Explanation:

Tracking error measures the deviation of the returns of a portfolio or a fund from its benchmark index. In the context of an equity index fund, tracking error reflects how closely the fund’s returns follow the returns of the index it aims to replicate. A lower tracking error indicates that the fund closely tracks the index, while a higher tracking error suggests greater divergence from the index. Tracking error is a key measure of risk in index funds because it indicates the fund’s ability to replicate the performance of its benchmark index accurately. Options a) (Portfolio’s beta), b) (Sharpe ratio), and d) (Credit rating) are not specific measures of risk in an equity index fund.

Explanation:

Bond prices and interest rates have an inverse and linear relationship. When interest rates rise, bond prices fall, and vice versa. This relationship is linear, meaning that a proportional change in interest rates leads to a proportional change in bond prices in the opposite direction. This phenomenon occurs because existing bonds with fixed coupon rates become less attractive when market interest rates increase, causing their prices to decrease to maintain parity with newly issued bonds offering higher yields. Conversely, when interest rates decrease, bond prices rise as existing bonds become more valuable relative to newly issued bonds with lower yields.

Explanation:

Intermediaries collectively facilitate interaction between investors and issuers in the market. They play crucial roles in connecting buyers and sellers, providing liquidity, and ensuring smooth transactions. Intermediaries include various entities such as brokers, investment banks, exchanges, and market makers. They help investors access investment opportunities and assist issuers in raising capital by underwriting securities offerings, providing advisory services, and facilitating trading activities. Intermediaries serve as essential intermediaries in the financial markets, enhancing market efficiency and liquidity.

Explanation:

Shares issued in a public issue, where the company offers its shares to the general public, are mandatorily required to be listed on a stock exchange. This listing requirement ensures transparency, liquidity, and fair trading of the company’s shares in the secondary market. Listing on a stock exchange provides investors with access to information about the company and the opportunity to buy or sell shares, contributing to market efficiency. It also enhances the company’s visibility and credibility among investors and stakeholders. Therefore, shares issued in a public offering must be listed on a stock exchange to comply with regulatory requirements and promote a well-functioning capital market.

Explanation:

FV = Rs. 50000; r = 8%; n = 15 years; Hence PV = Rs.15762.00.

Explanation:

For a young investor with a long-term goal such as building a corpus for retirement, a higher allocation to equity is recommended. Equity investments typically offer higher potential returns over the long term compared to debt or cash equivalents. Since the investor has a longer time horizon until retirement, they can afford to take on higher risk in exchange for potentially higher returns. Equity investments have historically provided higher returns compared to other asset classes over long periods, which can help the investor accumulate a larger corpus by the time of retirement. Additionally, equities provide the benefit of inflation protection and the ability to participate in the growth of the economy, making them suitable for long-term wealth accumulation goals like retirement planning.

Explanation:

Hedge funds are typically characterized as high-risk funds because they employ aggressive investment strategies aimed at generating high returns. These funds often use leverage, derivatives, and other complex financial instruments to amplify returns, which also increases the level of risk. Additionally, hedge funds may engage in short selling, derivatives trading, and other speculative tactics to capitalize on market inefficiencies or directional movements. While hedge funds aim to provide above-average returns, their strategies can also lead to significant losses, making them unsuitable for conservative investors or those with low-risk tolerance. Overall, due to their aggressive strategies and potential for substantial losses, hedge funds are considered high-risk investments.

Explanation:

=NPER(11%/4,0,-500000,1000000)

=25.55035862

26 Quarters

Explanation:

When Ms. L takes a loan against her mutual fund holdings and only a portion of her units are required as security, she can mark a lien only on the portion of units that are needed for the loan. This means that only the specific units required for collateralization will be encumbered, while the remaining units will remain free from any lien. This approach allows Ms. L to maintain control over her investment portfolio while using only the necessary portion as security for the loan, thus optimizing her financial flexibility.

Explanation:

Beta = Cov(MrPr) / Var(Mr)

Where

Cov(MrPr) = Covariance between the market’s return and the portfolio return

Var(Mr) = Variance in the Market return (Square of Std deviation of Market)

Covariance = Correlation * Std deviation of Market * Std deviation of Portfolio

Covariance = 0.4 * 1.5 * 2.4 = 1.44

Beta = Covariance / (1.5 * 1.5) (Variance of market is Square of Std deviation of market) = 0.64

Explanation:

Negotiable Instruments Act, 1881 defines and amends the law relating to promissory notes, bills of exchange and cheques.

Section 13 defines the term Negotiable Instrument: (1) A “negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to bearer.

Explanation:

The number allotted in NPS is called the Permanent Retirement Account Number (PRAN). PRAN serves as a unique identification number assigned to each subscriber of the National Pension System (NPS). It is a 12-digit alphanumeric number that remains associated with the subscriber throughout their lifetime. The PRAN facilitates the management and tracking of contributions, withdrawals, and other transactions related to the subscriber’s NPS account.

Explanation:

The development of an Investment Policy Statement (IPS) is the first step in the investment process. An IPS outlines an investor’s objectives, risk tolerance, time horizon, and other relevant factors that guide their investment decisions. It serves as a roadmap for designing and managing an investment portfolio tailored to the investor’s needs and goals. The IPS helps maintain consistency and discipline in investment decision-making by providing a clear framework for evaluating and selecting appropriate investment strategies.

Explanation:

An investment approach refers to a broad outline or strategy adopted by a portfolio manager to invest in securities and permissible instruments on behalf of clients. It considers various factors specific to clients and securities, such as their investment objectives, risk tolerance, time horizon, and market conditions. The investment approach guides the portfolio manager in making decisions about asset allocation, security selection, and risk management to achieve the client’s investment goals effectively.

