Explanation:

1. Long-term capital loss can only be set off against long-term capital gain.

2. Short-term capital loss is to be set off against short-term capital gain or long-term capital gain

3. Capital loss, short-term or long-term, cannot be set off against any other head of income (e.g., salaries).

Thus, as per points 1 and 2, Long-term capital gains will be taxed after adjusting for both long-term and short-term capital loss.

Explanation:

If the investor invests in the US, and the US Dollar becomes stronger during the period of his investment, he benefits; if the US Dollar weakens (i.e., Rupee becomes stronger), he loses or the portfolio returns will be lower.

For eg. An investor invests Rs 80,000 to buy 1000 units of a US fund when the USDINR rate was Rs 80 per Dollar. If the US Dollar becomes stronger against Indian Rupee to say Rs. 82, he will receive Rs 82,000 when he repariates the amount to India. (Assuming the funds NAV remains the same).

Explanation:

A Compliance Officer signs a due-diligence certificate to the effect that all regulations have been complied with, and that all the intermediaries mentioned in the scheme related documents have the requisite statutory registrations and approvals. The Compliance Officer works closely with the Trustees on various compliance and regulatory issues. It is the responsibility of the compliance officer to report any issue of non-compliance directly and immediately to the trustees.

Explanation:

Conservative Hybrid Fund is an open-ended hybrid scheme investing predominantly in debt instruments. Investment in debt instruments shall be between 75 percent and 90 percent of total assets while investment in equity and equity instruments shall be between 10 percent and 25 percent of total assets.

Conservative Hybrid Fund can invest in only AAA-rated debt securities with a Macaulay duration of less than one year.

(The Macaulay duration of a bond is the weighted average maturity of cash flows, which acts as a measure of a bond’s sensitivity to interest rate changes. Bonds with a higher duration will carry more risk, and hence have a greater volatility in prices when compared to bonds with lower durations).

Explanation:

A Mutual Fund Scheme may be denominated in Indian Rupees (INR) which is different from the home currency for Foreign Portfolio Investors in the mutual fund units. The INR value of investments when translated into home currency by Foreign Portfolio Investors could be lower because of the currency movements.

The AMC does not manage currency risk for Foreign Portfolio Investors and it is the sole responsibility of the Foreign Portfolio Investors to manage or reduce currency risk on their own. The Sponsor/Fund/Trustees/ AMC are not liable for any loss to Foreign Investors arising from such changes in exchange rates.

Explanation:

Interval funds combine features of both open-ended and close-ended schemes. They are largely close-ended but become open-ended at pre-specified intervals. The benefit for investors is that, unlike in a purely close-ended scheme, they are not completely dependent on the stock exchange to be able to buy or sell units of the interval fund.

The options offered under a scheme allow investors to structure their investments in line with their liquidity preference and tax position.

Explanation:

SEBI has allowed a transaction charge per subscription of Rs. 10,000/- and above to be paid to distributors of the mutual fund products. The transaction charge, if any, is deducted by the AMC from the subscription amount and paid to the distributor; and the balance amount is invested.

However, there shall be no transaction charges on direct investments. Therefore the entire Rs. 25000 will be invested.

(In a Direct Plan, an investor has to invest directly with the AMC, with no distributor to facilitate the transaction)

Explanation:

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

Explanation:

At the time of empaneling distributors and during the period i.e., review process, mutual funds/AMCs have to undertake a due diligence process to satisfy ‘fit and proper’ criteria that incorporate, amongst others, the following factors:

a. Business model, experience and proficiency in the business.

b. Record of regulatory/statutory levies, fines and penalties, legal suits, customer compensations made; causes for these and resultant corrective actions taken.

c. Review of associates and subsidiaries on the above factors.

d. Organizational controls to ensure that the following processes are delinked from sales and relationship management processes and personnel:

i. Customer risk/investment objective evaluation.

ii. MF scheme evaluation and defining its appropriateness to various customer risk categories.

Explanation:

Index Funds are open-ended scheme replicating/tracking a specific index. The minimum investment in securities of a particular index (which is being replicated/ tracked) shall be 95 percent of total assets.

Explanation:

In addition to the investment and advisory fee, the AMC may charge the mutual fund scheme with recurring expenses which includes fees of custodians and fund administrators.

