Nism Series V B - Mutual Fund Foundation Exam

NISM SERIES V B - MUTUAL FUND
FOUNDATION EXAM
NISM SERIES V B – MUTUAL FUND FOUNDATION
CERTIFICATION EXAM : LAST DAY REVISION TEST . 1
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TEST DETAILS – The NISM Mutual Fund Foundation Module exam is a 50 mark exam with 50% as passing marks.
The question paper will consist of 50 multiple choice questions. There is no negative marking. The time duration is
120 Minutes.
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LAST DAY REVISION TEST . 1
Question 1 If applicable NAV is Rs 40 and exit load is 1%, re-purchase price will be
_____ .
(a) Rs 40.40
(b) Rs 39.60
(c) Rs 10.40
(d) Rs 9.60
Question 2 As of 31st March 2015. there were ____ mutual funds in India.
(a) 25
(b) 36
(c) 41
(d) 57
Correct Answer 1 Rs 39.60

Answer Re Purchase (Redemption) Price = Applicable NAV less Exit load (if any)
Explanation = 40 less 1%
= 40 - 0.40
= 39.60
Correct Answer 2 41
Question 3 The risk of investing in stock markets can be quantified using ______ .
(a) Standard Deviation
(b) Beta
(c) Both 1 and 2
(d) None of the above
Question 4 ________ sets out standards of good practices to be followed by AMCs in

their operations and in their dealings with investors, intermediaries and
the public.
(a) ACE
(b) AGNI
(c) GUDPRAC
(d) INVPROC
Correct Answer 3 Both 1 and 2
Correct Answer 4 ACE

Answer AMFI Code of Ethics (ACE)
Explanation
Question 5 Mutual fund schemes that primarily invest in floating rate debentures are
called _______ .
(a) floating rate schemes
(b) floaters
(c) Debenture Linked schemes
(d) Both 1 and 2
Question 6 The benchmark for Li-BEX is ________ .
(a) Gilt schemes of short maturity
(b) Gilt schemes of medium maturity
(c) Gilt schemes of long maturity
(d) Composite gilt schemes

Answer Mutual fund schemes that primarily invest in floating rate debentures are
Explanation called floating rate schemes or floaters.
Correct Answer 6 Gilt schemes of long maturity

Answer Li-BEX means Long Maturity Gilt Index and its benchmark is Gilt schemes of
Explanation long maturity.
Question 7 As per the SEBI regulations, 'Marked To Market' of the securities held by
a Mutual Fund scheme has to be done ________ .
(a) hourly
(b) daily
(c) weekly
(d) monthly
Question 8 KYC performed by the Depository Participant (DP) is valid for the
investor to invest in mutual funds - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer 7 Daily
Correct Answer 8 TRUE

Question 9 Who has to mandatorily clear the NISM VA Mutual Fund Distributors
Certification Examination ?
(a) Employees of organizations engaged in sales and distribution of Mutual Funds
(b) Individual Mutual Fund Distributors
(c) Employees of Asset Management Companies specially persons engaged in

sales and distribution of Mutual Funds
(d) All of the above
Question 10 ___________ is responsible for mobilizing money under various schemes.
(a) Chief Marketing Officer (CMO)
(b) Compliance Officer
(c) Chief Investment Officer (CIO)
(d) Fund manager
Correct Answer 9 All of the above
Correct Answer 10 Chief Marketing Officer (CMO)

Answer Chief Marketing Officer (CMO) is responsible for mobilizing money under
Explanation various schemes. Direct Sales Team (generally focus on large investors),
Channel Managers (manage the distributors) and Advertising & Sales
Promotion Team support the CMO.
Question 11 According to Certified Financial Planner - Board of Standards (USA),

which of the following is the first stage in financial planning?
(a) Gather Client Data, Define Client Goals
(b) Analyse and Evaluate Client's Financial Status
(c) Establish and Define the Client-Planner Relationship
(d) Develop and Present Financial Planning Recommendations and / or Options
Question 12 ________ is a measure of risk-adjusted return.
(a) Sharpe Ratio
(b) Standard Deviation
(c) Beta
Correct Answer 11 Establish and Define the Client-Planner Relationship

Answer Certified Financial Planner – Board of Standards (USA) proposes the
Explanation following steps in financial planning:
- Establish and Define the Client-Planner Relationship
- Gather Client Data, Define Client Goals
- Analyse and Evaluate Client's Financial Status
- Develop and Present Financial Planning Recommendations and / or Options
- Implement the Financial Planning Recommendations
- Monitor the Financial Planning Recommendations
Correct Answer 12 Sharpe Ratio

Answer Measures of scheme performance that consider both risk and return are called
Explanation risk-adjusted returns.
Two such measures are Sharpe Ratio and Trey nor Ratio.
Question 13 Mutual funds investing in money market instruments need to comply with
_____ .
(a) RBI requirements
(b) SEBI requirements
(c) Both 1 and 2
Question 14 When interest rates are declining, which of the following is better to
invest ?
(a) Gold schemes
(b) Bank Fixed Deposits
(c) Floaters
(d) Conventional debt schemes
Correct Answer 14 Conventional debt schemes

