Explanation:

Most mutual fund schemes offer two options – Income Distribution cum capital withdrawal and Growth.
A third option, which is possible, is the Re-investment of Income Distribution cum capital withdrawal Option.

• In a Pay-out of Income Distribution cum capital withdrawal option, the investor receives the dividend in his bank account.
• In a Re-investment of Income Distribution cum capital withdrawal plan, the investor does not receive the dividend in his bank account; the amount is re-invested in the same scheme, and additional units are allotted to the investor.
• In a growth option, dividend is not declared. Therefore, nothing is received in the bank account.

Explanation:

Short-selling is the sale of shares or securities that the seller does not own at the time of trading. Instead, he borrows it from someone who already owns it. Later, the short seller buys back the stock/security he shorted and returns the stock/security to the lender to close out the loan. The inherent risks are Counterparty risk and liquidity risk of the stock/security being borrowed. The security being short sold might be illiquid or become illiquid and covering of the security might occur at a much higher price level than anticipated, leading to losses.

Securities Lending is lending of securities through an approved intermediary to a borrower under an agreement for a specified period with the condition that the borrower will return equivalent securities of the same type or class at the end of the specified period along with the corporate benefits accruing on the securities borrowed. There are risks inherent in securities lending, including the risk of failure of the other party. Such failure can result in a possible loss of rights to the collateral, the inability of the approved intermediary to return the securities deposited by the lender and the possible loss of corporate benefits accruing thereon.

Explanation:

As per the SEBI Advertisement Code for Mutual Funds – No celebrities shall form part of the advertisement.

(AMFI can use celebrities but individual mutual funds cannot use celebrities)

CORRECT ANSWER:
Likely behaviour of the markets

Explanation:
In Tactical asset allocation, the allocation between the asset categories changes dynamically. The purpose of such an approach is to take advantage of the opportunities presented by various markets at different points of time.

CORRECT ANSWER:
The Sponsors

Explanation:
The mutual fund trust is created by one or more Sponsors, who are the main persons behind the mutual fund business.

The sponsor is the promoter of the mutual fund. The sponsor brings in capital and creates a mutual fund trust and sets up the AMC.

The sponsor makes an application for registration of the mutual fund and contributes at least 40% of the net worth of the AMC. In other words, every MF needs a sponsor before it can commence operations.

CORRECT ANSWER:
False

Explanation:
Scheme type and Choice of investment universe drive the choice of benchmark in debt schemes.

For eg – Liquid schemes invest in securities of up to 91 days’ maturity. Therefore, a short-term money market benchmark such as NSE’s MIBOR or CRISIL Liquid Fund Index is suitable.

Choice of Investment Universe Gilt funds invest only in Government securities. Therefore, indices based on Government Securities are appropriate. Debt funds that invest in a wide range of Government and Non-Government securities need to choose benchmarks that are calculated based on a diverse mix of debt securities.

The size of the scheme is immaterial.

CORRECT ANSWER:
Scheme Information Document (SID)

Explanation:
Updation of Scheme Documents—Regulatory provisions:

In case of change in fundamental attributes in terms of Regulation, an addendum to the existing SID shall be issued and displayed on AMC website immediately.

In case of other changes in SID, the AMC shall be required to issue an addendum and display the same on its website immediately.

CORRECT ANSWER:
Active Equity Fund

Explanation:

In Active Equity Funds the fund manager does a lot of buying/selling which result in higher transaction costs. Also a lot of research work goes into it. So the cost of fund management are higher.

Equity Index Funds or Passive Equity funds invest in a portfolio that mimics a market index. There is no selection risk in index funds because the fund manager has no role in creating the portfolio. For this reason, the costs that an index fund is allowed to charge is also lower since there are no research or other fund management expenses.

CORRECT ANSWER:
Names of securities in the scheme’s portfolio

Explanation:
The names of securities in the scheme’s portfolio is contained in the Fund fact sheet and not in the SID.

CORRECT ANSWER:
Economies of scale

Explanation:
Large investment corpus of a mutual fund leads to various other economies of scale. For instance, costs related to investment research and office space gets spread across investors. Further, the higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers.

