Certifications Mock Tests Study Material Menu Certifications Mock Tests Study Material NISM Series V-A: Mutual Fund Distributors Mock Test (Set 6) /50 NISM Series V-A: Mutual Fund Distributors Mock Test (Set 6) 1 / 50 1. What is negative Alpha? a) It is indicative of outperformance by the fund manager b) It is indicative of under-performance by the fund manager c) It is indicative of over-hedging by the fund manager d) It is indicative of under-hedging by the fund manager Explanation:The difference between a scheme’s actual return and its optimal return is its Alpha—a measure of the fund manager’s performance.Alpha, therefore, measures the performance of the investment in comparison to a suitable market index. Positive alpha is indicative of outperformance by the fund manager; negative alpha might indicate under-performance. 2 / 50 2. A mutual fund scheme’s NAV is said to be cum-dividend from the ____________. a) Date the dividend is announced till it is paid out b) Date the dividend is paid c) Date unit holders approve the dividend d) Date of notice of meeting Explanation:When a dividend is announced, and until it is paid out, it is referred to as cum-Dividend NAV. 3 / 50 3. Segregated portfolio means _____________. a) A portfolio which is kept aside for a ‘rainy day’ or contingency fund b) A portfolio which is created out of debt or money market securities affected by a credit event c) A portfolio which is left after removing poor credit quality papers d) All of the above Explanation:To 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. 4 / 50 4. Long Duration debt scheme invests in debt instruments with Macaulay duration ____________. a) Between 1 year and 3 years b) Below 1 year c) Greater than 7 years d) Between 3 years and 4 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. 5 / 50 5. Financial goals have to be defined in terms of ____________. a) Time horizon and external funds required b) Costs and economic policies c) Aspiration and desires d) Time horizon and money needed Explanation:The 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 / 50 6. Which of the following is True about ETF a) Cost effective than Index Funds b) NAV Closely tracks live market movement c) Brokerage cost to be paid while investing d) All of the above Explanation:ETFs (Exchange-Traded Funds) are known for being cost-effective compared to index funds (a), as they generally have lower expense ratios. Their NAV (Net Asset Value) closely tracks live market movement (b) because ETF shares are traded on stock exchanges throughout the day. Additionally, investors typically incur brokerage costs while investing in ETFs (c) due to buying and selling shares on the stock exchange. Therefore, all the statements mentioned are true about ETFs. 7 / 50 7. Performance of fund must always be measured relative to the__________ a) Index b) Benchmark c) Asset Class d) Investment objective Explanation:The performance of a fund should be measured relative to its benchmark. A benchmark is a standard or reference index that represents the market or asset class the fund is invested in. Comparing the fund’s performance to its benchmark provides investors with insights into how well the fund is performing relative to the market or its intended investment strategy. This helps investors assess whether the fund is meeting its objectives and expectations. 8 / 50 8. The cut-off time for liquid fund redemptions is _________. a) 12:00 PM b) 3:00 PM c) 2:00 PM d) 3.30 PM Explanation:The cut-off time for liquid fund redemptions is typically 3:00 PM. This means that redemption requests received before 3:00 PM on a business day will be processed at the NAV (Net Asset Value) of the same day. Requests received after this cut-off time will be processed at the NAV of the next business day. This ensures fairness and uniformity in processing redemption requests for liquid funds. 9 / 50 9. Trail commission is paid on the basis of: a) Market value of the invested amount b) Minimum value of the invested amount c) Original invested amount d) Face value of the invested amount Explanation:Trail commission, also known as trail fees, is paid to intermediaries (such as distributors or financial advisors) based on the market value of the invested amount in mutual funds. This commission is paid periodically as long as the investor remains invested in the fund. It is calculated as a percentage of the assets under management (AUM) or the market value of the invested amount, rather than being based on the original or face value of the invested amount. 10 / 50 10. Which of the following regulates mutual funds in India? a) Securities and Exchange Board of India b) Association of Mutual Funds in India c) Asset Management Companies d) Board of Trustees of mutual funds Explanation:Mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI). SEBI is the regulatory authority that oversees and regulates the mutual fund industry to ensure investor protection, transparency, and fair practices. 