Explanation:

ETFs (Exchange-Traded Funds) can be purchased and sold at real-time prices throughout the trading day on a stock exchange, just like individual stocks. This is because ETFs are traded on stock exchanges, allowing investors to buy and sell shares at market prices, which may differ from their Net Asset Value (NAV). Unlike mutual funds, which are traded at NAV at the end of the trading day, ETFs offer intraday trading flexibility, making them attractive to investors looking for liquidity and the ability to react quickly to market movements.

Explanation:

As per the SEBI (Alternative Investment Funds) Regulations, 2012, the Sponsor or Investment Manager of a Category III Alternative Investment Fund (AIF) is required to have a continuing interest in the AIF. This interest should be at least 5% of the corpus of the AIF or Rs. 10 crores, whichever is lower. This requirement ensures that the sponsor or investment manager has a vested interest in the performance and success of the AIF, aligning their incentives with those of the investors.

Explanation:

Correlation measures the relationship between the returns of two assets. When assets have a low or negative correlation, they tend to move independently of each other. By including assets with low or negative correlation in a portfolio, investors can achieve better risk diversification. Diversification helps spread risk across different assets, reducing the overall risk of the portfolio. Therefore, correlation is crucial for reaping the benefits of risk diversification.

Explanation:

Dividends are paid on face value. Face value is Rs 10. 100% dividend means 100% of face value which is Rs 10

Explanation:

1. Initially, the investment was USD 15mn, which, when converted at the exchange rate of Rs 46.67 = 1 USD, amounted to Rs 700.05mn.

2. After the appreciation of the portfolio to USD 18mn, at an exchange rate of Rs 45 = 1 USD, the value in rupees is Rs 810mn.

3. The rupee portfolio return can be calculated using the formula: Rupee return=(Final value−Initial valueInitial value)×100Rupee return=(Initial valueFinal value−Initial value​)×100

4. Plugging in the values, we get: Rupee return=(810−700.05700.05)×100=15.71%Rupee return=(700.05810−700.05​)×100=15.71%

So, the rupee portfolio return is 15.71%.

Explanation:

Institutional investors have superior capabilities to gather and analyze information about securities, which leads to better investment decisions and benefits the financial markets as a whole.

Explanation:

Banker’s acceptances, certificates of deposit (CDs), Treasury Bills (T-bills), and commercial papers are all instruments traded in the money market. These short-term debt securities are highly liquid and serve as sources of short-term funding for governments, financial institutions, and corporations.

Explanation:

σ_p = √[(w_i^2 x σ_i^2) + (w_j^2 x σ_j^2) + (2 x w_i x w_j x σ_i x σ_p x ρ_ij)]

= √[(0.45² x 0.25²) + (0.55² x 0.20²) + (2 x 0.45 x 0.55 x 0.25 x 0.20 x 0.75)]

= √[(0.0127) + (0.0121) + (0.0186)]

= √(0.0434)

= 20.83%

The portfolio risk, therefore, would be 20.83%.

Explanation:

Jaya is most likely to tap into her bank deposit to meet the urgent need for Rs. 5 lakhs for the emergency medical procedure. Bank deposits are highly liquid assets, readily accessible for withdrawal when needed, making them the most suitable option for immediate cash requirements.

Explanation:

Certain categories of persons are exempt from the requirement of registration. These include –

Any member of Institute of Chartered Accountants of India, Institute of Company Secretaries of India, Institute of Cost and Works Accountants of India, Actuarial Society of India or any other professional body as may be specified by SEBI, who provides investment advice to their clients, incidental to his professional service.

Explanation:

Moving average of the stock prices does not form a study of fundamental analysis because it is a technical analysis tool used to identify trends and potential reversals in stock prices based on historical price data, rather than analyzing the fundamental attributes of a company such as its management, competitive position, or financial statements.

Explanation:

Index fund managers try to replicate the performance of a benchmark index by holding the same stocks in the same proportions as the index. This passive investment approach aims to match the returns of the index rather than outperforming it, making it an efficient and low-cost investment strategy for investors seeking broad market exposure.

Explanation:

Treynor Ratio = (Portfolio return – Risk free return) / Beta

Treynor ratio = 2%/1.2 = 1.66

Higher the Treynor Ratio, better the scheme is.

Explanation:

The expected return of these two stocks will be calculated as follow :

(R_A) = .3(15%) + .5(10%) + .2(2%) = 9.9%

(R_B) = .3(25%) + .5(20%) + .2(1%) = 17.7%

Explanation:

According to the Income Tax Act, mutual fund schemes are classified into two categories for the purpose of taxation: equity-oriented schemes and non-equity-oriented schemes. Equity-oriented schemes are those where the investible funds are invested predominantly in equities or equity-related instruments, while non-equity-oriented schemes are those where the investible funds are invested predominantly in debt instruments. These categories have different tax treatments, with equity-oriented schemes enjoying certain tax benefits compared to non-equity-oriented schemes.

Explanation:

The correct answer is the secondary market. This market is where previously issued securities are bought and sold among investors, and it operates through stock exchanges. In the secondary market, investors can trade securities like stocks, bonds, and derivatives after they have been issued in the primary market. It provides liquidity to investors by offering a platform for buying and selling securities after their initial issuance.