Explanation:

As per SEBI rules for Account Statements – The first Account Statement under Systematic Investment Plan (SIP) / Systematic Transfer Plan (STP) shall be issued within 10 working days of the initial investment/transfer.

Explanation:

Interest rate sensitivity is a measure of how much the price of a fixed-income asset will fluctuate as a result of changes in the interest rate environment.

Generally, the longer the maturity of the asset, the more sensitive the asset to changes in interest rates. The higher the duration of a bond, the more its prices will fall when interest rates rise and vice versa.

Explanation:

SEBI guidelines stipulate dividends can be paid out of distributable reserves. Mark-to-market gains are on paper – they are not realized. They will be realized when those investments are sold. So these cannot be included in distributable reserves. Also, Valuation gains are ignored. However, valuation losses need to be adjusted against the profits. This conservative approach to calculating distributable reserves ensures that dividend is paid out of real and realized profits, after providing for all possible losses.

Explanation:

Key Accounting and Reporting Requirements for mutual funds :

– The accounts of the schemes need to be maintained distinct from the accounts of the AMC. The auditor for the AMC has to be different from that of the schemes.

– NAV for equity and balanced funds is to be calculated up to at least 2 decimal places. (and not 4). NAV is to be calculated up to 4 decimal places in the case of index funds, liquid funds and other debt funds.

Explanation:

Function of AMFI includes all of the above except – Conducting a certification examination for Mutual Fund distributors.

National Institute of Securities Markets (NISM) conducts the certification examination for Mutual Fund distributors.

Explanation:

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

STT is applicable on sale/redemption of equity mutual funds.

Explanation:

SEBI Complaint Redress System (SCORES) is a web-based centralized grievance redress system of SEBI. SCORES enables investors to lodge, follow up on their complaints and track the status of redressal of such complaints online on the website – http://scores.gov.in.

Explanation:

Both taxes and loads reduce investment returns. Therefore, it is important for the distributor to consider these two aspects during repurchases/redemptions.

This means that when there is a need to withdraw money from a scheme, the distributor must assess the implications of capital gains tax and exit loads.

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.

Explanation:

Land and buildings are physical property.

Shares, Debentures, Bank Deposits, and F&O are all financial assets/instruments.

Explanation:

Liquid Fund is an open-ended liquid scheme whose investment is into debt and money market securities with a maturity of up to 91 days only.

An investor seeking the lowest risk ought to go for a liquid scheme. However, the returns in such instruments are low. These schemes are suitable for investors looking for a product to park their funds for very short periods (up to 91 days).

Explanation:

The interest rate payable on a debt security may be specified as a fixed rate, say 6 percent. Alternatively, it may be a floating rate i.e., a rate linked to some other rate that may be prevailing in the market, say the rate that is applicable to Gilt. Interest rates on floating rate securities (also called floaters) are specified as a “Base + Spread”

For example, 5-year G-Sec + 2 percent, this means that the interest rate that is payable on the debt security would be 2 percent above whatever is the rate prevailing in the market for Government Securities of 5- year maturity.

Explanation:

REQUIREMENT OF MINIMUM INVESTORS IN A SCHEME – The Scheme/Plan shall have a minimum of 20 investors and no single investor shall account for more than 25 percent of the corpus of the Scheme/Plan(s).

Explanation:

Only individual investors can make a nomination. Therefore, a Trust or Registered Company cannot have a nominee. Also, investments by minors cannot have a nomination.

Explanation:

An investor, who is not familiar with SCORES or does not have access to SCORES, can lodge complaints in physical form at any of the offices of SEBI. Such complaints are scanned and then uploaded in SCORES for processing.

Explanation:

Institutions that are into the distribution of mutual funds need to register with AMFI. The employees of these institutions need to clear the NISM Series V-A: Mutual Fund Distributors Certification Examination and obtain an Employee Unique Identification Number (EUIN) from AMFI.

Explanation:

A value fund is an open-ended equity scheme following a value investment strategy. Minimum investment in equity & equity-related instruments is 65 % of total assets. (Value investment style is an approach of picking up stocks, which are priced lower than their intrinsic value, based on fundamental analysis. When the market recognizes the intrinsic value, then the price would shoot up).

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 under-performs then the scheme’s returns is likely to be poor.

Explanation:

Choice of benchmark is simplest for an index fund. The investment objective is clear on the index that the scheme would track. That index would then be the benchmark for the scheme.

