Below is a set of 74 NISM VA mock test questions for the NISM Series V-A: Mutual Fund Distributors Certification Examination, prepared as per the NISM syllabus.
Each question includes four probable answers, the correct answer, and a detailed explanation. The questions cover key topics from the NISM Series V-A syllabus, including mutual fund concepts, legal structure, distribution practices, taxation, investor services, scheme selection, and regulatory frameworks.
NISM VA Mock Test Questions for NISM Series 5-A: Mutual Fund Distributors Certification Exam
Unit 1: Concept and Role of Mutual Funds
- What is a mutual fund?
a) A company that invests in real estate
b) A trust that pools money from investors to invest in securities
c) A government-backed savings scheme
d) A fixed deposit with a bank
Correct Answer: b
Explanation: A mutual fund is a trust that collects money from multiple investors and invests it in a diversified portfolio of securities like stocks, bonds, or other assets, managed by professionals. - What is the primary advantage of investing in mutual funds?
a) Guaranteed returns
b) Professional management
c) Zero risk
d) Fixed maturity period
Correct Answer: b
Explanation: Mutual funds are managed by professional fund managers who make investment decisions, providing expertise to investors. Returns are not guaranteed, and risks vary by scheme. - Which of the following is a limitation of mutual funds?
a) Diversification
b) Lack of liquidity in open-ended funds
c) Market risk
d) Professional management
Correct Answer: c
Explanation: Mutual funds are subject to market risks, as their returns depend on the performance of underlying securities. Diversification and liquidity are advantages, not limitations. - What is the investment objective of a mutual fund primarily focused on?
a) Capital appreciation or income generation
b) Tax exemptions
c) Fixed returns
d) Short-term trading
Correct Answer: a
Explanation: Mutual funds aim for capital appreciation (growth) or income generation (dividends/interest) based on their scheme type, such as equity or debt funds.
Unit 2: Classifications of Mutual Funds
- Which type of mutual fund allows investors to buy or sell units at any time?
a) Close-ended fund
b) Open-ended fund
c) Interval fund
d) Exchange-traded fund (ETF)
Correct Answer: b
Explanation: Open-ended funds allow investors to purchase or redeem units at the Net Asset Value (NAV) on any business day, offering high liquidity. - Which mutual fund scheme is traded on stock exchanges like shares?
a) Open-ended fund
b) Close-ended fund
c) Exchange-traded fund (ETF)
d) Index fund
Correct Answer: c
Explanation: ETFs are mutual funds listed and traded on stock exchanges, with prices fluctuating throughout the day based on market demand. - As per SEBI categorization, which scheme invests at least 65% in equity?
a) Debt fund
b) Equity fund
c) Hybrid fund
d) Solution-oriented fund
Correct Answer: b
Explanation: SEBI mandates that equity funds invest at least 65% of their assets in equity and equity-related instruments. - What is a Smart Beta Fund?
a) A fund that follows a passive index
b) A fund combining active and passive strategies
c) A fund investing only in technology stocks
d) A fund with guaranteed returns
Correct Answer: b
Explanation: Smart Beta Funds use rule-based strategies to combine passive indexing (tracking an index) with active management (e.g., weighting by factors like volatility).
Unit 3: Legal Structure of Mutual Funds in India
- Who acts as the protector of mutual fund investors’ assets?
a) Sponsor
b) Trustee
c) Asset Management Company (AMC)
d) Custodian
Correct Answer: b
Explanation: Trustees oversee the mutual fund’s operations and ensure investor interests are protected, acting as a watchdog. - What is the role of the Asset Management Company (AMC)?
a) Safeguard the securities
b) Manage the fund’s portfolio
c) Issue mutual fund units
d) Audit the fund’s accounts
Correct Answer: b
Explanation: The AMC is responsible for managing the mutual fund’s investments, making decisions to achieve the scheme’s objectives. - Who is responsible for holding the mutual fund’s securities in safe custody?
a) Registrar and Transfer Agent
b) Custodian
c) Fund Accountant
d) Sponsor
Correct Answer: b
Explanation: The custodian holds and safeguards the mutual fund’s securities, ensuring their safety and proper record-keeping. - What is the role of AMFI in the mutual fund industry?
a) Regulate mutual funds
b) Promote ethical practices and investor education
c) Manage mutual fund portfolios
d) Issue mutual fund certificates
Correct Answer: b
Explanation: AMFI (Association of Mutual Funds in India) promotes ethical practices, investor awareness, and industry standards but does not regulate funds (SEBI’s role).