11 / 50 11. Mark-to-market valuation entails a) Valuing each security in the portfolio at its historical value b) Valuing each security in the portfolio at its potential market value in future c) Valuing each security in the portfolio at its current market value d) None of the above Explanation:Mark-to-market valuation involves valuing each security in the portfolio at its current market value. This ensures that the portfolio reflects the most up-to-date and accurate valuation of its assets based on prevailing market conditions. 12 / 50 12. An Investor gives Liquid Fund application at 11.30 Am. Funds are not available for utilization on the same day. The NAV applicable will be a) Closing NAV of preceding Day b) Closing NAV of Day immediately preceding next business day c) Closing NAV of Day immediately preceding the day on which funds are available for utilization d) Closing NAV of next business day Explanation:When an investor submits a Liquid Fund application but funds are not available for utilization on the same day, the NAV applicable will be the closing NAV of the day immediately preceding the day on which funds become available for utilization. This ensures that investors receive the NAV corresponding to the day they can actually start utilizing their funds in the fund. 13 / 50 13. Fundamental Analysis entails review of the company’s a) Financial statements b) Quality of management c) Competitive position d) All of the above Explanation:Fundamental analysis involves examining various aspects of a company to evaluate its investment potential. This includes reviewing financial statements, assessing the quality of management, and analyzing the competitive position. All these factors collectively contribute to understanding the company’s intrinsic value and potential for investment. 14 / 50 14. Which of the following is a non-diversifiable risk? a) Credit risk b) Business risk c) Inflation d) Company specific risk Explanation:Non-diversifiable risk, also known as systematic risk, is a risk that affects the entire market or a broad segment of the market and cannot be eliminated through diversification. Inflation is considered a non-diversifiable risk because it impacts the purchasing power of money across the entire economy. Unlike company-specific risks, which can be mitigated through diversification, inflation affects all investments regardless of their specific characteristics. Therefore, inflation is a non-diversifiable risk. 15 / 50 15. As per the SEBI guidelines, how often should the mutual fund scheme’s portfolio be published? a) Monthly b) Half-yearly c) Annually d) Never Explanation:As per SEBI guidelines, mutual fund scheme portfolios should be published half-yearly. This requirement ensures transparency and provides investors with regular updates on the holdings and composition of the mutual fund scheme’s portfolio. Publishing portfolios at regular intervals allows investors to make informed decisions based on the current holdings of the scheme. 16 / 50 16. Tax Deduction at Source (TDS) would be applicable on capital gains from mutual funds for which of the following investor category? a) Resident Indian investors b) Minor investing through guardian c) Non-Resident Indians (NRIs) d) Domestic Companies registered in India Explanation:Tax Deduction at Source (TDS) is applicable on capital gains from mutual funds for Non-Resident Indians (NRIs). This means that when NRIs redeem their mutual fund investments and generate capital gains, the mutual fund company is required to deduct TDS at the applicable rate before making the payment to the NRI investor. This is done to ensure compliance with tax regulations and to collect taxes on income earned by NRIs from investments in India. 17 / 50 17. While evaluating performance for an index fund, which of the following is most important? a) BETA Coefficient b) Sharpe Ratio c) Tracking error d) Treynor Ratio Explanation:When evaluating the performance of an index fund, tracking error is the most important measure. Tracking error quantifies the divergence between the returns of the index fund and its benchmark index. A lower tracking error indicates that the fund closely tracks its benchmark, reflecting its ability to replicate the index’s performance effectively. Therefore, tracking error is crucial in assessing how well the index fund delivers on its objective of mirroring the returns of the chosen index. 18 / 50 18. Which of the following is not an advantage of Investing through Mutual funds? a) Diversification. b) Professional management. c) Guaranteed return d) Low Transaction Cost Explanation:Mutual funds don’t guarantee returns. 