Explanation:

When a public issue is heavily oversubscribed, it means that the demand for shares is much higher than the supply available. In such cases, the issuer may need to allocate shares to investors based on certain criteria, such as the proportion of shares applied for compared to the total demand and the type of investors (retail, institutional, etc.). This often results in each investor receiving a smaller allotment of shares than they applied for. It’s a measure to ensure fair distribution among all investors who participated in the oversubscribed issue.

Explanation:

The correlation coefficient is obtained by dividing the covariance by the product of the individual standard deviations.

Correlation Coefficient = Covariance / (Std deviation of Stock 1 X Std deviation of Stock2)

Hence Covariance = Correlation * (Std deviation of Stock 1 X Std deviation of Stock2)

Covariance = 0.8488 * 0.2041 * 0.2944 = 0.051

Explanation:

In the Over-The-Counter (OTC) market, securities are traded and settled bilaterally directly between parties, rather than through a centralized exchange. This market typically involves securities that are not listed on formal exchanges or are thinly traded. Transactions in the OTC market are facilitated by dealers who act as intermediaries between buyers and sellers. Since trading occurs directly between parties, OTC markets offer more flexibility but may also involve higher levels of risk and less transparency compared to exchange-traded markets.

Explanation:

Government securities carry practically no risk of default, meaning there is a very low probability that the government will fail to meet its payment obligations on these securities. Therefore, they are often considered risk-free or gilt-edged instruments. This is because governments, particularly those of financially stable countries, have the ability to raise funds through taxation or by issuing more currency, ensuring that they can honor their debt obligations. As a result, investors perceive government securities as safe investments, particularly in times of economic uncertainty.

Explanation:

Securities that are already issued and available for subsequent purchases and sales are traded on stock exchanges where they are listed. Stock exchanges provide a platform for buyers and sellers to trade these securities. Investors can place buy or sell orders through their brokers, and transactions occur electronically on the exchange platform. The prices of securities are determined by supply and demand dynamics in the market, with buyers bidding for securities at their desired price and sellers offering them at their asking price. This trading process on stock exchanges ensures liquidity and price discovery for the securities.

Explanation:

=FV(6%,20,0,-30000)

= Rs 96,214.06

Explanation:

When a policyholder surrenders their insurance policy, they terminate the contract with the insurance company and receive the surrender value, if applicable. Once the policy is surrendered, the insurance coverage provided by that policy ceases to exist. Therefore, if the insured surrenders the policy, they will not have insurance cover anymore.

In contrast, a paid-up policy and a term policy continue to provide insurance coverage as long as the premiums are paid according to the terms of the policy.

Explanation:

Open-ended schemes allow investors to buy and sell units at any time during the life of the fund. They do not have a fixed maturity period and continuously offer units for sale and repurchase. Investors can enter or exit the scheme at the Net Asset Value (NAV) or NAV-related prices, which are determined based on the fund’s underlying assets’ current market value. This flexibility makes open-ended schemes suitable for investors who prefer liquidity and the ability to manage their investments according to their changing financial needs.

Explanation:

Sharpe ratio = (Rp-Rf) / Standard deviation

Sharpe ratio = (10.50% – 5.50%)/ 6.50% = 0.7692

Explanation:

Explanation:

Angel funds are a subset of venture capital funds. They typically invest in early-stage startup companies with high growth potential. These funds provide capital and mentorship to entrepreneurs in exchange for an equity stake in the company. Angel funds play a crucial role in funding the initial stages of a startup’s development, helping them grow and succeed in their respective industries.

Explanation:

Any intermediary aggrieved by an order passed by the Securities and Exchange Board of India (SEBI) can appeal to the Securities Appellate Tribunal (SAT) for redressal. SAT serves as an appellate authority for matters related to securities market regulations and has the authority to review and adjudicate appeals against orders passed by SEBI.

Explanation:

The duration of the Post Office Monthly Income Scheme (POMIS) is 5 years. This means that the investment made in POMIS remains locked in for a period of 5 years, during which investors receive regular monthly income payments from their investment. After the completion of the 5-year term, investors can choose to withdraw their principal amount along with any accrued interest.

Explanation:

A mutual fund scheme that invests only in shares of companies from one industry is known as a “Sector fund.” These funds focus on a specific sector such as technology, healthcare, or energy. The objective is to capitalize on the potential growth and performance of that particular industry. Sector funds offer investors the opportunity to concentrate their investments in a specific sector they believe will outperform the broader market.

Explanation:

If a bond is selling at a premium, it means that its market price is higher than its face value. This situation typically occurs when market yields are lower than the bond’s coupon rate. Investors are willing to pay more for the bond because its fixed coupon payments are higher than prevailing market yields, making it an attractive investment compared to newly issued bonds with lower coupon rates. Therefore, the correct option is c) Market yields are lower than the coupon rate.

Explanation:

The Notice Money Market typically involves transactions with a duration ranging from 2 to 14 days. This duration allows participants to provide notice before the funds are withdrawn, providing a short-term funding option for banks and financial institutions. It provides flexibility while still maintaining a short-term nature, making it suitable for various liquidity management needs. Therefore, the correct answer is b) 2 to 14 days.

Explanation:

If the futures price is higher than the spot price of an underlying asset, it is referred to as a “positive basis.” This situation typically occurs when there is high demand or expectations of future price increases for the asset. Investors are willing to pay a premium (higher futures price) to secure the asset at a later date, anticipating that its value will rise further.

Explanation:

hen the price of a company’s equity share drops in the market due to its financial results showing losses from declining market share, it serves as an example of the market acting as an “information signaling through prices.” In this context, the market reflects investors’ reactions to the company’s performance, providing valuable information about its financial health and prospects. The declining share price signals to investors the company’s challenges and prompts them to adjust their expectations and investment decisions accordingly.

