Question Set 4D

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. Which of the following is a specific risk associated with equity and equity-related securities?

Settlement risk

Default risk

Economic risk

Currency risk

2. What is the risk associated with mid-cap and small-cap companies?

Lower volatility compared to large-cap companies

Higher potential for loss of investment capital

Guaranteed returns due to their smaller size

Greater liquidity than large-cap stocks

3. What can affect the liquidity of investments in mutual funds?

Market sentiment

Trading volumes and settlement periods

Interest rates

All of the above

4. What does the term “counterparty risk” refer to?

The risk of missing investment opportunities

The risk of a borrower defaulting in securities lending

The risk associated with short-selling stocks

The risk of fluctuating dividend payments

5. What is a potential consequence of market volatility on a mutual fund’s investments?

Guaranteed profits

Increase in trading volumes

Temporary periods of un-invested assets

Decrease in interest rates

6. Which risk is directly related to changes in the political landscape?

Interest rate risk

Economic risk

Political risk

Currency risk

7. What is the main characteristic of derivative products?

They provide guaranteed returns

They require different investment techniques and risk analysis

They are always less risky than stocks and bonds

They are not traded on exchanges

8. In mutual funds, what does “market liquidity risk” refer to?

The ability to transact derivatives at favorable prices

Limited trading volumes of derivatives

The risk of losing all invested capital

The risk of missing dividends

9. What type of risk is associated with short-selling?

Default risk

Currency risk

Liquidity risk

All of the above

10. What happens when there is a lack of liquidity in a bond market?

Prices of bonds will always rise

Bonds can become illiquid, causing potential losses

Investors will receive higher dividends

Trading volumes will increase

11. How does a company’s dividend history affect mutual fund investments?

Past dividend payments guarantee future dividends

It has no impact on the performance of the fund

Future dividends are uncertain and can vary

Companies will always pay higher dividends

12. What is the primary concern with using derivatives in mutual funds?

They are too complicated for investors

They provide low returns

They carry a high degree of risk

They are not regulated

13. What risk arises due to a difference in price movement between a derivative and the security being hedged?

Counterparty risk

Market liquidity risk

Basis risk

Model risk

14. Which risk factor is associated with corporate governance and management decisions?

Default risk

Economic risk

Political risk

Dividend risk

15. What is a characteristic of large-cap stocks compared to mid-cap and small-cap stocks?

They are more volatile

They typically have lower market liquidity

They generally present lower investment risks

They are less likely to pay dividends

16. What is the main risk associated with foreign investments in mutual funds?

Currency risk

Interest rate risk

Market liquidity risk

Settlement risk

17. What does the term “interest rate risk” indicate for fixed-income securities?

Interest rates always lead to increased bond prices

Bond prices may fall when interest rates rise

It has no impact on fixed-income investments

It is a minor risk compared to others

18. In the context of mutual funds, what is the risk associated with economic downturns?

Political risk

Economic risk

Currency risk

Interest rate risk

19. What might indicate a problem with the liquidity of a mutual fund?

Increased returns

High trading volumes

Delays in settlement of transactions

Consistent dividend payments

20. Which of the following can influence the NAV of a mutual fund?

Only individual securities’ performances

Broader market movements and economic factors

The political affiliation of the fund manager

The number of investors in the fund

21. What risk is associated with the profitability of a company in the context of mutual funds?

Settlement risk

Default risk

Dividend risk

Economic risk

22. What is the significance of the Scheme Information Document (SID)?

It lists all potential investors

It outlines risk factors and mitigation strategies

It guarantees investment returns

23. Which risk type is heightened when investing in smaller companies compared to larger ones?

Interest rate risk

Default risk

Market volatility risk

Currency risk

24. What does model risk in derivatives involve?

The risk of inadequate funding for investments

The risk of incorrect pricing or valuation of derivatives

The risk of counterparty defaults

The risk of not being able to sell securities

25. Why might a mutual fund manager face execution issues with derivatives ?

Due to increased investor interest

Due to lack of proper training

Due to insufficient bids or trading suspensions

Due to excessive regulatory oversight

26. What is the primary factor that affects mutual fund performance?

Weather conditions.

Fund manager strategies.

Geographic location.

Government policies.

27. What is another name for company-specific risk?

Market risk.

Systematic risk.

Unsystematic risk.

Non-diversifiable risk.

28. Which type of risk can be reduced through diversification?

Market risk.

Systematic risk.

Company-specific risk.

Non-diversifiable risk.

29. What is the risk that impacts the entire economy known as?

Company-specific risk.

Market risk.

Credit risk.

Diversifiable risk.

30. What do fund managers do to outperform the benchmark index?

Reduce all types of risk.

Adopt an active management strategy.

Stay fully invested in fixed deposits.

Avoid all company-specific risks.

31. Which risk is described as non-diversifiable?

Systematic risk.

Company-specific risk.

Diversifiable risk.

Credit risk.

32. What is a proven strategy for managing credit risk in mutual funds?

Investing in fixed deposits.

Diversification.

