NISM V-A Fund Distribution and Channel Management — Practice Questions
Questions on how mutual funds actually reach investors — distributor types and empanelment, ARN registration, commission and trail models, the distributor's due diligence, and the conduct expected of them.
49 questions on Fund Distribution in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Distributor types and ARN
- Commission and trail structures
- Due diligence obligations
- Channel conduct and compliance
Free sample questions
1. Mutual fund distributors receive compensation from _____ after the removal of transaction charges by SEBI.
- A. SEBI or AMFI
- B. Stock exchanges
- C. Investors themselves
- D. Asset Management Companies (AMCs) ✅
Answer: D — Asset Management Companies (AMCs)
Why: After the withdrawal of transaction charges in 2025, mutual fund distributors are mainly compensated through commissions paid by the AMC. These commissions are paid from the scheme expenses within SEBI-prescribed limits.
💡 Distributors paid by AMCs via commissions (from scheme expenses) -> NOT by investors/SEBI/exchanges.
2. How can the empanelment of a mutual fund distributor be terminated?
- A. The empanelment gets automatically terminated on the completion of the term of empanelment
- B. Asset Management Company can terminate the empanelment at any time ✅
- C. When all the clients of the distributor shift to Direct Plans
- D. All of the above
Answer: B — Asset Management Company can terminate the empanelment at any time
Why: Empanelment of a mutual fund distributor does not end automatically with time; it continues as long as the distributor’s ARN remains valid. Also, even if all clients move to Direct Plans, the empanelment legally stays intact. The only clear ground for termination is that the AMC can terminate the empanelment at its discretion. While empaneling with an AMC, the mutual fund distributor applicant signs a declaration which gives power to the AMC to terminate the empanelment at any time.
💡 AMC can terminate distributor empanelment ANYTIME (per signed declaration).
3. _____ is not a fair selling practice by a mutual fund distributor.
- A. Informing the investor of the various investment options
- B. Carefully understanding the clients financial needs
- C. Encouraging the churning of investments ✅
- D. Giving personalised after sales service
Answer: C — Encouraging the churning of investments
Why: Churning means frequent buying and selling. Encouraging over transacting and churning of Mutual Fund investments to earn higher commissions by MF agents is a bad practice.
💡 Encouraging CHURNING (for higher commission) = unfair selling practice.
Practise all 49 Fund Distribution questions
Plus the full 743-question NISM V-A bank and real-feel mock exams.