Certifications Mock Tests Study Material Menu Certifications Mock Tests Study Material NISM Series V-A: Mutual Fund Distributors Mock Test (Set 4) /50 NISM Series V-A: Mutual Fund Distributors Mock Test (Set 4) 1 / 50 1. What 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. 2 / 50 2. True 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. 3 / 50 3. Under 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. 4 / 50 4. What 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. 5 / 50 5. What 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. 6 / 50 6. True 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. 7 / 50 7. What 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. 8 / 50 8. Who 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) 9 / 50 9. What 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. 10 / 50 10. If 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 150 11 / 50 11. In the scenario where Mr. X invests in a liquid fund at 4 pm, and the funds are not available for investment on the same day, what would be the relevant Net Asset Value (NAV) for the allotment of units in this case? a) Closing NAV of the day preceding the day funds are available b) Closing NAV of the day the funds are available c) Closing NAV of the day immediately preceding the date of application d) Closing NAV of the day of the date of application ExplanationFor Liquid Funds the cut-off time is 1.30 pmIf application received after cut off time on a day and funds are available for utilisation on the same day whether intra-day or otherwise, the closing NAV of the day immediately preceding the next business day is applicable.If application received up to the cut off on a day and funds are available for utilisation before the cut-off time, without availing any credit facility, whether intra-day or otherwise then closing NAV of the day immediately preceding the day of the receipt of application is applicable.Irrespective of the time of receipt of applications, where the funds are not available for utilisation before the cut-off time, without availing any credit facility, whether intra- day orotherwise, the closing NAV of the day immediately preceding the day on which the funds are available for utilisation. 12 / 50 12. True or false: A financial planner can use any of the available risk profiling tools on the internet, as risk profiling is simply a process. a) True b) False ExplanationRisk profiling is an approach to understand the risk appetite of investors – an essential pre-requisite to advise investors on their investments.There are various factors which have influence on risk appetite.Internet risk profiling tools are useful pointers, but it is important to understand the robustness of such tools before using them in the practical world. Some of the tools featured in websites have their limitations. So these tools cannot be always used. 13 / 50 13. Which of these is a key advantage of Exchange Traded Funds (ETFs) ? a) ETFs offer tax benefits b) ETFs generally give higher returns than normal funds c) Investors can buy or sell ETFs on a stock exchange at prices which are close to current valuations d) Investors can control the money they have invested as to where the ETF can invest ExplanationExchange Traded Funds (ETFs) are passive funds whose portfolio replicates an index or benchmark such as an equity market index or a commodity index.The units of the ETF are traded at real time prices that are linked to the changes in the underlying index. 14 / 50 14. The unaudited accounts of the Mutual Fund schemes need to be disclosed biannually, _______ . a) On the AMFI website b) On the AMC website c) In a minimum of 2 newspapers d) Both – on the AMC website and in a minimum of 2 newspapers ExplanationAs 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 having nationwide circulation and in a newspaper having wide circulation published in the language of the region where the head office of fund is situated. 15 / 50 15. ‘Stock Picking’ approach is similar to _______ . a) Growth style of investment b) Blended style of investment c) Bottom up approach of investment d) Top down approach of investment ExplanationValue investment style is an approach of picking up stocks, which are priced lower than their intrinsic value, based on fundamental analysis.A bottom-up approach analyses the company-specific factors first and then evaluates the industry factors and finally the macro-economic scenario and its impact on the companies that are being considered for investment. Stock selection is the key decision in this approach.(Growth investment style entails investing in high growth stocks i.e. stocks of companies that are likely to grow much faster than the market) 16 / 50 16. What special provision is applicable to Systematic Investment Plans when the yearly investment falls below Rs 50,000? a) Photo identity is not required b) PAN Card is not required c) KYC is not required to be done d) None of the above ExplanationProviding Permanent Account Number (PAN) is compulsory for all mutual fund investments. Exception has been made for Micro-SIPs i.e. SIPs where annual investment (12 month rolling or April-March financial year) does not exceed Rs 50,000. 