Amity Campus

Uttar Pradesh
India 201303
ASSIGNMENTS
PROGRAM: BFIA
SEMESTER-III
Subject Name:
Study COUNTRY:
Roll Number (Reg. No.):
Student Name:

MUTUAL FUND MANAGEMENT

SOMALIA
BFIA01512010-2013019
MOHAMED ABDULLAHI KHALAF

INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions

MARKS
10
10
10

b) Total weight-age given to these assignments is 30%. OR 30 Marks

c) All assignments are to be completed as typed in word/pdf.
d) All questions are required to be attempted.
e) All the three assignments are to be completed by due dates and
need to be submitted for evaluation by Amity University.
f) The students have to attach a scanned signature in the form.
Signature : __________________
Date: July 01, 2012
( ) Tick mark in front of the assignments submitted
Assignment A

Assignment B

Assignment C

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Mutual Funds Management

Assignment- A

Q. 1).

Calculate the NAV for the following illustration

Name of the scheme: AB Balanced

Size of the scheme: Rs 200 Crore
Face value of share: Rs 10
Market value of the funds investment: Rs 280 Crore
Receivables: Rs 2 crore
Accrued income: Rs 2 crore
Liabilities: Rs 1 crore
Accrued expenses: Rs 1 crore
Solution:
NAV = (Receivables+ accrued income liabilities accrued expenses) / No. of units
outstanding
= 280 + 2 + 2 1 1/20
= 282/20
= 14.1
NAV of AB Balanced is = Rs 14.1
Q. 2).

What are the advantages of mutual funds for an investor?

Answer:
A mutual fund is a professionally managed type of collective investment scheme
that pools money from many investors and invests it in stocks, bonds, short-term
money market instruments and other securities. Mutual funds have a fund
manager who invests the money on behalf of the investors by buying / selling
stocks, bonds etc. Thus Mutual funds are a vehicle to mobilize moneys from
investors, to invest in different markets and securities, in line with the investment
objectives agreed upon, between the mutual fund and the investors.
The following are advantages of mutual funds for investors:
1)
Professional Management: Mutual funds offer investors the opportunity to
earn an income or build their wealth through professional management of their
investible funds. There are several aspects to such professional management viz.
investing in line with the investment objective, investing based on adequate
research, and ensuring that prudent investment processes are followed.

Page | 3

2)
Portfolio Diversification: Units of a scheme give investors exposure to a
range of securities held in the investment portfolio of the scheme. Thus, even a
small investment of Rs 5,000 in a mutual fund scheme can give investors a
diversified investment portfolio.
With diversification, an investor ensures that all the eggs are not in the same
basket. Consequently, the investor is less likely to lose money on all the
investments at the same time. Thus, diversification helps reduce the risk in
investment. In order to achieve the same diversification as a mutual fund scheme,
investors will need to set apart several lakh of rupees. Instead, they can achieve
the diversification through an investment of a few thousand rupees in a mutual
fund scheme.
3)
Economies of Scale: The pooling of large sums of money from so many
investors makes it possible for the mutual fund to engage professional managers
to manage the investment.
Individual investors with small amounts to invest cannot, by themselves, afford to
engage such professional management.
Large investment corpus leads to various other economies of scale. For instance,
costs related to investment research and office space get spread across investors.
Further, the higher transaction volume makes it possible to negotiate better terms
with brokers, bankers and other service providers.
4)
Liquidity: At times, investors in financial markets are stuck with a security
for which they cant find a buyer worse; at times they cant find the company
they invested in! Such investments become illiquid investments, which can end in
a complete loss for investors.
Investors in a mutual fund scheme can recover the value of the moneys invested,
from the mutual fund itself. Depending on the structure of the mutual fund
scheme, this would be possible, either at any time, or during specific intervals, or
only on closure of the scheme. Schemes where the money can be recovered from
the mutual fund only on closure of the scheme are listed in a stock exchange. In
such schemes, the investor can sell the units in the stock exchange to recover the
prevailing value of the investment.
5)
Tax Deferral: Mutual funds are not liable to pay tax on the income they
earn. If the same income were to be earned by the investor directly, then tax may
have to be paid in the same financial year.
Mutual funds offer options, whereby the investor can let the moneys grow in the
scheme for several years. By selecting such options, it is possible for the investor
to defer the tax liability. This helps investors to legally build their wealth faster
than would have been the case, if they were to pay tax on the income each year.

