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Question 1. Which of the following best describes a short‑term financial goal? A) Purchasing a retirement home in 20 years B) Building an emergency fund to cover 6 months of expenses C) Funding a child’s college education in 15 years D) Investing for wealth accumulation over 30 years Answer: B Explanation: Short‑term goals are typically achievable within 0‑3 years; an emergency fund fits this horizon. Question 2. How does inflation primarily affect the real return on a fixed‑income investment? A) It increases the nominal return B) It reduces the purchasing power of the interest earned C) It has no effect on fixed‑income securities D) It converts nominal returns into capital gains Answer: B Explanation: Inflation erodes the real value of interest payments, lowering real returns. Question 3. Which asset class historically exhibits the highest volatility? A) Government bonds B) Money market instruments C) Equities D) Real estate Answer: C Explanation: Equities tend to have larger price swings compared to other asset classes.
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Question 4. A fund that primarily invests in gold and other precious metals belongs to which asset class? A) Equity B) Debt C) Commodity D) Real estate Answer: C Explanation: Gold and similar metals are classified as commodities. Question 5. Credit risk is most associated with which type of security? A) Treasury bills B) Corporate bonds C) Gold ETFs D) Index funds Answer: B Explanation: Corporate bonds carry the risk that the issuer may default on interest or principal payments. Question 6. Which risk measure captures the variability of returns around the mean? A) Beta B) Standard deviation C) Sharpe ratio D) Alpha Answer: B
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Answer: C Explanation: Strategic allocation defines the baseline mix; tactical tweaks it for short‑term opportunities. Question 10. Which of the following is a key advantage of investing through a mutual fund versus direct equity purchase? A) Ability to customize the portfolio to individual stock preferences B) Immediate tax exemption on all gains C) Professional management and diversification D) Guaranteed returns irrespective of market performance Answer: C Explanation: Mutual funds provide diversification and professional management. Question 11. An open‑ended mutual fund scheme differs from a close‑ended scheme mainly in: A) The way units are priced B) The ability of investors to redeem units at any time C) The use of leverage D) The requirement to list on a stock exchange Answer: B Explanation: Open‑ended funds allow continuous redemption; close‑ended funds have a fixed number of units. Question 12. Which classification describes a fund that invests at least 65% of its assets in equities? A) Debt fund
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B) Hybrid fund C) Equity fund D) Money market fund Answer: C Explanation: Equity funds predominantly hold equity securities. Question 13. An Exchange Traded Fund (ETF) is most similar to which of the following? A) A closed‑ended mutual fund that trades on an exchange B) A unit‑linked insurance plan C) A private equity fund D) A systematic investment plan Answer: A Explanation: ETFs are open‑ended funds whose units are listed and traded like stocks. Question 14. The first mutual fund launched in India was the:** A) UTI Mutual Fund B) LIC Mutual Fund C) SBI Mutual Fund D) HDFC Mutual Fund Answer: A Explanation: Unit Trust of India (UTI) introduced the first mutual fund in India in 1963. Question 15. In the mutual fund trust structure, the entity responsible for safeguarding the fund’s securities is the:** A) Sponsor
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B) Approving the annual budget of the AMC C) Regulating distributor commissions D) Enforcing disclosure norms Answer: B Explanation: SEBI does not approve AMC budgets; it focuses on regulatory aspects. Question 19. Under SEBI’s advertisement code, a mutual fund advertisement must NOT contain:** A) Past performance data with a disclaimer B) Guarantees of future returns C) Information on risk factors D) Fund name and scheme code Answer: B Explanation: Guarantees of returns are prohibited to prevent misleading investors. Question 20. An investor’s right to receive a copy of the Scheme Information Document (SID) falls under:** A) Investor grievance redressal B) KYC registration C) Investor rights and protection D) Distributor certification Answer: C Explanation: Providing SID is part of ensuring investors are well‑informed. Question 21. The Key Information Memorandum (KIM) is required to contain which of the following?
