Question Set 3F

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. The valuation norm for non-investment grade, performing assets is done:

On YTM basis using the Crisil valuation methodology

On YTM basis with 25% discount

At 25% discount to face value

At face value

2. Valuation norms for non-traded securities should be disclosed

At the end of every financial year

Every quarter

In the offer document at the time of launch of the scheme

Should not be disclosed, being confidential information

3. As per SEBI guidelines, a security is to be treated as untraded when

Security is never traded on stock exchange

Security is not traded for 30 days

Security is not traded for 60 days

None of the above

4. Ex-marks with 100 % could be for the following fund:

Growth fund

Index fund

Value fund

Balanced fund

5. A high turnover rate for a fund indicates

High transaction costs

Greater efficiency

High returns to the investor

A rising market

6. An investor can assess the performance of his mutual fund by comparing it with the performance of

Other mutual fund of the same type

The stock market

Other financial products

All of the above

7. If the NAV of an open-ended fund was Rs.16 at the beginning of the year and Rs.22 after 13 months, the annualized change in NAV is

6.00%

34.60%

40.60%

37.50%

8. The choice of an appropriate benchmark for evaluating a fund’s performance depends on

The fund manager

The investment objective of the fund

SEBI

AMFI

9. When comparing a fund’s performance with that of its peer group, the following cannot be compared

Two debt funds with 5 year maturities

A broad-based equity fund with an IT Sector Fund

A bond fund with a bond index

A government securities fund with a government security

10. Which of the following is ?

ROI is a measure similar to Total Return with Reinvestment of distribution

Total Return with Reinvestment of distributions assumes reinvestment at NAV on the distribution date

As a measure of performance, Total Return with Reinvestment of distribution seeks to overcome the shortcomings of simple Total Return

Because of its simplicity, simple Total Return is preferred in practice to Total Return with Reinvestment of distribution

11. Financial planning allows a person

To become a billionaire

To achieve financial goals through proper management of finances

To invest in foreign countries

None of the above

12. Financial Planning comprises

Defining a client’s profile and goals

Recommending appropriate asset allocation

Monitoring financial planning recommendations

All of the above

13. Financial planning does not include:

Enabling investors to define financial goals

Assessing the investors risk and return requirements

Recommending an appropriate asset allocation

Selecting securities that will be included in the investor’s portfolio

14. A small investor can build a diversified portfolio by

Buying one share each of all listed companies

Investing in a mutual fund

Borrowing enough money to buy shares of well-managed companies

None of the above

15. Direct investment in stock market can be a better option than investing through mutual funds if the investor

Wants better returns than those offered by mutual funds

Has large capital, knowledge and resources for research

Has identified a bullish phase in the stock market

Wants to invest for the long term

16. Indira Vikas Patra is an investment product popular with

Rural investors

Investors in high tax bracket

Urban investors

Investors who want to protect their identity

17. Most individuals invest in life insurance policies for

Risk protection

Tax benefits

Easy liquidity

High returns

18. Which of the following about PPF is ?

Investments have to be made form taxable income of the relevant year.

Investments once made cannot be withdrawn until maturity.

Both interest and principal are tax free in the year of withdrawal.

Investments enjoy tax benefits under Section 88 of the IT Act.

19. The difference between debenture and bond is:

Bonds are issued by corporations and debentures are issued by PSUs.

Bonds are unsecured and debentures are secured.

Bonds are backed by loans and debentures are backed by assets

None of the above.

20. A criticism of rupee-cost averaging is

Investment is for the same amount at regular intervals

Over a period of time, the average purchase price will work out lower than if one tries to guess the market highs and lows

It does not tell you when to buy, sell or switch from one scheme to another

Rupee cost averaging has no serious shortcomings

21. A high proportion of investment in income funds is required by

Accumulating investors

Affluent investors

Investors in the inter-generational transfer phase

Investors in the distribution phase

22. A high proportion of investment in equity funds is advisable for investors

In distribution phase

In accumulation phase

In transition phase

Who are wealth preserving affluent individuals

23. Investors who follow the fixed Asset Allocation approach

Maintain balance in their portfolio by liquidating a part of the position in the asset class which has given higher return and reinvesting in the other asset class which has lower return

