Feel Real Exam 4- NISM-Series-V-A: Mutual Fund Distributors Certification

In a mutual fund scheme with a monthlyincome distribution cum capital withdrawal plan (IDCW), the mutual fund cannot guarantee declaring the IDCW amount or frequency. The IDCW amount depends on the distributable surplus available in the scheme, which is determined by the fund's performance and income generated from its underlying investments. If the scheme does not generate sufficient income, the IDCW amount may be lower or even zero. The frequency of IDCW payouts also depends on the availability of distributable surplus and the discretion of the fund manager. Therefore, while the IDCW feature provides the potential for regular income and capital withdrawal, the exact amount and frequency are subject to market conditions and the scheme's performance. The investor should be aware that the mutual fund cannot guarantee a specific IDCW amount or frequency.

In the case of liquid funds, the cut-off time for the receipt of applications is typically 1.30 pm. If an application is received after the cut-off time on a day and the funds are available for utilization on the same day, the closing NAV of the day immediately preceding the next business day is applicable for the allotment of units. In this scenario, Mr. X invests at 4 pm, which is after the cut-off time, and the funds are not available for utilization on the same day. Therefore, the applicable NAV for allotment of units would be the closing NAV of the day preceding the day funds are available.

SEBI regulates the investment policies of mutual fund schemes to ensure that they have a minimum level of diversification as per regulatory requirements. This is done to protect investors' interests and reduce the concentration risk associated with the scheme's portfolio. By diversifying their investments across different asset classes, sectors, and securities, mutual fund schemes can mitigate the impact of adverse events on the overall portfolio. Therefore, the correct answer is "So that the mutual fund scheme has a minimum diversification as per the requirements."

The investment decisions in a mutual fund, including the selection and allocation of the investors' funds, are taken by the Asset Management Company (AMC). The AMC employs a team of fund managers and investment professionals who are responsible for managing the investments in line with the stated objective of the scheme. They analyze market trends, conduct research, and make informed investment decisions on behalf of the investors. Therefore, the correct answer is "The Asset Management Company."

When a company wishes to invest in a specific scheme of a Mutual Fund, the authorization is typically provided through a Specific Board resolution. The resolution authorizes the investing institution to invest in the scheme on behalf of the company. Therefore, the correct answer is "Specific Board resolution."

The summary of scheme-related information documents is found in the Key Information Memorandum (KIM). The KIM serves as a synopsis of the Scheme Information Document (SID) and the Statement of Additional Information (SAI). It contains essential key points and information that are crucial for investors to make informed decisions about the suitability of the investment. The KIM is widely distributed and accompanies every mutual fund application form as per SEBI regulations. Therefore, the correct answer is "Key Information Memorandum (KIM)."

Before empaneling a distributor, an AMC (Asset Management Company) should check if the distributor has adequate controls to delink sales functions from customer risk and investment objective evaluation. This ensures that the distributor does not prioritize sales over customers' best interests and evaluates the investment objectives of customers properly. The other options listed, such as internal controls and employee-to-customer ratio, may be important factors for assessing distributors, but they do not specifically form part of the "Fit and Proper" criteria. Therefore, the correct answer is "Adequate controls to delink sales functions from customer risk and investment objective evaluation."

The functions of a Registrar and Transfer Agent (RTA) in a mutual fund can be performed in-house by an Asset Management Company (AMC). While it is common for AMCs to appoint external RTAs for administrative purposes, it is not mandatory. AMCs have the flexibility to handle these functions internally if they choose to do so. Therefore, the correct answer is "True."

The Reserve Bank of India (RBI) regulates the money market and foreign exchange market in the country. Therefore, mutual funds need to comply with RBI's regulations when making investments in the money market. This ensures adherence to the regulatory framework established by the central bank. Therefore, the correct answer is "Money market."

Liquid funds are debt schemes of mutual funds that invest only in debt securities with a maturity of up to 91 days. These funds are suitable for short-term investments as they offer high liquidity and safety. Money market funds, medium-term debt funds, and fixed maturity plans may have different investment durations and objectives.

When a bank fixed deposit is closed prematurely before its maturity period, a penalty is charged by the bank. The penalty amount is typically a percentage of the interest earned or a specified amount determined by the bank. Therefore, the statement is true.

A folio held by a minor, trust, or registered company cannot have a nominee. Only individual investors can nominate a person to receive the investment proceeds in case of their demise.