17 / 50 17. The first step in developing a model portfolio is _______ . a) Selection of the Mutual Fund schemes b) Setting of goals c) Deciding the size of portfolio d) None of the above ExplanationSteps for developing a Model Portfolio –a. Enable your investor identify his investment needs and goals.b. Understand the various financial products – their risk, return, liquidity and maturity profile.c. Combine the features of financial products with the investors’ financial needs and determine appropriate mix of investments, technically referred to as asset allocation.d. Suggest suitable mutual fund schemes within the asset choices. 18 / 50 18. Which cycle would a financial planner exclude from consideration among the following options? a) Karma cycle b) Life cycle c) Business cycle d) Wealth cycle ExplanationKarma Cycle is related to birth and rebirth of an individual and is not related to financial planning. 19 / 50 19. What does it indicate when a portfolio has a beta value below 1? a) Same risk as that of market b) Less risky than market c) Highly risky as compared to market d) More risky than market ExplanationBeta measures the fluctuation in periodic returns in a scheme, as compared to fluctuation in periodic returns of a diversified stock index over the same period.The diversified stock index, by definition, has a Beta of 1. Companies or schemes or portfolios, whose beta is more than 1, are seen as more risky than the market. Beta less than 1 is indicative of a company or scheme that is less risky than the market. 20 / 50 20. Indentify which of these statements is / are FALSE ?A) Banks and mutual funds both offer the Gold Deposit SchemeB) Gold ETFs are closed ended funds a) Only B is false b) Only A is false c) Both A and B are false ExplanationThe Gold deposit scheme is offered only by banks to mobilise the idle gold in the country and put it in productive use and to provide the customer an opportunity to earn interest on the idle gold holdings.All Exchange Traded Fund are open-ended schemes. 21 / 50 21. An investor in debt oriented mutual fund receives the benefit of ___________ on long-term capital gains.A) IndexationB) Tax exemption a) Only A b) Only B c) Both A and B ExplanationIndexation means that the cost of acquisition or the cost of purchase is adjusted upwards to reflect the impact of inflation.An investor in long term debt funds receives the benefit of indexation buy they are not exempted from paying long term capital gains tax. 22 / 50 22. What is the Total Expense Ratio for an Index fund or an ETF? a) Total Expense Ratio shall not exceed 2.00 per cent of the daily net assets. b) Total Expense Ratio shall not exceed 1.00 per cent of the daily net assets. c) Total Expense Ratio shall not exceed 0.50 per cent of the daily net assets. d) Total Expense Ratio shall not exceed 1.5 per cent of the daily net assets. ExplanationIn case of an Index fund scheme or Exchange traded fund (ETF), the total expense ratio of the scheme including the investment and advisory fees shall not exceed 1.00 per cent of the daily net assets. 23 / 50 23. Which document should an investor in a Multicap Fund consult if they wish to understand the industry-wise allocation of the funds? a) SID and SAI b) Annual accounts of the AMC c) Fund Factsheet d) Investment management agreement ExplanationOne of the most popular document 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.In the factsheet, security wise as well as industry / sector wise allocation is provided for equity schemes. 24 / 50 24. What is not encompassed in commodities as an asset class? a) Industrial Metals b) Food Crops c) Real Estate d) Gold ExplanationReal Estate is not a commodity as it cannot be standardised.Food crops ( Rice, wheat), Industrial Metals (Copper, Nickel) and Gold are all commodities. 25 / 50 25. Is it true or false that the maximum rate at which an Asset Management Company (AMC) can recover the investment management and advisory fee on unclaimed amounts in schemes is 2 percent per annum? a) True b) False ExplanationAMC is expected to make a continuous effort to remind the investors through letters to claim their uncliamed amounts.AMC can recover investment management and advisory fees on management of these unclaimed amounts, at a maximum rate of 0.50 percent per annum. 26 / 50 26. When an investor needs to change their default bank account with a mutual fund, they must inform the KYC registration agency accordingly. Is it True or False? a) True b) False ExplanationMutual funds provide investors the facility to register multiple bank accounts to facilitate receiving the redemption, dividends and any other payouts from the fund. An individual investor can register up to five bank accounts. One of the accounts is designated as the default account, and unless otherwise specified all credits are made to this account by the mutual fund.Investors can change the default bank account at any time by directly instructing the Mutual Fund / AMC to do so. 27 / 50 27. Which of these are considered as Institutional group of investors? a) Non-Resident Indians (NRIs) b) Hindu Undivided Families (HUFs) c) Foreign investors d) Companies ExplanationNRIs, HUFs and Foreign investors are considered as individual investors.Companies are non-individual investors ie. Institutional investors.