Answer When interest rates decline, the bond prices rise as these bonds become more
Explanation attractive.
So the NAV of Debt funds will rise with every fall in interest rate.
Question 15 ________ is considered as a safe haven asset class
(a) Gilt Funds
(b) Gold
(c) Equity
(d) Real Estate
Question 16 Trail commission is paid for how many years to the distributor ?
(a) one year
(b) three years
(c) five years
(d) So long as investor moneys are with the scheme
Correct Answer 15 Gold

Answer Gold is considered a safe haven asset. Its value appreciates when there is any
Explanation turmoil in the world, usually. It therefore is a good hedge against losses in
other investments that an investor may have.
Gold is also an extremely liquid asset. It can be easily sold or pawned to meet
cash flow needs anywhere in the country.
Correct Answer 16 So long as investor moneys are with the scheme

Answer A mutual fund distributor is paid a trail commission for as long as the
Explanation investor’s money is held in the fund.
Question 17 Offer document of mutual fund scheme is prepared by the fund managers
- State True or False ?
(a) TRUE
(b) FALSE
Question 18 Mutual fund investor can register upto ____ bank account/s
(a) 2
(b) 5
(c) 10
(d) Any number
Correct Answer 17 FALSE

Answer Offer document of mutual fund scheme is prepared by the Asset Management
Explanation Company - AMC.
Correct Answer 18 5
Answer The investor can register up to 5 bank accounts. One of them has to be
Explanation selected as default bank account. AMCs will directly transfer the re-purchase
proceeds (and dividends) to the default bank account.
Question 19 An expense of Rs 12,000 in today’s money terms is likely to be required in

3 years. Inflation is expected at 10%. How much will be the future
requirement of money?
(a) 12000 / (1 + 10%)^3
(b) 12000 X (1 + 10%)^3
(c) 12000 + (1 + 10%)^3
(d) 12000 - (1 + 10%)^3
Question 20 Before maturity, closed-end units tend to quote in the stock exchange
below their NAV - State True or False ?
(a) TRUE
(b) FALSE
future requirement of money?
equirement of money?
Correct Answer 19 12000 X (1 + 10%)^3

Answer To find the Future Value when the Present Value is given, the formula will be:
Explanation FV = PV x (1+Interest Rate) ^ time period

Answer The price of units of a closed-end scheme in the stock exchange tends to be
Explanation lower than the NAV. There is no limit to this discount. Only towards the
maturity of the scheme, the market price converges towards the NAV.
Question 21 Can investors from foreign countries invest in Indian Mutual Funds even
if they are not NRIs ?
(a) Yes
(b) No
Question 22 __________ invest in only treasury bills and government securities, which
do not have a credit risk.
(a) Liquid Funds
(b) Diversified Debt Funds
(c) Fixed Maturity Plan
(d) Gilt funds
Correct Answer 21 Yes

Answer Qualified Foreign Investors (QFIs) : These are foreigners from certain
Explanation countries that are permitted to invest in mutual fund schemes (and equity
shares). SEBI has detailed the requirements and routes through which such
investors, who are not Indians, can invest.
Correct Answer 22 Gilt funds

Question 23 Which of the below mentioned schemes have to be mandatorily be listed

on a stock exchange ?
(a) Liquid Schemes
(b) Open Ended Schemes
(c) Close Ended Schemes
(d) Sectoral Funds
Question 24 SEBI lays down various clauses that need to be part of the Mutual Fund
Trust Deed - State True or False ?
(a) TRUE
(b) FALSE
Correct Answer 23 Close Ended Schemes

Answer A close-ended scheme cannot be sold until maturity. So to offer liquidity, it
Explanation has to be listed on a stock exchange.

Answer The operations of the mutual fund trust are governed by a Trust Deed, which is
Explanation executed by the sponsors. SEBI has laid down various clauses that need to be
part of the Trust Deed.
Question 25 If an investor has physical gold, he has to pay wealth tax on it every year -
State True or False ?
(a) TRUE
(b) FALSE
Question 26 When a person has a regular income, his risk taking ability increases -
State True or False ?
(a) TRUE
(b) FALSE

Answer Investor needs to pay wealth tax every year, on his physical gold holding.
Explanation However, investment in mutual fund schemes is exempt from wealth tax.