The applicable NAV for the allotment of units to Mr. Shah will be the NAV of the business day on which the funds are available for utilization. As per SEBI regulations, irrespective of the size and time of receipt of the application, the NAV of the day when the funds are available is considered. Therefore, the correct answer is "NAV of the business day on which the funds are availablefor utilization."

The current NAV (Net Asset Value) of a mutual fund scheme can be calculated by subtracting the current liabilities from the current market value of the stocks and dividing the result by the number of outstanding units. In this case, the current valuation is Rs 12 crore minus Rs 7 crore (current liabilities) which equals Rs 5 crore. The number of outstanding units is calculated by dividing the unit capital by the face value per unit, which is Rs 10 crore divided by Rs 10, resulting in 1 crore outstanding units. Therefore, the current NAV is Rs 5 (Rs 5 crore divided by 1 crore outstanding units). Hence, the correct answer is "Rs 5."

According to regulations, a scheme must have a minimum of 20 investors, and no single investor can hold more than 25 percent of the corpus of the scheme. Therefore, the statement is false.

In the case of investments in Equity Linked Saving Scheme (ELSS) through Systematic Investment Plan (SIP), each installment has a separate lock-in period of 3 years from the respective investment date. Therefore, the lock-in for the entire investment amount would not get over on completion of 3 years from the date of the first SIP installment. Each installment has its own lock-in period, and investors can redeem units only after the completion of the respective lock-in period. Hence, the correct answer is "True."

FALSE

A top-performing scheme may deliver excellent returns within a specific period, but there is no guarantee that it will continue to be the top performer in the future. The performance of mutual fund schemes can vary due to various factors such as market conditions, fund management, and changing investor preferences. Therefore, it is important to consider multiple factors and conduct thorough research before selecting a scheme for investment. Simply relying on past performance may not be a wise approach. Hence, the correct answer is "A top-performing scheme may or may not be the top performer in the next years to come."

The full form of AGNI is "AMFI Guidelines and Norms for Intermediaries." AGNI provides guidelines and norms for intermediaries operating in the mutual fund industry. It sets out the standards and regulations that intermediaries, such as distributors and advisors, need to comply with to ensure transparency, investor protection, and ethical practices in their operations. Therefore, the correct answer is "AMFI Guidelines and Norms for Intermediaries."

As per SEBI rules, the AMC (Asset Management Company) should send the Statement of Account of the initial transaction for a Systematic Transfer Plan (STP) within 10 working days of the initial investment or transfer. This statement provides the investor with details of the transaction and serves as a record of their investment. Therefore, the correct answer is "10 working days."

The market price of the shares of a company can be calculated using the Price to Earnings (PE) ratio and the Earning Per Share (EPS). The formula to calculate the market price is Market Price = PE x EPS. In this case, the PE ratio is 30 and the EPS is Rs 5. Therefore, Market Price = 30 x Rs 5 = Rs 150. Hence, the correct answer is "Rs. 150."

The appropriate benchmark for a short-term debt scheme is typically the 1 Year T-Bill index. This index reflects the performance of short-term government treasury bills and serves as a benchmark for shortterm debt schemes. Nifty50 is a benchmark for equity schemes, and 10-year and 5-year dated GoI securities are benchmarks for long-term debt schemes. Therefore, the correct answer is the 1 Year T-Bill index.

Exchange Traded Funds (ETFs) have the advantage of being traded on stock exchanges like individual stocks. This means that investors can buy or sell ETF units on a stock exchange at prices that are close to the current valuations of the underlying securities in the ETF portfolio. This provides liquidity and flexibility to investors, allowing them to enter or exit their positions easily. Therefore, the correct answer is "Investors can buy or sell ETFs on a stock exchange at prices which are close to current valuations."

The appropriate benchmark for a mutual fund scheme investing across many countries would not always be an index based on US equity markets. The benchmark would depend on the countries in which the scheme intends to invest. Each country has its own relevant index that represents its equity market performance. For example, a scheme investing in China might use the Shanghai Composite Index as its benchmark, while a scheme investing in the US market could use the S&P 500. In some cases, a synthetic index may be created that blends the indices of the countries where the scheme invests. Therefore, the correct answer is "False."

Commodities as an asset class include various raw materials and resources. Food crops, industrial metals, and gold are commonly considered commodities. However, real estate does not fall under the category of commodities. Real estate refers to physical properties such as land and buildings, which have different characteristics and investment dynamics compared to commodities. Therefore, the correct answer is "Real Estate."