Unit 4: Legal and Regulatory Framework
- Which body regulates mutual funds in India?
a) Reserve Bank of India (RBI)
b) Securities and Exchange Board of India (SEBI)
c) Association of Mutual Funds in India (AMFI)
d) Insurance Regulatory and Development Authority (IRDA)
Correct Answer: b
Explanation: SEBI is the primary regulator of mutual funds in India, ensuring investor protection and market stability. - What does the SEBI Advertisement Code for mutual funds emphasize?
a) Guaranteed returns
b) Fair and transparent communication
c) High-risk disclaimers
d) Minimum investment amounts
Correct Answer: b
Explanation: SEBI’s Advertisement Code requires mutual fund ads to be fair, transparent, and not misleading, with risk disclosures like “Mutual Fund investments are subject to market risks.” - What is SCORES in the context of mutual funds?
a) A mutual fund rating system
b) SEBI’s investor grievance redressal platform
c) A tax calculation tool
d) A scheme performance tracker
Correct Answer: b
Explanation: SCORES (SEBI Complaints Redress System) is an online platform for investors to lodge complaints against mutual funds or intermediaries. - What is the validity period of the NISM Series V-A certificate?
a) 1 year
b) 3 years
c) 5 years
d) Lifetime
Correct Answer: b
Explanation: The NISM Series V-A certificate is valid for 3 years, after which it must be renewed through CPE or re-examination.
Unit 5: Scheme-Related Information
- Which document contains detailed information about a mutual fund scheme?
a) Key Information Memorandum (KIM)
b) Scheme Information Document (SID)
c) Statement of Additional Information (SAI)
d) Annual Report
Correct Answer: b
Explanation: The SID provides comprehensive details about the scheme’s objectives, asset allocation, risks, and fees, mandatory for investors to review. - What is the purpose of the Key Information Memorandum (KIM)?
a) Provide a summary of the scheme for investors
b) Disclose the fund manager’s qualifications
c) List all mutual fund distributors
d) Report annual performance
Correct Answer: a
Explanation: The KIM is a concise document summarizing key details of the scheme, including objectives, risks, and fees, for quick investor reference. - How often must the Scheme Information Document (SID) be updated?
a) Annually
b) Every 3 years
c) Every 6 months
d) As per SEBI’s discretion
Correct Answer: a
Explanation: SEBI mandates that the SID be updated annually or whenever there are material changes to the scheme. - What is disclosed in the Total Expense Ratio (TER)?
a) The fund’s investment returns
b) The cost of managing the mutual fund
c) The tax liability of investors
d) The fund’s NAV
Correct Answer: b
Explanation: TER represents the annual expenses (management fees, operational costs) as a percentage of the fund’s assets, impacting investor returns.
Unit 6: Fund Distribution and Channel Management Practices
- What is the primary role of a mutual fund distributor?
a) Manage the fund’s portfolio
b) Sell mutual fund schemes to investors
c) Calculate the fund’s NAV
d) Audit the fund’s accounts
Correct Answer: b
Explanation: Distributors facilitate the sale of mutual fund schemes to investors, earning commissions for their services. - What is a trail commission?
a) A one-time payment to distributors
b) An ongoing commission based on assets under management
c) A commission paid only on redemptions
d) A commission for managing the fund
Correct Answer: b
Explanation: Trail commissions are recurring payments to distributors based on the investor’s assets remaining in the scheme, incentivizing long-term retention. - What does AMFI’s Code of Conduct require from distributors?
