs. 15832

Q 56.
Identify the FALSE statement.
1. Arbitrage funds can invest in both Futures/Options(F&O) and cash markets
2. The only objective of an Arbitrage fund is to provide capital appreciation
3. Arbitrage funds have lower risk compared to Equity Funds
Only 1
Only 2
 Both 2 and 3
Both 1 and 3

CORRECT ANSWER
Explanation:

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

Their risk level is comparable with that of a pure debt fund. The returns from an Arbitrage fund
is comparable to a debt fund. There is no capital appreciation.

Q 57.
Which of these statement(s) is/are TRUE?
1. There cannot be a price impact on mutual fund units due to portfolio rebalancing
and/or liquidity demands on account of redemptions.
2. Market liquidity of mutual fund units can get impacted on account of
company/sector related events
Only 1
Only 2
Both 1 and 2

CORRECT ANSWER
Explanation:

Liquidity Risk is one of the general risk factor involved in Mutual Fund investments.

The liquidity of investments made in the Scheme may be restricted by trading volumes,
settlement periods and transfer procedures. Although the investment universe constitutes
securities which will have high market liquidity, there is a possibility that market liquidity could
get impacted on account of company/sector/general market related events and there could be a
price impact on account of portfolio rebalancing and/or liquidity demands on account of
redemptions.

Q 58.
Identify from the following what is not considered as a scheme fundamental
attribute?
Type of scheme
Investment objective
Investment pattern
Name of fund manager

CORRECT ANSWER
Explanation:

The fund manager and his/her name is not a fundamental attribute of a scheme.

Q 59.
Mr. A is an existing investor in a mutual fund scheme and he is now investing Rs.
5000 in the direct plan of the scheme. What will be his net investment in the scheme
 after considering the transaction charges?
Rs. 4950
Rs. 4900
Rs. 4875
Rs. 5000

CORRECT ANSWER
Explanation:

Each mutual fund has to offer two plans to the investors, viz., regular plan and direct plan. In a
regular plan the investment is through a mutual fund distributor and in a Direct plan, the
investor purchases units directly from the fund.

There are no transaction charges on direct investments.

Q 60.
Investments have to be made only through authorized signatories for investments
by _______ .
Institutional investors
Hindu Undivided Family (HUF)
Non Resident Indians (NRI)
High net worth individuals (HNI)

CORRECT ANSWER
Explanation:

Since institutional investors are not natural persons, authorised individuals invest on behalf of
the institution.

Authorisation for the investing institution to invest is typically in the form of a Board Resolution.

Q 61.
As per SEBI Code of Conduct, mutual fund schemes portfolios should be managed
in the interest of _______ .
Trustees
Sponsors
Brokers
All classes of unit holders

CORRECT ANSWER
Explanation:

As per SEBI Code of Conduct - Trustees and asset management companies shall carry out the
business and invest in accordance with the investment objectives stated in the scheme related
documents and take investment decision solely in the interest of unitholders.

Q 62.
The form for registering a change in the default bank account has to be signed
_____ .
by the first holder only
by all the holders of the folio
 according to the mode of holding of the folio
by all the holders of the bank account

CORRECT ANSWER
Explanation:
The form for registering the change in default bank account has to be signed according to the
mode of holding of the folio.
Q 63.
For which mutual fund distributors is a due diligence process mandated by SEBI?
A mutual fund distributor who services more than 25 investors
A mutual fund distributor who receives commission of over Rs. 50 Lakhs from a single
mutual fund
A mutual fund distributor who brings in investments from investors of over Rs. 1 crore
for a single mutual fund
All of the above

CORRECT ANSWER
Explanation:

SEBI has mandated AMCs to put in place a due diligence process to regulate distributors who
qualify any one of the following criteria:

a. Multiple point presence (More than 20 locations)

b. AUM raised over Rs. 100 crore across industry in the non-institutional category but including
high networth individuals (HNIs)

c. Commission received of over Rs. 1 Crore p.a. across industry

d. Commission received of over Rs. 50 Lakhs from a single mutual fund.