The benchmark should be calculated by an independent agency in a transparent manner, and published regularly. Most benchmarks are constructed by stock exchanges, credit rating agencies, securities research houses or financial publications.

Explanation:

The formula for calculating the future value of an investment made today is A = P * (1 + r) ^ n

Where A is the future value ; P is the present value ; r is the rate of inflation or interest rate ; n is the number of years

Thus the formula for Present value will be P = A /(1 + r) ^ n

Subsituting the above numbers : P = 2,00,000 / (1+0.07)^ 5

Explanation:

Appropriate Benchmarks :

Equity scheme – Sensex or Nifty

Long term debt scheme – 10 year dated GoI security

Short-term debt fund – 1 year T-Bill

Explanation:

Trail commission is calculated as a percentage of the net assets attributable to the units sold by the distributor.

A mutual fund distributor is paid trail commission for as long as the investor’s money is held in the fund.

Explanation:

The formula for calculating NAV is: (Total Assets minus Liabilities other than to Unitholders) / No. of outstanding Units

Total assets minus liabilities = 15 cr – 2 cr = Rs 13 cr

Number of outstanding units = Unit Capital / Face value = 10 cr / 10 = 1 crore outstanding units

NAV = 13 cr / 1 cr = Rs. 13

Explanation:

The inheritance laws are applicable to the mutual fund unit-holder.

A Power of Attorney holder cannot make a nomination.

Explanation:

As per SEBI rules – The mutual fund shall before the expiry of one month from the close of each half year, shall display the unaudited financial results on AMC website, the advertisement in this reference will be published by the fund in at least one English daily newspaper and one regional language newspaper.

Explanation:

Both taxes and loads reduce investment returns. Therefore, it is important for the distributor to consider these two aspects during repurchases/redemptions. This means that when there is a need to withdraw money from a scheme, the distributor must assess the implications of capital gains tax and exit loads.

When an investor wants to redeem from a scheme, the distributor must suggest redemption from the scheme with the minimum exit load.

Explanation:

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.

Capital gains are classified into two categories: short-term capital gains and long-term capital gains. Long-term is defined as a holding period of more than three years in the case of non-equity-oriented funds (Debt funds etc.), whereas the same is more than 1 year in the case of equity-oriented funds.

Explanation:

As per SEBI rules – The return is calculated using CAGR if the holding period is over one year and simple absolute returns for less than one year.

The returns published in a mutual fund advertisement would be without factoring in the entry or exit load.

The Simple Return can be calculated with the following formula :

(Sale price – Cost price / Cost price ) x 100

Explanation:

The formula to calculate the Future Value is : A = P * (1 + r) ^ n

Where A is the future value ; P is the present value, r is the rate of inflation and n is the number of years.

Therefore, inflation rate is important for estimating the future value.

Explanation:

An SIP can be used to initiate a fresh purchase in a scheme and open a folio.

It can be used to make additional purchases in an existing folio. An SIP can also be initiated during a New Fund Offer (NFO).

A Close-end fund does not have SIP facility.

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 reinvested in the same scheme and additional units are allotted to the investor

In a growth option, the dividend is not declared. Therefore, nothing is received in the bank account.

Explanation:

Exit load is not applicable on purchase of units. Its applicable only on sale of units.

The units will be allotted to Mr. Suresh as per the NAV which is Rs. 12.

Amount invested is Rs 30,000

Units allotted = Amount Invested / NAV

= 30000 / 12

= 2500

Explanation:

Any cost is a drag on investor’s returns. Investors need to be particularly careful about the cost structure of debt schemes, because in the normal course, debt returns can be much lower than equity schemes. So expense ratio is more critical for debt funds.

When the limits are not tightly defined, the fund manager may assume an active role in managing the risk, e.g. an ultra-short term debt fund may take credit risk, since the SEBI regulations only define the permitted maturity profile, which indicates how much interest rate risk the scheme can take.

Explanation:

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.

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.

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.

Explanation:

As per SEBI circular in 2021 – KIM shall be updated at least once in half-year, within one month from the end of the respective half-year, based on the relevant data and information as at the end of September and March, and shall be filed with SEBI forthwith through electronic mode only.