19 / 50 19. Legally, SAI is part of the SID a) True b) False Explanation:SAI (Scheme Information Document) is indeed part of the SID (Scheme Information Document). The SID contains essential information about a mutual fund scheme, including its investment objectives, asset allocation, risk factors, and other details. The SAI provides additional information that supports the SID, such as legal and regulatory disclosures, general information about the mutual fund, and other statutory details. Therefore, legally, the SAI is considered a part of the SID. 20 / 50 20. An active fund manager will try and give a return to the investor as close as possible to the Benchmark index returns. a) True b) False Explanation:An Active Fund Manager always try to beat the Benchmark returns 21 / 50 21. Return from equity depends on: a) Company factors b) Economy factors c) Industry factors d) All of the given options Explanation:Returns from equity depend on all of the given options: company factors, economy factors, and industry factors. 22 / 50 22. Day to day management of the Mutual Fund schemes is handled by the Trustees – True or False ? a) True b) False Explanation:Day to day management of the schemes is handled by an AMC. The AMC is appointed by the sponsor or the Trustees. 23 / 50 23. Which amongst the following asset categories can also be purchased for consumption purposes apart from investment? a) Real estate b) Stocks c) Bonds d) Debentures Explanation:Real estate can be purchased not only as an investment but also for consumption purposes, such as buying a home to live in or acquiring land for personal use. While stocks, bonds, and debentures are primarily purchased as investments to generate returns, real estate has the dual potential of serving as both an investment and a consumable asset for personal use. Therefore, real estate stands out among the options provided as it can be utilized for consumption purposes apart from investment. 24 / 50 24. Identify the False statement with respect to transmission? a) Transmission is the process of transferring units to the person entitled to receive it in the event of the death of the unit holder. b) Before the transfer is effected the mutual fund will insist on death certificate of the deceased unit-holder c) Before the transfer is effected the mutual fund will insist on an indemnity against future problems for the mutual fund arising out of the transfer. d) Before the transfer is effected, the mutual fund will not insist on the KYC documentation from the nominee Explanation:KYC (Know Your Customer) documentation is typically required for any transfer or transaction involving financial instruments. In the case of transmission, when units are transferred to the nominee or legal heir of a deceased unit holder, the mutual fund will indeed require KYC documentation from the nominee. This ensures compliance with regulatory requirements and helps prevent fraud or identity theft. 25 / 50 25. As per the AMFI Code of Ethics, an AMC has to disclose which amongst the following information to its unit holders ? a) Portfolio turnover b) Transactions of purchase and sale of securities entered into with any of their associates c) In a simple language about the investment objectives, investment policies d) All of the above Explanation:AMC must disclose:a) Portfolio turnover (frequency of buying and selling securities)b) Transactions with associates (to prevent conflicts of interest)c) Investment objectives and policies (in simple language)This ensures transparency and helps unit holders make informed decisions. 26 / 50 26. If a Segregated portfolio is created, it shall be effective from _____________. a) The day of credit event b) Seven days prior to the credit event c) One year from the date of the credit event d) The day that security was bought in the portfolio Explanation:To 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.Segregated portfolio shall be effective from the day of credit event. 27 / 50 27. A minor has one more year to become a major. A 3 year SIP is started in the minors folio. Which of the following statement is true in this case? a) The SIP will be registered for 3 years b) The SIP will be registered for only 2 years c) The SIP will be registered for only 1 year till the investor attains majority d) The SIP will be registered for 3 years from the date of attaining majority Explanation:Standing instructions like Systematic Investment Plans (SIP) are registered in a minor folio only till the date of the minor attaining majority, even though the instructions may be for an extended period.When the minor is approaching the age of majority, AMCs usually send letters advising the guardian and the minor to submit the form along with prescribed documents to change the status of the account/folio to “major”.All SIP, STP, SWP and any other standing instruction registered in the minor’s account are suspended if the documents are not received by the date when the minor attains majority. 28 / 50 28. What will happen if one of the joint holders of a mutual fund folio dies? a) The folio will be cancelled and the amount refunded b) The units will be transferred to nominee/s c) The units will be transferred to heir of deceased holder d) The units will continue to be held by surviving joint holders Explanation:Transmission is the process of transferring units to the person entitled to receive them in the event of the death of the unitholder. If the first holder passes away, the second holder is substituted as the first holder. 