Page | 4

6)
Tax benefits: Specific schemes of mutual funds (Equity Linked Savings
Schemes) give investors the benefit of deduction of the amount invested, from their
income that is liable to tax. This reduces their taxable income, and therefore the
tax liability.
Further, the dividend that the investor receives from the scheme is tax-free in his
hands.
7)
Convenient Options: The options offered under a scheme allow investors to
structure their investments in line with their liquidity preference and tax position.
8)
Investment Comfort: Once an investment is made with a mutual fund,
they make it convenient for the investor to make further purchases with very little
documentation. This simplifies subsequent investment activity.
9)
Regulatory Comfort: The regulator, Securities & Exchange Board of India
(SEBI) has mandated strict checks and balances in the structure of mutual funds
and their activities. These are detailed in the subsequent units. Mutual fund
investors benefit from such protection.
10) Systematic approach to investments: Mutual funds also offer facilities
that help investor invest amounts regularly through a Systematic Investment Plan
(SIP); or withdraw amounts regularly through a Systematic Withdrawal Plan (SWP);
or move moneys between different kinds of schemes through a Systematic Transfer
Plan (STP). Such systematic approaches promote an investment discipline, which
is useful in long term wealth creation and protection.
Q. 3).

Explain types of mutual funds.

Answer:
Open-end Funds: Funds that can sell and purchase units at any point in time are
classified as Open-end Funds. The fund size (corpus) of an open-end fund is
variable (keeps changing) because of continuous selling (to investors) and
repurchases (from the investors) by the fund. An open-end fund is not required to
keep selling new units to the investors at all times but is required to always
repurchase, when an investor wants to sell his units. The NAV of an open-end
fund is calculated every day.
Closed-end Funds: Funds that can sell a fixed number of units only during the
New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a
Closed-end Fund remains unchanged at all times. After the closure of the offer,
buying and redemption of units by the investors directly from the Funds is not
allowed. However, to protect the interests of the investors, SEBI provides investors
with two avenues to liquidate their positions:
Closed-end Funds are listed on the stock exchanges where investors can buy/sell
units from/to each other. The trading is generally done at a discount to the NAV of