(Foreign investors: They can invest in equity schemes of MFs registered with SEBI after completing the KYC process) 28 / 50 28. True or False: The certification examination for Mutual Fund distributors is conducted by the Association of Mutual Funds in India (AMFI). a) True b) False ExplanationNational Institute of Securities Markets (NISM) conducts the certification examination for Mutual Fund distributors. 29 / 50 29. What is the range of investment in debt instruments allowed for a Conservative Hybrid Fund? a) Between 75 percent and 90 percent of total assets b) Between 50 percent and 75 percent of total assets c) London – Paris pricing systemBetween 70 percent and 80 percent of total assets d) Between 80 percent and 95 percent of total assets ExplanationConservative 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. 30 / 50 30. True or False: The returns presented in a mutual fund advertisement do not include the consideration of entry or exit load. a) False b) True ExplanationThe returns published in a mutual fund advertisement would be without factoring the entry or exit load, as may be applicable. 31 / 50 31. In a mutual fund, who is responsible for making investment decisions with regard to investing the funds of investors? a) The Custodians or Registrars b) The Sponsors c) The Asset Management Company d) The Trustess ExplanationFund management is the most critical function in an Asset Management Company. The main function of this team is to invest the investors’ money in line with the stated objective of the scheme and to manage the same effectively. 32 / 50 32. Who exclusively sells mutual fund schemes from a single mutual fund house? a) Institutional sales team of the Asset Management Company b) Independent financial advisor c) Banks d) Distribution Company ExplanationAn independent financial advisor, a bank or a distribution company will sell mutual fund schemes of various mutual fund houses as per their clients requirements and other considerations.However, an institutional sales team of an Asset Management Company will sell schemes only of the single mutual fund house which has appointed it. 33 / 50 33. Identify the FALSE statement/s:1. For equity mutual funds schemes which are actively managed, the net asset value need NOT be declared up to 4 decimal points2. Each mutual fund scheme’s account is combined with the accounts of the Asset Management Company a) Only 2 is false b) Both 1 and 2 are false c) Only 1 is false d) None of the above ExplanationKey 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. 34 / 50 34. When should the Net Asset Value (NAV) be revealed in the context of segregated portfolios? a) Daily basis after the credit event b) Weekly basis after the credit event c) Monthly basis after the credit event d) None of the above ExplanationTo ensure fair treatment to all investors in case of a credit event and to deal with the liquidity risk, in December 2018, SEBI permitted creation of segregated portfolio of debt and money market instruments by mutual funds schemes. “Segregated portfolio” means a portfolio, comprising of debt or money market instrument affected by a credit event, that has been segregated in a mutual fund scheme.The Net Asset Value (NAV) of the segregated portfolio shall be declared on a daily basis. 35 / 50 35. Identify the correct statement with respect to top performing scheme within a category _______ . a) A top performing scheme will be the worst performer in the next years to come b) A top performing scheme may or may not be the top performer in the next years to come c) A top performing scheme is the best choice for an investor to invest his funds d) A top performing scheme will remain the top performer for a long period of time ExplanationAs experience has shown time and again, the top performers during one period may not necessarily remain as a top performer forever or near the other top performers. In such a case, simply buying into a scheme due to good returns in the recent past may not be a wise approach. 36 / 50 36. When a Non-Resident Indian (NRI) applies for mutual fund units, he/she must also furnish ________ in addition to other details when completing the application form. a) Investments made in the last one year b) Countries of residence in the last one year c) Current overseas address d) Passport details ExplanationIn case of NRI investors, an overseas address must also be provided along with other information. 37 / 50 37. Is it true or false that a Multi-Cap fund can adopt the Nifty 500 index as its benchmark? a) True b) False ExplanationA Multi-Cap fund invests in Large Cap, Mid Cap and Small Cap stocks as per proportions stipuated by SEBI.The Nifty500 index represents top 100 large cap companies, top 150 Mid-cap companies and top 150 small cap companies. Therefore, it can be a good benchmark for a Multi-Cap fund. 38 / 50 38. Identify the TRUE statement/s :1. Once the minor becomes major, financial transactions are disallowed in their account2. The Indian inheritance laws are NOT applicable to mutual fund unit holders3. A Power of Attorney (POA) cannot make or change nominations in a mutual fund a) Only 1 and 3 are true b) Only 2 and 3 are true c) Only 1 and 2 are true d) All 1,2 and 3 are true ExplanationOnce the minor becomes major, financial transactions are disallowed in their account. No debits or redemptions can be made in bank accounts; mutual funds folios or demat account of minors-turned-major.The inheritance laws are applicable to the mutual fund unit-holder.A Power of Attorney holder cannot make a nomination. 