NISM Series V-A Mutual Fund Distributors Mock Test -1/50 NISM Series V-A Mutual Fund Distributors Mock Test -1 1 / 50To whom does the profits or losses made by the mutual fund belong? a) The Asset Management Company b) Trustees c) The investors d) Fund Managers ExplanationThe money received from investors is invested by the mutual fund scheme in a portfolio of securities as per the stated investment objective. Profits or losses, as the case might be, belong to the investors or unitholders.No other entity involved in the mutual fund in any capacity participates in the scheme’s profits or losses. They are all paid a fee or commission for the contributions they make to launching and operating the schemes.2 / 50What percentage of the invested amount would mutual fund units issued against purchase transactions be subjected to stamp duty, according to SEBI regulations? a) 0.05% b) 0.005% c) 0.01% d) 0.5% ExplanationWith effect from July 1, 2020, mutual fund units issued against purchase transactions (whether through lump-sum investments or SIP or STP or switch-ins or dividend reinvestment) would be subject to levy of stamp duty @ 0.005% of the amount invested.3 / 50Before removing a default bank account from the registered bank account in a mutual fund folio, what steps need to be taken? a) Another account has to be designated as the default bank account b) A new folio will have to be opened with the same joint holding as the new default account c) All the nominees of the mutual fund scheme have to sign on the change form irrespective of the mode of holding ExplanationIf the default bank account is being deleted from the list of registered accounts, then before that, another account has to be designated as the default bank account.4 / 50On what basis must Asset Management Companies disclose the Total Expense Ratios (TER) of their various schemes on their websites? a) Monthly b) Daily c) Weekly d) Annual Explanation One of the important factors that impacts 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 on their website. The same must also be published on AMFI website.5 / 50Financial goals have to be defined in terms of _______ . a) Costs and economic policies b) Time horizon and external funds required c) Time horizon and money needed d) Aspiration and desires ExplanationThe first step in goal setting is to identify events in life which will require funding like – marriage, education, buying a vehicle etc.The next step is to assign priorities – which of these events are more important than the othersAfter that, one needs to assign a timeline as well as amount of funding required at the time of such events.6 / 50If the sale and purchase transactions for a year amounted to Rs. 10,000 crore, and the average size of net assets is Rs. 5,000 crore, this means that investments are held in the portfolio, on an average for ________ . a) 6 months b) 2 months c) 12 months d) 3 months ExplanationPortfolio Turnover Ratio is calculated as Value of Purchase and Sale of Securities during a period divided by the average size of net assets of the scheme during the period. = Rs. 10,000 crore ÷ Rs. 5,000 crore = 2 or 200 percentThis means that investments are held in the portfolio, on an average for 12 months ÷ 2 i.e. 6 months.7 / 50Investors tend to extrapolate the current event into the future and expect a repeat. This is an example of ________ bias. a) Herd Mentality b) Overconfidence c) Familiarity d) Recency ExplanationRecency bias : The impact of recent events on decision making can be very strong. This applies equally to positive and negative experiences. Investors tend to extrapolate the event into the future and expect a repeat.A bear market or a financial crisis lead people to prefer safe assets. Similarly, a bull market makes people allocate more than what is advised for risky assets. The recent experience overrides analysis in decision making.8 / 50____________ is a proper benchmark for a balanced hybrid scheme. a) CRISIL Hybrid 25+75 , Aggressive Index b) CRISIL Hybrid 50+50 , Moderate Index c) CRISIL Hybrid 75+25 , Conservative Index ExplanationCRISIL blended indices for hybrid funds :Aggressive Hybrid Fund – CRISIL Hybrid 25+75 , Aggressive IndexBalanced Hybrid Fund – CRISIL Hybrid 50+50 , Moderate IndexConservative Hybrid Fund – CRISIL Hybrid 75+25 , Conservative Index9 / 50Long Duration debt scheme invests in debt instruments with Macaulay duration _____________. a) Below 1 year b) Between 1 year and 3 years c) 6 months and 12 months. d) Greater than 7 years Explanation Macaulay Duration is the weighted average of the time to receive the cash flows from a bond.Long Duration Fund : An open-ended debt scheme investing in debt and money market instruments with Macaulay duration greater than 7 years.10 / 50When the asset allocation is maintained as a constant ratio by regular rebalancing of portfolio, it is known as ________ . a) Fixed asset allocation b) Variable asset allocation c) Flexible asset allocation d) Dynamic asset allocation ExplanationFor eg – If a fund has a fixed asset allocation of 50:50 for Debt and