Nominations in mutual fund folios can only be made by individual investors. Therefore, folios held by a Trust, a company, or a minor cannot have a nominee. The nomination facility is available for individual investors to specify a person who will receive the units of the mutual fund in the event of the investor's death. This facility is not applicable to institutional entities or minors. Hence, the correct answer is "All of the above cannot make a nomination."

SEBI, the Securities and Exchange Board of India, performs various functions to regulate and supervise the securities market. However, giving approvals to the appointment of fund managers is not a function of SEBI. The primary role of SEBI is to regulate and oversee the functioning of the securities market, making regulations for the mutual fund industry, regulating stock exchanges, and enforcing compliance with its regulations. Therefore, the correct answer is "Giving approvals to the appointment of fund managers."

The Net Asset Value (NAV) that is applicable for processing a mutual fund transaction depends on various factors, including the type of scheme, the day of the transaction, and the time of the transaction. Different types of mutual fund schemes may have different NAV calculation rules. The NAV is typically calculated at the end of each business day based on the market value of the fund's assets. Therefore, the correct answer is "All of the above."

In the case of a value fund, the minimum investment in equity and equity-related instruments as a percentage of the total assets is 65%. Value funds follow a value investment strategy, where the fund manager seeks to identify undervalued stocks based on fundamental analysis. The higher allocation to equity and equity-related instruments reflects the objective of capturing value opportunities in the market. Therefore, the correct answer is "65%."

KYC (Know Your Customer) is mandatory for all investors in the securities market, including mutual fund investors. The implementation of uniform KYC processes and guidelines is the responsibility of KYC Registration Agencies. These agencies are authorized entities that facilitate the KYC process, verify investor details, and maintain a centralized KYC registry. They ensure compliance with the requirements of the Prevention of Money Laundering Act and establish a common KYC framework for investors in the securities market. Therefore, the correct answer is "KYC Registration Agencies."

Indian mutual funds can invest in real estate directly or indirectly. Real Estate Mutual Fund schemes invest directly or indirectly in real estate assets or other permissible assets as per the SEBI (Mutual Funds) Regulations, 1996. These funds may invest in properties, real estate-related stocks, or Real Estate Investment Trusts (REITs), which are investment vehicles that own and manage income-generating real estate properties. Therefore, the correct answer is "Yes."

The condensed financial information about all the mutual fund schemes launched by the Asset Management Company (AMC) in the last 3 years is not provided in the Fund Factsheet. Instead, this information is available in the Statement of Additional Information (SAI) document. The SAI contains detailed information about the AMC, its schemes, investment objectives, financials, and other relevant details. It serves as a comprehensive reference document for investors to understand the various aspects of the mutual fund schemes. Therefore, the correct answer is "False."

The 'Goal-Based approach to Financial Planning' is focused on creating an investment plan that aligns with a specific financial goal. It involves identifying the objective, timeline, and investment requirements for achieving the desired outcome. By structuring investments based on specific goals, individuals can have a more targeted and effective approach to their financial planning. This approach helps in determining the appropriate asset allocation, risk profile, and investment strategies to meet the specific goal. Therefore, the correct answer is "An investment plan that is focused on a specific goal."

The formula for calculating the present value of a future amount is P = A / (1 + r)^n, where P is the present value, A is the future amount, r is the interest rate, and n is the number of years. In this case, Mohit needs Rs. 2,00,000 in 5 years, and the interest rate is 7%. Therefore, the correct formula to calculate the amount required today is 200000 / (1 + 0.07)^5.

When a mutual fund advertisement publishes returns, those returns are typically without factoring in the entry or exit load. The entry load is a fee charged when an investor enters the scheme, and the exit load is a fee charged when an investor exits the scheme within a specified period. These loads are not considered in the returns mentioned in the advertisement as they vary based on the investor's entry or exit timing. Therefore, the correct answer is "True."

The Net Asset Value (NAV) indicates the per-unit value of the mutual fund scheme. It represents the net realizable value per unit in case the scheme is to be liquidated. The NAV reflects the total value of the scheme's assets after deducting its liabilities and expenses. Therefore, the correct answer is "Net Asset Value (NAV)."

An Indian investor in a US Dollar based fund will benefit if the US Dollar strengthens against the Indian Rupee, not weakens. When the US Dollar strengthens, the investor's holdings in the fund are worth more in Indian Rupees, resulting in a higher return. On the other hand, if the US Dollar weakens (Indian Rupee strengthens), the investor's returns in Indian Rupees may be lower. Therefore, the correct answer is "False."

