Ch.2 · Concept and Role of a Mutual Fund

Advantages and Limitations of Mutual Funds

50 practice questions on this topic

Which type of mutual fund is most suitable for an investor with a very short investment horizon of 1 day?

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EXPLANATION

An overnight fund invests in securities with a maturity of 1 day. It is ideal for parking surplus cash for very short periods. It carries negligible credit and interest rate risk, making it the safest debt fund category.

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Which of the following is the most accurate definition of a 'unit' in a mutual fund?

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EXPLANATION

A unit represents a proportional share of the scheme's total portfolio. When an investor invests money, they are allotted units at the prevailing NAV. Each unit entitles the holder to a proportional share of the scheme's assets and income.

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Which of the following is an advantage of investing in mutual funds over direct equity investment for a retail investor?

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EXPLANATION

The key advantage of mutual funds over direct equity is access to professional management and a diversified portfolio without requiring large capital. A retail investor with ₹500/month cannot build a diversified equity portfolio directly but can do so through a mutual fund SIP.

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What is the cut-off time for equity mutual fund purchases for same-day NAV applicability?

A.12:00 noon

B.1:00 PM

C.3:00 PM

D.5:00 PM

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How frequently is NAV calculated and published for open-ended mutual fund schemes?

A.Weekly, every Friday

B.Monthly, on the last business day

C.Daily, on every business day

D.Quarterly, at the end of each quarter

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What is a Consolidated Account Statement (CAS)?

A.A statement issued by SEBI listing all SEBI-registered AMCs

B.A single statement showing all mutual fund holdings and transactions of an investor across all AMCs

C.A consolidated statement of the AMC's total AUM across all schemes

D.A quarterly profit and loss statement issued by the AMC

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What is a Systematic Investment Plan (SIP)?

A.A one-time lump sum investment in a mutual fund scheme

B.A facility to invest a fixed amount at regular intervals (monthly, weekly) in a mutual fund scheme

C.A plan where the AMC automatically switches between equity and debt based on market conditions

D.A SEBI-mandated minimum investment requirement for retail investors

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Can the AMC and the Custodian be associates of each other?

A.Yes, as long as SEBI approves the arrangement

B.No, SEBI regulations require that the AMC and Custodian must be independent of each other

C.Yes, if the AMC discloses this conflict in the SAI

D.Yes, only if the AMC has more than ₹1,000 crore AUM

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What was SEBI's rationale for banning entry loads on mutual funds in 2009?

A.To increase AMC profits by eliminating distributor costs

B.To eliminate the conflict of interest where distributors recommended funds with higher entry loads rather than suitable funds

C.To reduce the NAV of schemes and make them more affordable

D.To encourage investors to choose direct plans

Q10

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Which of the following is the MOST important factor that determines returns from a mutual fund scheme?

A.The brand name and size of the AMC

B.The performance of the underlying securities in the scheme's portfolio

C.The number of distributors empanelled with the AMC

D.The face value of the mutual fund unit

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