39 / 50 39. What is the most critical factor for comparing the performance of liquid funds? a) The Expense Ratio b) The NAV c) The Maturity d) The taxation aspect ExplanationComparing the Expense Ratio of different schemes is imperative for investors looking for the best liquid mutual fund. These schemes more or less earn similar returns. Hence, a fund with a high expense ratio will significantly reduce the returns generated.Therefore, one should invest in those liquid funds which have the lowest expense ratio. 40 / 50 40. What is the present Net Asset Value (NAV) of a Mutual Fund scheme with a portfolio stock market value of Rs 12 crore, current liabilities of Rs 7 crore, unit capital of Rs 10 crore, and a face value per unit of Rs 10? a) Rs 10 b) Rs 5 c) Rs 19 d) Rs 12 ExplanationCurrent Valuation is Rs 12 cr less Rs 7 cr (current liability) = Rs 5 crNumber of outstanding units = Unit Capital / Face value = 10 cr / 10 = 1 crore outstanding unitsThe formula for calculating NAV is: (Total Assets minus Liabilities other than to Unitholders) / No. of outstanding Units= 5 cr / 1 cr = Rs. 5 41 / 50 41. ___________ are responsible for the implementation of uniform KYC. a) Registrar and Transfer Agents b) Mutual Funds c) Mutual Fund Distributors d) KYC Registration Agencies ExplanationIt 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. 42 / 50 42. Where can one find the performance data for all schemes across the mutual fund industry? a) The Scheme Information Document (SID) b) The Fund Fact Sheet c) AMFI Website d) Key Information Memorandum (KIM) ExplanationEach AMC is required to publish a scheme performance dashboard on its website, and update it on a regular basis. The scheme performance data is also available on the AMFI websiteAMFI website (www.amfiindia.com) carries the performance data of all the mutual fund schemes.This is an exhaustive resource and one can access the same for various different periods, and fund categories. 43 / 50 43. True or False: The Scheme Information Document (SID) does not provide information on the names of all the securities in the mutual fund scheme portfolio. a) True b) False ExplanationThe names of securities in the scheme’s portfolio is contained in the Fund fact sheet and not in the SID. 44 / 50 44. SEBI’s web-based centralized grievance redress system is known as ______ . a) WINNER b) MATCH-UP c) SCORES d) REFREE ExplanationSEBI 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 45 / 50 45. At what percentage is the Securities Transaction Tax (STT) imposed on the repurchase of units (by the mutual fund) of equity-oriented schemes (delivery based)? a) 0.025 b) 1% c) 0.001 d) NIL ExplanationTRANSACTION / STT (%) / PAYABLE BYPurchase of units of equity oriented mutual fund / NilSale of units of equity oriented mutual fund (delivery based) / 0.001 / SellerSale of equity shares, units of business trust, units of equity oriented mutual fund (non- delivery based) / 0.025 / SellerSale of units of an equity oriented mutual fund to the mutual fund / 0.001 / Seller 46 / 50 46. Determine the Average Holding Period given a Portfolio Turnover Ratio of 50 percent. a) 15 Years b) 3.5 Years c) 2 Years d) 50 months ExplanationAverage Holding Period = 12 (months) / Portfolio Turnover RatioHere the portfolio turnover ratio is 50 percent i.e. 50/100 = 0.5Average Holding Period = 12 / 0.5 = 24 months = 2 Years 47 / 50 47. Which of the following is excluded from the ‘Fundamental Attributes – Terms of Issue’ of a mutual fund scheme? a) Liquidity provisions such as listing, repurchase, redemption b) Any safety net or guarantee provided c) Aggregate fees and expenses charged to the scheme d) Exit Loads ExplanationWithin the Scheme Information Document, there is an important section on fundamental attributes of a scheme with following parameters on terms of issue :Terms of Issue –1. Liquidity provisions such as listing, repurchase, redemption.2. Aggregate fees and expenses charged to the scheme.3. Any safety net or guarantee provided. 48 / 50 48. True or False: To end the appointment of an Asset Management Company, approval from 90% of the unitholders is required. a) True b) False ExplanationTo terminate the appointment of an Asset Management Company, 75% of the unitholders should approve this termination. 49 / 50 49. Recency bias is applicable only to negative events – State whether True or False? a) True b) False 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 leads people to prefer safe assets. Similarly, a bull market makes people allocate more than what is advised for risky assets. 50 / 50 50. Which document is NOT required for the KYC process by a mutual fund investor? a) PAN Card b) Proof of Identity c) Proof of Address d) Proof of Income ExplanationFor the KYC process (for establishing proof of identity and address) following documents are required: – Permanent Account Number (PAN) Card– Proof of Address such as Passport, Voter’s ID, etc. Your score is 0% Restart quiz Exit