Page | 5

the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated
every Thursday).
Closed-end Funds may also offer "buy-back of units" to the unit holders. In this
case, the corpus of the Fund and its outstanding units do get changed.
Interval funds combine features of both open-ended and close ended schemes.
They are largely close-ended, but become open ended at pre-specified intervals.
For instance, an interval scheme might become open-ended between January 1 to
15, and July 1 to 15, each year. The benefit for investors is that, unlike in a purely
close-ended scheme, they are not completely dependent on the stock exchange to
be able to buy or sell units of the interval fund
Load Funds: Mutual Funds incur various expenses on marketing, distribution,
advertising, portfolio churning, fund manager's salary etc. Many funds recover
these expenses from the investors in the form of load. These funds are known as
Load Funds. A load fund may impose following types of loads on the investors:
Entry Load - Also known as Front-end load, it refers to the load charged to an
investor at the time of his entry into a scheme. Entry load is deducted from the
investor's contribution amount to the fund.
Exit Load - Also known as Back-end load, these charges are imposed on an
investor when he redeems his units (exits from the scheme). Exit load is deducted
from the redemption proceeds to an outgoing investor.
Deferred Load - Deferred load is charged to the scheme over a period of time.
Contingent Deferred Sales Charge (CDSC) - In some schemes, the percentage of
exit load reduces as the investor stays longer with the fund. This type of load is
known as Contingent Deferred Sales Charge.
No-load Funds: All those funds that do not charge any of the above mentioned
loads are known as No-load Funds.
Tax-exempt Funds: Funds that invest in securities free from tax are known as
Tax-exempt Funds. All open-end equity oriented funds are exempt from
distribution tax (tax for distributing income to investors). Long term capital gains
and dividend income in the hands of investors are tax-free.
Non-Tax-exempt Funds: Funds that invest in taxable securities are known as
Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds
are liable to pay tax on distribution income. Profits arising out of sale of units by
an investor within 12 months of purchase are categorized as short-term capital
gains, which are taxable.
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Actively managed funds: are funds where the fund manager has the flexibility to
choose the investment portfolio, within the broad parameters of the investment
objective of the scheme. Since this increases the role of the fund manager, the
expenses for running the fund turn out to be higher. Investors expect actively
managed funds to perform better than the market.
Passive funds: invest on the basis of a specified index, whose performance it seeks
to track. Thus, a passive fund tracking the BSE Sensex would buy only the shares
that are part of the composition of the BSE Sensex. The proportion of each share
in the schemes portfolio would also be the same as the weight-age assigned to the
share in the computation of the BSE Sensex. Thus, the performance of these funds
tends to mirror the concerned index. They are not designed to perform better than
the market. Such schemes are also called index schemes. Since the portfolio is
determined by the index itself, the fund manager has no role in deciding on
investments. Therefore, these schemes have low running costs.
Q. 4).

What do you mean by Offer document?

Answer:
Offer document is a prospectus that details the investment objectives and
strategies of a particular fund or group of funds, as well as the finer points of the
fund's past performance, managers and financial information. You can obtain
these documents from fund companies directly, through mail, e-mail or phone.
You can also get them from a financial planner or advisor. All fund companies also
provide copies of their ODs on their websites.
You would have come across this line in all Mutual Fund advertisements, Mutual
Fund investments are subject to market risks. Please read the offer document
carefully before investing. Its an open secret that this 80 to 100 page bulky
document is not simple to read and the legal information it contains is not easy to
understand for most investors.
However, SEBI has made the investors job easier by evolving an abridged form,
the Key Information Memorandum. Also, SEBI has served the cause of investors by
stipulating standard sections and standard disclosures in all Offer Documents.
Hence, the Offer Document can be the friend and guide of an enlightened investor.
Here is a guide to what an Offer Document is, why it is important and what are the
10 Most Important Things to Read in an Offer Document for investors.
Investors get to know the details of any NFO through the Offer Document.
Information like the nature of the scheme, its investment objectives and term, are
the core of the scheme. Such vital aspects of the scheme are referred to as its
fundamental attributes. These cannot be changed by the AMC without going
through specific legal processes, including permission of investors. Since the
Page | 7

disclosures in the Offer Document are as prescribed by SEBI, it is a legal

document that helps investors to take a balanced view on the investment. The
Offer Document is one of the most important sources of information on the
scheme, to help prospective investors evaluate the merits and demerits of investing
in it.
Mutual Fund Offer Documents have two parts:
1) Scheme Information Document (SID), which has details of the scheme.
2) Statement of Additional Information (SAI), which has statutory information
about the mutual fund that is offering the scheme. It stands to reason that a
single SAI is relevant for all the schemes offered by a mutual fund.
In practice, SID and SAI are two separate documents, though the legal technicality
is that SAI is part of the SID.
Both documents are prepared in the format prescribed by SEBI, and submitted to
SEBI. The contents need to flow in the same sequence as in the prescribed format.
The mutual fund is permitted to add any disclosure, which it feels, is material for
the investor.
Q. 5).
What are the different performance measures for mutual fund
schemes?
Answer:
Mutual Fund industry is one of the most preferred investment avenues in the
world. However, with a plenty of schemes to choose from, the investors face
problems in selecting a fund. Factors such as investment strategy and
management style are qualitative, but the funds record is an important indicator
too. Though past performance alone cannot be indicative of future performance, it
is, frankly, the only quantitative way to judge how good a fund is at present.
Therefore, there is a need to correctly assess the past performance of different
mutual funds.
Worldwide, good mutual fund companies over are known by their AMCs and this
fame is directly linked to their superior stock selection skills. For mutual funds to
grow, AMCs must be held accountable for their selection of stocks. In other words,
there must be some performance indicator that will reveal the quality of stock
selection of various AMCs.
Return alone should not be considered as the basis of measurement of the
performance of a mutual fund scheme, it should also include the risk taken by the
fund manager because different funds will have different levels of risk attached to
them.