Are not disciplined

Increase their equity position when equity prices tend to climb

None of the above

24. Mutual fund investors should be advised to expect

Low post tax returns

Dramatic results

Better returns than every other available option

Only realistic wealth accumulation

25. Which of the following fund types are comparable

An aggressive equity fund and a money market mutual fund

A value fund and a government securities fund

A bond fund and a debt fund

A diversified equity fund and a debt fund

26. Which of the following is a disadvantage of standard deviation

Standard Deviation measures total risk, not just market risk

It is based on past returns, which does not necessarily indicate further performance

It is an independent number

All types of funds can be measured with standard deviation

27. Which of the following is most risky?

Investing in a money market mutual fund

Investing in an index fund

Short term investment in an equity fund

Long term investment in an equity fund

28. Yield-to-maturity of a debt fund is more important if the investment objective is

Current income

Total return

Liquidity

All of the above

29. A systematic withdrawal plan is ideal for investors who

Seek growth as the main objective

Wish to benefit from market fluctuations

Prefer a regular income stream

Not sure about themselves

30. Gilt funds invest in

IT sector

AAA securities

Money market securities

Government bonds

31. Which of the following is recommended by Bogle for older investors in accumulation stage?

50% in equity and 50% in debt

60% in equity and 40% in debt

70% equity and 30% debt

40% equity and 60% debt

32. Illiquid securities in a portfolio

Cannot be transferred across schemes

Cannot be more than 15% of net assets

Cannot be more than 20% of net assets

a and b are 1

33. Which of the following cannot invest in mutual funds?

NRIs

Charitable trusts

FIIs

Foreign investors

34. Which of the following is 1 for assured return schemes?

Name and net worth of guarantor to be given

Performance of past assured return schemes to be given

Whether assurance in earlier scheme was met to be stated

All of the above

35. Your friend in Dubai wants to invest in a mutual fund. She should be advised to read

Trust deed

SEBI regulations

Offer document

AMC balance sheet

36. While deciding on asset allocation, an investor must consider

The stage of his life

The purpose of making investment

His risk appetite

All of the above

37. Mutual funds should be recommended as

Investments to achieve long term goals

A get-rich quick option

Investments to take advantage of stock market

All of the above

38. A fund manager who believes in the growth philosophy looks for companies with

Above average earnings growth

Large equity base

Likely to go for public issue

All of the above

39. An open ended fund can change its fundamental attributes by

Allowing investors to exit after 6 months

Allowing investors to exit at NAV without a load

With consent of 75% of investors

None of the above

40. Which of the following is not a SRO?

BSE

NSE

AMFI

None of the above

41. Which of the following do not provide a guarantee on capital?

PPF

NSC

Post office deposits

Units of mutual funds

42. Which are the benchmarks used to evaluate fund performance

Return on benchmarks like S&P and Sensex

Return on other funds

Return on comparable instruments

All of the above

43. Mutual funds can borrow:

upto 25% of net assets

upto 20% of net assets

For period not exceeding 6 months

Both b and c

44. The second mutual fund to be set up in India after UTI was

Canbank Mutual Fund

Kothari Pioneer Mutual Fund

Morgan Stanley Mutual Fund

SBI Mutual Fund

45. The following is the fund you would advice to an investor who wants to invest for one year

A debt fund with expense ratio of 1.15% and a entry load of 2%

A debt fund with expense ratio of 1.2 % and a entry load of 2.5 %

A debt fund with expense ratio of 1.5% and an entry load of 4%

A debt fund with expense ratio of 0.5 % and entry load of 3%

46. Which of the following is 1 for closed end funds?

The fund offers to buy and sell units at NAV

The corpus of the fund is constant

The net assets of fund does not change

None of the above

47. Mutual funds can lend funds in the form of

Loans

Promissory notes

Securities

None of the above

48. What proportion of a mutual funds trustees have to be independent from the sponsor?

50%

2/3rd of trustees

3/4th of the trustees

60% of the trustees

49. A mutual fund cannot invest more than _____% of its net assets in un-rated debt of one issuer. Total investments in un-rated debt cannot exceed ____% of net assets.

