Ch.2 · Concept and Role of a Mutual Fund

Mutual Fund Structure Basics

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What is a Children's Fund as per SEBI categorisation?

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EXPLANATION

A Children's Fund is a solution-oriented mutual fund category designed for long-term wealth creation for children. It has a mandatory lock-in of 5 years or until the child attains majority (age 18), whichever is earlier. The fund can have equity or debt orientation depending on the scheme.

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What is the pass-through nature of a mutual fund?

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EXPLANATION

Mutual funds have a pass-through nature — all income (dividends, interest) and capital gains earned by the scheme flow through to unit holders in proportion to their holdings. The fund itself is not a taxpaying entity; tax incidence falls on unit holders.

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What is a Systematic Transfer Plan (STP)?

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EXPLANATION

An STP (Systematic Transfer Plan) allows investors to periodically transfer a fixed amount from one scheme (typically a debt/liquid fund) to another scheme (typically an equity fund) within the same AMC. It is commonly used to deploy a lump sum into equity gradually, reducing timing risk.

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What is a Floater Fund?

A.A fund that invests in floating rate bonds — instruments where the interest rate resets periodically

B.A fund that can freely change its asset allocation between equity and debt

C.A fund that floats between multiple investment strategies

D.A fund that issues units at a floating NAV rather than a fixed price

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What is the difference between 'Absolute Return' and 'CAGR' as return measures for mutual funds?

A.Absolute return accounts for time; CAGR does not

B.Absolute return is the total percentage gain without considering time; CAGR is the annualised compounded return accounting for time

C.CAGR is always higher than absolute return

D.Absolute return is used only for equity funds; CAGR for debt funds

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What is a Large Cap fund as defined by SEBI?

A.A fund that invests in companies with market cap above ₹500 crore

B.A fund that must invest minimum 80% in the top 100 companies by market capitalisation

C.A fund that invests in companies listed on BSE 100 index only

D.A fund that invests minimum 65% in equity with no market cap restriction

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What was the rationale for SEBI renaming the 'Dividend' option to 'Income Distribution cum Capital Withdrawal (IDCW)' in 2021?

A.To align with international mutual fund terminology

B.To clarify that payouts often include return of capital from NAV and not just income or profits

C.To increase tax collection from mutual fund investors

D.To discourage investors from choosing the dividend option

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What is a Multi Cap fund as per SEBI's categorisation?

A.A fund that invests minimum 65% in equity with no market cap restriction

B.A fund that must invest minimum 25% each in large cap, mid cap, and small cap stocks

C.A fund that can freely allocate between large, mid, and small cap

D.A fund that invests in equity across multiple countries

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As per SEBI categorisation, what is the minimum allocation to equity for a scheme to qualify as an equity fund?

A.51%

B.60%

C.65%

D.75%

Q10

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What is a Dividend Yield fund as per SEBI categorisation?

A.A fund that only invests in companies that have paid dividends for 10+ consecutive years

B.A fund that must invest minimum 65% in dividend-yielding stocks

C.A debt fund that pays monthly dividends to investors

D.A fund that invests in stocks with dividend yield above 5%

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