CORRECT ANSWER:
Only B is false

Explanation:

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

The Nifty500 index represents top 100 large cap companies, top 150 Mid-cap companies and top 250 small cap companies. Therefore, it can be a good benchmark for a Multi-Cap fund.

The BSE Sensex has 30 large cap stocks from various sectors and it can be good benchmark for a large cap fund and not for a multi cap fund.

CORRECT ANSWER:
20 investors (in green)

Explanation:
Every mutual fund scheme/plan should have a minimum of 20 investors and no single investor shall account for more than 25 percent of the corpus of the Scheme/Plan(s).

CORRECT ANSWER

• ○ Only 2 and 3 are true

Explanation:

Beta measures the fluctuation in periodic returns in a scheme, as compared to fluctuation in periodic returns of a diversified stock index (representing the market) over the same period.

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

An investment with a beta of 0.8 will move 8 percent when markets move by 10 percent. This applies to increase as well as fall in values. An investment with a beta of 1.2 will move by 12 percent both on the upside and downside when markets move (up/down) by 10 percent.

Beta as a measure of risk is relevant only for equity schemes

CORRECT ANSWER:

SEBI has specific and strict regulations regarding the cap for TER as well as the periodic disclosure of the same

Explanation:

One of the important factors that impact the scheme’s NAV is the Total Expense Ratio (TER), charged to the scheme.

Though the same is very tightly regulated through SEBI regulations, the investor should know about the scheme expense ratio. SEBI has mandated that the Asset Management Companies (AMCs) should prominently disclose on a daily basis, the Total expense ratio (scheme-wise, date-wise) of all schemes.

CORRECT ANSWER:
Both 1 and 2 are false

Explanation:

1. Re-purchase transactions are treated as a sale of units by the investor. Therefore, there will be an element of capital gain (or capital loss) and it will be taxed accordingly.
2. As per Finance Act 2023, growth option of debt funds was made taxable as short term capital gains (STCG) irrespective of holding period. Therefore there is no Long term capital gain tax in debt funds.

CORRECT ANSWER:
Concentration

Explanation:

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

A Diversified equity fund invests in many sectors and themes as per the investment policy and fund managers’ decisions.

Thematic funds are risky because of the concentration in one theme. If the theme underperforms, then the scheme’s returns are likely to be poor.

CORRECT ANSWER:
NAV of the business day on which the funds are available for utilization

Explanation:

Irrespective of the time of receipt of application, for all equity oriented funds and debt funds (except liquid funds) in respect of transaction of any amount, the applicable NAV will be NAV of the business day on which the funds are available for utilisation.

CORRECT ANSWER:
Toward maturity

Explanation:

A close-ended scheme offers liquidity through its listing on a stock exchange.

Typically, towards the maturity of the scheme, the market price converges towards the NAV.

CORRECT ANSWER:
Daily basis after the credit event

Explanation:

To ensure fair treatment to all investors in case of a credit event and to deal with the liquidity risk, in December 2018, SEBI permitted creation of segregated portfolio of debt and money market instruments by mutual funds schemes. “Segregated portfolio” means a portfolio, comprising of debt or money market instrument affected by a credit event, that has been segregated in a mutual fund scheme.

The Net Asset Value (NAV) of the segregated portfolio shall be declared on a daily basis.

CORRECT ANSWER:
Exit loads

Explanation:

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

1. Type of a scheme
2. Investment Objective
3. Terms of Issue

CORRECT ANSWER:
Higher credit worthiness

Explanation:

In securitisation transactions, it is possible to work towards a target credit rating, which could be much higher than the originator’s own credit rating. This is possible through a mechanism called “Credit enhancement”.

The process of “Credit enhancement” is fulfilled by filtering the underlying asset classes and applying selection criteria, which further diminishes the risks inherent for a particular asset class.

CORRECT ANSWER:
Every six months

Explanation:

As per SEBI circular in 2021 – For the open ended and interval schemes, the SID shall be updated within next six months from the end of the 1st half or 2nd half of the financial year in which schemes were launched, based on the relevant data and information as at the end of previous month. Subsequently, SID shall be updated within one month from the end of the half-year, based on the relevant data and information as at the end of September and March respectively.

CORRECT ANSWER:
Only C

Explanation:
Passive funds invest on the basis of a specified index; whose performance it seeks to track. For example, Nifty Index fund.