10; 20

15; 25

10; 25

15;20

50. Stock exchanges can act as regulators of:

SEBI registered mutual funds

Closed end funds listed on the exchange

All sectoral funds

All equity mutual funds

51. An offer document of an open ended fund has to be revised

Once in 3 years

Not at all

Every year

Once in two years

52. Which of the following is an ideal allocation for a wealth preserving affluent investor?

50% equity;50% debt

70% equity; 30% debt

30% equity;70% debt

100% equity

53. If a 8% bond with face value of Rs. 1,000 is selling for Rs. 1,100, what is the current yield?

7.27%

7.80%

8.20%

54. Which of the following will NOT require financial planning?

A 40 years old doctor with substantial savings

A retiree who is currently getting an income of 4,000 but would want Rs.10,000 a month

An old person wanting to transfer all his wealth to his grandchildren

A young professional aged 26 years

55. Financial planning is:

Investing funds to achieve a highest possible rate of return

Resorting to tax planning to keep taxes as low as possible

Planning for retirement with maximum income possible

Process of solving financial problems and reaching financial goals

56. P/E of which of these stocks is usually high?

Value stocks

Cyclical stocks

Small cap stocks

Growth stocks

57. A FII can invest in a mutual fund through its

Non resident external account

Non resident ordinary account

Non resident rupee account

RBI current account

58. Which of the following cannot be distributors of a mutual fund

Sponsor

Associate of sponsor

Associate of AMC

Employees of AMC

59. If you maintain a flexible asset allocation you would

Rebalance debt and equity periodically

Rebalance debt and equity frequently

Generally avoid portfolio re-balancing

Keep fixed percentage in debt and equity at all times.

60. You have just won a huge sum in a lottery. What should your ideal allocation be?

Invest everything in sectoral funds, as NAV is very low.

Invest in money market funds and decide over the next few months

Consider the impact of tax

Both c and d

61. You invest Rs. 25,000 in a mutual fund. After 2 years you redeem your units at Rs. 32,000. Ignoring indexation and surcharge, what is the capital gain tax on 140

After 2 years you redeem your units at Rs. 32,000. Ignoring indexation and surcharge, what is the capital gain tax on 140

Rs. 7,000

Rs. 700

Rs.1,400

62. What is the portfolio you will recommend to a young couple with two incomes and two children?

10% money market; 30% aggressive equity; 25% diversified equity; 35% bond funds

40% aggressive equity; 30% money market; 30% bond fund

60% equity; 30% money market; 10% debt

70% bond funds; 30% equity funds

63. If an AMC does not resolve an investor’s complaint, investor can appeal to:

SEBI

Ministry of Finance

Office of the public trustee

Company Law Board

64. If a fund’s NAV is Rs. 12, what is the maximum sale price it can charge, according to SEBI regulations?

Rs. 12.70

Rs. 12.84

Rs. 13.68

Rs. 11.16

65. Which of the following represents the transition phase?

Investor has no need for investment income

Investor has a long term horizon

Investor cannot take risks

Investor’s financial goals are approaching.

66. Debt securities with less than 182 days to maturity are valued at

Face value

YTM basis

Accrual basis

Duration basis

67. If a scheme holds more than 15% in illiquid securities, all securities above that limit have to

Be valued at book value

Be valued at a discount of 25%

Valued at cost price

Assigned a value of zero

68. Ex-Marks of an equity fund measures its

Performance

Risk

Both the above

None of the above

69. Which of the following is un1 of an automatic reinvestment plan?

The plan allows for automatic reinvestment of all income and capital gains

Automatic reinvestment allows for accumulation of additional units of the fund

The major benefit of automatic reinvestment is compounding

The benefit of automatic reinvestment is often lost on account of the heavy load charge on the reinvestment

70. Retired investors should

Not draw down on their capital

Not invest in securities which bear risk of capital erosion

Continue holding a major portion of their holding in equity growth funds

Never invest in equity

71. A criticism of rupee-cost averaging is

Investment is for the same amount at regular intervals

Over a period of time, the average purchase price will work out lower than

It does not tell you when to buy, sell or switch from one scheme to another

Rupee cost averaging has no serious shortcomings

72. A 55 year old investor, who is employed and earning well, can be said to be in

Accumulation stage

Transition stage

Distribution stage

Inter-generational wealth transfer stage

73. In order to decide an appropriate index as benchmark for an actively traded fund, one should consider

Fund size and portfolio composition

Whether the fund is broad based or focused on specific type of securities

Investment objective of the fund

All of the above

74. An equity investor wants to maximise his return in the long run. He should

Buy and hold investments for a long time

Invest in gold and silver only

Keep selling good performing funds

Keep selling off poor performing schemes and replace them with good performing schemes.