Explanation:

Treasury Bills (T-bills) are short-term securities issued by the Central Government to meet short-term financial needs. They typically have maturity periods ranging from a few days to one year. T-bills are considered one of the safest forms of investment because they are backed by the creditworthiness of the government.

Explanation:

Strategic Asset Allocation is the process of determining the appropriate mix of asset classes in an investment portfolio based on the investor’s financial goals, time horizon, and risk tolerance. It is decided through an analysis of the investor’s needs and risk appetite to create a long-term investment strategy that aligns with their objectives.

Explanation:

Treynor ratio = (Portfolio return – Risk Free return) / Beta
Treynor ratio = (10-4)/3
Treynor ratio = 2

Explanation:

Statement 2 is true. Standard deviation is indeed the square root of variance. Variance is a measure of the dispersion or spread of a set of data points, calculated as the average of the squared differences from the mean. Standard deviation, on the other hand, is the square root of variance and provides a measure of the amount of variation or dispersion from the average.

Explanation:

The record date for a corporate action is typically announced by the issuers of the securities. This date is important as it determines which shareholders are eligible to receive the benefits of the corporate action, such as dividends or rights issues. The issuers set the record date to identify shareholders who will be entitled to participate in the corporate action based on their ownership of the company’s shares on that specific date. Therefore, the issuers are responsible for announcing the record date.

Explanation:

Modified duration measures the percentage change in the price of a bond or security for a given change in its yield. It provides investors with a more accurate measure of interest rate sensitivity compared to the traditional duration metric, especially for bonds with embedded options or non-standard cash flow structures.

Explanation:

Diversification in a portfolio strongly depends on correlation. Correlation measures the relationship between the returns of different assets within a portfolio. By including assets with low or negative correlations, investors can effectively reduce overall portfolio risk without sacrificing returns. Therefore, correlation plays a crucial role in determining the effectiveness of diversification in a portfolio.

Explanation:

Sharpe Ratio = (Scheme Return – Risk Free Return) / Standard Deviation

Sharpe Ratio = 2/0.5 = 4

Explanation:

The amount of money required or Goal Value is indeed a function of various factors. These factors include the current value of the goal or expense, the time period after which the goal will be achieved, and the rate of inflation at which the cost of the expense is expected to increase.

Explanation:

Development of an Investment Policy Statement (IPS) is the key step in the process of portfolio management. IPS is the road map that guides the investment process. Either investors or their Investment advisers draft the IPS specifying their investment objectives, goals, constraints, preferences and risks they are willing to take.

Explanation:

The risk-free rate implies a return that is considered free of any risk. It is often associated with the yield on government securities (G-Secs) because they are typically perceived as having the lowest risk of default. Therefore, the correct answer is option a) G-Sec Yield.

Explanation:

A company may purchase its own shares out of its free reserves and surplus. This option allows the company to utilize its accumulated profits and surplus funds for buying back its own shares from the market. This process is often used for various reasons, including returning excess capital to shareholders, boosting earnings per share, or supporting the stock price.

Explanation:

Weights for each of the assets A, B, and C respectively may be calculated as follows:

Total Amount invested in the portfolio of 3 assets (A, B, and C) = Rs.10,000 + Rs.20,000 + Rs.30,000 = Rs.60,000.

Weight for the asset A = 10000/60000 = 1/6 = 0.1667

Weight for the asset B = 20000/60000 = 1/3 = 0.3333

Weight for the asset C = 30000/60000 = 1/2 = 0.5

Given expected returns for the three assets A, B and C, as 20%, 15% and 10% respectively

Returns on Portfolio = (0.1667*0.20)+(0.3333*0.15)+(0.5*0.10)

Returns on Portfolio = 0.13334*100 =13.33%

Explanation:

Debt products are exposed to various risks, including reinvestment risk, credit risk, and interest rate risk. Reinvestment risk arises when future cash flows from an investment need to be reinvested at lower rates. Credit risk pertains to the risk of default by the issuer of the debt instrument. Interest rate risk refers to the impact of changes in interest rates on the value of the debt instrument. Therefore, debt products are exposed to all of these risks.

Explanation:

=FV(12%,3,-30000,0,1) = Rs 1,13,379.84 (30,000 first 3 years)

=FV(12%,10,-50000,-113379.84,1) = Rs 13,34,869.74 (Above amount and Rs 50,000 for next 10 years)

So Ans is Rs 13,34,869.74

Explanation:

The forward price of a share can be calculated using the formula:

Forward Price = Spot Price * e^(r * T)

Where:
– Spot Price = Rs.750
– r = Market Interest Rate = 12% or 0.12 (as a decimal)
– T = Time to Maturity = 6 months or 0.5 years

Using these values:

Forward Price = 750 * e^(0.12 * 0.5)
Forward Price ≈ 795

Therefore, the closest answer is option a) 795.

Explanation:

Treynor Ratio should be used for investors who hold their wealth in well diversified portfolios

The Sharpe Ratio is more suitable to evaluate a portfolio performance for an investor who has not achieved adequate diversification on his wealth as a whole

Explanation:

A car loan is usually under hypothecation. In a hypothecation agreement, the borrower (the car buyer) pledges the car as collateral to the lender (the bank or financial institution) until the loan is fully repaid. This means that while the borrower possesses and uses the car, the ownership remains with the lender until the loan is fully paid off. If the borrower defaults on the loan, the lender has the right to seize the car to recover the outstanding debt. This arrangement allows borrowers to obtain financing for the purchase of a car while providing security to the lender.