The incorrect statement is that SCORES is completely online, and an investor cannot lodge a physical complaint. In reality, investors who are not familiar with or do not have access to SCORES can lodge complaints in physical form at any SEBI office, and those complaints are scanned and uploaded in SCORES for processing.

The Application Supported by Blocked Amount (ASBA) facility can be used for applying in New Fund Offers (NFO). ASBA allows investors to apply for units of a new mutual fund scheme by authorizing their bank to block the application amount in their account. This helps ensure that the money goes out of the investor's account only on allotment, earning interest until then. Therefore, the correct answer is "application for New Fund Offers (NFO)."

As per regulatory provisions, the Statement of Additional Information (SAI) of a mutual fund scheme has to be regularly updated. The updation should be done by the end of 3 months of every financial year. Additionally, any material changes to the SAI should be updated on an ongoing basis and uploaded on thewebsites of the mutual fund and AMFI. This ensures that investors have access to the most up-to-date information about the scheme. Therefore, the correct answer is "True."

The statement is false. Securities Transaction Tax (STT) is not applicable on redemption of debt mutual funds. STT is levied only on the sale/redemption of equity mutual funds. The rate of STT applicable may vary depending on the type of equity mutual fund scheme (e.g., equity-oriented schemes, equity ETFs). STT is a tax imposed by the government on securities transactions conducted on recognized stock exchanges in India.

The 'Statement of Additional Information' (SAI) contains information that is applicable for all mutual fund schemes offered by an Asset Management Company (AMC). It provides statutory information about the mutual fund and its operations, including the rights and responsibilities of investors, the role of the AMC, and other relevant details. Therefore, the correct answer is "applicable for all schemes."

Certificates of Deposit are issued by banks or financial institutions. While multinational corporations may issue various financial instruments, Certificates of Deposit are not typically among them. The government is also not involved in issuing Certificates of Deposit. Therefore, the correct answer is "Banks."

A trail commission is paid to the mutual fund distributor as long as the investor stays invested in the mutual fund scheme. It is a form of ongoing compensation for the distributor's services. The trail commission is calculated based on a percentage of the assets under management (AUM) and is typically paid on a regular basis, such as annually or semi-annually. The commission continues to be paid as long as the investor remains invested in the scheme. It is separate from any upfront or exit loads that may be charged when the investor enters or exits the scheme. Therefore, the correct answer is "as long as the investor stays invested in the mutual fund scheme."

A Segregated Portfolio is created out of a debt fund scheme when there is a credit event. This means when a particular debt or money market instrument in the scheme's portfolio is affected by a credit event, it can be segregated. This allows investors to have their investment in the affected instrument separated from the main scheme. Therefore, the correct answer is "there is a credit event."

The income earned by a mutual fund is exempt from taxes as per the prevailing tax laws in India. Mutual funds are structured as trusts in India, and the income earned by the fund is taxed at the investor's level when the income is distributed or when the investor sells their units. The mutual fund itself is not subject to income tax on its earnings. Therefore, the correct answer is "Income earned by a mutual fund is exempt from taxes."

Companies are considered institutional investors in the context of mutual funds. Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are classified as individual investors. Foreign investors can invest in equity schemes of mutual funds registered with SEBI after completing the KYC process. However, companies, being non-individual investors, are considered institutional investors. Therefore, the correct answer is "Companies."

Tactical Asset Allocation involves adjusting the asset allocation of a portfolio based on the market conditions and the expected behavior of different asset classes. Therefore, the primary factor driving Tactical Asset Allocation decisions is the likely behavior of the markets. This includes analyzing market trends, economic indicators, and the performance of various asset classes to make informed allocation decisions. While age and income of the investor can also influence asset allocation, they are not exclusive factors for Tactical Asset Allocation. Hence, only the first option, "Likely behavior of the markets," is correct as it captures the essential element of this investment strategy.

To obtain the Employee Unique Identification Number (EUIN) from AMFI, an employee of a mutual fund distribution institution needs to clear the NISM Series V-A: Mutual Fund Distributors Certification Examination. SEBI and AMFI conduct other certifications and exams related to mutual funds, but they are not specifically for obtaining the EUIN.

The statement is true. The interest rate sensitivity of a bond is determined by its maturity. Bonds with longer maturities are generally more sensitive to changes in interest rates compared to bonds with shorter maturities. The price of a bond with longer maturity will be more affected by fluctuations in interest rates, leading to higher interest rate risk. Bonds with shorter maturities are relatively less sensitive to interest rate changes.