Exchange Traded Funds (traded on exchanges) are also passive funds that generate returns in line with the index or benchmark.

So, from the above options, only Gold Exchange Traded Fund is a passive fund.

CORRECT ANSWER:
All of the above

Explanation:
The following categories of investors are exempt from producing PAN:

• In case of transactions undertaken on behalf of Central/State government and by officials appointed by the court.
• Investors residing in the state of Sikkim.
• UN entities/Multilateral agencies exempt from paying taxes/filing tax returns in India.
• Investments (including SIPs and lump sum investments) in Mutual Fund schemes up to Rs. 50,000/- per investor per year per mutual fund.

CORRECT ANSWER:
Scheme Information Document

Explanation:
As per SEBI circular in 2021 – For the open ended and interval schemes, the SID (Scheme Information Document) shall be updated within the next six months from the end of the 1st half or 2nd half of the financial year in which schemes were launched, based on the relevant data and information as at the end of previous month. Subsequently, SID shall be updated within one month from the end of the half-year, based on the relevant data and information as at the end of September and March respectively

CORRECT ANSWER:

Investment objective

Explanation:
Every scheme has a pre-announced investment objective. Investors invest in a mutual fund scheme whose investment objective reflects their own needs and preference.

The primary objective of various schemes stems from the basic needs of an investor, viz., safety, liquidity, and returns.

CORRECT ANSWER:
Money market ✅

Explanation:
RBI regulates the money market and foreign exchange market in the country. Therefore, mutual funds need to comply with RBI’s regulations regarding investment in the money market, investments outside the country etc.

CORRECT ANSWER:
National Institute of Securities Markets – NISM

Explanation:
Distributors need to pass the NISM certification Examination (NISM-Series- V-A: Mutual Fund Distributors (MFD) Certification Examination) and register with AMFI.

CORRECT ANSWER:
Daily – on the mutual fund website

Explanation:
SEBI has mandated that the Asset Management Companies (AMCs) should prominently disclose on a daily basis, the Total expense ratio (scheme-wise, date-wise) of all schemes under a separate head – “Total Expense Ratio of Mutual Fund Schemes” on their website.

CORRECT ANSWER:
Trusts

Explanation:
Mutual funds are constituted as Trusts. Therefore, they are governed by the Indian Trusts Act, 1882.

CORRECT ANSWER:
Herd mentality

Explanation:
In behavioral finance, Herd Mentality bias refers to investors’ tendency to follow and copy what other investors are doing. They are largely influenced by emotion and instinct, rather than by their own independent analysis.

This often works against investors’ interests in the financial markets

CORRECT ANSWER:

He should set the financial goals of the investor

Explanation:
The selection of a mutual fund scheme for an investor will depend upon the need that the investor has from the investment. The objective could be a financial goal like reaching a certain level of wealth in a specified period of time; or it could be funding a major expense related to an important life event like education of one’s children or funding one’s retirement. The sight of the goal must never be missed.

Therefore, the first step is to set the financial goals.

CORRECT ANSWER:

CRISIL Hybrid 50+50, Moderate Index

Explanation:
CRISIL blended indices for hybrid funds:

• Aggressive Hybrid Fund – CRISIL Hybrid 25+75, Aggressive Index
• Balanced Hybrid Fund – CRISIL Hybrid 50+50, Moderate Index
• Conservative Hybrid Fund – CRISIL Hybrid 75+25, Conservative Index

CORRECT ANSWER:
When the retirement age is earlier than 5 years from the date of investment

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.

CORRECT ANSWER:
Capital gains from all types of mutual funds are taxed subject to certain conditions

Explanation:
Long term capital gains tax is applicable for Equity Funds at 10% and Non-equity-oriented funds (Equity between 35% to 65% of portfolio) at 20% with indexation benefits.

CORRECT ANSWER:
Expenses which are incurred to manage the fund

Explanation:
Expenses for managing the fund are charged to the fund. Any expense other than investment advisory fee and recurring expenses shall be borne by the asset management company or trustee or sponsors.

CORRECT ANSWER:

There is a risk of low returns

Explanation:
Fixed deposits usually give a low rate of return and when adjusted against inflation, the return can sometimes be very low or even negative. This will not help in building her retirement corpus.

