NISM V-C Ethics and Investor Protection — Practice Questions
Questions on the ethical duties of a distributor and the protections built for investors — the AMFI code, mis-selling, conflicts of interest, grievance redressal and the issues in selling alternate products.
16 questions on Ethics in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- AMFI code of conduct
- Mis-selling and conflicts
- Grievance redressal
- Selling alternate products
Free sample questions
1. A person who is retired and needs monthly income is advised by his distributor to invest in a Real Estate Mutual Fund as it can give very good returns. Should this case be investigated for miselling ?
- A. Yes ✅
- B. No
Answer: A — Yes
Why: Real Estate Funds are close ended and cannot be redeemed easily. They do not guarantee any monthly return and can be volatile. They are definately unfit for a retired conservative investor seeking monthly returns.
💡 Selling illiquid close-ended REMF to a retiree needing monthly income = MIS-SELLING (investigate).
2. A Mutual Fund distributor advises his client to purchase a fund as he has inside information that the funds NAV will rise by atleast 10% very shortly. Does this case require investigation for mis-selling ?
- A. Yes ✅
- B. No
Answer: A — Yes
Why: Mis-selling includes making a false or misleading statement and concealing the risk factors of a scheme. A distributor claiming inside information that the NAV will rise by at least 10 percent is making a misleading statement that no one can guarantee, so the case warrants investigation for mis-selling under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations.
💡 Pushing a buy on 'inside info' that NAV will jump = MIS-SELLING; must be investigated.
3. All AMCs have to abide by which code of ethics ?
- A. ACE ✅
- B. BCE
- C. PCE
- D. RCE
Answer: A — ACE
Why: AMFI Code of Ethics (ACE) : SEBI (Mutual Funds) Regulation, 1996 requires all Asset Management Companies and Trustees to abide by the Code of Conduct as specified in the Fifth Schedule to the Regulation.
💡 AMCs & Trustees must follow AMFI Code of Ethics = ACE (SEBI MF Regs, Fifth Schedule).
Practise all 16 Ethics questions
Plus the full 340-question NISM V-C bank and real-feel mock exams.