According to the SEBI Advertisement Guidelines for Mutual Funds, when a mutual fund scheme has been in existence for more than three years, it is required to show point-to-point returns on a standard investment of Rs. 10,000. This additional information is provided alongside the Compounded Annual Growth Rate (CAGR) to enhance the understanding of retail investors. Point-to-point returns illustrate the absolute returns generated by the scheme over a specific investment period, allowing investors to assess its performance more comprehensively. Therefore, the correct answer is "True."

The sponsor of a mutual fund is required to contribute a minimum of 40% of the net worth of the Asset Management Company (AMC). This contribution acts as a capital base for the AMC and demonstrates the sponsor's commitment to the success of the mutual fund. The net worth of the AMC represents its total assets minus its total liabilities. Therefore, the correct answer is "40%."

A segregated portfolio refers to a portfolio in a mutual fund scheme that has been segregated due to a credit event. In a segregated portfolio, no redemption or subscription is allowed. Investors cannot either redeem their investment from the segregated portfolio or subscribe to it. However, to facilitate exit for unitholders, the AMC may enable the listing of units of the segregated portfolio on a recognized stock exchange. Therefore, the correct answer is "True."

Stock lending involves lending securities through an approved intermediary to a borrower. Although the transaction is facilitated through an approved intermediary, there are risks associated with stock lending. One of the risks is the failure of the other party, which can result in a loss of rights to the collateral and the inability of the approved intermediary to return the borrowed securities. Therefore, the correct answer is "False."

The mentioned debt mutual fund categories—Liquid Funds, Money Market Funds, and Medium Term Bond Funds—are arranged from lowest risk to highest risk. The risk being discussed in this context is the Interest Rate Risk. Interest rate risk refers to the potential impact of changes in interest rates on the value of fixed-income investments. When interest rates change, the value of existing bonds may fluctuate. In general, as the investment duration increases, the sensitivity to changes in interest rates also increases. Therefore, the correct answer is "Interest Rate Risk."

The performance data for all schemes across the mutual fund industry is available on the AMFI (Association of Mutual Funds in India) website. The AMFI website provides comprehensive information and data onall mutual fund schemes, including their performance metrics, historical returns, and other relevant details. Investors can access this information to compare and analyze different schemes before making investment decisions. The AMFI website serves as a centralized platform for accessing performance data across various fund categories and time periods. It is a valuable resource for investors to evaluate the performance of mutual fund schemes and make informed investment choices. Therefore, the correct answer is "AMFI Website."

The only false statement is that the process of choosing a benchmark for an Index Fund is very complex. While an independent agency should calculate the benchmark in a transparent manner, the selection of a benchmark for an Index Fund is generally straightforward. The fund aims to replicate the performance of a specific index, making the benchmark selection relatively simpler compared to other fund categories.

The distributor should consider the impact of Exit Load and Capital Gains Tax on the investor's portfolio while giving mutual fund unitsfor repurchase. Exit load is a fee charged by the mutual fund when units are redeemed within a specified period. Capital gains tax is the tax imposed on the profits earned from the sale of mutual fund units. These factors can affect the overall returns and should be taken into consideration by the distributor to ensure that the investor's portfolio is optimized in terms of costs and taxes.

International funds provide investors with exposure to international assets. These funds invest in markets outside India by holding certain foreign securities in their portfolio. Therefore, the correct answer is "International Funds."

SCORES (SEBI Complaint Redress System) provides a platform for investors to lodge complaints and grievances related to securities market intermediaries. It also allows investors to make follow-ups on their complaints and track the status of the redressal process online. Therefore, all options 1, 2, and 3 are correct.

Key Information Memorandum (KIM) is essentially an abridged version of the offer document. It contains the key points and essential information about the mutual fund scheme. KIM is attached to each and every mutual fund application form as per SEBI regulations. Therefore, the statement "KIM has to be provided only if the investors ask for it" is NOT true.

For a Value Fund, the minimum investment in equity and equity-related instruments is generally higher than 50% of the total assets. It can vary, but typically it is around 65% or more. The objective of a Value Fund is to invest in stocks that are considered undervalued based on fundamental analysis. Therefore, the statement is false.

A floating interest rate is expressed as a "base rate + spread." It is a rate that is linked to another rate prevailing in the market, such as the prime lending rate or the rate applicable to government securities. The base rate represents the benchmark rate, and the spread is an additional percentage added to the base rate.