• Smita is a young investor and has plenty of time in her hand. So she should invest in growth stocks / equity mutual funds rather than fixed deposits.

CORRECT ANSWER:
15832

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

CORRECT ANSWER:
NAV of the business day on which the funds are available for utilisation

Explanation:
Vide SEBI circular dated September 17, 2020, it was decided that with respect to purchase of units of MF schemes – both Debt and Equity (except liquid and overnight schemes), closing NAV of the day shall be applicable, on which the funds are available for utilisation irrespective of the size and time of receipt of such application.

• Until now, investors who gave a cheque for below Rs 2,00,000 got the same day’s NAV, while those putting more got the NAV of the day when the cheque was realised.

CORRECT ANSWER:
Both for Application form / transaction slip and payment instrument

Explanation:
Time stamping is mandatory for all financial transactions in mutual funds like purchase, redemption etc. The application form, the payment instrument etc. have to be time and date stamped.

CORRECT ANSWER:
A Conservative investor

Explanation:
A conservative investor is someone who wants his money to grow but does not want to risk his principal investment.
Conservative investors choose financial products that do not fluctuate much in value, such as conservative mutual funds.

CORRECT ANSWER:
7 days to 1 Year

Explanation:
A Certificate of Deposit is a fixed-income financial tool that is governed by the Reserve Bank of India and is issued in a dematerialized form. It is a type of agreement made between the depositors and the banks, wherein the bank pays an interest on your investment.

• Certificates of Deposit are issued by Banks (for 7 days to 1 year) or by Financial Institutions (for 1 to 3 years).

CORRECT ANSWER:
All of the above

Explanation:
A credible benchmark should meet the following requirements: It should be in sync with (a) the investment objective of the scheme (i.e., the securities or variables that go into the calculation of the benchmark should be representative of the kind of portfolio implicit in the scheme’s investment objective); (b) asset allocation pattern; and (c) investment strategy of the scheme.

CORRECT ANSWER:
Only statement B is correct

Explanation:
Ideally an investor’s portfolio should be divided into Core and Satellite portfolios. The core portfolio will be invested according to the long-term needs of the investor and the satellite portfolio will be invested to take advantage of expected short-term market movements.

• However, the division between core and satellite portfolios will depend upon each investor’s profile. Conservative investors may like a very small proportion of their overall portfolio to be managed tactically and an investor comfortable with taking higher risk may have an even higher exposure to tactical investments.

Different investors have different financial goals at different age levels. In fact, investors in the same age group may also have different goals. Their financial situations may also differ. At the same time, many of the financial goals may pertain to the whole families and not just an individual. In such cases, it may not be prudent to categorize investors on the basis of age alone

CORRECT ANSWER:
Gold Exchange Traded Fund (ETF)

Explanation:

• Passive funds invest on the basis of a specified index; whose performance it seeks to track. For eg. Nifty Index fund.
• Exchange Traded Funds (traded on exchanges) are passive funds that generate returns in line with the index or benchmark.
• So, from the above options, only Gold Exchange Traded Fund is a passive fund.

CORRECT ANSWER:
Specific Board Resolution

Explanation:
The Board resolution authorises the company to invest in mutual fund schemes.

CORRECT ANSWER:
False

Explanation:
Transaction costs, in the form of stamp duty, registration fees, brokerage etc. are high in real estate transactions.

CORRECT ANSWER:
Recency Bias

Explanation:
Recency bias: The impact of recent events on decision making can be very strong.

The recent experience overrides analysis in decision making. For example, a rise in prices of equities will make people think only about a further rise which would lead to more investment being made in equities. This increases the risk. On the other hand, a fall in prices in an asset would make people stay away thinking it would fall further which could lead to loss of opportunities

CORRECT ANSWER:
All A, B and C are correct

Explanation:

1. 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
2. The return is calculated using CAGR if the holding period is over one year. If returns are less than one year, then Simple Return is calculated
3. Simple Return can be calculated with the following formula: Sale Price – Cost Price / Cost Price * 100

CORRECT ANSWER:

True

Explanation:

Updation of Scheme Documents—Regulatory provisions
Updation of SAI: Regular update has to be done by the end of 3 months of every financial year. Material changes have to be updated on an ongoing basis and uploaded on the websites of the mutual fund and AMFI.