Question Set 1F

Welcome to the Mutual Fund Distributor Demo Examination :
Get ready to test your knowledge of the NISM-Series-V-A: Mutual Fund Distributors Certification Examination.

1. Securities with a call option are to be valued on the basis of

Yield to call

Yield to maturity

Higher of the values determined under A and B

Lower of the values determined under A and B

2. To get the benefit of dividend stripping, the investor would need to

Buy the securities more than 3 months prior to the record date for the dividend

Sell the securities more than 3 months after the record date for the dividend

Both the above

A or B

3. The benefit of opening a mutual fund account is –

Cheque writing facility

Further investments without elaborate forms and

procedures

Both the above

4. When an investor invests in a scheme, he is entitled to receive –

Investment certificate

Fund account statement showing purchase, redemption etc

Both the above

Either A or B at the option of the investor

5. Loan against investors’ holding in a mutual fund can be given by

The mutual fund

Bank or any other lender

Both the above

6. Dividend yield is calculated as –

Dividend / Last traded price of the share

Dividend / Face value of the share

Dividend / Book value of the share

7. A mutual fund may

Lend money to corporates

Trade in options

Invest in financial derivatives

All of the above

8. A mutual fund shall not

Underwrite issues

Invest in financial derivatives

Borrow moneys from corporates

Lend money to corporates

9. The most significant risk in a well-diversified debt scheme is –

Re-investment risk

Credit risk

Interest rate risk

Liquidity risk

10. Price risk is not inherent in –

Fixed Rate Instruments

Floating Rate Instruments

Zero Coupon Instruments

All the above

11. A 5 year deep discount bond issued by ICICI would

be redeemed at value lower than issue price with no payments in between

be redeemed at value higher than issue price with no payments in between

be redeemed at value higher than issue price with payments in between

be redeemed at value lower than issue price with payments in between

12. A debenture with a face value of Rs. 1000 and a 2 year term to maturity has yield to maturity (YTM) of 9 per cent. The coupon rate is 12 per cent per annum, payable half-annually. What is its price?

Rs. 1000.00

Rs. 995.35

Rs. 990.10

Rs. 1052.80

13. Maximum permissible investment by a mutual fund in money market securities during the first 6 months from allotment of units in an IPO is –

100 per cent

60 per cent

50 per cent

Depends on whether it is an equity scheme or a debt scheme

14. “Duration” refers to

Change in valuation of debt securities with respect to change in interest rates

Change in valuation of debt and equity with respect to change in interest rates

Change in valuation of debt securities with respect to change in BSE sensex

Term to maturity of any debt instruments

15. When the government / RBI wants to borrow for less than 1 year in the local currency market, it issues

Government Securities

Treasury Bills

Commercial Paper

Certificate of Deposit

16. Price risk is not inherent in –

Fixed rate instruments

Floating rate instruments

Zero coupon instruments

All the above

17. A scheme that has net assets of Rs.100 crores wants to invest in the equity of a company for the first time. It can invest a maximum of –

Rs15crore

Rs5crore

Rs10crore

Rs20crore

18. The role of a security dealer is to –

Decide on asset allocation

Track stocks and sectors

Execute buy and sell orders

19. The relationship between current yield and yield to maturity is –

Current yield is always lower than yield to maturity

Current yield is always higher than yield to maturity

Both are the same

None of the above

20. Yield spread means

The additional yield on a government security as compared to the rate of inflation

The additional yield on a bond as compared to the yield of a benchmark security

Term structure of interest rates

Sovereign yield curve

21. The following is not a risk for a debt investor –

Reduction in value of security

Call Option

Put option

Re-investment

22. The risk level in a hedge fund is

High

Low

23. The following is a better benchmark for money market funds in India

I-Sec’s IBEX

NSE’s MIBID / MIBOR

BSE Sensex

24. Best benchmark for the Index Based Fund is

Any Market Index

Any Sector Index

Pre-specified index

None of the above.

25. NAV of a scheme has gone up from Rs.10 to Rs.11.50 in 15 months. The CAGR is –

12 per cent

(11.5 / 10)(12/15) -1

(11.5 / 10)(15/12) -1

(10 / 11.5)(15/12) -1

26. Which of the following statements is true?

Total Return is a theoretically sound method of evaluating funds

Cumulative Aggregate is superior to Average Annualised Returns for evaluating funds

XIRR and Compounded Annual Growth Rate calculations for the same scheme can give different returns

None of the above

27. The objective of financial planning is –

To ensure that the investor gets the maximum returns

To ensure that the investor earns a return that is commensurate with the risk he can take

To ensure that the investor has the right amount of money at the right time to achieve financial goals