Explanation:

The sector funds invest in stocks belonging to just one sector of the economy, in order to take advantages within the said sector. The examples of such funds are: Pharma fund, or Banking fund.

Sector funds are risky because of the concentration in one sector. If the sector under-performs then the scheme’s returns is likely to be very poor.

Explanation:

AMC is expected to make a continuous effort to remind the investors through letters to claim their dues.

The Annual Report has to mention the unclaimed amount and the number of such investors for each scheme.

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 daily, the Total expense ratio (scheme-wise, date-wise) of all schemes.

Explanation:

A portfolio consists of various types of investment products. It is influenced by the investment policy includes the scheme’s asset allocation and investment style. Also equity returns are a function of sector and stock selection which will influence the portfolio performance.

Explanation:

As per the SEBI Advertisement Guidelines for Mutual Funds, when the mutual fund scheme has been in existence for more than THREE years :

– Performance advertisement of mutual fund schemes shall be provided in terms of CAGR for the past 1 year, 3 years, 5 years and since inception.

– Point-to-point returns on a standard investment of Rs. 10,000 shall also be shown in addition to CAGR for the scheme to provide ease of understanding to retail investors.

Explanation:

One of the most popular documents from the mutual fund is the monthly Fund Factsheet. This document is extensively used by investors, fund distributors, fund rating agencies, research analysts, media and others to access information about the various schemes of the mutual fund.

Explanation:

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

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

Explanation:

NRIs, HUFs and HNIs are considered as individual investors.

Companies are non-individual investors ie. Institutional investors.

Explanation:

When an investor sells units of an equity fund in the stock exchange, or offers them for re-purchase to the fund, he/she will have to incur Securities Transaction Tax (STT).

STT is charged at 0.001% on such sale transactions.

Explanation:

The information to be provided for mutual fund investments includes the name(s), nationality, identity proof and KYC compliance, signatures of all the holder(s), address and communication details of the first holder.

In case of NRI investors, an overseas address must also be provided.

Explanation:

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

Explanation:

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

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

Explanation:

Ms. Priya redeems 2000 units at an NAV of Rs 13 = 2000 x 13 = 26000

Exit load at 1% of 26000 = 260

Redemption value = 26000 – 260 = Rs. 25740

Explanation:

As per SEBI Fair Valuation Principles –

The responsibility of true and fairness of valuation of assets/securities and correct NAV shall be of the Asset management company (AMC), irrespective of disclosure of the approved valuation policies and procedures i.e., if the established policies and procedures of valuation do not result in fair/ appropriate valuation, the asset management company shall deviate from the established policies and procedures in order to value the assets/ securities at fair value.

Explanation:

As per Investors’ Rights & Obligations :

Right to Inspect documents – Unit-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.

Explanation:

Profitability of gold mining companies is linked to several factors.

For eg. – When gold metal price increases, gold mining companies with large reserves of gold can appreciate

If there are concerns about a company’s management the share prices may see a decline irrespective of the price of gold.

Explanation:

While an investor is expected to read all the scheme related documents, circulation of the same along with the application forms is too difficult and costly, especially if the printed forms are to be distributed. In order to ensure the investor gets access to sufficient information in spite of such a constraint, a Key Information Memorandum (KIM) is mandatorily circulated along with the application form.

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

Explanation:

It is mandatory for all investors in the securities market, including the mutual fund investors, to be KYC (Know Your Customer) compliant under the provisions of the Prevention of Money Laundering Act.

If the investor has to go through the KYC process with each mutual fund, then it would become a repetitive process. SEBI issued regulations for registration of central KYC Registry Agencies (KRAs). This introduced a common KYC for investors investing in securities markets.

Explanation:

Purchase request in a MF scheme can only be given specifying the amount the investor will be investing. The units allotted will depend on the NAV of the date of allotment.

Re-purchase (Sale) request can be given in Units to be sold or Amount required.

Explanation:

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

Real estate is a less liquid asset class. The intermediation chain of real estate agents is largely unorganized in India. . Regulatory risk is high in real estate, as is the risk of litigation and other encumbrances. The transparency level is low even among the real estate development and construction companies.

Explanation:

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

Therefore, some additional documents are essential and one of them is – Authorisation for the investing institution to invest. This is typically in the form of a Board Resolution.

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.

Explanation:

Among the equity funds, some schemes may have a portfolio concentrated in a few stocks. Such scheme category is known as “Focused funds”. .