Q 64.
Mrs. Neeta needs Rs. 5,00,000 in 3 years from now. The interest rate is 6%. By which
formula can we calculate the amount which is required to be invested today to
achieve the goal?
500000 * (1+0.06)*3
500000 / (1+0.06)^3
500000 / (1+0.06)*3
500000 * (1- 0.06)^3

CORRECT ANSWER
Explanation:

Present value formula = F / (1 + r) ^ n

Where F is the future value (500000) ; r is the rate of interest (6% p.a.); and n is the number of
years (3)

= 500000 / (1+0.06)^3

Q 65.
What is the investment in equity and equity related instruments in a Balanced
Hybrid Fund?
 Between 20% to 30% of total assets
Between 10% to 20% of total assets
Between 40% to 60% of total assets
Between 60% to 80% of total assets

CORRECT ANSWER
Explanation:

Balanced Hybrid Fund is an open-ended balanced scheme investing in equity and debt
instruments. The investment in equity and equity related instruments shall be between 40
percent and 60 percent of total assets.

Q 66.
A person wants to create a synthetic index. Guide him as to in which of these
categories the weightage of equity index would be the lowest?
Super aggressive hybrid fund
Aggressive hybrid fund
Balanced hybrid fund
Conservative hybrid fund

CORRECT ANSWER
Explanation:

In a CRISIL Conservative Hybrid Fund, the equity component will be only 25% and Debt will be
75%.

In Aggressive Hybrid Fund, the ratio of Equity and Debt is 75% and 25% and in a Balanced
Hybrid Fund, the ratio is 50% and 50%.

Q 67.
The minimum investment limit in equity/equity related instruments of large cap
companies for a Large Cap mutual fund scheme is ______ of total assets.
70%
80%
85%
90%

CORRECT ANSWER
Explanation:

A Large Cap Fund is an open-ended equity scheme predominantly investing in large cap stocks.
As per SEBI rules on asset allocation, the minimum investment in equity and equity related
instruments of large cap companies shall be 80 percent of total assets

Q 68.
Identify which of these is a function of Association of Mutual Funds in India’s
(AMFI)?
To calculate the correct NAVs
To make available the AUM, NAV and other important data of the mutual fund industry
To regulate and control insider trading
To manage the Investor Protection Fund
 CORRECT ANSWER
Explanation:

AMFI makes available the AUM, NAV and other important data of the mutual fund industry on its
website.

(Calculation of NAV is the duty of the mutual fund / SEBI regulates insider trading / Stock
exchanges manage the Investor protection fund)

Q 69.
Identify the true statement with respect to measuring returns for Mutual Funds
schemes.
1. Simple Return can be calculated using the formula : Sale Price - Cost Price / Sale
Price
2. Compounded Annual Growth Rate 'CAGR' technique has been prescribed by
SEBI when dividend is paid and compounding is to be considered
3. CAGR is the recognized standard for calculating returns for investment horizon of
greater than or equal to 1 year
1 and 2
2 and 3
3 and 1
1,2 and 3

CORRECT ANSWER
Explanation:

1. Simple Return can be calculated with the following formula : Sale Price - Cost Price / Cost
Price

2. Whenever a dividend is paid – and compounding is to be considered - the CAGR technique

(or the reinvestment method, as some call it) prescribed by SEBI is used

3. The return is calculated using CAGR if the holding period is over one year. If returns are less
than one year, than Simple Return is calculated

Q 70.
If an investor claims his unclaimed redemption amount after 3 years than the
payment will be based on the ________ .
average of the NAVs ie. current NAV and NAV at the time of original redemption
current NAV
NAV at the end of three years
NAV at the time of original redemption

CORRECT ANSWER
Explanation:

Recovery of unclaimed amounts by the investors is as follows:

• 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.
 • If the investor claims the money after 3 years, then payment is based on the NAV at the end of
3 years.

Q 71.
Identify the TRUE statement.
1. Retail investors can buy units of Gold ETF
2. Banks as well as Mutual Funds, both offer Gold deposit schemes
3. Gold ETF is a closed ended fund and so the holdings are not for perpetuity
Only statement 1 is true
Only statement 2 is true
Only statement 3 is true
All 1,2 and 3 are true

CORRECT ANSWER
Explanation:

Gold ETF's can be easily bought by retail investors as the minimum traded quantity is 1 unit ie.
1 gram.