Explanation:

Buyer of an option is said to be “long the option”. As described above, he/she would have a right and no obligation with regard to buying/ selling the underlying asset in the contract. When you are long an equity option contract:

– You have the right to exercise that option.

– Your potential loss is limited to the premium amount you paid for buying the option.

Profit would depend on the level of underlying asset price at the time of exercise/expiry of the contract.

Explanation:

Derivatives are typically used for three purposes—Hedging, Speculation and Arbitrage.

Explanation:

An individual investment adviser cannot offer a client both advisory and distribution services. This restriction is in place to prevent conflicts of interest and ensure that the adviser’s recommendations are solely based on the client’s best interests rather than any potential financial gain from selling specific financial products. By separating advisory and distribution services, clients can receive impartial advice without the influence of sales incentives, promoting transparency and trust in the advisory relationship.

Explanation:

The Sharpe ratio measures the excess return per unit of risk, where risk is defined as the standard deviation of returns.

Sharpe Ratio = (Total return of the fund – Risk-free rate) / Standard deviation of the fund

Given: Total return of the fund (XYZ) = 14% Risk-free rate = 4% Standard deviation of the fund = 18%

Sharpe Ratio = (14% – 4%) / 18% = 0.55

So, the Sharpe ratio of fund XYZ is 0.55. This indicates that for each unit of risk taken, the fund generated an excess return of 0.55 units.

Explanation:

Equity shareholders have the last claim on the assets of the company in the event of liquidation. This means that after all other claims, such as those of creditors and preference shareholders, have been satisfied, whatever remains of the company’s assets will be distributed among the equity shareholders. Therefore, they bear the highest risk but also potentially enjoy the highest rewards if the company performs well.

Explanation:

All of the above options are exempted from SEBI (Investment Advisers) Regulation, 2013.

• Mutual fund distributors providing investment advice incidental to distribution of mutual fund products are exempted.

• Pension advisors offering investment advice only on pension products are exempted.

• Fund managers of mutual funds and alternative investment funds are also exempted.

These exemptions are provided because the roles of these entities involve providing investment advice as part of their primary functions, and subjecting them to the same regulations as independent investment advisers may not be necessary or practical.

Explanation:

REITs provide investors with the opportunity to invest in real estate assets without directly owning or managing them. By purchasing shares in a REIT, investors gain exposure to a diversified portfolio of real estate properties, such as office buildings, shopping malls, apartments, and hotels. This allows investors to participate in the potential income and appreciation associated with real estate investments while benefiting from liquidity and professional management provided by the REIT.

Explanation:

Corpus on the date of retirement is

Corpus = FV(8.25%,28,-15000,0,0)=Rs. 14,91,654.59

Fixed annual amount that can be withdrawn till age 80 (22 years)

=PMT(8.25%,22,G16,0,1)=Rs.1,37,766.79

Explanation:

The bottom-up approach involves starting with company-specific factors (such as financial performance, management quality, competitive position) and then considering industry-level factors before evaluating broader economic conditions. This approach emphasizes analyzing individual companies first and then expanding to examine their industry and the overall economy. It is often used by investors seeking to identify fundamentally strong companies with growth potential, irrespective of broader market or economic trends.

Explanation:

The correct answer is “Bonus issue.”

A bonus issue, also known as a scrip issue or capitalization issue, is when a company issues additional shares to existing shareholders without any consideration in proportion to their current holdings. This means that shareholders receive additional shares in the company without having to pay anything extra. Bonus issues are typically undertaken by companies to capitalize their reserves or accumulated profits. It increases the number of outstanding shares but does not affect the company’s total market capitalization. Bonus issues are often seen as a way for companies to reward their shareholders and enhance liquidity in the stock market.

Explanation:

11% X 0.7 (Since 30% of profit is given as tax only 70% remains. Hence We are multiplying by 0.7)

Answer is 7.7%

Explanation:

A securitization company floated by a bank is not considered an Alternative Investment Fund (AIF) under the SEBI (AIF) Regulations 2012. Alternative Investment Funds are a distinct category of investment vehicles that pool funds from investors and invest according to a defined investment policy for the benefit of their investors. These regulations set out specific criteria and requirements for entities to qualify as AIFs. While securitization companies may be involved in the process of securitizing assets and issuing securities, they are not classified as AIFs under these regulations.

Explanation:

Sharpe Ratio = (Scheme Return – Risk Free Return) / Standard Deviation
Sharpe Ratio = 4.55/6.98
Sharper Ratio = 0.6518

Explanation:

Market capitalization, which represents the total value of a company’s outstanding shares, is directly impacted by changes in the price of the stock. This is because market capitalization is calculated by multiplying the current market price of the stock by the total number of outstanding shares. Therefore, fluctuations in the stock price, whether they increase or decrease, directly affect the market capitalization of the company. Other factors such as changes in market index, trading volumes, and liquidity may indirectly influence stock prices but do not directly impact market capitalization.

Explanation:

A Systematic Investment Plan (SIP) allows investors to invest a pre-determined amount at regular intervals (such as monthly or quarterly) in a mutual fund scheme of their choice. This systematic approach helps investors benefit from rupee cost averaging and discipline in investing. It also allows investors to spread their investments over time, reducing the impact of market volatility on their investment returns.

