1. In a Mutual Fund structure, who is responsible for managing the investment portfolio and making investment decisions?
The Custodian
The Trustees
The Asset Management Company (AMC)
The Sponsor
Explanation:
The AMC is the operational arm appointed by the Trustees to manage the funds. Fund Managers within the AMC make the buying/selling decisions.
2. The "Net Asset Value" (NAV) of a Mutual Fund scheme represents:
The total market value of all assets held by the fund.
The performance fee charged by the fund manager.
The market value of assets minus liabilities, divided by the number of outstanding units.
The market price at which the fund units are traded on the stock exchange.
Explanation:
NAV is the per-unit price of the mutual fund. It is calculated as (Total Market Value of Assets + Cash - Liabilities) / Total Number of Units Outstanding.
3. The "Total Expense Ratio" (TER) of a Mutual Fund scheme is:
The entry load charged to investors.
The total profit earned by the AMC.
The annual fee charged to the scheme for management and operational expenses, expressed as a percentage of daily net assets.
The tax paid by the investor on returns.
Explanation:
TER covers investment management fees, registrar fees, trustee fees, audit fees, and marketing expenses. SEBI sets limits on the maximum TER that can be charged.
4. According to SEBI categorization, a "Large Cap Fund" must invest at least what percentage of its total assets in large-cap companies?
Explanation:
SEBI mandates that a Large Cap Fund must invest a minimum of 80% of its total assets in equity and equity-related instruments of large-cap companies (top 100 companies by market capitalization).
5. What is the primary operational difference between an ETF (Exchange Traded Fund) and an Index Fund?
ETFs are actively managed; Index Funds are passively managed.
ETFs can be bought/sold on the stock exchange throughout the trading day at real-time prices; Index Funds are bought/sold at end-of-day NAV.
ETFs have a lock-in period; Index Funds do not.
Index Funds invest in foreign stocks; ETFs do not.
Explanation:
Both track an index (passive), but ETFs trade like stocks with real-time pricing, whereas Index Fund units are created/redeemed by the AMC at the day's closing NAV.
6. In the SEBI "Risk-o-meter" for Mutual Funds, which level represents the highest risk?
Extreme
Very High
High
Moderately High
Explanation:
SEBI introduced "Very High" as the sixth category in the Risk-o-meter (replacing the earlier 5 categories) to alert investors about schemes with the highest risk profile.
7. A Mutual Fund scheme that invests in a mix of equity and debt instruments to balance risk and return is called a:
Liquid Fund
Gilt Fund
Hybrid Fund
Sectoral Fund
Explanation:
Hybrid Funds invest in more than one asset class (usually Equity and Debt) to achieve a balance between growth (from equity) and income/stability (from debt).
8. What is the main benefit of "Rupee Cost Averaging" in a Systematic Investment Plan (SIP)?
It guarantees positive returns always.
It offers tax-free returns.
It buys more units when prices are low and fewer units when prices are high, lowering the average cost per unit.
It eliminates all market risks.
Explanation:
Rupee Cost Averaging automatically adjusts the number of units purchased based on the NAV. When markets fall (NAV down), the fixed SIP amount buys more units, reducing the overall average cost of acquisition over time.
9. A "Liquid Fund" must invest in debt and money market securities with a maturity of up to:
91 days
60 days
30 days
365 days
Explanation:
According to SEBI guidelines, Liquid Funds are debt funds that invest in instruments having a maturity of up to 91 days only. This minimizes interest rate risk.
10. For purchasing Liquid Fund units, if the application and funds are received by 1:30 PM, what NAV is applicable?
NAV of the previous day.
Average NAV of the week.
NAV of the same day.
NAV of the next business day.
Explanation:
Liquid funds are unique. For purchases up to cut-off time (usually 1:30 PM), the applicable NAV is of the day *immediately preceding* the day of application (Historical NAV), provided funds are realized.
11. Which type of Debt Mutual Fund carries the highest "Interest Rate Risk"?
Gilt Fund with 10-year constant duration
Overnight Fund
Ultra Short Duration Fund
Liquid Fund
Explanation:
Interest rate risk is directly proportional to the duration (maturity) of the bonds held. Long-duration funds like Gilt Funds (10-year) are highly sensitive to interest rate changes compared to short-duration funds.
12. The benefit of "Indexation" available on Long Term Capital Gains (LTCG) from Debt Mutual Funds allows investors to:
Pay zero tax.
Convert debt funds to equity funds without tax.
Claim a deduction under Section 80C.
Adjust the purchase cost of the asset for inflation, reducing taxable profit.
Explanation:
(Note: Recent Finance Act changes may have altered this for new investments, but historically/conceptually Indexation adjusts the buying price using the Cost Inflation Index (CII), lowering the tax burden.)
13. SEBI has capped the Total Expense Ratio (TER) for equity-oriented mutual fund schemes. As the Assets Under Management (AUM) of the scheme increases, the permissible TER:
Remains fixed at 2.25%.
Becomes zero.
Increases proportionally.
Decreases (Economies of Scale).
Explanation:
SEBI follows a slab-based structure where the maximum TER % decreases as the AUM slab increases, ensuring that the benefits of economies of scale are passed on to investors.
14. The "Scheme Information Document" (SID) of a Mutual Fund contains detailed information about:
Daily NAV history.
Investment objective, asset allocation pattern, fees, and risk factors of the specific scheme.
General statutory information common to all schemes.
Only the AMC's board of directors.
Explanation:
SID provides all necessary details specific to a scheme that an investor needs to make an informed decision. General information is in the SAI (Statement of Additional Information).