NISM V-B 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, open- and close-ended schemes, equity, debt, hybrid and index schemes, and the advantages and limitations of the vehicle.
50 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
- Advantages and limitations
Free sample questions
1. In which of these options does the units increase in the investors account when ever a dividend is declared by the Mutual Fund scheme ?
- A. Dividend Re-investment Option ✅
- B. Dividend Payout Option
- C. Growth Option
- D. All of the above
Answer: A — Dividend Re-investment Option
Why: In Dividend Re-investment Option, the dividend is reinvested in the fund and additional units are alloted to the investor.
💡 Dividend RE-INVESTMENT option -> dividend buys new units, so units INCREASE (payout/growth don't).
2. Which of these is an advantage of Mutual Funds?
- A. Portfolio Customization
- B. Control Over Costs
- C. Convenience to buy stocks and bonds directly from the mutual fund
- D. Economies of scale ✅
Answer: D — Economies of scale
Why: Large investment corpus of a mutual fund leads to various other economies of scale. For instance, costs related to investment research and office space gets spread across investors. Further, the higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers. Limitations of Mutual Fund - Lack of Portfolio Customization - A unitholder cannot influence what securities or investments the scheme would invest into. Choice Overload - There are multiple mutual fund schemes offered by several mutual fund houses and multiple options within those schemes which makes it difficult for investors to choose between them. No Control Over Costs - An individual investor has no control over the costs in a scheme
💡 MF advantage = ECONOMIES OF SCALE; no-customization & no-cost-control are LIMITATIONS.
3. A scheme which has an investment objective to invest largely in equity shares and equity-related investments like convertible debentures is called _______ .
- A. Debt Scheme
- B. Equity Scheme ✅
- C. Hybrid Scheme
- D. All of the above
Answer: B — Equity Scheme
Why: A scheme whose investment objective is to invest largely in equity shares and equity related instruments such as convertible debentures is an Equity Scheme. Debt schemes invest in bonds and money market instruments, while hybrid schemes invest in a mix of equity and debt.
💡 Invests largely in equity & equity-related (e.g. convertible debentures) -> EQUITY scheme.
Practise all 50 Concept & Role of Mutual Funds questions
Plus the full 369-question NISM V-B bank and real-feel mock exams.