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A) Detailed portfolio holdings for the past 12 months B) The fund’s risk‑return profile in a standardized format C) The names of all fund managers D) Future market predictions Answer: B Explanation: KIM provides a concise, standardized snapshot of the fund’s characteristics. Question 22. The Net Asset Value (NAV) of a scheme is calculated by dividing:** A) Total market value of assets by total liabilities B) Net assets (assets minus liabilities) by the number of units outstanding C) Total assets by the number of investors D) Gross assets by the expense ratio Answer: B Explanation: NAV = (Assets – Liabilities) ÷ Units Outstanding. Question 23. In a New Fund Offer (NFO), the price at which units are issued is generally:** A) Equal to the previous day’s closing NAV B) Determined by the fund’s expense ratio C) Fixed at ₹10 per unit regardless of underlying assets D) Based on the fund’s projected returns Answer: C Explanation: NFO units are typically offered at a fixed price (e.g., ₹10) before the first NAV is calculated. Question 24. Which of the following statements about benchmark indices is true?
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Question 27. The SEBI‑mandated commission disclosure requires distributors to disclose:** A) Only the total commission earned annually B) The exact amount of commission per transaction to the investor C) The commission structure, including trail commissions, in the offer document D) The commission paid to the AMC only Answer: C Explanation: Disclosure must be clear, showing the commission structure and trail commissions. Question 28. Trail commission is calculated on:** A) The amount invested at the time of purchase only B) The average assets under management (AUM) of the fund C) The outstanding units held by the investor, measured periodically D) The fund’s total expense ratio Answer: C Explanation: Trail commission is a recurring fee based on the investor’s holding over time. Question 29. Which of the following is NOT a permissible systematic transaction? A) Systematic Investment Plan (SIP) B) Systematic Transfer Plan (STP) C) Systematic Withdrawal Plan (SWP) D) Systematic Forward Contract (SFC) Answer: D Explanation: SFC is not a systematic mutual‑fund transaction; SIP, STP, and SWP are. Question 30. The cut‑off time for processing a redemption request in a liquid fund is:**
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A) 12:00 PM IST on the transaction day B) 3:00 PM IST on the transaction day C) 5:00 PM IST on the transaction day D) There is no cut‑off; redemption is instantaneous Answer: B Explanation: Liquid funds typically have a cut‑off at 3:00 PM IST for same‑day processing. Question 31. Long‑Term Capital Gains (LTCG) tax on equity‑oriented funds applies when the holding period exceeds:** A) 6 months B) 12 months C) 24 months D) 36 months Answer: B Explanation: For equity funds, LTCG tax is levied after 12 months of holding. Question 32. Indexation benefits are available to which category of mutual fund gains? A) Short‑Term Capital Gains on equity funds B) Long‑Term Capital Gains on debt‑oriented funds C) Dividend income from equity funds D) All capital gains irrespective of asset class Answer: B Explanation: Indexation reduces taxable LTCG on debt‑oriented funds.
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Question 36. Which metric measures risk‑adjusted performance by comparing excess return to total risk? A) Sharpe Ratio B) Treynor Ratio C) Jensen’s Alpha D) Sortino Ratio Answer: A Explanation: Sharpe Ratio = (Portfolio Return – Risk‑Free Rate) / Standard Deviation. Question 37. Beta of a mutual fund indicates:** A) The fund’s absolute return B) The fund’s sensitivity to market movements (systematic risk) C) The fund’s credit risk exposure D) The fund’s expense ratio Answer: B Explanation: Beta measures systematic risk relative to a benchmark index. Question 38. A fund with a higher expense ratio than its peers will generally:** A) Deliver higher returns due to better management B) Have lower net returns, all else being equal C) Be exempt from SEBI’s disclosure norms D) Offer tax‑free dividends Answer: B Explanation: Higher expenses reduce net returns if performance is comparable.