Equity and if equity valuation rises by 10%, then as per the fixed asset allocation strategy, 10% of equity portfolio will be sold and debt will be bought so that the debt equity valuation will be 50:50.11 / 50Dividends from mutual funds can come from _________. a) Mark to Market profits b) Distributable surplus only c) Profits of the Asset Management Company d) All realised and unrealised gains Explanation:SEBI guidelines stipulate those dividends can be paid out of distributable reserves. In the calculation of distributable reserves:– All the profits earned (based on the 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 the sale price on new units, which is attributable to valuation gains, is not available as a distributable reserve.12 / 50For a floater fund, what is the minimum amount needed to be invested in floating rate investments as a percentage of the total assets invested? a) 45% b) 75% c) 65% d) 55% ExplanationFloater Fund in an open-ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives). Minimum investment in floating-rate instruments (including fixed-rate instruments converted to floating-rate exposures using swaps/derivatives) shall be 65 percent of total assets.13 / 50If a check of Rs. 50 Lakhs for purchasing a gilt fund is received after 2 pm, the applicable NAV will be ___________. a) Closing NAV of day immediately preceding the date of application b) Same day NAV if received before cut off time. c) Closing NAV of the next business day d) NAV of the business day on which the funds are available for utilisation ExplanationVide SEBI circular dated September 17, 2020, it was decided that with respect to the 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 in more got the NAV of the day when the cheque was realized.14 / 50For the selection and assessment of which category of mutual fund distributors, a mandatory requirement includes the business model, experience, and proficiency in the business? a) Institutional distributors who have points of presence in more than 10 locations b) Distributors who have received commission of over Rs. 1 Crore p.a. across industry c) Individual distributors who have points of presence in more than 10 locations d) All of the above ExplanationSEBI has mandated AMCs to put in place a due diligence process to regulate distributors concerning ‘Business model, experience and proficiency in the business’ who qualify any one of the following criteria: a. Multiple point presence (More than 20 locations) b. AUM raised over Rs. 100 crore across the industry in the non-institutional category but including high net worth 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 fund15 / 50A credible benchmark for a mutual fund scheme should be in sync with the:A. Size of scheme B. Investment objective of the scheme C. Investment strategy of the scheme D. Expenses ratio of the scheme E. Asset allocation pattern of the scheme a) B, D and E b) B, C and E c) A and B d) A, C and D ExplanationA credible benchmark should meet the following requirements: It should be in sync with (a) the investment objective of the scheme; (b) the asset allocation pattern; and (c) the investment strategy of the scheme.16 / 50A mutual fund distributor is not allowed to charge a transaction fee on which of these transactions? a) A new investor making a purchase in a mutual fund scheme b) Systematic Investment Plan (SIP) c) Systematic Transfer Plan d) An existing investor making a purchase in a mutual fund scheme ExplanationTransaction charges do not apply to transactions other than purchases/subscriptions that result in fresh inflows. Transactions like switches, systematic transfers, dividend transfers, and dividend re investment are not eligible for transaction charges.17 / 50Equity Linked Savings Schemes (ELSS) qualify for deduction under Section 80C of the Income Tax Act. However, these schemes have a lock-in period of _______ from the date of investment. a) 3 years from the date of original investment even in case of subsequent purchases b) If tax exemption is NOT availed, there will not be any lock-in period c) 5 years from the date of allotment of each individual unit d) 3 years from the date of allotment of each individual unit ExplanationThe lock-in period for an ELSS fund is 3 years from the date of allotment of each unit. So even for an SIP investment, each SIP will have a lock-in for 3 years.18 / 50When is an investor sent a Consolidated Account Statement (CAS)? a) When ever the investor asks for a CAS b) Every month, before the 10th working day of the following month c) When ever there is a transaction in the folio d) bi-monthly for dormant investors ExplanationA Consolidated Account Statement (CAS) for each calendar month is sent by post/email on or before the 10th of the succeeding month provided there has been a financial transaction in the folio in the previous month.19 / 50In what types of stocks do Multi Cap equity funds invest? a) A mix of large, mid and small cap stocks b) Mostly mid cap stocks only of various companies c) Mostly small cap stocks only of various companies d) Mostly