a) Guarantee returns to investors
b) Adhere to ethical practices
c) Manage the fund’s investments
d) Disclose fund manager details
Correct Answer: b
Explanation: AMFI’s Code of Conduct mandates distributors to act ethically, transparently, and in the best interest of investors. - What is the due diligence process by AMCs for distributors?
a) Calculating distributor commissions
b) Evaluating distributor compliance and practices
c) Managing distributor investments
d) Auditing distributor accounts
Correct Answer: b
Explanation: AMCs conduct due diligence to ensure distributors comply with regulations, maintain ethical standards, and protect investor interests.
Unit 7: Net Asset Value (NAV), Total Expense Ratio, and Pricing
- How is the Net Asset Value (NAV) of a mutual fund calculated?
a) (Total Assets – Total Liabilities) / Number of Units
b) Total Assets / Number of Units
c) Total Liabilities / Number of Units
d) (Total Assets + Total Liabilities) / Number of Units
Correct Answer: a
Explanation: NAV = (Market value of assets – Liabilities) / Total units outstanding, reflecting the per-unit value of the fund. - What is an entry load in a mutual fund?
a) A fee charged when redeeming units
b) A fee charged when purchasing units
c) A recurring management fee
d) A tax on investment returns
Correct Answer: b
Explanation: Entry load is a fee charged at the time of investment, but SEBI has banned entry loads in India since 2009. - How does an exit load impact an investor?
a) Increases the NAV
b) Reduces the redemption proceeds
c) Lowers the expense ratio
d) Guarantees returns
Correct Answer: b
Explanation: Exit load is a fee charged when redeeming units within a specified period, reducing the amount received by the investor. - What happens to the NAV if the Total Expense Ratio (TER) increases?
a) NAV increases
b) NAV decreases
c) NAV remains unchanged
d) NAV becomes zero
Correct Answer: b
Explanation: Higher TER means more expenses are deducted from the fund’s assets, reducing the NAV and investor returns.
Unit 8: Taxation
- What is the tax rate on Short-Term Capital Gains (STCG) for equity mutual funds (holding period less than 1 year)?
a) 10%
b) 15%
c) 20%
d) 30%
Correct Answer: b
Explanation: STCG on equity funds (held for less than 12 months) is taxed at 15%, subject to applicable cess and surcharge. - What is the holding period for Long-Term Capital Gains (LTCG) in debt mutual funds?
a) 12 months
b) 24 months
c) 36 months
d) 48 months
Correct Answer: c
Explanation: For debt funds, LTCG applies to gains from units held for more than 36 months, taxed at 20% with indexation. - What is the tax treatment of dividends from mutual funds?
a) Tax-free in the hands of investors
b) Taxed as per the investor’s income slab
c) Taxed at 10%
d) Taxed at 15%
Correct Answer: b
Explanation: Since April 2020, dividends (now called Income Distribution cum Capital Withdrawal) are taxed as per the investor’s income tax slab rate. - What is indexation in the context of mutual fund taxation?
a) Adjusting gains for inflation
b) Calculating NAV
c) Deducting expenses from returns
d) Taxing dividends
Correct Answer: a
Explanation: Indexation adjusts the purchase cost of debt fund units for inflation, reducing taxable LTCG and tax liability.
Unit 9: Investor Services
- What is a Systematic Investment Plan (SIP)?
a) A one-time investment in mutual funds
b) Regular investments at fixed intervals
c) A loan against mutual fund units
d) A tax-saving investment plan
Correct Answer: b
Explanation: SIP allows investors to invest a fixed amount regularly (e.g., monthly) in a mutual fund, promoting disciplined investing. - What is the purpose of a Systematic Withdrawal Plan (SWP)?
a) Regular investment in a fund
b) Regular redemption of units for income
c) Transferring units between schemes
d) Tax planning
Correct Answer: b
Explanation: SWP enables investors to withdraw a fixed amount periodically from their mutual fund investment, suitable for regular income needs. - What is a KYC Registration Agency (KRA)?
