NISM V-A Concept and Role of a Mutual Fund — Practice Questions
Questions on what a mutual fund is and what it does for an investor — pooling, professional management, diversification, scheme types (open- and close-ended, equity, debt, hybrid, index and ETFs) and the advantages and limitations of the vehicle.
85 questions on Concept & Role of Mutual Funds in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Pooling & professional management
- Open-ended vs close-ended
- Equity, debt, hybrid and index schemes
- ETFs and fund of funds
Free sample questions
1. In the usual course of events, a fund manager will have to provide the maximum liquid assets for _______ .
- A. Gold ETFs
- B. Equity ETFs
- C. Close-end fund
- D. Open-end fund ✅
Answer: D — Open-end fund
Why: ETFs and Close-end funds are listed on the stock exchanges and investors can sell their units their. They need not give redemption request to the AMCs. So, the fund manager need not maintain liquid funds for Close-end funds and ETFs. Open-end funds have to keep a minimum stipulated per cent of their corpus in liquid assets. This has been done to ensure that there is enough liquidity available with the open-ended funds to meet redemption needs.
💡 Only OPEN-END funds hold liquid assets for redemptions; ETFs & closed-end trade on exchange.
2. The equity share prices of gold mining companies can depend on : 1. The gold reserves of the company 2. The operational efficiency and management of the company 3. International prices of gold
- A. Only 1 and 2
- B. Only 2 and 3
- C. Only 1 and 3
- D. All 1, 2 and 3 ✅
Answer: D — All 1, 2 and 3
Why: Profitability of gold mining companies is linked to several factors. For eg. - When gold metal price increases, gold mining companies with large reserves of gold can appreciate If there are concerns about a company’s management the share prices may see a decline irrespective of the price of gold.
💡 Gold miner shares depend on ALL: reserves + management/efficiency + intl gold price.
3. A Closed-end fund will have a _______ .
- A. Fixed Dividend pay-out ratio
- B. Fixed Unit Capital ✅
- C. Fixed Net Asset Value (NAV)
- D. Fixed Asset Under Management (AUM)
Answer: B — Fixed Unit Capital
Why: Close-ended Schemes have an NFO Open Date and NFO Close Date. But, they do not have a Scheme Re-opening Date, because the scheme does not sell or re-purchase units. What ever sale-purchase of units takes place is between the investors on the stock exchange. Since post-NFO sale and purchase of units happen to or from counter-party in the stock exchange–and not to or from the scheme–the unit capital of the scheme remains stable or fixed (The number of units issued by a scheme multiplied by its face value (Rs. 10) is the capital of the scheme–its Unit Capital) (In an Open-End scheme, the ongoing entry and exit of investors imply that the unit capital in an open-ended fund would keep changing on a regular basis)
💡 Closed-end -> FIXED unit capital (no ongoing sale/repurchase by the scheme).
Practise all 85 Concept & Role of Mutual Funds questions
Plus the full 743-question NISM V-A bank and real-feel mock exams.