Explanation:

Reinvestment risk refers to the risk that when a fixed income security, such as a fixed deposit, matures and the investor reinvests the proceeds, they may not be able to reinvest at the same or higher interest rate as before. In the case of a fixed deposit maturing in a year’s time, the investor faces the risk that prevailing interest rates at the time of reinvestment may be lower than the interest rate earned on the maturing deposit. This could result in lower returns on the reinvested funds.

Explanation:

The net asset value (NAV) of a mutual fund reflects the current market value of the fund’s portfolio. NAV is calculated by dividing the total value of all the assets in the fund’s portfolio, including stocks, bonds, and other securities, minus any liabilities, by the total number of outstanding shares. It represents the per-share value of the mutual fund and is calculated at the end of each trading day. Therefore, NAV primarily reflects the value of the underlying securities held by the mutual fund.

Explanation:

Speculation typically involves making short-term bets on the price movements of assets using leveraged funds, aiming to profit from short-term market fluctuations. It often involves higher risks due to the use of leverage and the short-term nature of the trades.

On the other hand, investing involves a more disciplined approach focused on the long term, with the goal of creating wealth over an extended period. Investors typically analyze fundamental factors and aim to buy and hold assets for the long term, taking advantage of compounding returns and the growth potential of their investments.

Explanation:

Interest on Sovereign Gold Bonds (SGB) is credited semi-annually to the investor’s bank account. These bonds pay interest at a fixed rate per annum, payable semi-annually. This interest is calculated on the nominal value of the investment.

Explanation:

In a top-down approach to investing, sector allocation indeed precedes stock selection. This approach involves first analyzing macroeconomic factors, such as economic trends, industry performance, and market conditions, to identify promising sectors or industries. After determining which sectors are likely to outperform, investors then select individual stocks within those sectors that have the potential for growth or value appreciation. Therefore, sector allocation comes before stock selection in the top-down approach.

Explanation:

A direct plan is a separate plan where the investor can invest directly with the fund house or its Registrar and Transfer agent. There is no distributor who helps the investor to make the investment in this plan. The cost of this plan is less in terms of the expense ratio, that is charged to the scheme each year.

The portfolio of both the regular plan and the direct plan are the same. So at one level the invested amount is earning the same return. The lower cost in the direct plan will however lead to a larger net return for the investor

Explanation:

The Senior Citizen Saving Scheme (SCSS) has a maximum investment limit of Rs.15 Lakhs. This scheme is specifically designed for senior citizens in India to provide them with regular income and financial security during their retirement years. The limit ensures that individuals can invest a substantial amount while enjoying attractive interest rates and the safety of government-backed savings.

Explanation:

The registrar to an issue plays a crucial role in keeping a proper record of applications and monies received from investors during an Initial Public Offering (IPO). They are responsible for maintaining accurate records of investor applications, processing refunds, and ensuring compliance with regulatory requirements regarding the IPO process. Their role is essential in maintaining transparency and integrity in the IPO process, safeguarding the interests of investors, and facilitating the smooth functioning of the issuance.

Explanation:

Rights Issue possesses all the mentioned characteristics:

a) Rights issues are conducted by companies to raise additional capital. b) They are offered exclusively to existing shareholders of the company. c) Shareholders are offered the opportunity to purchase new shares in proportion to their existing shareholding.

These characteristics ensure that existing shareholders have the chance to maintain their proportional ownership in the company and participate in its growth by subscribing to the newly issued shares.

Explanation:

For computing Sortino Ratio, portfolio’s return in excess of the risk-free return is divided by the portfolio’s semi-standard deviation. Thus, Sortino Ratio adjusts portfolio’s excess return to the downside risk.

Sortino Ratio = (Rp – Rf)/ Semi Standard deviation of the portfolio

Explanation:

A CALL Option gives the buyer the right, but not the obligation, to buy the underlying asset at a predetermined price (strike price) during a specified period (until expiration). This means that the buyer has the choice to exercise the option if it becomes profitable, but they are not required to do so.

Explanation:

In the snowball method, one starts by paying off the smallest debt balance first while making minimum payments on larger debts. Once the smallest debt is paid off, the amount previously allocated to it is added to the payment of the next smallest debt. This method focuses on building momentum and motivation by achieving quick wins, which can help in sticking to the debt repayment plan over time.

Explanation:

Credit Score provides a snapshot of a customer’s credit history, converting their payment history into a three-digit number. This score is calculated based on various lines of credit, including retail products like home loans, auto loans, personal loans, etc. It serves as a crucial measure for lenders to assess the creditworthiness of individuals.

Explanation:

An interest rate swap is a contract between two parties to exchange fixed-rate interest payments for variable-rate interest payments. In this arrangement, one party typically pays a fixed interest rate while the other pays a floating or variable interest rate. This allows each party to hedge against interest rate fluctuations or to take advantage of differences in interest rate expectations.

Explanation:

A credit score typically measures the risk associated with lending money to an individual or entity. It considers various factors such as credit history, payment behavior, outstanding debts, and other financial indicators to assess the likelihood of the borrower repaying the loan. A higher credit score indicates lower risk, making the borrower more attractive to lenders.

Explanation:

Both variance and standard deviation are measures of the dispersion or spread of a set of data points around their mean or average. Standard deviation is simply the square root of variance. They both quantify the extent of variation or volatility in the periodic returns of a scheme relative to its own average return. Standard deviation is commonly preferred because it is expressed in the same units as the original data, making it more interpretable.

Explanation:

Private equity funds typically invest in later-stage financing rounds, which involve providing capital to established companies that are looking to expand, restructure, or finance a major acquisition. Later-stage financing occurs after a company has demonstrated significant growth potential and may be nearing maturity. These investments aim to support the company’s expansion plans, enhance operational efficiency, or facilitate strategic initiatives.