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In order to determine the risk-adjusted returns of investment portfolios, several

eminent authors have worked since 1960s to develop composite performance
indices to evaluate a portfolio by comparing alternative portfolios within a
particular risk class. The most important and widely used measures of
performance are:
1) The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates funds on the
basis of Treynor's Index. This Index is a ratio of return generated by the fund over
and above risk free rate of return (generally taken to be the return on securities
backed by the government, as there is no credit risk associated), during a given
period and systematic risk associated with it (beta). Symbolically, it can be
represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi. Where,
Ri represents return on fund.
Rf is risk free rate of return and
Bi is beta of the fund.
All risk-averse investors would like to maximize this value. While a high and
positive Treynor's Index shows a superior risk-adjusted performance of a fund, a
low and negative Treynor's Index is an indication of unfavorable performance.
2) The Sharpe Measure
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio,
which is a ratio of returns generated by the fund over and above risk free rate of
return and the total risk associated with it. According to Sharpe, it is the total risk
of the fund that the investors are concerned about. So, the model evaluates funds
on the basis of reward per unit of total risk. Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si Where,
Ri represents return on fund.
Rf is risk free rate of return and
Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted
performance of a fund, a low and negative Sharpe Ratio is an indication of
unfavorable performance.
3) Jenson Model
Jenson's model proposes another risk adjusted performance measure. This
measure was developed by Michael Jenson and is sometimes referred to as the
Differential Return Method. This measure involves evaluation of the returns that
Page | 9

the fund has generated vs. the returns actually expected out of the fund given the
level of its systematic risk. The surplus between the two returns is called Alpha,
which measures the performance of a fund compared with the actual returns over
the period. Required return of a fund at a given level of risk (Bi) can be calculated
as:
Ri = Rf + Bi (Rm - Rf) Where,
Ri represents return on fund.
Rf is risk free rate of return and
Rm is average market return during the given period.
After calculating it, alpha can be obtained by subtracting required return from the
actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa.
Limitation of this model is that it considers only systematic risk not the entire risk
associated with the fund and an ordinary investor cannot mitigate unsystematic
risk, as his knowledge of market is primitive.
4) Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares
the performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these
two is taken as a measure of the performance of the fund and is called net
selectivity.
The net selectivity represents the stock selection skill of the fund manager, as it is
the excess return over and above the return required to compensate for the total
risk taken by the fund manager. Higher value of which indicates that fund
manager has earned returns well above the return commensurate with the level of
risk taken by him.
Required return can be calculated as:
Ri = Rf + Si/Sm*(Rm - Rf) Where,
Ri represents return on fund.
Rf is risk free rate of return and
Sm is standard deviation of market returns.
The net selectivity is then calculated by subtracting this required return from the
actual return of the fund.