None of the above

28. A mutual fund distributor who offers financial planning service, benefits because –

He is able to establish long term relationships

He is able to earn optimal profits

Both A and B

None of the above

29. The following is the least important skill that a financial planner needs to possess

Ability to build client trust

Good knowledge of financial products and options

Familiarity with taxation and estate planning

Knowledge of the hottest tips in the equity market

30. The following is a recommended financial planning sequence

Define the client-planner relationship; Define Client Goals: Evaluate Client Financial Status; Develop financial planning recommendations

Evaluate client financial status; Define client goals; Define client-planner relationship; Develop financial planning recommendations

Define client goals; Evaluate client financial status, Develop financial planning recommendations; Define client-planner relationship

Develop financial planning recommendations; Evaluate client financial status; Define client goals; Define client-planner relationship

31. Which of the following is true

Financial planning is equivalent to tax planning

Financial planning is equivalent to retirement planning

Financial planning is important only for people over

None of the above

32. Goal oriented investing means

Setting broad financial targets and investing as per risk preference of the individual

Viewing each financial goal distinctly, and making a specific asset allocation and investment for each goal

Whatever money becomes available from time to time, to be invested as per risk preference

None of the above

33. Value Averaging means

Investing / dis-investing constant amounts every period

Keeping the target value of investment constant and investing / disinvesting depending on how the market has changed.

Investing in under valued stocks

34. The limitation of rupee cost averaging is

It does not tell the investor when to switch from losing to winning funds

It tells the investor when to buy or sell the fund

It does not tell the investor when to buy or sell the fund

Both a and c

35. Asset allocation for a financial planner means –

Determining how much is to be invested in each security

How the investment should be distributed between different asset classes

How the investment should be distributed between different mutual funds having the same risk profile

How a fund manager distributes his investments within a scheme

36. In a fixed asset allocation –

The investor would make incremental investments as per a fixed distribution between assets

Moneys would be transferred from high return assets to low return assets, if there is nothing incremental to invest

None of the above

37. In a tactical asset allocation –

The asset allocation would be changed in line with changes in the investor’s age, salary etc.

The asset allocation would be changed in line with market view

None of the above

38. RBI Relief Bonds are attractive investment options for

High net worth individuals

Retired people

Institutional investors

39. Indira Vikas Patra is liked because of –

Good returns

Tax-free returns

No record of identity of investors

All the above

40. A Triple Cover Policy is

an endowment policy plus term insurance of double the sum assured

a policy that covers three members of a single family

a policy where a surviving policyholder will never get his money back

41. The term ‘rider’ in an insurance policy refers to –

Spouse getting a free ride in basic insurance policy

Add-on to the basic policy

Condition under which the insurer may contest or void the policy

42. Gold and real estate are attractive investment options in –

High inflation economies

Low inflation economies

Inflation does not make a difference

43. Which of the following Fixed Deposit can be recommended

Company giving highest returns without Rating

Company giving moderate returns with highest ratings

Company paying maximum brokerage

Well known companies’ FD

44. Of the following types of equity funds, the highest potential risk is with

Diversified funds

Sector funds

Growth funds

Index funds

45. A person looking for an investment with lowest risk of principal loss would prefer

A debt fund

A bank deposit

A gilt fund

46. Which of the following is the right comparison

A long-term life insurance policy and long term bond

A bank FD with a Monthly Income Plan

A Monthly Income Plan with a monthly interest Fixed Deposit

None of the above

47. Volatility of a mutual fund is influenced by

Number of securities in the portfolio

Nature of securities in the portfolio

Fund manager’s success in timing the market

All the above

48. Beta of a scheme is 1.5. This means that

It is less risky than the market

It is more risky than the market

The scheme is a good performer

None of the above

49. Which of the following would you suggest for an investor who is in the early accumulation phase in life

Equity 70%, Debt 20%, Liquid 10%

Equity 50%, Debt 30%, Liquid 20%

Equity 75%, Debt 5%, Liquid 20%

Equity 30%, Debt 50%, Liquid 20%

50. Asset allocation of a portfolio should be re-evaluated every time there is change in the

Family size and requirement

market condition

Job of the investor

all of the above

51. Which of the following is true?

Sharpe ratio divides risk premium by the fund’s standard deviation

Treynor ratio divides risk premium by the fund’s beta

Alpha compares the fund’s actual results with what would have been expected given the fund’s beta and the market index performance

A, B and C

52. Which of the following is true

Gross dividend yield of “growth” funds is likely to be higher than that of “value” funds

Gross dividend yield of “value” funds is likely to be higher than that of “growth” funds

None of the above

53. Which of the following is not true?

Standard deviation measures the fluctuations of a fund’s returns around a mean level

Standard deviation is relevant for both debt and equity funds

R-squared measures how much of a fund’s fluctuations is attributable to movements in the overall market