When an investor needs to change their default bank account with a mutual fund, they do not need to inform the KYC registration agency. Instead, they can directly instruct the mutual fund or Asset Management Company (AMC) to change their default bank account. The investor can provide the new bank account details and request the necessary changes to be made. Therefore, the correct answer is "False."

The Association of Mutual Funds in India (AMFI) does not conduct the certification examination for Mutual Fund distributors. The responsibility of conducting the certification examination lies with the National Institute of Securities Markets (NISM). NISM is authorized by SEBI to conduct certification exams for various financial market participants, including Mutual Fund distributors. Therefore, the correct answer is "False."

When comparing the performance of liquid funds, the most important factor to consider is the Expense Ratio. Liquid funds generally aim to provide stable and consistent returns with high liquidity. Since the returns generated by different liquid funds are typically similar, the Expense Ratio plays a crucial role in determining the net returns received by investors. A fund with a higher Expense Ratio will significantly reduce the overall returns generated. Therefore, it is advisable to invest in liquid funds with the lowest Expense Ratio to maximize returns. Hence, the correct answer is "The Expense Ratio."

The Net Asset Value (NAV) per unit of a mutual fund is calculated by dividing the net assets (market value of the portfolio minus current liabilities) by the number of outstanding units. In this case, the net assets would be Rs. 15 crore - Rs. 2 crore = Rs. 13 crore. The number of outstanding units is Rs. 10 crore / Rs. 10 = 1 crore. Therefore, the NAV per unit would be Rs. 13 crore / 1 crore = Rs. 13. The NAV represents the value of each unit of the mutual fund scheme, indicating the per-unit value of the investor's holdings.

The function "To conduct a certification examination for Mutual Fund distributors" is not a function of AMFI. AMFI's functions include representing the mutual fund industry to the government and regulatory bodies, disseminating information, conducting research, and undertaking investor awareness programs. However, the certification examination for Mutual Fund distributors is conducted by the National Institute of Securities Markets (NISM).

When there are unclaimed amounts in schemes, the Asset Management Company (AMC) can recover investment management and advisory fees on such amounts. However, the maximum rate at which the AMC can recover these fees is 0.50 percent per annum. This ensures that the fees charged on unclaimed amounts are reasonable and do not significantly impact the investors. Therefore, the correct answer is "0.50 percent."

The facility to invest in cash up to Rs. 50,000 is not available to Non-Resident Indians (NRI) or Person of Indian Origin (PIO). This facility is primarily intended for resident individuals, sole proprietorships, and minors investing through their guardians. NRIs and PIOs have specific regulations and guidelines for investing in mutual funds, and cash transactions are generally not permitted. Therefore, the correct answer is "Investments made by a NRI / PIO (Person of Indian Origin)."

In the Income Distribution cum capital withdrawal option, an investor receives the dividend declared by the mutual fund scheme in their bank account. This option allows investors to receive regular income distributions in the form of dividends while retaining the capital invested. The Income Distribution cum capital withdrawal reinvestment plan reinvests the dividends back into the scheme. Therefore, the correct answer is "Income Distribution cum capital withdrawal option only."

As per SEBI rules, the first Account Statement under Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) should be issued within 10 working days of the initial investment or transfer. This ensures that investors receive timely information about their investments and helps in tracking their portfolio.

To ensure fair treatment to all investors in case of a credit event and to deal with the liquidity risk, SEBI permits the creation of segregated portfolios of debt and money market instruments by mutual fund schemes. These segregated portfolios are created when a credit event occurs. The Net Asset Value (NAV) of the segregated portfolio is required to be disclosed on a daily basis. This ensures transparency and allows investors to have an accurate valuation of their investments. Therefore, the correct answer is "Daily basis after the credit event."

The AMC can charge expenses such as Custodian and Fund Administrator fees to a mutual fund scheme. These fees cover the costs associated with the safekeeping of securities and administrative services provided by the custodian and fund administrator. Other expenses, such as the salaries of the fund management team and the rent of the AMC's registered office, are borne by the AMC itself and not directly charged to the mutual fund scheme. Therefore, the correct answer is "Custodian and Fund Administrator fees."

Only A

Diversified equity funds are less risky compared to Thematic funds in terms of concentration risk. Thematic funds focus on specific themes or sectors, which can increase their concentration risk. Diversified equity funds, on the other hand, invest in a broad range of sectors, reducing the concentration risk. Duration, size, and style are factors that may differentiate funds but are not directly related to the risk comparison mentioned in the question.