These schemes carry higher risk than a diversified fund, due to higher concentration among smaller number of stocks.

Explanation:

The ARN code is given by the Association of Mutual Funds in India (AMFI)

After obtaining the NISM VA certification and completing KYD requirements, one has to register with AMFI. On registration, AMFI allots an AMFI Registration Number (ARN).

Explanation:

The applicable guidelines for mutual funds are set out in SEBI (Mutual Funds) Regulations, 1996. The operations of the mutual fund trust are governed by a Trust Deed and SEBI has laid down various clauses that need to be part of the Trust Deed.

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.

AMFI is not a regulatory body. Its main objective is to define and maintain high professional and ethical standards in all areas of operation of the mutual fund industry.

Explanation:

The Income distribution cum capital withdrawal (dividend) pay-out option is for investors wanting a regular income.

Systematic Withdrawal Plan(SWP) is a facility which allows an investor to withdraw a fixed amount at pre-determined intervals.

Therefore an Income distribution cum capital withdrawal (dividend) pay-out option is similar to SWP. The difference is that the dividend is paid only when the fund has a surplus amount and in SWP the amount is compulsarily paid.

(The dividend pay-out plan is renamed as pay-out of income distribution cum capital withdrawal, dividend re-investment plan is renamed as reinvestment of income distribution cum capital withdrawal option followed by renaming of dividend transfer plan to transfer of income distribution cum capital withdrawal plan)

Explanation:

Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to charge certain operating expenses for managing a mutual fund scheme – such as sales & marketing / advertising expenses, administrative expenses, transaction costs, investment management fees, registrar fees, custodian fees, audit fees – as a percentage of the fund’s daily net assets.

All such costs for running and managing a mutual fund scheme are collectively referred to as ‘Total Expense Ratio’ (TER)

The regulatory limits of TER that can be incurred/charged to the fund by a Mutual Fund AMC have been specified under Regulation 52 of SEBI Mutual Fund Regulations.

Explanation:

The risk levels in different categories of mutual fund schemes can be understood with the help of product labelling of Mutual Funds.

SEBI had introduced product labelling of mutual funds to address the issue of mis-selling and to provide investors an easy understanding of the kind of product/scheme they are investing in and its suitability to them.

All the mutual funds were required to ‘Label’ their schemes on the parameters such as – Nature of scheme, Investment objective, Level of risk depicted by colour code boxes etc.

Explanation:

Recency 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 leads people to prefer safe assets. Similarly, a bull market makes people allocate more than what is advised for risky assets.

Explanation:

ETFs and Close-end funds are listed on the stock exchanges and investors can sell their units their. They need not give redemption request to the AMCs. So, the fund manager need not maintain liquid funds for Close-end funds and ETFs.

Open-end funds have to keep a minimum stipulated per cent of their corpus in liquid assets. This has been done to ensure that there is enough liquidity available with the open-ended funds to meet redemption needs.

Explanation:

Time stamping for financial transactions like purchase and redemptions etc. is very crucial as it determines the NAV at which the transaction will take place.

Time stamping for non-financial transactions like the change of address, investor’s acknowledgement etc. is not crucial. Only date stamping is important for such non-financial transactions.

Explanation:

Beta is a commonly used risk measure and calculates the relative volatility of a stock or Mutual Fund’s returns as against its benchmark.

For example, if the Beta of a Mutual Fund scheme is 1, it means the fund moves in line with the benchmark.

Likewise, say the Beta of a fund is higher than 1. Assume it is 1.5. So, if the NIFTY 50 jumps by 1%, the fund benchmarked against NIFTY 50 is likely to go up by 1.5%.

Explanation:

Conservative Hybrid Fund is an open-ended hybrid scheme investing predominantly in debt instruments.

Investment in debt instruments shall be between 75 percent and 90 percent of total assets while investment in equity and equity instruments shall be between 10 percent and 25 percent of total assets.

Explanation:

Index Funds/Exchange Traded Fund are open-ended scheme replicating/tracking a specific index. The minimum investment in securities of a particular index (which is being replicated/ tracked) shall be 95 percent of total assets.

Explanation:

The offer document of a mutual fund cleary states that – ‘Mutual fund investments are subject to market risks’.