Explanation:

When there is an offer for sale, existing shareholders sell their shares to new investors, and the proceeds go to the selling shareholders, not to the company. Therefore, the share capital of the company remains unchanged because no new shares are issued by the company itself.

Explanation:

Category III Alternative Investment Funds (AIFs) are specifically designed to employ diverse or complex trading strategies, including the use of leverage through investments in listed or unlisted derivatives. These funds are often geared towards sophisticated investors who are willing to take on higher levels of risk in pursuit of potentially higher returns.

Explanation:

Non-residents are not eligible to open an account under the Public Provident Fund (PPF) scheme. PPF accounts are available only to residents of India, as per the regulations set by the government. Non-residents, including Non-Resident Indians (NRIs), are not permitted to open or operate PPF accounts. Therefore, it is false to state that non-residents are eligible to open an account under the PPF scheme.

Explanation:

In an offer for sale of shares, the funds raised by the issue represent the sale proceeds for the original shareholder or entity offering the shares. Unlike in a primary market offering where funds raised go to the company issuing the shares, in an offer for sale, the existing shareholders or entities sell their shares directly to investors. Therefore, the funds raised from the sale of shares in an offer for sale belong to the original shareholders or entities offering the shares, and not to the company whose shares are being traded.

Explanation:

According to the cost of carry model, the price of futures is determined by adding the cost of carrying the underlying asset to the spot price. This model assumes that arbitrage opportunities will force the futures price to equal the sum of the spot price and the cost of carrying the underlying asset until the expiration of the futures contract. The cost of carry includes factors such as financing costs, storage costs, and dividends or interest earned on the underlying asset. Therefore, the correct formula is Price of Futures = Spot + Cost of Carry.

Explanation:

When the correlation coefficient between two stocks decreases, it indicates that the movements of the stocks are becoming less synchronized. In a portfolio comprised of two stocks, a lower correlation between them means that they are less likely to move in the same direction at the same time. As a result, the overall risk of the portfolio decreases because the diversification benefit increases due to the reduced correlation between the stocks. Therefore, if the correlation coefficient decreases over time, everything else remaining constant, the portfolio’s risk would decrease.

Explanation:

Mutual fund houses can either offer a contra fund or a value fund.

Explanation:

According to SEBI regulations, for a debt scheme like the Corporate Bond Fund to be categorized as “predominantly investing” in AA+ and above rated corporate bonds, it must invest a minimum of 80% of its total assets in such bonds. This requirement ensures that the fund maintains a high proportion of its investments in relatively higher-rated corporate bonds, thereby aligning with the investment objective of the fund to invest primarily in higher-rated securities for reduced credit risk.

Explanation:

When inflation spikes, central banks often respond by increasing interest rates to curb inflation. As interest rates rise, the value of existing bonds decreases because newer bonds offer higher yields, making existing bonds less attractive. Consequently, bond prices fall inversely with rising interest rates, reflecting the inverse relationship between bond prices and interest rates known as interest rate risk.

Explanation:

Moving averages are a widely used tool in technical analysis to smooth out price data and identify trends over time. They help traders and analysts assess the direction and strength of price movements by filtering out short-term fluctuations. Different types of moving averages, such as simple moving averages (SMA) and exponential moving averages (EMA), are employed to analyze price movements and make trading decisions.

Explanation:

The Securities Contracts (Regulation) Act, 1956 (SC(R)A) is the primary legislation governing securities trading in India. It regulates the trading of securities such as stocks, bonds, and derivatives, and establishes the legal framework for stock exchanges and securities markets in the country. While SEBI (Securities and Exchange Board of India) regulates and supervises the securities markets, SC(R)A provides the statutory basis for its functions and operations.

Explanation:

All primary market issues are not necessarily public issues. While public issues involve the sale of securities to the general public, primary market issues can also include private placements, rights issues, and preferential allotments, which may not be offered to the public at large. Therefore, not all primary market issues are public issues.

Explanation:

Tactical asset allocation involves adjusting the asset mix of a portfolio opportunistically in response to changing market conditions or short-term trends. Unlike strategic asset allocation, which aims for a long-term target allocation, tactical asset allocation seeks to exploit short-term opportunities for enhancing portfolio performance.

Explanation:

Selling a call option involves receiving the premium upfront from the buyer of the option and obligates the seller to potentially sell the underlying security at the specified price (strike price) if the option is exercised by the buyer before or at expiration.

Explanation:

The risk in this portfolio primarily pertains to liquidity risk because Anupama has invested a significant portion of her portfolio in tax-free bonds, PPF, and a pension plan, which typically have restrictions on withdrawal or may involve penalties for early withdrawal. This lack of liquidity can pose a risk if Anupama needs access to funds urgently or if her financial circumstances change.

Explanation:

=PV(13%/2,4,6,100,0)

Since Rs 6 is paid every 6 months it means that yearly the bond pays Rs 12. So the Coupon was 12% at the time of issue. Now the yield has increased to 13%.

Explanation:

Long-term bonds are typically more sensitive to changes in interest rates compared to short-term bonds, making them more volatile in terms of price. Conversely, short-term bonds are less vulnerable to interest rate fluctuations due to their shorter maturity periods. Therefore, both statements (a) and (b) are true regarding the characteristics of bonds.

Explanation:

Credit risk refers to the risk associated with the possibility of a borrower failing to meet their debt obligations, such as interest payments or principal repayment. This risk arises from the potential default of the borrower, leading to losses for the lender or investor. Therefore, credit risk specifically relates to the risk of a company or borrower defaulting on payment obligations.