Beta of less than one means that the fund is more volatile than the market

54. Which of the following would you look at while selecting a money market mutual fund?

Cost

Portfolio Quality

Yield

All the above

55. When would you review the financial plans of your client?

Whenever the investor’s personal circumstances of financial goals change

Whenever stock market prices fall sharply

Shortly before the filling of the Income Tax returns of your client

Each year at the time of the presentation of the Government budget

56. The Ex-Mark of an Index Fund is likely to be around

50%

100%

None of the above

57. A five-year deep discount bound would?

Pay interest on a quarterly basis

Pay interest on a yearly basis

Be redeemed on maturity at the face value which is higher than the issue price with no payments in between

Would offer yield tax free income

58. Sharpe and Treynor rations are measures of

Average return

risk

risk adjusted return

beta of the portfolio

59. Jacob recommend of the following risk allocation for a low risk portfolio:

50% govt. Securities fund + 50% Money Market funds

50% govt. Securities fund + 50% Index fund

50% govt. Securities fund + 50% international funds

50% govt. Securities fund + 50% aggressive growth funds

60. Which classification of mutual funds does not exits?

Pension fund or provident fund

Closed – end or open – end

Load fund or no load fund

Active fund or passive fund

61. Unit capital is found in the

Liability side of scheme’s balance sheet

asset side of the balance sheet

Revenue account

equalization account

62. A sponsor of a mutual fund

can act as the distributor of the mutual fund

cannot act as the distributor of the mutual fund

can act as the trustee of the mutual fund

can act as the custodian of the mutual fund

63. To create investor awareness about mutual funds, a booklet titled “Making Mutual Fund

SEBI

AMFI

Unit Trust of India

Investor Education and Protection fund

64. Distributors will find the information on performance of a scheme as compared to its benchmark in the

Key information Memorandum

Offer Document

Fund Advertisements

all of the above

65. SEBI guidelines on personal investment and trading apply to

AMC employees and fund trustees

only AMC employees

Only fund trustee’s

anyone concerned with the funds

66. The “Load” charged to an investor in a mutual fund goes to meet the

Selling and distribution expenses

expenses of AMFI

Printing stationery and posting expenses

marketing and sales promotion expenses

67. Which of the following statements is an adequate description of reality?

When compared to gilt funds, securities in debt funds have higher risk of default

Growth and risk are associated with equity funds

Debt fund have higher NAV fluctuation when compared to money markets funds

All these statements describe reality adequately

68. Which of the following is 1?

A fund sponsor can contribute to the initial corpus of the trust

A fund sponsor can contribute to the capital of the AMC

A fund sponsor can invest in his own fund’s schemes

All of the above

69. A unit holder purchased 200 units of a mutual fund at NAV of Rs.12, each. There was no entry load. The fund purchased securities worth Rs.2400 using this money. After one year the fund had 20,000 units. The value of unit holders holding in that mutual fund would be

Rs.2400

1% of the value of fund’s portfolio at the time

1% of the net assets of the fund at that time

cannot say with the given data

70. Which of the following is NOT a characteristic of mutual fund

Pooling of investments

market risk

Uniform unit holder rights

Safety of principal

71. Which of the following is incorrect?

A value fund tries to seek out fundamentally sound companies whose shares are currently overpriced in the market

A balanced fund hold assets more or less in equal proportions between debt /money market securities and equities

A growth fund would invest in the equity shares of companies whose earning are expected to rise at an above average rate

A fund that invests only in ASEAN countries is an example of specialty fund

72. The annualized value of contingent deferred sales charge would

Increase if the investor stays with the fund longer

Remain content regardless of how long the investor stays with the fund

Decrease if the investor stays with the fund longer

None of the above.

73. Which is / are the characteristic(s) of fixed term plans noticed in the Indian mutual fund industry?

Close – ended

Maturity shorter than one year

Not listed on stock exchange

all of these

74. Each unit holder of a mutual fund is

a creditor to that mutual fund

a debtor to that mutual fund

a trustee of that mutual fund

part owner of the assets of that mutual fund

75. Mutual funds offer the advance of portfolio diversification. This is best expressed by the statement.

do not put all eggs in one basket

one bird in hand is better than two in the bush

What goes up must come down

risk and return always goes hand in hand

76. Fund A invests in shares of companies in India. Fund B invests in shares of companies in India and USA. We can say that

Definitely A is more diversified than B

Definitely A and B are well-diversified

We need more information to identify which of them is better diversified

Definitely B is more diversified than A

77. Value averaging means:

Investing the same amount of funds regularly

Investing in one lump sum amount

Keeping the target value of investment constant by investing the amount by which the investment value has gone down

None of the above

78. A fund has to Beta of greater than 1. This means:

The fund is more volatile than the market

the fund is as volatile as the market.