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Assignment- B
Q. 1). Differentiate between various performance measure of mutual fundsSharpe, Treynors and Jensens Alpha.
Answer:
The difference between Sharpe, Traynors and Jensens Alpha is that Sharpe ratio
measures the return earned in excess of the risk free rate (normally Treasury
instruments) on a portfolio to the portfolio's total risk as measured by the
standard deviation in its returns over the measurement period. Or how much
better did you do for the risk assumed.
The Sharpe ratio is an appropriate measure of performance for an overall portfolio
particularly when it is compared to another portfolio, or another index such as the
S&P 500, Small Cap index, etc.
That said however, it is not often provided in most rating services.
Traynor ratio is similar to Sharpe ratio except it uses beta instead of standard
deviation. It's also known as the Reward to Volatility Ratio, it is the ratio of a
fund's average excess return to the fund's beta. It measures the returns earned in
excess of those that could have been earned on a risk-less investment per unit of
market risk assumed.
Jensens Alpha is the difference between a fund's actual return and those that
could have been made on a benchmark portfolio with the same risk- i.e. beta. It
measures the ability of active management to increase returns above those that
are purely a reward for bearing market risk. Caveats apply however since it will
only produce meaningful results if it is used to compare two portfolios which have
similar betas.
Q. 2). Explain the types of risk involved in mutual fund.
Answer:
Every investment including mutual funds involves risk. Risk refers to the
possibility that you will lose money (both principal and any earnings) or fail to
make money on an investment. A fund's investment objective and its holdings are
influential factors in determining how risky a fund is. Reading the prospectus will
help understand the risk associated with particular fund.
Generally speaking, risk and potential return are related. This is the risk and
return trade-off. Higher risks are usually taken with the expectation of higher
returns at the cost of increased volatility. While a fund with higher risk has the
potential for higher return, it also has the greater potential for losses or negative
returns.
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Different mutual fund categories have inherently different risk characteristics and
should not be compared side by side. A bond fund with below-average risk should
not be compared to a stock fund with below average risk.
Mutual funds face risks based on the investments they hold. For example, a bond
fund faces interest rate risk and income risk. Bond values are inversely related to
interest rates. If interest rates go up, bond values will go down and vice versa.
Bond income is also affected by the change in interest rates. Bond yields are
directly related to interest rates falling as interest rates fall and rising as interest
rise. Income risk is greater for a short-term bond fund than for a long-term bond
fund.
Similarly, a sector stock fund (which invests in a single industry, such as
telecommunications) is at risk that its price will decline due to developments in its
industry. A stock fund that invests across many industries is more sheltered from
this risk defined as industry risk.
Following is a glossary of some risks to consider when investing in mutual funds.

Call Risk. The possibility that falling interest rates will cause a bond issuer
to redeem or call its high-yielding bond before the bond's maturity date.
Country Risk. The possibility that political events (a war, national
elections), financial problems (rising inflation, government default), or
natural disasters (an earthquake, a poor harvest) will weaken a country's
economy and cause investments in that country to decline.
Credit Risk. The possibility that a bond issuer will fail to repay interest and
principal in a timely manner. Also called default risk.
Currency Risk. The possibility that returns could be reduced for Americans
investing in foreign securities because of a rise in the value of the U.S. dollar
against foreign currencies. Also called exchange-rate risk.
Income Risk. The possibility that a fixed-income fund's dividends will
decline as a result of falling overall interest rates.
Industry Risk. The possibility that a group of stocks in a single industry
will decline in price due to developments in that industry.
Inflation Risk. The possibility that increases in the cost of living will reduce
or eliminate a fund's real inflation-adjusted returns.
Interest Rate Risk. The possibility that a bond fund will decline in value
because of an increase in interest rates.
Manager Risk. The possibility that an actively managed mutual fund's
investment adviser will fail to execute the fund's investment strategy
effectively resulting in the failure of stated objectives.
Market Risk. The possibility that stock fund or bond fund prices overall will
decline over short or even extended periods. Stock and bond markets tend
to move in cycles, with periods when prices rise and other periods when
prices fall.

Page | 12

Principal Risk. The possibility that an investment will go down in value, or

"lose money," from the original or invested amount.