Statement 2 is false. Each mutual fund scheme's account is maintained separately and distinct from the accounts of the Asset Management Company (AMC). The scheme's accounts have to be audited separately, and the AMC's auditor may be different from the auditor of the schemes. This ensures proper segregation of assets and liabilities between the schemes and the AMC. Statement 1 is true as the net asset value (NAV) for actively managed equity funds does not need to be declared up to 4 decimal points, but it should be declared up to at least 2 decimal places.

Investments owned by a mutual fund scheme may appreciate in value, resulting in gains when the quoted market price is higher than the cost at which the scheme acquired the securities. These gains are called valuation gains. Conversely, if the market price is lower than the acquisition cost, it results in valuation losses. Therefore, the correct answer is "valuation gains."

Equities, also known as stocks or shares of companies, are suitable for investors who have a long-term investment horizon, seek capital appreciation, and have a high risk tolerance. Equities have the potential for higher returns over the long term but also come with higher volatility and risk. Gold, fixed deposits, and high-interest-bearing junk bonds may have different characteristics and risk-return profiles. Therefore, the correct answer is "Equities."

After the New Fund Offer (NFO) period, units of a Closed-Ended fund can be bought and sold through Stock Exchanges. Closed-Ended funds are listed on stock exchanges, providing liquidity to investors who wish to buy or sell units of the fund. Therefore, the correct answer is "Stock Exchanges."

Unit holders of a mutual fund have the right to inspect various documents, including the Trust Deed, Custodial Services Agreement, and Investment Management Agreement. These documents provide important information about the structure, operations, and rights of the unit holders in the mutual fund scheme. The unit holders can review these documents to gain a better understanding of the fund's functioning and to ensure transparency in the operations. Therefore, the correct answer is "All of the above."

The appropriate benchmark for debt schemes with a duration or maturity of more than 1 year is typically the 10-year dated Government of India (GoI) security. This benchmark represents longer-term debt instruments and is widely used as a reference for assessing the performance of long-term debt schemes. The 1-year T-Bill benchmark is more relevant for short-term or money market schemes. The option "There is no appropriate benchmark" is incorrect as benchmarks are used to evaluate the performance of mutual fund schemes. Therefore, the correct answer is "10 years dated GoI security."

AMFI is not a regulatory body but an industry association that aims to define and maintain high professional and ethical standards in all areas of operation of the mutual fund industry. The management of investments by mutual funds is primarily governed by SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India). SEBI regulates mutual funds and formulates rules and regulations for their functioning, while RBI oversees certain aspects of debt fund investments and manages the overall monetary policy of the country. Therefore, the correct answer is "False."

The Fund Factsheet is the document that provides detailed information about the various schemes of a mutual fund. It is widely used by investors, distributors, analysts, and others to access information about the schemes. In the case of a Multicap Fund, the Fund Factsheet will provide insights into the industry-wise allocation of funds. It will disclose the sectors or industries in which the fund has invested its assets. This helps investors understand the diversification and exposure of the fund across different sectors. Therefore, the correct answer is "Fund Factsheet."

The time horizon of an investment refers to the length of time an investor intends to hold the investment to achieve a specific financial goal. A longer time horizon generally increases the investor's ability to take higher risks. When the time horizon is longer, there is more time to ride out market fluctuations and potentially recover from any short-term losses. Additionally, longer-term investments have a greater potential for compounding returns. Therefore, the correct answer is "increases."

A Conservative Hybrid fund isan open-ended hybrid scheme that predominantly invests in debt instruments. The investment range in debt instruments for a Conservative Hybrid fund is between 75 percent and 90 percent of total assets. This means that a significant portion of the fund's assets is allocated to debt instruments, providing stability and income generation. The remaining portion of the assets, between 10 percent and 25 percent, is typically allocated to equity and equity-related instruments to provide some growth potential. The investment strategy aims to balance risk and return, making it suitable for investors seeking a combination of income and moderate capital appreciation. Therefore, the correct answer is "Between 75 percent and 90 percent of total assets."

The credit rating of a bond is an important factor affecting its market price. When the credit rating of a bond migrates from AAA to AA+, it indicates a downgrade in the creditworthiness of the issuer. This downgrade increases the perceived risk associated with the bond, leading to a decrease in demand and an increase in the required yield. As a result, the market price of the bond will fall. Therefore, the correct answer is "Bond price will fall."

Towards the maturity of a close-end scheme, the market price of the scheme's units tends to converge towards the Net Asset Value (NAV). This convergence occurs because the close-end scheme is listed on a stock exchange, allowing investors to trade the units in the secondary market. As the maturity date approaches, the market price of the units aligns more closely with the NAV, reflecting the underlying value of the scheme's assets. Therefore, the correct answer is "True."