Explanation:

Alternative investment refers to a financial asset or instrument that does not belong to traditional investment categories like stocks, bonds, or cash. Instead, it encompasses a wide range of non-traditional investments, such as hedge funds, private equity, real estate, commodities, and derivatives. These assets often exhibit unique characteristics and may offer diversification benefits beyond traditional investments.

Explanation:

The updated Net Asset Value (NAV) of mutual fund schemes (except for fund of fund schemes) for a day must be made available on the Association of Mutual Funds in India (AMFI) website by 11 pm daily. This ensures that investors have access to the most recent NAV information for their investment decisions.

Explanation:

A Category III Alternative Investment Fund (AIF) can invest up to 10 percent of its investable funds in one single investee company. This limitation helps diversify the fund’s investments and mitigate the risks associated with over-concentration in a single company.

Explanation:

A normal yield curve is characterized by an upward slope, indicating that longer-term bonds have higher yields compared to shorter-term bonds. This typically reflects the expectation of higher inflation and interest rates in the future, compensating investors with higher yields for holding longer-term bonds.

Explanation:

Standard Deviation is Square root of Variance

Explanation:

The Central Government in India issues both Treasury bills and Dated securities to meet its borrowing requirements. Treasury bills are short-term debt instruments with maturities of up to one year, while Dated securities are long-term debt instruments with maturities typically exceeding one year. These securities are important instruments through which the government raises funds to finance its expenditure and manage its fiscal obligations.

Explanation:

Return on Investment in USD = 100* (Selling Price – Cost Price) / Cost Price
Return on Investment in USD = 100 * (120000-100000) / 100000 = 20%
Return on Investment in INR
Investment in INR = 100000 USD * 44.5 = 44.5 Lakhs
Redemption in INR = 120000 USD * 46 = 55.20 Lakhs
Total Returns in INR = 100 * (55.20 – 44.5)/44.5
Total Returns in INR = 24%

Explanation:

Sovereign yield curves primarily focus on the interest rate or yield levels for government-issued securities. As these securities are backed by the government’s ability to tax and print money, credit or default risk is typically not a significant concern, making it irrelevant in the context of sovereign yield curves. Instead, factors such as market risk, concentration risk, and inflation risk are more pertinent when analyzing sovereign yield curves.

Explanation:

Unsystematic risk, also known as specific risk, refers to risks that are specific to a particular company or industry and can be mitigated through diversification. In this example, the decrease in the number of vehicles sold by a major manufacturer reflects company-specific factors such as product demand, competition, or management decisions, making it an example of unsystematic risk.

Explanation:

As per SEBI (Alternative Investment Funds) Regulations, 2012, the minimum stipulated corpus for an AIF scheme is Rs. 20 crore. This minimum corpus requirement ensures that AIFs have sufficient funds to effectively implement their investment strategies and manage risks.

Explanation:

Trading rules and indicators encompass various techniques and tools used by traders to analyze market trends and make trading decisions. Moving averages, Bollinger-Band analysis, and trend-line analysis are all examples of such techniques and indicators. These tools help traders identify patterns, trends, and potential entry or exit points in the market, assisting them in making informed trading decisions.

Explanation:

Securities Transaction Tax (STT) is not applicable on the purchase and sale of Gold ETFs. STT is typically levied on transactions involving equity securities, such as stocks and equity mutual funds, but not on transactions involving gold ETFs. Therefore, mentioning STT as a disadvantage of Gold ETFs over physical gold is not appropriate in this context.

Explanation:

According to SEBI regulations, an individual investment adviser is required to maintain a minimum net worth of Rs. 5 lakhs to operate as an investment adviser. This net worth requirement ensures that the adviser has sufficient financial resources to meet regulatory obligations and provide services effectively.

Explanation:

The Treynor ratio measures the excess return of a portfolio per unit of systematic risk, as measured by beta. It is calculated by subtracting the risk-free rate of return (Rf) from the portfolio’s return (Rp), and then dividing this excess return by the portfolio’s beta. This ratio helps investors evaluate the risk-adjusted performance of a portfolio relative to its systematic risk exposure.

Explanation:

An inverse yield curve, also known as an inverted yield curve, occurs when the yields of short-term securities are higher than the yields of longer-term securities. This situation typically reflects market expectations of economic downturn or recession, where investors anticipate lower future interest rates and seek higher yields in the short term.

Explanation:

Financing the investments is not typically a part of the financial planning process itself. Financial planning primarily involves setting goals, developing recommendations, and monitoring the progress towards achieving those goals. Financing the investments may be a subsequent step taken after the financial planning process to implement the recommendations.

Explanation:

Liquid funds are designed for short-term investment needs and offer high liquidity with low risk. They invest in money market instruments such as treasury bills, commercial papers, and certificates of deposit, making them suitable for Sahil’s short-term investment horizon of 2 months. These funds typically provide higher returns compared to traditional savings accounts while maintaining capital stability.

Explanation:

It is essential for an investment adviser to disclose any potential conflicts of interest, such as receiving commissions, to their clients to ensure transparency and maintain trust. This disclosure helps clients make informed decisions and understand the adviser’s motivations behind recommending certain products.

Explanation:

Intermediaries play a crucial role in facilitating transactions between investors and issuers in the market. They include entities such as brokers, investment banks, and financial advisors who provide services like trade execution, advisory, and underwriting, thereby facilitating smooth interaction and transactions within the market.