29 / 50 29. Which of the following information about mutual fund distributors who have multiple points of presence (more than 20 locations) must be disclosed by the AMCs?A) Distributor-wise gross inflows and net inflowsB) Average assets under managementC) Total commission and expenses paid to distributors a) B and C b) A and C c) A and B d) All A, B and C Explanation:For mutual fund distributors having multiple point 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 on a yearly basis. 30 / 50 30. For which of these documents is Time Stamping mandatory? a) Payment instrument only b) Application form only c) Transaction slip for buying additional units d) All of the above Explanation:Time stamping is mandatory for all financial transactions in mutual funds like purchase, redemption etc. The application form, the payment instrument etc. have to be time and date stamped. 31 / 50 31. The Asset Management Companies have to disclose the Total Expense Ratios (TER) of the various schemes on their websites on a __________ basis. a) Daily b) Weekly c) Monthly 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. 32 / 50 32. What action has to be taken before deleting a default bank account from the registered bank account in a mutual fund folio? a) A new folio will have to be opened with the same joint holding as the new default account b) Another account has to be designated as the default bank account c) All the nominees of the mutual fund scheme have to sign on the change form irrespective of the mode of holding Explanation:If 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. 33 / 50 33. In case of a Aggressive hybrid fund, the investment range in equity instruments is between _____________ of the total assets. a) 65 to 80 percent b) 75 to 90 percent c) 60 to 70 percent d) 80 to 95 percent Explanation:Aggressive Hybrid Fund is an open-ended hybrid scheme investing predominantly in equity and equity related instruments. Investment in equity and equity related instruments shall be between 65 percent and 80 percent of total assets while investment in debt instruments shall be between 20 percent and 35 percent of total assets. 34 / 50 34. A company has a Earning Per Share (EPS) of Rs 5 and Price to Earning (PE) ratio of 30. What will be the market price of the shares of this company? a) Rs. 0.60 b) Rs. 6 c) Rs. 150 d) Rs. 75 Explanation:Price to Earnings Ratio (P/E Ratio) = Market Price / EPSSo Market Price = PE X EPS= 30 x 5= Rs 150 35 / 50 35. What is the investment range in debt instruments by a Conservative hybrid fund? a) Between 50 percent and 75 percent of total assets b) Between 75 percent and 90 percent of total assets c) Between 80 percent and 95 percent of total assets d) Between 70 percent and 80 percent of total assets 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. 36 / 50 36. Identify which of these is not included in the ‘Fundamental Attributes – Terms of Issue’ of a mutual fund scheme? a) Aggregate fees and expenses charged to the scheme b) Any safety net or guarantee provided c) Exit Loads d) Liquidity provisions such as listing, repurchase, redemption Explanation:Within 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. 37 / 50 37. No redemption or subscription is allowed in a Segregated Portfolio – State whether True or False? a) True b) False Explanation:“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.No redemption or subscription is allowed in the segregated portfolio.However, in order to facilitate exit to unitholders in segregated portfolio, AMC shall enable listing of units of segregated portfolio on the recognized stock exchange. 38 / 50 38. Identify the mutual fund folios which cannot make a nomination? a) Folio held by a Trust b) Folio held by a company c) Folio held by a minor d) All of the above cannot make a nomination 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. 39 / 50 39. The transactions in securities by key personnel of the mutual fund who are directly involved in investment operations of mutual fund schemes should be disclosed by the AMC to its compliance officer ___________ basis a) On a daily basis b) At least on monthly basis c) At least on half yearly basis d) At least on yearly basis Explanation:As per the AMFI Code of Ethics – All transactions of purchase and sale of securities by key personnel who are directly involved in investment operations shall be disclosed to the compliance officer of the member at least on half yearly basis and subsequently reported to the Board of Trustees if found having conflict of interest with the transactions of the fund. 40 / 50 40. Statement of Additional Information (SAI) has to be regularly updated and the updation has to be done by the end of 3 months every financial year – State whether True or False? a) True b) False Explanation:Updation of Scheme Documents—Regulatory provisionsUpdation 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. 41 / 50 41. According to the SEBI Advertisement Guidelines for Mutual Funds, when the mutual fund scheme has been in existence for more than three years, 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. – State whether True or False? a) True b) False 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. 