Q. 3). Write down the marketing strategy for mutual funds.

Answer:
Mutual funds are baskets of stocks that are actively managed by a professional
investor. You can choose from more than 10,000 funds. Large fund companies
offer these funds to individuals using a number of different marketing strategies.
Business Accounts: The most common sales and marketing strategies for mutual
fund is to sign-up companies as a preferred option for their retirement plans. This
provides a simple way to sign-up numerous accounts with one master contract. To
market to these firms, sales people target human resource professionals.
Marketing occurs through traditional business-to-business marketing techniques
including conferences, niche advertising and professional organizations. For
business accounts, fund representatives will stress ease of use and compatibility
with the company's present systems.
Consumer Marketing: Consumer marketing of mutual funds is similar to the way
other financial products are sold. Marketers emphasize safety, reliability and
performance. In addition, they may provide information on their diversity of
choices, ease of use and low costs. Marketers try to access all segments of the
population. They use broad marketing platforms such as television, newspapers
and the internet. Marketers especially focus on financially oriented media such as
CNBC television and Business week magazine.
Performance: Mutual funds must be very careful about how they market their
performance, as this is heavily regulated. Mutual funds must market their short,
medium and long-term average returns to give the prospective investor a good idea
of the actual performance. For example, most funds did very well during the
housing boom. However, if the bear market that followed is included, performance
looks much more average. Funds may also have had different managers with
different performance records working on the same funds, making it hard to judge
them.
Marketing Fees: Mutual funds must be very clear about their fees and report
them in all of their marketing materials. The main types of fees include the sales
fee (load) and the management fee. The load is an upfront charge that a mutual
fund charges as soon as the investment is made. The management fee is a
percentage of assets each year, usually 1 to 2 percent.

Page | 13

Case Study
Following are the data on five mutual funds:
Fund
A
B
C
D
E

Return (%)
14
12
16
10
20

Standard Deviation (%)

6
4
8
6
10

Beta
1.5
0.5
1.0
0.5
2

Risk free rate is 3%

Q. 1). What is the Treynor measure and ranking?
Answer:
Treynor measure in equation form is:

Fund

Return (%)

Standard Deviation (%)

Beta

A
B
C
D
E

14
12
16
10
20

6
4
8
6
10

1.5
0.5
1.0
0.5
2

Treynor measure
(Rf Rs)/Beta
(14% - 3%)/1.5 = 7.33333
(12% - 3%)/0.5 = 18
(16% - 3%)/1.0 = 13
(10% - 3%)/0.5 = 14
(20% - 3%)/2 = 8.5

Ranking:
Fund

Return (%)

Standard Deviation (%)

Beta

B
D
C
E
A

12
10
16
20
14

4
6
8
10
6

0.5
0.5
1.0
2
1.5

Treynor measure
(Rf Rs)/Beta
(12% - 3%)/0.5 = 18
(10% - 3%)/0.5 = 14
(16% - 3%)/1.0 = 13
(20% - 3%)/2.0 = 8.5
(14% - 3%)/1.5 = 7.33333

Page | 14

Q. 2). What is the differential return if the market return is 13%, the
standard deviation of return is 5%, and standard deviation is the
appropriate measure of risk?
Answer:

Page | 15

Assignment C
Q. 1). A mutual fund is not
a)
b)
c)
d)

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

Q. 2). After UTI, the first mutual funds were started by

a)
b)
c)
d)

Private sector banks

Public sector banks. ()
Financial institutions
Non-banking Finance Companies

Q. 3). Mutual fund can benefit from economics of scale because of

a)
b)
c)
d)

Portfolio diversification
Risk reduction
Large volume of trades. ()
None of the above

Q. 4). Equity Linked Savings Scheme does not have which of the following
features?
a) It entitles the unit holder to tax rebate
b) The investment is locked in for 3 years
c) A minimum stated level of investments is made in equity and equity
related instruments
d) None of the above. ()
Q. 5). A close ended mutual fund has a fixed
a)
b)
c)
d)

NAV
Fund Size. ()
Rate of Return
Number of Distributors

Q. 6). Of the following fund types, the highest risk is associated with
a)
b)
c)
d)

Balanced Funds
Gilt Funds
Equity Growth Funds. ()
Debt Funds

Page | 16

Q. 7). The custodian of a mutual fund:

a)
b)
c)
d)

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.