a) A body regulating mutual funds
b) An agency verifying investor identity
c) A fund accounting service
d) A commission payment platform
Correct Answer: b
Explanation: KRAs verify and maintain KYC records of investors, ensuring compliance with SEBI regulations for mutual fund investments. - What is the minimum investment amount typically required for an SIP?
a) Rs. 100
b) Rs. 500
c) Rs. 1,000
d) Rs. 5,000
Correct Answer: b
Explanation: Most mutual funds allow SIPs starting from Rs. 500 per month, though some schemes may have higher or lower minimums.
Unit 10: Risk, Return, and Performance of Funds
- What does the Sharpe Ratio measure?
a) Total return of a fund
b) Risk-adjusted return
c) Expense ratio
d) Market volatility
Correct Answer: b
Explanation: The Sharpe Ratio measures the excess return per unit of risk (standard deviation), indicating how well a fund compensates for risk. - Which type of mutual fund generally has the highest risk?
a) Debt fund
b) Equity fund
c) Money market fund
d) Gilt fund
Correct Answer: b
Explanation: Equity funds invest in stocks, which are subject to high market volatility, making them riskier than debt or money market funds. - What is standard deviation in the context of mutual funds?
a) A measure of fund expenses
b) A measure of return consistency
c) A measure of volatility
d) A measure of tax liability
Correct Answer: c
Explanation: Standard deviation measures the volatility of a fund’s returns, indicating how much returns deviate from the average. - What is a benchmark in mutual funds?
a) The fund’s expense ratio
b) A standard to compare fund performance
c) The fund’s NAV
d) The fund’s investment objective
Correct Answer: b
Explanation: A benchmark (e.g., Nifty 50 for equity funds) is used to evaluate a fund’s performance relative to a market index.
Unit 11: Mutual Fund Scheme Performance
- What is the primary factor affecting a mutual fund’s performance?
a) Distributor commissions
b) Market conditions
c) Investor’s KYC status
d) Fund’s launch date
Correct Answer: b
Explanation: Market conditions significantly influence the performance of a mutual fund’s underlying securities, impacting returns. - What does a fund’s alpha indicate?
a) Total return of the fund
b) Excess return over the benchmark
c) Expense ratio
d) Risk level
Correct Answer: b
Explanation: Alpha measures the fund’s excess return compared to its benchmark, reflecting the fund manager’s skill. - How is a mutual fund’s performance typically reported?
a) Absolute returns only
b) Annualized returns and benchmark comparison
c) NAV only
d) Expense ratio only
Correct Answer: b
Explanation: Fund performance is reported as annualized returns (e.g., CAGR) and compared to a benchmark to assess relative performance. - What is a rolling return?
a) Return calculated for a fixed period
b) Return calculated over multiple overlapping periods
c) Return excluding taxes
d) Return including dividends
Correct Answer: b
Explanation: Rolling returns measure performance over multiple overlapping periods (e.g., 1-year returns calculated daily), providing a consistent view.
Unit 12: Mutual Fund Scheme Selection
- What is the first step in selecting a mutual fund scheme?
a) Comparing expense ratios
b) Assessing investor’s financial goals
c) Checking fund manager’s experience
d) Reviewing past returns
Correct Answer: b
Explanation: Scheme selection begins with understanding the investor’s financial goals, risk tolerance, and investment horizon to ensure suitability. - Which factor is least important when selecting a mutual fund?
a) Fund’s past performance
b) Fund’s investment objective
c) Fund’s risk profile
d) Fund’s launch date
Correct Answer: d
Explanation: The fund’s launch date is less critical than its performance, objective, and risk profile, which directly impact suitability. - Which scheme is suitable for a risk-averse investor?