75. Which is the most important factor one should consider before investing in company fixed deposit?

Interest rate on the deposit

Assets against which deposits are secured

Its credit rating

Only a and c are 1

76. After developing a financial plan for a client, financial planners should

Leave it as it is

Review it periodically

Review it once in five years

None of the above

77. The KIM of a mutual fund scheme is available

At the AMC office

At the offices of authorised agents

At the branches of all banks

Only a and b

78. Investors can inspect the following documents

Trust deed

Agreements with various constituents

Memorandum and articles of association of AMC and Trustee company

All of the above

79. A bond has been issued with a call provision. This means the issuer may call it back whenever the interest

Fall

Rise

Change

Are lower than the coupon rate

80. In determining the holding cost of an investment

Average cost method is to be followed

The weighted average cost method is to be followed

The market value method to be followed

Either a or b

81. As per wealth cycle guide, during the accumulation stage

The client looks to build wealth

The clients’ goals are approaching

Client cashes out

Client feels the need to take care of the next generation

82. If the commission paid to agents exceeds the distribution expense rates specified in the offer document, the excess has to be borne by

AMC

Trustees

Unit holders

DRF of the mutual fund

83. Unit holders who do not agree with the merger of a fund’s scheme have the option to

Exit from the scheme if it is an open ended scheme

Exit from the scheme after 6 months

Cannot exit if the AMC does not permit such withdrawal

Can exit only after approval of SEBI

84. While choosing between a bank deposit and a debt income fund, the investor must consider

Credit rating of the bank

Quality of the mutual fund assets

His investment objective and risk appetite

All of the above

85. The jurisdiction for resolving legal disputes concerning a mutual fund is

Given in the offer document

Stated in the stock exchanges

Decided by company law board

Decided by BSE

86. Passive fund is expected to

Beat the return of the index

Furnish the returns of the market index

Keep the costs low

Both b and c

87. Which classification of mutual fund does not exist?

Closed end or open end

Load fund or no load fund

Pension fund or insurance fund

Active fund or passive fund

88. An investor cannot plead ignorance of the procedures while investing in a mutual fund because

Mutual fund is a risky investment

Law does not permit the investor to sue the Trust

While applying the investors sign an agreement stating they have read and understood the terms and conditions

An investor is expected to be careful while investing

89. A portfolio turnover of 200% implies that an average security stays in a portfolio for

6 months

12 months

48 months

36 months

90. Sharpe and Treynor ratios are measures of

Risk

Return

Risk adjusted return

Beta of the portfolio

91. Company Law Board can hear complaints against

Agents

The board of trustees

Distributors

Stock exchanges where close ended funds are listed

92. Closed end funds have to calculate and publish their NAV

Daily

Monthly

Quarterly

Can compute NAV every week, but disclosures have to be made every day

93. If you bought a fund at Rs. 14 and sold after 2 years at Rs. 22, what is the annualised

57.14%

28.57%

36.36%

18.18%

94. Which of the following can impact the NAV of a mutual fund?

Fluctuations in the value of securities held in the portfolio.

Changes in the expense ratio.

Redemption of units by investors.

All of the above.

95. A liquid fund is ideal for:

Long-term wealth creation.

Short-term parking of surplus funds.

Investing in equity instruments.

High-risk investors.

96. What is the purpose of a Fund of Funds (FoF)?

To invest in a mix of debt and equity instruments.

To invest in other mutual fund schemes.

To provide tax benefits.

To guarantee capital protection.

97. What is an important feature of a thematic fund?

It invests in a specific theme or sector.

It guarantees fixed returns.

It is risk-free.

It invests only in debt instruments.

98. In the context of mutual funds, what does “redemption” mean?

Selling units back to the mutual fund.

Buying units from the mutual fund.

Reinvesting dividends into the scheme.

Switching between different mutual fund schemes.

99. The cut-off timing for mutual fund transactions affects:

Dividend payouts.

NAV applicable for purchases or redemptions.

Taxability of the investment.

Expense ratio of the fund.

100. The settlement period for mutual fund redemptions in India is typically:

T+1

T+2

T+3

T+4

Question 1 of 100