The Gold deposit scheme is offered only by banks to mobilise the idle gold in the country and
put it in productive use and to provide the customer an opportunity to earn interest on the idle
gold holdings.

All Exchange Traded Fund are open-ended schemes.

Q 72.
Identify the FALSE statement(s) -
A - Authorised signatories have to sign the request for transactions of institutional
investors in mutual funds
B - Even if the Memorandum of Association and Articles of Association does not
permit invest in mutual funds, the company can invest in mutual fund on the basis
of a Board Resolution
Statement A is false
Statement B is false
Both statements A and b are false

CORRECT ANSWER
Explanation:
1. A company cannot invest in mutual funds if its incorporation documents ( (Memorandum of
Association and Articles of Association) do not provide for investments of this type.

2. The mutual fund can allow transactions only if the transaction form/slip carries the signature
of any (one or more, as required) of the authorised signatories.

Q 73.
Rising Sun Mutual Fund holds shares of AAA Ltd. in its portfolio. When the NAV of
the scheme is calculated on 10th April, then each share of AAA Ltd. will be valued at
______ .
Average traded price of AAA Ltd. on 10th April across all stock exchanges
Opening price of AAA Ltd. on 10th April at BSE / NSE
Closing price of AAA Ltd. on 10th April at BSE / NSE
Average traded price of AAA Ltd. on 10th April at BSE / NSE

CORRECT ANSWER
 Explanation:

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

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

Q 74.
Identify the TRUE statement(s) :
a. A diversified index will have a Beta of 1
b. Unsystematic risk can be measured by Beta
c. A portfolio which has Beta of less than 1 is less risky than the market
a and b
a and c
b and c
Only b

CORRECT ANSWER
Explanation:

The diversified stock index, by definition, has a Beta of 1. Companies or schemes, whose beta is
more than 1, are seen as more risky than the market. Beta less than 1 is indicative of a company
or scheme that is less risky than the market.

The risks that impact the entire economy are known as systematic risks. The company specific
risks are also known as unsystematic risks. Systematic risk is measured by its Beta.

Q 75.
_______ risk arises because of difference in price movement of the derivative vis-a-
vis that of the security being hedged.
Model Risk
Basis Risk
Market Liquidity Risk
Credit Risk

CORRECT ANSWER
Explanation:

Basis Risk arises due to a difference in the price movement of the derivative vis-à-vis that of the
security being hedged.

Q 76.
An investor is interested in buying some units of a Close ended fund after the NFO
is over. How can he buy the same?
He can buy the units on the stock exchange from market makers appointed by the
mutual fund
He can buy the units on the stock exchange from other investors who were allotted the
units and are interested in selling
He can buy the units from the mutual fund itself when they open the sale at periodic
 intervals as announced by the fund
He cannot buy units of a close ended fund

CORRECT ANSWER
Explanation:

A close-ended scheme offers liquidity through its listing on a stock exchange. Unit holders who
are interested in selling can offer their quotes and new investors can buy them.

Q 77.
BSE’s platform for Mutual Fund trading is known is BSE Solar Mutual Funds
Platform - True or False ?
True
False

CORRECT ANSWER
Explanation:

BSE’s platform is BSE StAR Mutual Funds Platform.

BSE StAR MF stands for BSE Ltd.’s online Stock exchange platform for Allotment
and Redemption of Mutual Fund units.

Q 78.
Legally SAI is part of the SID - True or False ?
True
False

CORRECT ANSWER
Explanation:

In practice, Scheme Information Document (SID) and Statement of Additional Information (SAI)
are two separate documents, though the legal technicality is that SAI is part of the SID.

Q 79.
NAV of income funds is to be calculated upto ___ decimals.
1
2
3
4

CORRECT ANSWER
Explanation:

NAV is to be calculated upto 4 decimal places in the case of income funds, liquid funds and
other debt funds.

NAV for equity and balanced funds is to be calculated upto at least 2 decimal places.

Q 80.
Mutual funds can buy and sell securities only on delivery basis. State whether this
statement is True or False.
True
False
 CORRECT ANSWER
Explanation:
The Mutual Fund will buy and sell securities on delivery basis. Securities purchased will be
transferred in the name of the Mutual Fund because of the respective scheme.