42 / 50 42. These debt mutual funds categories have been arranged from lowest risk to highest risk. Identify the risk which we are discussing :1. Liquid Funds2. Money market funds3. Medium term bond funds a) Concentration Risk b) Credit Risk c) Interest Rate Risk d) Default Risk Explanation:Interest rate risk is the risk that an investment’s value will change as a result of a change in interest rates.The interest rate risk varies for bonds with different maturities. Those with longer maturity would witness higher price fluctuations in comparison to those with shorter maturities.Similarly short term debt funds will have lower interest rate risk when compared to longer term debt funds.In the above question, Liquid funds have the shortest duration and so will have less adverse effect of interest rate risk when compared to Money market funds and Medium term bond funds. 43 / 50 43. Which is the Target Scheme in a Systematic Transfer Plan ? a) It is the scheme with the lower NAV b) It is the scheme with the higher NAV c) It is the scheme from which funds are transferred d) It is the scheme to which funds are transferred Explanation:In a Systematic Transfer Plan (STP), the amount that is withdrawn from a scheme (called the source scheme) is re-invested in some other scheme (called the target scheme) of the same mutual fund. 44 / 50 44. Calculate the Treynor Ratio from the following data – Return from a mutual fund scheme is 7.5 %. The beta is 0.62. The risk free rate of return is 6%. a) 1.60 b) 4.77 c) 3.08 d) 2.42 Explanation:Treynor Ratio = (Return Earned – Risk Free Return) / Beta= (7.5 – 6) / 0.62= 1.5 / 0.62= 2.42Treynor Ratio is a risk premium per unit of risk. Higher the Treynor Ratio, better the scheme is considered to be. 45 / 50 45. Where are the ‘Standard Risk Factors’ of a Mutual Fund scheme disclosed ? a) Fund Fact Sheet b) Addendum c) Statement of Additional Information (SAI) d) Scheme Information Document (SID) Explanation:The Scheme Information Document (SID) highlights two broad categories of risks, (1) Standard risk factors, and (2) Specific risk factors.The standard risk factors are the risks that all mutual fund investments are exposed to whereas there are certain risks specific to individual asset category. 46 / 50 46. Which amongst the following bias can lead to concentrated portfolio? a) Familiarity Bias b) Herd Mentality c) Overconfidence Bias d) Recency Bias Explanation:Familiarity Bias – An individual tends to prefer the familiar over the novel, as the popular proverb goes, “Aknown devil is better than an unknown angel.” This leads an investor to concentrate the investments in what is familiar, which at times prevents one from exploring better opportunities, as well as from a meaningful diversification. 47 / 50 47. Which of these investors is/are exempted from providing PAN details for investments in Mutual Funds? a) Systematic investment plans, where annual investment does not exceed Rs 50000 b) Investors residing in the state of Sikkim c) Transactions undertaken on behalf of Central/State government d) All of the above Explanation:The following categories of investors are exempt from producing PAN:– In case of transactions undertaken on behalf of Central/State government and by officials appointed by the court.– Investors residing in the state of Sikkim.– UN entities/Multilateral agencies exempt from paying taxes/filing tax returns in India.– Investments (including SIPs and lump sum investments) in Mutual Fund schemes upto Rs. 50,000/- per investor per year per mutual fund. 48 / 50 48. A mutual fund distributor cannot charge a transaction fee on which of these transactions? a) Systematic Transfer Plan b) A new investor making a purchase in a mutual fund scheme c) An existing investor making a purchase in a mutual fund scheme d) Systematic Investment Plan (SIP) Explanation:Transaction charges do not apply to transactions other than purchases/subscriptions that result in fresh inflows.Transactions like switches, systematic transfers, dividend transfers, dividend re-investment are not eligible for transaction charges. 49 / 50 49. The NAV applicable for purchase in a gilt fund of Rs. 50 Lakhs if the cheque is received after 2 pm will be _____________. a) Same day NAV if received before cut off time b) Closing NAV of day immediately preceding the date of application c) Closing NAV of the next business day d) NAV of the business day on which the funds are available for utilization Explanation:Vide SEBI circular dated September 17, 2020, it was decided that with respect to 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 utilization 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 putti 50 / 50 50. Dividends which are paid by mutual funds can be paid out of ____________. a) Profits of the Asset Management Company b) Mark to Market profits c) All realised and unrealised gains d) Distributable surplus only 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. Your score is 0% Restart quiz Exit