Avoiding market investments.

Staying in cash.

33. What does the statement “Mutual fund investments are subject to market risks” imply?

All investments are guaranteed.

Investors bear the investment risks.

Fund managers are responsible for losses.

Mutual funds are risk-free.

34. Which of the following is NOT a characteristic of a mutual fund?

Pass-through vehicle.

Guaranteed returns.

Ownership by investors.

Exposure to market risks.

35. What happens to the NAV of a fund investing in a volatile market?

It remains stable.

It witnesses huge fluctuations.

It guarantees high returns.

It is unaffected by market conditions.

36. How does market price fluctuation differ from individual security fluctuation?

Market fluctuations only affect bonds.

Market fluctuations impact most securities simultaneously.

Individual security fluctuations are predictable.

There is no difference.

37. What is the main risk that a mutual fund portfolio cannot manage?

Credit risk.

Company-specific risk.

Market-wide price fluctuations.

Interest rate risk.

38. What is the consequence of a labor strike in a company?

It represents a systematic risk.

It represents a company-specific risk.

It reduces market risk.

It has no impact on the company.

39. What is the primary benefit of diversification in mutual funds?

Guarantees high returns.

Reduces only systematic risk.

Reduces company-specific risk.

Eliminates all investment risk.

40. What does SEBI stand for?

Securities and Equity Board of India.

Securities and Exchange Board of India.

Securities and Economic Board of India.

Securities and Equity Bureau of India.

41. Which of the following is an example of a systematic risk?

Company bankruptcy.

A labor strike.

Rise in inflation.

Management change.

42. What must fund managers consider when managing mutual funds?

Individual company performance only.

Only fixed deposit rates.

Both systematic and unsystematic risks.

Risks associated with only one asset class.

43. What kind of risk do investors face when they invest in a mutual fund?

Only credit risk.

Only market risk.

Both systematic and company-specific risks.

No risk at all.

44. What is a primary difference between mutual funds and fixed deposits?

Mutual funds promise fixed returns.

Fixed deposits involve higher risk.

Mutual funds are owned by investors.

Fixed deposits are subject to market risks.

45. What can fund managers do to mitigate systematic risk?

Completely eliminate it.

Invest solely in cash.

Tactically move between equity and cash.

Diversify only within a single asset class.

46. Which type of risk includes fluctuations in the price of individual securities?

Systematic risk.

Market risk.

Company-specific risk.

Credit risk.

47. Why do investors often choose mutual funds?

Guaranteed returns.

Professional management and diversification.

No risks involved.

Fixed interest rates.

48. What is implied by the term “pass-through vehicle” in mutual funds?

Investors share the profits equally.

Investors bear the risks associated with the fund.

Fund managers guarantee returns.

Funds only invest in government securities.

49. How do mutual funds provide diversification?

By investing in only one type of asset.

By investing in a variety of securities.

By avoiding all market investments.

By only investing in large-cap stocks.

50. What is the role of fund managers in terms of risk?

To eliminate all risks.

To pass on risks to investors.

To choose investments without considering risk.

To only invest in low-risk assets.

51. Why might a fund manager choose to stay fully invested at all times?

To eliminate all risks.

To minimize operational costs.

Because investors are aware of the risks involved.

To maximize cash reserves.

52. What happens to a mutual fund’s NAV if it invests in a stable market?

It fluctuates wildly.

It remains stable.

It guarantees high returns.

It becomes risk-free.

53. What type of risk cannot be mitigated through diversification?

Company-specific risk.

Credit risk.

Market risk.

Systematic risk.

54. What is one key message from mutual fund marketing communications?

Investment returns are guaranteed.

All risks are eliminated.

Read the scheme-related documents carefully before investing.

Invest only in government funds.

55. Which of the following best describes mutual fund investments?

Low-risk with guaranteed returns.

High-risk with fixed interest.

Subject to market risks and variable returns.

Risk-free and high-return.

56. What is the primary way an investor makes money from gold?

Interest income

Selling gold at a higher price

Dividends

Rental income

57. What primarily influences the global price of gold?

Local demand

Exchange rates

International demand-supply balance

Government regulations

58. How does the strength of the Indian Rupee affect gold funds?

A stronger rupee increases gold prices

A weaker rupee increases the rupee value of gold

A stronger rupee decreases gold value

It has no effect

59. What type of asset is gold classified as?

Local asset

International asset

Fixed asset

Tangible asset

60. Which of the following is NOT a factor affecting the performance of gold funds?

Global price of gold

Strength of the rupee

Local infrastructure

Political turmoil

61. Real estate is primarily influenced by which type of factors?

Global factors

Local factors

Technological factors

Environmental factors

62. What happens to real estate prices during economic uncertainty?

Prices rise significantly

Prices remain stable

Prices weaken

Prices are unaffected

63. How do interest rates affect the real estate market?

Higher rates lead to increased buying

Lower rates make real estate less desirable

Cheaper money increases real estate purchases

Interest rates have no effect on real estate

64. What are the two primary ways real estate investments can generate returns?

Capital appreciation and rental income

Interest income and dividends

Sales and trading

Stock appreciation and bonds

65. What has SEBI mandated for mutual funds investing in real estate?

To invest only in residential properties

To employ neutral valuation agencies

To only invest in commercial properties

To avoid using valuation agencies

66. What is the formula to calculate simple return?

(Inflows Outflows) / Outflows

(Later Value / Initial Value) 1

(Initial Value Later Value) / Initial Value

(NAV at end NAV at start) / NAV at start

67. How do you calculate annualized return?

Total returns / Investment duration

(Investment Value) ^ (1/n) 1

(Return since inception) (12/Investment duration)