Q. 8). The Mutual fund is constituted as:

a)
b)
c)
d)

A Trust. ()
A Private limited company
An asset management company
A trustee company

Q. 9). A Self Regulatory Organisation can regulate

a)
b)
c)
d)
Q. 10).
a)
b)
c)
d)

All entities in the market

Only its own members in a limited way. ()
Its own members with total jurisdiction
No entity at all
Bank owned Mutual Funds are supervised by
SEBI
RBI
Jointly by SEBI & RBI. ()
AMFI

Q. 11).
In case of merger of two AMC, 75% of the unit holders have to
approve the merger in case of
a)
b)
c)
d)
Q. 12).
a)
b)
c)
d)

Open ended funds

Both open and close ended funds
Close ended funds. ()
None of the above
The first level regulator of AMCs is
Board of Trustees. ()
Company Law Board
SEBI
RBI

Page | 17

Q. 13).
a)
b)
c)
d)

As per SEBI guidelines, a due diligence certificate is not

Signed by a Compliance Officer of the mutual fund
A certificate that all legal formalities of a scheme are completed
Attached to Annual report. ()
A part of offer document

Q. 14).
An offer document contains an AMCs investor grievances history
for the past
a)
b)
c)
d)

1 fiscal year
2 fiscal year
3 fiscal year ()
Six months

Q. 15).
For scheme to be able to change its fundamental attributes, the
fund managers must obtain the consent of
a)
b)
c)
d)

50% of the unit holders

50% of the trustees
75% of the unit holders
None of the above. ()

Q. 16).
SEBI does not require the following to be included in the offer
document issued by a mutual fund
a)
b)
c)
d)

Details of the Sponsor and the AMC

Description of the Scheme & investment objective/strategy
Investors' Rights and Services
Performance of other mutual funds. ()

Q. 17).
Mutual funds do not justify the need for paying commission to
agents when the investors skip out of the scheme before a specified period.
In India this practice is adopted by
a)
b)
c)
d)
Q. 18).
a)
b)
c)
d)

Agents voluntarily paying back the commission to the Mutual fund

Trail commission is not paid to the agents. ()
None of the above
The whole of commission is paid to the agents
An aggrieved unit-holder of a mutual fund can sue
The AMC
The trustees. ()
The sponsor if returns have been guaranteed by them
None of the above
Page | 18

Q. 19).
a)
b)
c)
d)

Distributors or agents
Can distribute several mutual funds simultaneously. ()
Cannot appoint sub-agents or sub-brokers
Should be only individuals not companies or banks
Should not be an employee or associate of the AMC

Q. 20).
If a charitable trust approaches a distributor with an application
for investment in a mutual fund, the distributor should
a)
b)
c)
d)

Accept the application without wasting time

Reject the application outright
Refer to the offer document. ()
Accept the application as a direct application

Q. 21).
One of your friends who have invested in a mutual fund is about
to get Canadian citizenship. What would you advise?
a)
b)
c)
d)

He should transfer the investment to his relative

He should get RBI approval for continuing
If he does not need the money, he can continue
He should immediately redeem his investment since foreign citizens
are not eligible investors. ()

Q. 22).
The
prescriptions

AMFI

code

of

ethics

does

not

cover

the

following

a) Adequate disclosures should be made to the investors

b) Funds should be managed in accordance with stated investment
objectives
c) Conflict of interest should be avoided in dealings with directors or
employees
d) Each investment decision should be approved by investors. ()
Q. 23).