large cap stocks only of various companies ExplanationMulti-cap funds spread the investments across the market capitalization spectrum to try and benefit from the opportunities across the market. They invest in a mix of large, mid, and small market capitalization stocks.20 / 50Which of the following information about mutual fund distributors with multiple points of presence (more than 20 locations) must be disclosed by the AMCs?A) Distributor-wise gross inflows and net inflows B) Average assets under management C) Total commission and expenses paid to distributors a) A and C b) B and C c) A and B d) All A, B and C ExplanationFor mutual fund distributors having multiple points of presence (More than 20 locations), mutual funds / AMCs need to disclose the total commission and expenses paid to distributors, disclosures regarding distributor-wise gross inflows (indicating whether the distributor is an associate or group company of the sponsor(s) of the mutual fund), net inflows, average assets under management and ratio of AUM to gross inflows on their respective website every year.21 / 50What factors can lead to the performance of an index fund deviating from its benchmark, either positively or negatively? a) Tracking error b) Systematic risk c) Arbitrage error d) Investment objective ExplanationAn index scheme mirrors the index. The fund manager of an index fund invests in the same securities which are in the index and in the same ratio / weightage. However there could be some minor difference and that is due to Tracking Error.22 / 50True or false: A model portfolio designed for senior citizens will have no exposure to equity. a) True b) False ExplanationAs per model portfolio for couple in their seventies, with no immediate family support :– 15 percent diversified equity index scheme; 10 percent gold ETF, 30 percent diversified debt fund, 30 percent MIP, 15 percent liquid schemes.This shows some exposure can be taken in equities.23 / 50Under which of the following transactions is it permissible to deduct a ‘transaction charge’? a) Purchase made on stock exchanges b) Systematic transfer plan (STP) transaction c) Purchases of Rs 10,000 or more d) Llyods Theory of option pricing ExplanationTo cater to people with small saving potential and to increase reach of mutual fund products in urban areas and smaller towns, SEBI has allowed a transaction charge per subscription of Rs. 10,000/- and above to be paid to distributors of the mutual fund products.24 / 50What among the options constitutes FUNDAMENTAL ATTRIBUTES of a scheme? a) Terms of the issue b) Investment objective(s) of the scheme c) The type of scheme d) All of the above ExplanationThe Offer Document is the most important sources of information on the core aspects of the scheme called its fundamental attributes. The fundamental attributes of the scheme includes:• The type of scheme ie. Open ended / Close ended / Equity / Balanced etc • Investment objective(s) ie. Growth / Income etc • Terms of the issue ie. listing /repurchase / redemption etc.25 / 50What is the most suitable metric for assessing the degree to which an index fund is closely mirroring its benchmark? a) Tracking error b) Assets Under Management (AUM) c) Treynor ratio d) Total Expense Ratio (TER) ExplanationTracking error is a measure of the consistency of the out-performance of the fund manager relative to the benchmark. Earlier it was used as a measure of how closely an index fund tracked the returns from the benchmark to which it was indexed.Now, the tracking error is used to measure how consistently a fund is able to out-perform its benchmark.26 / 50True or false: Monthly Income Plans (MIPs) do not have exposure to equity. a) True b) False ExplanationMIPs have an element of equity in its portfolio to give a boost to the fund’s return. This can typically range from 5 percent to 30 percent.27 / 50What is the treatment of Securities Transaction Tax (STT) on transactions involving debt or debt-oriented mutual fund units, including liquid funds? a) Not Applicable b) Applicable ExplanationSTT is applicable only on equity transactions.28 / 50Who issues the ‘Certificate of Deposit’ ? a) Government b) Multinationals c) Mutual Funds d) Banks ExplanationCertificates of Deposit are issued by Banks (for 7 days to 1 year) or Financial Institutions (for 1 to 3 years)29 / 50What is the primary objective behind SEBI issuing regulations for investments made by mutual fund schemes? a) Protect the interests of the mutual fund investors b) Get better returns by mutual fund schemes c) Protect the interests of the mutual fund industry d) Improve the credit ratings of the mutual fund schemes ExplanationSecurities and Exchange Board of India (SEBI), has mandated strict checks and balances in the structure of mutual funds and their activities. Mutual fund investors benefit from such protection.30 / 50If a company has an Earning Per Share (EPS) of Rs 5 and a Price to Earning (PE) ratio of 30, what would be the market price of its shares? a) Rs. 6 b) Rs. 0.60 c) Rs. 75 d) Rs. 150 ExplanationPrice to Earnings Ratio (P/E