Simple return formula

68. What is compounded return?

Returns based on simple interest

Returns that account for reinvested earnings

Returns not affected by inflation

Only capital gains

69. What does ‘n’ represent in the compounded return formula?

Total investment amount

Total time period in months

Total years of investment

Total dividends paid

70. Which of the following is 1 about the NAV of a mutual fund after a dividend is paid?

NAV remains unchanged

NAV goes down

NAV doubles

NAV is not affected

71. How can one calculate the compounded return if Rs. 1,000 grows to Rs. 4,000 over 2 years?

200%

100%

50%

300%

72. What is NOT a characteristic of gold as an asset class?

It generates current income

It is an international asset

It is measured objectively

It is a safe haven asset

73. What primarily determines the value of gold in India?

Local supply

International prices and exchange rates

Domestic demand

Government policies

74. Which of the following factors does NOT affect real estate prices?

Economic scenario

Infrastructure development

Global economic trends

Interest rates

75. What can significantly impact the demand for real estate?

Global economic indicators

Local market trends

Interest in gold investments

Currency fluctuations

76. What is the main risk factor in gold funds?

Decision-making by fund managers

Changes in interest rates

Price fluctuations in gold

Local economic conditions

77. In what scenario might the price of gold increase?

When interest rates rise

When political turmoil occurs

When the economy is stable

When infrastructure improves

78. What kind of fund is a gold fund?

Active fund

Passive fund

Hedge fund

Private equity fund

79. What happens to real estate prices when infrastructure in an area improves?

Prices decrease

Prices increase

Prices remain unchanged

Prices fluctuate wildly

80. What is the effect of a stronger rupee on gold fund returns?

Increases returns

Decreases returns

No effect

Increases volatility

81. What is the main driver of returns in a mutual fund scheme?

Cost of management

Portfolio composition

Market timing

Investor sentiment

82. How is the annualized return helpful for investors?

It shows only total gains

It allows for comparison of returns over different periods

It calculates taxes on investments

It eliminates market risks

83. What is the implication of dividends in the return calculation?

They must be ignored for accurate returns

They enhance the overall return

They reduce the NAV of the investment

They complicate the calculation of returns

84. Which of the following describes the effect of compounding?

It reduces returns over time

It increases returns over time

It has no effect on returns

It only applies to real estate investments

85. Which type of real estate typically requires more expert analysis?

Residential

Commercial

Industrial

All types

86. What does CAGR stand for?

Compounded Annual Growth Rate

Continuous Annual Growth Rate

Compounded Average Growth Rate

Continuous Average Growth Rate

87. What was the initial investment amount in the example?

Rs. 5,000

Rs. 10,000

Rs. 15,000

Rs. 20,000

88. At what price per unit did the investment occur?

Rs. 5

Rs. 10

Rs. 12.50

Rs. 15

89. How many units were initially purchased?

500 units

1,000 units

1,200 units

1,500 units

90. What was the ex-dividend NAV after the first dividend payment?

Rs. 10

Rs. 12.50

Rs. 15

Rs. 17.28

91. How many additional units were purchased with the first dividend reinvestment?

60 units

72 units

80 units

100 units

92. What was the total number of units after the first reinvestment?

1,080 units

1,100 units

1,152 units

1,200 units

93. What was the ex-dividend NAV after the second dividend payment?

Rs. 12.50

Rs. 14.85

Rs. 15

Rs. 17.28

94. How much was the second dividend payment in total?

Rs. 1,000

Rs. 1,080

Rs. 1,200

Rs. 1,500

95. What was the final value of the investment after 1.51 years?

Rs. 10,000

Rs. 15,000

Rs. 17,280

Rs. 20,000

96. What is the formula used to calculate CAGR?

(Final Value / Initial Value) ^ n

(Initial Value / Final Value) ^ (1/n)

((Final Value / Initial Value) ^ (1/n)) 1

(Final Value Initial Value) / Initial Value

97. How long was the investment period in years?

1.25 years

1.51 years

1.75 years

2.0 years

98. What was the CAGR calculated in the example?

30.50%

36.85%

43.65%

50.00%

99. What impact do loads have on investor returns?

Increase returns

Decrease returns

No impact

Increase volatility

100. What is an exit load?

A fee charged upon investment

A fee charged when selling mutual fund units

A tax on profits

A type of guaranteed return

Question 1 of 100