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Question 39. Which of the following is a limitation of using past performance as the sole basis for fund selection? A) Past performance is always indicative of future results B) It does not account for changes in fund management or market conditions C) SEBI prohibits publishing past performance data D) Past performance includes tax considerations automatically Answer: B Explanation: Past performance may not reflect future outcomes due to managerial or market changes. Question 40. The Risk‑o‑Meter on a fund’s fact sheet primarily helps an investor to:** A) Determine the fund’s expense ratio B) Assess the fund’s risk level on a standardized scale C) Calculate the exact future returns D) Identify the fund’s tax status Answer: B Explanation: The Risk‑o‑Meter provides a visual risk rating for quick comparison. Question 41. An investor who prefers a fund that aims to preserve capital and provide modest returns is most suitable for:** A) Aggressive hybrid fund B) Equity growth fund C) Capital protection scheme D) Sectoral thematic fund Answer: C
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Answer: C Explanation: SEBI mandates a ₹10 lac net‑worth requirement for mutual fund distributors. Question 45. Which document contains the detailed investment policy, risk factors, and fee structure of a mutual fund scheme? A) Annual Report B) Scheme Information Document (SID) C) Fact Sheet D) Market Commentary Answer: B Explanation: The SID (or Scheme Information Document) provides comprehensive scheme details. Question 46. A systematic transfer plan (STP) typically moves funds from:** A) A debt fund to an equity fund on a scheduled basis B) An equity fund to a money market fund for liquidity C) A saver’s bank account directly into a mutual fund D) A pension fund to a life insurance policy Answer: A Explanation: STP transfers a fixed amount periodically from one scheme to another, often from debt to equity. Question 47. Which of the following is NOT a permissible expense component of the Total Expense Ratio (TER)? A) Management fees B) Custodian fees
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C) Entry load paid by the investor at purchase D) Audit fees Answer: C Explanation: Entry load is a one‑time charge, not part of the ongoing TER. Question 48. The term “distributable reserves” refers to:** A) The portion of NAV that can be paid out as dividend or capital gains B) The total assets of the fund before liabilities C) The cash balance held for redemption requests only D) The amount set aside for future expenses Answer: A Explanation: Distributable reserves are earnings available for distribution to unit holders. Question 49. Which of the following best describes a “growth” option in a mutual fund? A) Units are redeemed at a fixed price B) Earnings are reinvested, increasing the NAV per unit C) The fund pays out periodic dividends to investors D) The fund guarantees a fixed return Answer: B Explanation: In the growth option, profits are retained and reflected in a higher NAV. Question 50. Under the GST regime, mutual fund services are taxed at:** A) 0% (exempt) B) 5% on all transactions C) 18% on management fees
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C) It is only available for debt funds D) It triggers an immediate tax liability on the investor Answer: B Explanation: Reinvested dividends purchase new units at the current NAV, increasing holdings. Question 54. The “cut‑off time” for a systematic investment plan (SIP) is:** A) The same as the redemption cut‑off time for the scheme B) The time by which the SIP amount must be received for the transaction to be processed on that day C) Always 5:00 PM IST irrespective of the scheme type D) Not applicable; SIPs are processed in real time Answer: B Explanation: SIP cut‑off ensures the amount is credited before the day’s NAV is fixed. Question 55. Which of the following is a primary function of the Asset Management Company (AMC) in a mutual fund? A) Safekeeping of securities B) Managing the investment portfolio and making investment decisions C) Registering investors’ KYC documents D) Auditing the fund’s financial statements Answer: B Explanation: The AMC is responsible for portfolio management and related decisions. Question 56. A mutual fund’s “benchmark” is used primarily to:** A) Determine the fund’s expense ratio
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B) Compare the fund’s performance against a relevant market index C) Set the fund’s entry load D) Allocate the fund’s assets across regions Answer: B Explanation: Benchmarks provide a reference point for performance evaluation. Question 57. The “annualized return” of a fund is calculated to:** A) Show the return for a single day B) Convert a multi‑year return into an equivalent yearly return C) Reflect the impact of inflation on returns D) Determine the fund’s tax liability Answer: B Explanation: Annualized return standardizes returns to an annual basis for comparison. Question 58. Which of the following best describes “Jensen’s Alpha”? A) The excess return of a fund over the risk‑free rate per unit of total risk B) The portion of a fund’s return not explained by its beta relative to the market C) The average return of the fund over the past five years D) The standard deviation of the fund’s returns Answer: B Explanation: Jensen’s Alpha measures abnormal return after accounting for systematic risk. Question 59. An investor with a low risk tolerance but a long investment horizon should primarily consider:** A) Aggressive equity funds