a) Small-cap equity fund
b) Liquid fund
c) Sectoral fund
d) Mid-cap equity fund
Correct Answer: b
Explanation: Liquid funds invest in short-term, low-risk instruments like treasury bills, making them suitable for risk-averse investors. - What should a distributor consider before recommending a scheme?
a) Investor’s risk appetite and goals
b) Fund’s expense ratio only
c) Fund’s past returns only
d) Distributor’s commission
Correct Answer: a
Explanation: Distributors must prioritize the investor’s risk appetite, financial goals, and investment horizon to recommend suitable schemes. - What is the minimum number of investors required in a mutual fund scheme?
a) 10
b) 20
c) 50
d) 100
Correct Answer: b
Explanation: SEBI mandates that a mutual fund scheme must have at least 20 investors to ensure diversification of ownership. - What is a segregated portfolio in mutual funds?
a) A portfolio of high-risk assets only
b) A separate portfolio for illiquid or defaulted securities
c) A portfolio for tax-free investments
d) A portfolio for foreign investments
Correct Answer: b
Explanation: A segregated portfolio holds illiquid or defaulted securities separately to protect the main portfolio’s NAV and investor interests. - What is the role of a fund accountant in a mutual fund?
a) Manage the fund’s investments
b) Calculate the fund’s NAV
c) Distribute mutual fund units
d) Audit the fund’s accounts
Correct Answer: b
Explanation: The fund accountant calculates the daily NAV and maintains the fund’s financial records. - What is a debt fund’s primary investment focus?
a) Equity shares
b) Bonds and money market instruments
c) Real estate
d) Commodities
Correct Answer: b
Explanation: Debt funds primarily invest in fixed-income securities like bonds, debentures, and money market instruments for stable returns. - What is the significance of a scheme’s riskometer?
a) Measures the fund’s expense ratio
b) Indicates the level of risk in the scheme
c) Calculates the fund’s NAV
d) Tracks the fund’s benchmark
Correct Answer: b
Explanation: The riskometer is a graphical representation of the scheme’s risk level, ranging from low to very high, helping investors assess risk. - What is the maximum Total Expense Ratio (TER) for equity funds with AUM above Rs. 50,000 crore?
a) 1.05%
b) 1.50%
c) 2.00%
d) 2.25%
Correct Answer: a
Explanation: SEBI caps TER for equity funds at 1.05% for AUM above Rs. 50,000 crore to ensure cost efficiency for investors. - What is a hybrid mutual fund?
a) Invests only in equity
b) Invests in a mix of equity and debt
c) Invests only in debt
d) Invests in commodities
Correct Answer: b
Explanation: Hybrid funds invest in both equity and debt to balance risk and return, catering to moderate-risk investors. - What is the role of a Registrar and Transfer Agent (RTA)?
a) Manage the fund’s portfolio
b) Process investor transactions and maintain records
c) Hold securities in custody
d) Calculate the fund’s NAV
Correct Answer: b
Explanation: RTAs handle investor applications, redemptions, and record-keeping, ensuring smooth transaction processing. - What is a gilt fund?
a) A fund investing in gold
b) A fund investing in government securities
c) A fund investing in equity
d) A fund investing in real estate
Correct Answer: b
Explanation: Gilt funds invest in government securities, which are low-risk but subject to interest rate risk. - What is the purpose of financial planning in mutual fund investments?
a) Guarantee high returns
b) Align investments with investor goals
c) Reduce the fund’s expense ratio
d) Eliminate market risks
Correct Answer: b
Explanation: Financial planning ensures investments align with the investor’s goals, risk profile, and time horizon for optimal outcomes. - What is a money market fund?
a) A fund investing in equity shares
b) A fund investing in short-term debt instruments
c) A fund investing in real estate
d) A fund investing in commodities
Correct Answer: b
Explanation: Money market funds invest in short-term, low-risk debt instruments like treasury bills, offering liquidity and safety. - What is the maximum lock-in period for an ELSS (Equity-Linked Savings Scheme)?