Unit holders' right to information does not include

a) Obtaining from the trustees any information having an adverse effect on

their investments
b) Inspecting major documents of a fund
c) Receiving of a copy of the annual financial statements of that fund
d) Approving investment decisions of the fund. ()

Page | 19

Q. 24).
A Debt fund distributes 10% dividend. How much tax does the
investor have to pay on this dividend?
a)
b)
c)
d)
Q. 25).
a)
b)
c)
d)

10%
12%
20%
None. ()
Contingent Deferred Sales Charge (CDSC)
Is higher for investors who stay invested in the scheme longer
Is lower for investors who stay invested in the scheme longer. ()
Is the same for all investors irrespective of how long they stay invested
Is not allowed to be charged to mutual fund investors in India

Q. 26).
The amount required to buy 100 units of a scheme having an
entry load of 1.5% and NAV of Rs.20 is:
a)
b)
c)
d)

Rs.2000
Rs.2015
Rs.1985
Rs.2030 ()

Q. 27).
A high P/E multiple of a fund in comparison to average market
multiple could be of
a)
b)
c)
d)

Value fund
Growth fund. ()
Balanced fund
Equity diversified fund

Q. 28).
A company whose earnings are strongly related to the state of
economy is a
a)
b)
c)
d)
Q. 29).
a)
b)
c)
d)

Economy stocks
Cyclical Stocks. ()
Value Stocks
Growth stocks
A value manager does not look for
Stocks that are currently undervalued in the market
Stocks whose worth will be recognized by the market in the long term
High current yield. ()
Long term capital appreciation

Page | 20

Q. 30).
a)
b)
c)
d)

A bond's rating indicates its

Reinvestment risk
Default risk. ()
Inflation risk
Interest-rate risk

Q. 31).
a)
b)
c)
d)

When interest rates rise, bond prices

Also rise
Fall. ()
Are not affected
Fluctuate either up or down

Q. 32).
extent of
a)
b)
c)
d)
Q. 33).
a)
b)
c)
d)
Q. 34).
a)
b)
c)
d)

As per SEBI, mutual funds can borrow for short term to the

Total net assets

50% of net assets
25% of net assets
20% of net assets. ()
A mutual fund is not allowed to invest in the sponsor company,
>25% of its net assets. ()
>10% of its net assets
Not at all
>5% of net assets
Liabilities in the balance sheet of a mutual fund are
In the form of long-term loans
Strictly short term in nature. ()
Combination of long term and short term
Not allowed as per regulations

Q. 35).
A fund's weekly average net assets are Rs. 1000 Crore. What is
the limit on the expenses of the fund?
a)
b)
c)
d)

Rs. 10.5 crore

Rs. 10.25 crore
Rs. 20.5 crore. ()
Rs. 17.5 crore

Page | 21

Q. 36).
A fund's investments at market value total Rs.700 Crores, Total
liabilities stand at Rs.50 lacs and the number of units outstanding is 28
Crores. What is the NAV?
a)
b)
c)
d)
Q. 37).
true?
a)
b)
c)
d)

Q. 38).
a)
b)
c)
d)
Q. 39).
a)
b)
c)
d)

Rs.30.19
Rs.24.98 ()
Rs.32.15
Rs.40.49
For valuation of traded securities, which of the following is not
The security is valued at the last quoted price
The security is valued on the basis of earnings capitalization. ()
Marking to market is applied
If the security has not been traded on valuation date, the trading price
on any previous date may be used, provided that date is not more than
30 days prior to valuation date.
A high portfolio turnover in an equity fund means
The fund is very active in market
Transaction costs are high
The fund may be quite risky
All of the above. ()
An actively managed equity fund expects to
Be able to beat the benchmarks. ()
Earn the same returns as the benchmark
Have no benchmarks
Under-perform when compared with the benchmark

Q. 40).
An Investor buys one unit of a fund at an NAV of Rs.20. He
receives a dividend of Rs.3 when the NAV is Rs. 21. The unit is redeemed at
an NAV of Rs.22. Total Return is
a)
b)
c)
d)

25.71% ()
Rs. 27.51
21.27%
Rs. 21.75%

Page | 22