When the fund invests in equity market where prices fluctuate a lot, the NAV of the fund is likely to witness huge fluctuations. So the AMC nor SEBI nor anyone else can offer a remedy. The fluctuations are a part of equity markets.

Explanation:

In a Dividend Re-investment option, the investor does not receive the dividend in his bank account; the amount is reinvested in the same scheme and additional units are allotted to the investor.

Explanation:

For investments in mutual funds, remittance can be made directly to the bank account of the scheme through Real Time Gross Settlement (RTGS)/National Electronic Funds Transfer (NEFT) facilities (for transfers within India) or SWIFT transfer (for transfers from abroad).

Explanation:

Only individual investors can make a nomination.

Explanation:

The responsibility of true and fairness of valuation and correct NAV shall be of the Asset Management Company, irrespective of disclosure of the approved valuation policies and procedures.

Disclosure of the valuation policy and procedures approved by the Board of the AMC shall be made in Statement of Additional Information, on the website of the AMC to ensure transparency of valuation norms to be adopted by asset management company.

Explanation:

An Gilt fund is open-ended debt scheme investing in government securities across maturity. The minimum investment in G-secs is defined to be 80 percent of total assets (across maturity).

Explanation:

SEBI has mandated AMCs to put in place a due diligence process to regulate distributors who
qualify any one of the following criteria:
a. Multiple point presence (More than 20 locations)
b. AUM raised over Rs. 100 crore across industry in the non-institutional category but including high networth individuals (HNIs)
c. Commission received of over Rs. 1 Crore p.a. across industry
d. Commission received of over Rs. 50 Lakhs from a single mutual fund

In the above question, the mutual fund distributor has raised an AUM of Rs 60 crores across industry in the non-institutional category, which is less than Rs 100 crores as per point (a) above.

Explanation:

Securities Transaction Tax is not applicable to transactions in debt securities or debt mutual fund schemes.

Fixed Maturity Plans are close-ended debt funds and STT is not applicable on them.

Explanation:

Some of the key items contained in the KIM are as follows:
• Name of the AMC, mutual fund, Trustee, Fund Manager and scheme
• Dates of Issue Opening, Issue Closing and Re-opening for Sale and Re-purchase
• Investment Objective
• Asset allocation pattern of the scheme
• Risk profile of the scheme i.e. a snapshot of the risk to the principal invested, the suitable investment horizon for investment and the type of securities that the scheme will invest in.
• Plans and Options
• Benchmark Index
• Dividend Policy
• Performance of scheme and benchmark over last 1 year, 3 years, 5 years and since inception.
• Expenses of the scheme
• Information regarding registration of investor grievances

Explanation:

Although equities as an asset class are volatile investments but over a long duration of time they tend to give good growth.

Income funds, Long duration funds and Liquid funds are all debt funds the returns from them will only be the interest received. They are more for security and steady returns and not for growth.

Explanation:

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

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.

Explanation:

Equity funds generally grow in value over a period of time and their investment objective is – To generate capital appreciation/income from a portfolio, predominantly invested in equity and equity related instruments

Explanation:

Earlier, the Mutual Fund schemes were benchmarked to the Price Return variant of an Index (PRI). PRI only captures capital gains of the index constituents. Now the mutual fund schemes are benchmarked to the Total Return variant of an Index (TRI). The Total Return variant of an index takes into account all dividends/interest payments that are generated from the basket of constituents that make up the index in addition to the capital gains.

Such a change was required to ensure that the performance comparison is fair.The shift to TRI has been
another one in the direction of increasing transparency of mutual funds.

Explanation:

Gold price would be the benchmark for Gold Exchange Traded Funds (ETFs)

Explanation:

Model Risk is the risk of mis-pricing or improper valuation of derivatives.

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.

Explanation:

While the SID, SAI and KIM need to be updated periodically, the interim changes are updated through the issuance of Addendum.

The addendum is considered to be a part of the scheme related documents, and must accompany the KIM.

Explanation:

International Equity funds :
When an Indian investor invests in equities abroad, he is essentially taking two exposures:
• An exposure on the international equity market.
• An exposure to the exchange rate of the rupee.

If the investor invests in the US, and the US Dollar becomes stronger during the period of his investment, he benefits; if the US Dollar weakens (i.e. Rupee becomes stronger), he loses or the portfolio returns will be lower.