a) 1 year
b) 3 years
c) 5 years
d) 7 years
Correct Answer: b
Explanation: ELSS funds have a mandatory 3-year lock-in period and offer tax benefits under Section 80C of the Income Tax Act. - What is the role of a sponsor in a mutual fund?
a) Manage the fund’s portfolio
b) Establish the mutual fund trust
c) Calculate the fund’s NAV
d) Distribute mutual fund units
Correct Answer: b
Explanation: The sponsor sets up the mutual fund trust and appoints the trustees, ensuring the fund’s legal formation. - What is a passive fund?
a) A fund actively managed by a fund manager
b) A fund tracking an index with minimal intervention
c) A fund investing only in debt
d) A fund with guaranteed returns
Correct Answer: b
Explanation: Passive funds, like index funds or ETFs, aim to replicate an index’s performance with minimal active management. - What is the significance of the Statement of Additional Information (SAI)?
a) Summarizes scheme details
b) Provides AMC and trustee details
c) Lists investor complaints
d) Reports daily NAV
Correct Answer: b
Explanation: The SAI contains details about the AMC, trustees, and other operational aspects, complementing the SID. - What is a sectoral fund?
a) A fund investing across all sectors
b) A fund investing in a specific sector
c) A fund investing only in debt
d) A fund with no risk
Correct Answer: b
Explanation: Sectoral funds focus on specific sectors (e.g., banking, IT), making them high-risk due to lack of diversification. - What is the role of a valuation agency in mutual funds?
a) Calculate the fund’s NAV
b) Provide fair valuation of securities
c) Distribute mutual fund units
d) Audit the fund’s accounts
Correct Answer: b
Explanation: Valuation agencies ensure securities are valued fairly, especially for illiquid or unlisted assets, to compute accurate NAV. - What is a balanced advantage fund?
a) A fund investing only in equity
b) A fund dynamically adjusting equity and debt allocation
c) A fund investing only in debt
d) A fund with fixed returns
Correct Answer: b
Explanation: Balanced advantage funds dynamically shift between equity and debt based on market conditions to optimize risk and return. - What is the tax benefit of investing in ELSS funds?
a) Tax-free dividends
b) Deduction under Section 80C
c) Tax-free capital gains
d) No tax on redemption
Correct Answer: b
Explanation: ELSS investments qualify for a deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. - What is a portfolio disclosure requirement for mutual funds?
a) Disclose NAV daily
b) Disclose portfolio holdings monthly
c) Disclose expense ratio annually
d) Disclose distributor commissions
Correct Answer: b
Explanation: SEBI mandates mutual funds to disclose their portfolio holdings monthly to ensure transparency for investors. - What is the role of a credit rating agency in mutual funds?
a) Rate the fund’s performance
b) Rate the credit quality of debt securities
c) Calculate the fund’s NAV
d) Distribute mutual fund units
Correct Answer: b
Explanation: Credit rating agencies assess the creditworthiness of debt securities held by mutual funds, aiding in risk evaluation. - What is the primary objective of a liquid fund?
a) High capital appreciation
b) Safety and liquidity
c) High dividend income
d) Long-term growth
Correct Answer: b
Explanation: Liquid funds aim to provide safety of capital and high liquidity by investing in short-term, low-risk instruments.
Notes
- Exam Format: The NISM Series V-A exam consists of 100 questions, each carrying 1 mark, to be completed in 2 hours, with a passing score of 50%. There is no negative marking. We have shared the NISM VA mock test important MCQs.
- Preparation Tips:
- Study the NISM workbook thoroughly.
- Practice mock tests to familiarize yourself with the exam pattern and time management.
- Focus on regulatory knowledge, taxation, and scheme selection, as these are heavily weighted.
- Stay updated on recent SEBI regulations and market trends.
If you want to learn basic to advanced level Mutual Funds Concepts, then you can join our Mutual Funds Essential Hindi Learning Program by Mr. Sudhansu Sekhar Panda ( BTECH, MBA, PGDM, NSE, NISM CERTIFIED, SEBI Registered Research Analyst )