Ratio) = Market Price / EPSSo Market Price = PE X EPS= 30 x 5= Rs 15031 / 50True or False: Closing a bank fixed deposit prematurely incurs a penalty charge. a) True b) False ExplanationThe depositor can also prematurely close the bank fixed deposit at any time, in order to meet liquidity requirements. However, a penalty needs to be borne for such premature closure.32 / 50What is the tax levied on the income earned by the mutual fund schemes for the Asset Management Company (AMC)? a) 10 percent plus surcharge and cess b) It is a function of the type of income since dividends, short term capital gains and long term capital gains attract different tax rates c) Income earned by a mutual fund is exempt from taxes d) It is a function of the marginal rate of tax applicable to the respective investor in the mutual fund scheme ExplanationAs per the prevailing tax laws in India, a mutual fund’s income is exempt from income tax, since mutual funds are constituted as trusts in India for the benefits of the unitholders.(Income earned by the unit holders ie. mutual fund investors is taxable)33 / 50Investments owned by the scheme might be quoted in the market at a higher value than the cost paid. What term is used to describe the gains in values on securities held in this context? a) Notional gains b) Valuation gains c) Notional losses d) Valuation losses ExplanationInvestments owned by the scheme may be quoted in the market at higher than the cost paid. Such gains in values on securities held are called valuation gains.Similarly, there can be valuation losses when securities are quoted in the market at a price below the cost at which the scheme acquired them.34 / 50For which of the options below can a person not obtain a loan if they wish to avail of one? a) To buy a car of value above Rs 20 lacs b) To buy a high priced lottery ticket c) To buy a house in a Union Territory d) To start a Pharma factory ExplanationWhenever there is a liquidity issue, one can go for a loan. The purpose of taking a loan can be anything from repaying an old debt, going on vacation, business expenses, funding for the down payment of a house/car, and medical emergency to purchasing big-ticket furniture or gadget.However loan cannot be taken for buying a lottery / gambling.35 / 50After the New Fund Offer, units of the Close-Ended fund can be bought and sold through _______. a) The offices / branches of the respective AMC's b) Stock Exchanges c) Close Ended fund cannot be bought and sold till the closure of term d) The bank in which the unit holder has an account ExplanationA close-ended scheme offers liquidity through a listing in a stock exchange.36 / 50What type of information is contained in the ‘Statement of Additional Information’ (SAI)? a) Applicable only for Open Ended Schemes b) Meant only for Close Ended Schemes c) Applicable for all schemes d) Meant only for one particular scheme ExplanationThe offer Document have two parts:a) Scheme Information Document (SID), which has details of the particular schemeb) Statement of Additional Information (SAI), which has statutory information about the mutual fund, that is offering the scheme.A single SAI is relevant for all the schemes offered by a mutual fund.37 / 50What types of expenses can the Asset Management Company (AMC) charge to a mutual fund scheme? a) Custodian and Fund Administrator fees b) AMC general administration expenses c) Rent of the AMC registered office d) Office salaries of fund management team ExplanationCustodian and Fund Administrator fees can be charged to the fund.38 / 50The sponsor must contribute a minimum ______ of the net worth of the Asset Management Company (AMC). a) 66% b) 40% c) 25% d) 50% ExplanationThe Sponsor is the main body that establishes the Mutual fund. The Sponsor can be compared to a promoter of a companyIt should be contributing a minimum of 40 per cent net worth of the AMC.39 / 50An investor with a long-term perspective, seeking capital appreciation, and possessing a high risk tolerance should consider investing in _________. a) Fixed Deposits b) Gold c) High interest bearing junk bonds d) Equities ExplanationAnalysis have shown that returns from Equities (Stocks) tend to be quiet higher over the long term period. However investing in stock market can also be risky.40 / 50Which of the following documents is accessible for inspection by the unit holder? a) Investment Management Agreement b) Custodial Services Agreement c) Trust Deed d) All of the above ExplanationUnit-holders have the right to inspect key documents such as the Trust Deed, Investment Management Agreement, Custodial Services Agreement, RTA agreement and Memorandum & Articles of Association of the AMC.41 / 50Sort these funds from the riskiest to the least risky. a) Capital protection oriented, Flexible allocation, Monthly income plan b) Monthly income plan, Fixed allocation, Capital protection oriented c) Flexible allocation, Monthly income plan, Capital protection oriented d) Monthly income plan, Capital protection oriented, Fixed allocation Explanation:The risk sequence is (highest risk to low