As per SEBI regulations, the unaudited accounts of mutual fund schemes must be published once every six months. This publication should be done both on the Asset Management Company (AMC) website and in a minimum of two newspapers. The purpose of this requirement is to ensure transparency and provide investors with access to relevant financial information about the mutual fund schemes. Publishing the unaudited accounts allows investors to review the scheme's performance, financial position, and other key metrics. Therefore, the correct answer is "Both - on the AMC website and in a minimum of 2 newspapers."

A person can avail of a loan for various purposes such as buying a car, purchasing a house, or starting a business. However, obtaining a loan to buy a high-priced lottery ticket is not a valid reason for seeking a loan. Lending institutions typically do not provide loans for speculative activities such as gambling. Therefore, the correct answer is "To buy a high priced lottery ticket."

According to the AMFI Code of Ethics, the AMC (Asset Management Company) should disclose the transactions in securities by key personnel who are directly involved in the investment operations of mutual fund schemes to its compliance officer at least on a half-yearly basis. This ensures transparency and helps identify any potential conflicts of interest. The compliance officer then reports these transactions to the Board of Trustees if they are found to have conflicts of interest with the fund's transactions. Therefore, the correct answer is "at least on a half-yearly basis."

While many investors have investments across various asset categories, the problem with such asset allocation is that it is often done without defining any objective or without following a proper process. Asset allocation is a strategic approach to allocate an investor's money across different asset classes based on their financial goals, risk tolerance, and time horizon. Without a clear objective or process, the asset allocation may lack proper diversification and alignment with the investor's needs. It's important to have a well-defined asset allocation strategy that considers the investor's goals and follows a systematic approach to achieve them. Therefore, the correct answer is "such asset allocation is done without defining any objective or without any process."

SEBI, the regulatory authority for mutual funds in India, has issued norms and regulations to protect the interests of the mutual fund investors. The regulations aim to ensure transparency, fairness, and accountability in the functioning of mutual funds. They cover various aspects such as investor protection, disclosure requirements, investment restrictions, and governance standards. The primary objective is to safeguard the interests of the investors and promote the growth and development of the mutual fund industry. Therefore, the correct answer is "Protect the interests of the mutual fund investors."

The false statement is "The investor does not have to bear a tax on the capital gains as the re-purchase of units is done by the mutual fund." When an investor sells or redeems mutual fund units, it is treated as a capital gains event, and the investor may be subject to capital gains tax based on the holding period and the type of capital gains (short-term or long-term). The second statement is true, as long-term capital gains in case of debt funds are applicable if the holding period is more than 3 years. Therefore, the correct answer is "Only 1 is false."

The "Stock Picking" approach in investment refers to the strategy of selecting individual stocks based on their fundamental characteristics, such as company financials, valuation, growth prospects, and industry analysis. It involves a bottom-up approach where the focus is on analyzing and identifying specific stocks that have the potential for outperformance. The other investment styles mentioned, such as blended style, growth style, and top-down approach, have different methodologies and objectives. Therefore, the correct answer is "Bottom-up approach of investment."

In case of an Index fund scheme or Exchange Traded Fund (ETF), the Total Expense Ratio (TER) is capped at 1.00 per cent of the daily net assets. This includes all the expenses related to the fund management, administration, and other costs. The TER is an important metric to consider as it directly impacts the overall returns earned by the investors. Therefore, the correct answer is "Total Expense Ratio shall not exceed 1.00 per cent of the daily net assets."

Land and buildings are physical assets, representing tangible property. Bank deposits, shares and debentures, and futures and options are financial assets/instruments.

Statement A is correct. Valuation gains are ignored while calculating the distributable surplus of a mutual fund scheme. However, valuation losses need to be adjusted against the profits to arrive at the distributable surplus. Statement B is incorrect. Mark-to-market gains are not considered part of the distributable reserves for mutual fund Income Distribution Cum Capital Withdrawal plans.

When investors need money in the short term, they should avoid investing in Index Funds. Index funds are equity funds that aim to replicate the performance of a specific market index. Since equity markets are volatile in the short term, there is a risk of capital loss if investors need to withdraw their money quickly. On the other hand, options like overnight funds, money market funds, and liquid funds are more suitable for short-term investments as they aim to provide stability and liquidity. Therefore, the correct answer is "Index Fund."