This means mutual funds cannot square-up the same day. They have to compulsorily take
delivery.
Q 81.
In case of mutual fund schemes, dividends can be paid only out of ______.
Unit capital
Distributable surplus generated by the scheme
Premium reserve account
Mark-to-market profits

CORRECT ANSWER
Explanation:
SEBI guidelines stipulate that dividends can be paid out of distributable reserves. In
the calculation of distributable reserves:
• All the profits earned (based on accrual of income and expenses as detailed above) are treated
as available for distribution.
• Valuation gains are ignored. But valuation losses need to be adjusted against the profits.
• That portion of sale price on new units, which is attributable to valuation gains, is not available
as a distributable reserve.
Q 82.
The investor cannot pledge the units of a Mutual Fund as a security to a financer -
True or False ?
True
False

CORRECT ANSWER
Explanation:

The investor can pledge the units as a security to a financier.

Q 83.
NFO's for ELSS schemes can remain open for ____ days
10
15
20
30

CORRECT ANSWER
Explanation:

In the case of ELSS / RGESS schemes, the offering period shall be not be more than 30 days.

Schemes other than ELSS and RGESS (Rajiv Gandhi Equity Saving Scheme) can remain open
for subscription for a maximum of 15 days.

Q 84.
As per the SEBI guidelines, how often should the mutual fund scheme’s portfolio be
published?
Monthly
 Half-yearly
Annually
Quarterly

CORRECT ANSWER
Explanation:

Schemes portfolio is a list of securities where the corpus of the scheme is currently invested.

The AMCs shall send to its unitholders, a half yearly portfolio via email within 10 days from the
end of each half year. The half yearly portfolio of the schemes is available on the AMFI’s website
and website of AMC on or before the 10th day of succeeding month. The advertisement for the
same is required to be published by the fund in all India edition of at least two daily newspapers,
one each in English and Hindi.
Q 85.
Whose job is it to track the various corporate actions like bonus, dividend, or rights
issues in companies where the mutual fund scheme has invested?
Custodian
Registrar and Transfer Agency
Unitholders
Auditors of the Asset Management Company

CORRECT ANSWER
Explanation:
The custodian has custody of the assets of the fund. As part of this role, the custodian needs to
accept and give delivery of securities for the purchase and sale transactions of the various
schemes of the fund.

The custodian also tracks corporate actions such as dividends, bonus and rights in
companies where the fund has invested.

Q 86.
Open-ended schemes generally offer exit option to investors through a stock
exchange.
True
False

CORRECT ANSWER
Explanation:

Close-ended schemes generally offer exit option to investors through a stock exchange. The
open-ended schemes can be easily sold at their current NAV back to the mutual fund thro' an
agent or directly.

Q 87.
_______ takes into account all dividends generated from the basket of constituents
that make up the index in addition to the capital gains.
Price return index
Dividend return index
Total return index

CORRECT ANSWER
Explanation:
 Earlier, the Mutual Fund schemes were benchmarked to the Price Return variant of an
Index (PRI). PRI only captures capital gains of the index constituents. With effect from February
1, 2018, the mutual fund schemes are benchmarked to the Total Return variant of an Index (TRI).

The Total Return variant of an index takes into account all dividends/interest payments that are
generated from the basket of constituents that make up the index in addition to the capital
gains.
Q 88.
________ of the Unit-holders can pass a resolution to wind-up a scheme.
25%
50%
60%
75%

CORRECT ANSWER
Explanation:
75 percent of unit holders can terminate the appointment of an AMC. Also, 75 percent of
the unitholders (unitholding) can pass a resolution to wind up a scheme.
Q 89.
The main objective of asset allocation is risk management - True or False ?
True
False

CORRECT ANSWER
Explanation:

The distribution of an investor’s portfolio between different asset classes like Equity, Debt, Gold
etc is called asset allocation.

Asset Allocation is basically using the old proverb - ‘Don’t put all your eggs in one basket’ to
guide investments and managing the risks.

Q 90.
_____________ assumes that all dividend payouts are re-invested in the scheme at
the ex-dividend NAV.
Compounded Returns
Compounded Annual Growth Rate
Annualised Returns
Simple Returns

CORRECT ANSWER
Explanation:

Whenever a dividend is paid – and compounding is to be considered - the CAGR - Compounded

Annual Growth Rate - technique prescribed by SEBI is used.