The fund is less volatile than the market

none of the above.

79. For a small investor in India, which of the following is expected to have a higher level of liquidity?

Equity shares in an unlisted company

Debenture issued by a company

Unit of an open-ended MF

Real estate.

80. In a mutual fund, the NAV per unit is 12. Total number of units is 100. Total assets of this fund would be

less than Rs 1200

exactly Rs 1200.

more than Rs 1200

cannot say anything without additional information.

81. A close ended mutual fund has a fixed

market value of assets under management

net asset value per unit.

unit capital and number of units

number of units.

82. An open end scheme can change its fundamental attributes.

by obtaining the consent of 75% of unit-holders at least

by allowing unit-holders to exit the scheme after six months without any exit load

by informing each unit-holder individually of the proposed change and by allowing units holders to exit the scheme without any exit load.

After obtaining prior approval from SEBI

83. If an investor failed to claim the redemption proceeds after 3 years of due date he has right to receive an amount equal to:

Prevailing NAV

Face value of the unit

due date NAV plus interest @ 15% p.a.

NAV at the end of three years after the due date.

84. Right to timely service includes.

the right to obtain information from the trustees that may have adverse bearing on their investments.

Right to nominate a person in whom all the beneficial ownership rights in the units will vest in the event of death

Right to receive dividend warrants in 30 days from the date of declaration

Right to receive a copy of the annual financial statement of the fund.

85. Yield curve is a graph that shows.

yields of various equities of various firm.

Yield from mutual funds.

Yields of various bonds of various maturities using one set of bonds such as G Secs

None of the above.

86. A unit of an open-end fund was purchased when is NAV was Rs 40/-At year end, its NAV was Rs 44. The percentage annualized change in NAV IS.

12%

10%

25.00%

15.00%

87. As per SEBI (Mutual Fund) Regulation, who acts as the protector of unit-holder’s interest?

Trustees

SEBI

Ministry of Finance

Compliance officer

88. A no load bond scheme of a mutual fund has weekly average net assets of Rs.200 crores it can charge maximum investment management fee of

Rs. 4.25 Cr

2.5 Cr

2 cr

5 cr

89. Units of mutual fund are short term capital assets if

They are held for not more then twelve months proceeding the date of transfer.

They are held for less than twelve months proceeding the date of transfer.

They are held for not more than three years proceeding the date of transfer.

They are held for less than three years proceeding the date of transfer.

90. An investor has opted for a Systematic Transfer Plan. This means.

he can transfer on a periodic basis a specified amount from one scheme to another

he is required to invest a fixed sum periodically

the investment would provide the benefit of rupee cost averaging

He can transfer on a periodic basis a specified amount from the scheme to his bank account

91. Which of the following is NOT required to appear on the cover page of the offer document?

Date new fund offer opens

Date new fund offer closes

Earliest closing date (if any) for the new fund offer

Date on which approved by trustees.

92. A mutual fund launched a new scheme. It issued 10 crores units. The offer document mentioned entry load of 2.25% of face value. During the New Fund Offer period issue expenses were Rs 8 crores. How much of this is borne out of entry load?

2.25 cr

Rs. 6 cr

Rs 8 cr

Rs 3.75 cr

93. A mutual fund launched a new scheme. It issued 10 crores units. The offer document mentioned entry load of 2.25% of face value. During the new fund offer period issue expenses were Rs. 8 crores. If initial issue expense is amortized over 5 years period, what would be the opening NAV per unit if management fees and other recurring expenses are zero? Assume that there is no reflection in value of underlying assets.

9.9998

9.4

9.775

94. A mutual fund is not

A portfolio of stocks, bonds and other securities

A company that manages investment portfolios

A pool of funds used to purchase securities on behalf of investors

A collective investment vehicle

95. After UTI, the first mutual funds were started by

Private sector banks

Public sector banks

Financial institutions

Non-banking Finance Companies

96. Mutual fund can benefit from economics of scale because of

Portfolio diversification

Risk reduction

Large volume of trades

None of the above

97. Equity Linked Savings Scheme does not have which of the following features?

It entitles the unit holder to tax rebate

The investment is locked in for 3 years

A minimum stated level of investments is made in equity and equity related instruments

None of the above

98. A close ended mutual fund has a fixed

NAV

Fund Size

Rate of Return

Number of Distributors

99. Of the following fund types, the highest risk is associated with

Balanced Funds

Gilt Funds

Equity Growth Funds

Debt Funds

100. The custodian of a mutual fund:

Is appointed for safekeeping of securities

Need not be an entity independent of the sponsors

Not required to be registered with SEBI

Does not give or receive deliveries of physical securities

Question 1 of 100