risk) Flexible Allocation – Fixed Allocation – Monthly Income Plans – Capital Protection funds.42 / 50What is the investment goal of funds with the objective “To achieve growth through investments in stocks and related assets, while also generating income by investing in bonds and money market instruments”? a) Arbitrage Fund b) Equity Fund c) Money Market fund d) Balanced Fund Explanation:Balanced Fund provide investors simultaneous exposure to both equity and debt in one portfolio. A balanced scheme would have an investment objective like: “To achieve growth by investing in equity and equity-related investments, balanced with income generation by investing in debt and money market instruments”.43 / 50How many people can apply together in a mutual fund application at most? a) 6 b) 3 c) 4 d) 5 Explanation:The maximum number of joint holders allowed per mutual fund application is three.44 / 50Dividends declared on units that are under a lien will be paid to __________. a) the unit holder or lien holder as per the terms of issue of mutual fund b) the unit holder only c) the unit holder or lien holder as per the agreement d) the lien holder only Explanation:The dividend pay-outs declared on units under lien may be paid to the unitholder or the lender (lien holder) depending upon the agreement.45 / 50What is one benefit of investing in Mutual Funds? a) Portfolio Customization b) Control Over Costs c) Choice Overload d) Economies of scale Explanation: The large investment corpus of a mutual fund leads to various other economies of scale. For instance, costs related to investment research and office space get spread across investors. Further, the higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers.– Limitations of Mutual Fund– Lack of Portfolio Customization– A unitholder cannot influence what securities or investments the scheme would invest into. Choice Overload– There are multiple mutual fund schemes offered by several mutual fund houses and multiple options within those schemes which makes it difficult for investors to choose between them. No Control Over Costs– An individual investor has no control over the costs in a scheme.46 / 50What factors affect the risk profile of an investor? a) Only C b) A and C c) A and B d) All A, B and C Explanation:The investor’s risk appetite is a function of three things—the need to take risks, the ability to take risks, and the willingness to take risks. Thus, an understanding of the risk profile and the investment risks associated with various mutual fund schemes would be essential for deciding the asset allocation in an investor’s portfolio.47 / 50Which types of options are beneficial to exercise? a) At the Money b) In the Money c) Out of the Money d) None of the above Explanation:IN THE MONEY – A call option with a strike price that is lower than the market price of the underlying asset, or a put option with a strike price that is higher than the market price of the underlying asset. In the money means that your stock option is worth money and you can turn around and sell or exercise it. For example, consider a stock that is trading at Rs 100. For such a stock, call options with strike prices below Rs 100 would be In the money calls ( ie Rs 80, Rs 90 calls) while put options with strike prices above Rs 100 (Rs 110 , Rs 120 calls etc.)would be In the money puts. For easy understanding, those calls or puts which are profitable are In the Money.48 / 50What is the type of information that is excluded from the Statement of Additional Information (SAI)? a) Rights of Unit-holders b) Tax, Legal & General Information c) Investment Valuation Norms d) Current SIP returns of the mutual fund schemes Explanation:Statement of Additional Information (SAI), which has statutory information about the mutual fund or AMC, that is offering the scheme like the Constituents of the mutual fund, Rights of Unit-holders, Investment Valuation Norms, Rights of Unit-holders etc. It does not contain information on scheme returns etc. This information is available in the Mutual Fund Fact Sheet.49 / 50Is the following statement true or false: A mutual fund scheme specifies that it will utilize derivatives up to a maximum of 30% of its net assets, and this represents the scheme’s Investment Objective. a) True b) False Explanation:Investment objective defines the broad investment charter. Investment policy describes in greater detail, the kind of portfolio that will be maintained. The investment policy includes the scheme’s asset allocation and investment style.50 / 50Who is responsible for facilitating changes in details such as the unit holder’s address and bank account for mutual fund units held in a demat account? a) Depository participant b) R&T Agent c) Mutual Fund / AMC itself d) Stock Exchange Explanation:All details such as an address, bank account details, and nomination for the units held in DEMAT FORM is according to the information available in the depository’s records. Any changes to the said information have to be made by contacting his depository participant.Your score is 0% Restart quiz Exit