This calculation is based on an assumption that the dividend would be re-invested in the same
scheme at the ex-dividend NAV.

Q 91.
Offer documents of mutual fund schemes are approved by SEBI - True or False ?
True
False

CORRECT ANSWER
 Explanation:

Offer Documents in the market are “vetted” by SEBI, though SEBI does not formally “approve”
them.

Q 92.
Which amongst the following categories of mutual funds have a fixed maturity date?
Exchange Traded Funds
Open-ended funds
Close-ended funds
Interval funds

CORRECT ANSWER
Explanation:
Close-ended funds have a fixed maturity. Investors can buy units of a close-ended scheme, from
the fund, only during its NFO.
Q 93.
The most appropriate measure of returns for a scheme in existence for several
years is ______.
CAGR
Annualised Return
Dividend Return
Simple Return

CORRECT ANSWER
Explanation:

CAGR - Compounded Annual Growth Rate.

Q 94.
Redemption from which of the following mutual fund schemes would attract
Securities Transaction Tax (STT) for an investor?
Liquid Fund
Overnight Fund
Multi-cap mutual fund
Government Securities Fund

CORRECT ANSWER
Explanation:

In the given options, only Multi cap fund is an equity fund and rest all are debt funds.

STT is applicable only on redemption/switch of units of Equity oriented mutual funds whether
sold on stock exchange or otherwise.

STT is not applicable on purchase of units of an equity scheme. It is also not applicable
to transactions in debt securities or debt mutual fund schemes.

Q 95.
How often should the Key Information Memorandum (KIM) be updated?
At least once a month
At least once every six months
 At least once a year
It need not be updated after it is issued once

WRONG ANSWER
CORRECT ANSWER:

At least once a year

Explanation:
KIM is to be updated at least once a year or early in case of change in fundamental
attributes.
Q 96.
In case of capital gains from mutual fund investments, Tax Deduction at Source
(TDS)
is applicable for: _________
All investors, who have invested more than Rs. 5 lacs
Minor through guardian
TDS is not applicable in case of mutual funds
Non-Resident Indians (NRIs)

CORRECT ANSWER
Explanation:
There is no TDS on re-purchase proceeds to resident investors. However, for certain cases
of non-resident investments, the same is applicable.

(In case of dividends from mutual fund schemes, even for resident Indians, TDS is applicable.)
Q 97.
Its due to loads and taxes that there is a difference between scheme returns and
investor returns - True or False ?
False
True

CORRECT ANSWER
Explanation:

Loads like Exit Load and Taxes like STT reduce the scheme returns.

Q 98.
SEBI regulates Mutual Funds as well as Registrars and Transfer Agents - True or
False ?
True
False

CORRECT ANSWER
Explanation:

SEBI regulates Mutual Funds , Registrars and Transfer Agents, Depositories, Stock Brokers etc.

Q 99.
Which of the following statements is ‘TRUE’ with respect to the Scheme Information
Document (SID) and Statement of Additional Information (SAI)?
These two documents are prepared in the format prescribed by Association of Mutual
Funds in India as part of AMFI’s Code of Conduct
These two documents are prepared in the format prescribed by Association of Mutual
 Funds in India as part of AMFI’s Best Practices Circular
These two documents are prepared in the format prescribed by Securities and
Exchange Board of India
Each Asset Management Company is free to prepare these documents in the format
they desire

CORRECT ANSWER
Explanation:
SAI and SAI documents are prepared in the format prescribed by SEBI and submitted to SEBI.
The contents need to flow in the same sequence as in the prescribed format. The mutual fund
is permitted to add any other disclosure, which it feels, is ‘material’ for the investor.
Q
100. In what form do mutual fund distributors earn revenue?
Investment advisory fee from mutual funds
Commission received from Association of Mutual Funds in India
Fees collected from the investors
Commission from mutual funds for distribution of the schemes

CORRECT ANSWER
Explanation:
The mutual fund distributor earns revenue in the form of commission income for distribution of
the mutual fund products/schemes. The commission may be linked to either the transaction or
to the assets under management.