Answer People earning regular income can take more risk than those with
Explanation unpredictable income streams.
Question 27 Mr. Ajit needs Rs 10 lakh after 5 years to buy a car. How much does he
need to invest today if the interest rate is 7%.
(a) 10,000,00 x (1+7%)^5
(b) 10,000,00 / (1+7%)^5
(c) 10,000,00 x (1+5%)^7
(d) 10,000,00 + (1+7%)^5
Question 28 Mutual Funds in India can invest in _________ .
(a) Only Shares
(b) Only Debentures
(c) Only Shares and Debentures
(d) Shares, Gold, Debentures & Real Estate
Correct Answer 27 10,000,00 / (1+7%)^5

Answer The formula to find the Present Value of a future amount is :
Explanation Present Value = Future Value / (1+Interest Rate) ^ time period
In case we wish to find the Future Value when the Present Value is given, then
the formula will be :
FV = PV x (1+Interest Rate) ^ time period
Correct Answer 28 Shares, Gold, Debentures & Real Estate

Answer Mutual funds schemes in India are permitted to invest in securities (including
Explanation equity shares and bonds / debentures), gold or gold related instruments and
real estate assets.
However, mutual fund schemes investing in real estate assets are yet to be
launched.
Question 29 Relaxation in documentation requirements for micro-SIPs is not available

for __________ .
(a) HUFs
(b) Non-individuals i.e. Companies
(c) Both 1 and 2
Question 30 Mutual funds use the Compounded Annual Growth Rate (CAGR)
calculations to calculate returns when the investment holding period is
less than 1 year - State True or False ?
(a) TRUE
(b) FALSE

Answer Micro SIPs are SIPs by individuals, minors and sole-proprietary firms, where
Explanation annual investment (12 month rolling or April-March financial year) does not
exceed Rs 50,000.
PAN Card is not required in such cases. Relaxation in documentation
requirements for micro-SIPs is not available for HUFs and non-individuals. It
is available for NRIs, but not PIOs.

Answer Compounded Annual Growth Rate (CAGR) is the SEBI-accepted method of
Explanation declaring scheme returns, when the period is more than a year.
Question 31 When a person invests in Bank Deposits, he is assured of Capital

Protection, Liquidity, Growth and Adequate Returns - State True or
False ?
(a) TRUE
(b) FALSE
Question 32 An investor is looking for good growth in the value of his investments.
Which investment product will suit his needs best ?
(a) Bank Deposits in a Nationalized bank
(b) Long term debt funds
(c) Diversified Equity Funds
(d) Company fixed deposits

Answer In Bank Deposits there is not much growth and liquidity.
Explanation
Correct Answer 32 Diversified Equity Funds

Answer Over the long term, equities have proved to be the best bet by giving good
Explanation returns.
People invest in equities because it protects them from inflation. Over the long
term, share prices appreciate faster than prices of goods and services.
Question 33 Cheques from which account are permitted for repatriable investments ?
(a) Non Resident External Account (NRE)
(b) Non Resident Ordinary (NRO)
(c) Both 1 and 2
Question 34 Can NBFC's distribute Mutual Funds in India ?
(a) Yes
(b) No
Correct Answer 33 Non Resident External Account (NRE)

Answer Non-Resident Indians (NRIs) / Persons of Indian origin (PIO) applications
Explanation need to be accompanied by cheque drawn on an NRO account (for non-
repatriable investment) or NRE account (for repatriable investment).
Correct Answer 34 Yes

Answer Non-bank distributors like securities distribution companies and non-banking
Explanation finance companies (NBFCs) can distribute MFs in India.
Question 35 ___________ can be measured through Compounded Annual Growth

Rate (CAGR) calculations.
(a) Delta Hedging
(b) Market Risk
(c) Portfolio performance
(d) Portfolio Risk
Question 36 The benchmark for Gilt schemes of short maturity is ________ .
(a) Short Maturity Gilt Index (Si-BEX)
(b) Composite Bond Fund Index (Complex)
(c) MIP Index (MIPEX)
(d) Medium Maturity Gilt Index (Mi-BEX)
Correct Answer 35 Portfolio performance

Answer The returns from a portfolio over a period of time can be calculated by CAGR.
Explanation This is than compared with the benchmark to see its performance.
Correct Answer 36 Short Maturity Gilt Index (Si-BEX)

Question 37 Based on a single KYC process, investors can invest across the capital
market in shares, debentures, mutual funds etc - State True or False ?
(a) TRUE
(b) FALSE
Question 38 The amount of Contingency fund an individual should have depends on

the type of his/her job - State True or False ?
(a) FALSE
(b) TRUE

Answer The Know-Your-Customer (KYC) requirements are centralised across the
Explanation capital markets, including mutual funds. Therefore, based on a single KYC
process, investors can invest across the capital market in shares, debentures,
mutual funds etc.

Answer Financial planning provides for liquidity to meet contingencies that the
Explanation investor might face.
The contingency funds should help the investor tide over loss of income for a
few months. An investor who is likely to get alternate jobs very quickly may
require contingency funds equivalent to 3-4 months of normal expenses.
However, an investor with skills that have limited role in the market may
require contingency funds equivalent to 9-12 months of normal expenses.
Question 39 When a person invests in Gold ETFs, which benefit(s) does he get when
compared to investments in physical gold ?
(a) there is no danger of theft in Gold ETFs
(b) there is no need to rent a locker to keep the Gold ETFs
(c) there is no wealth tax on Gold ETFs
Question 40 SEBI permits transaction charge in Mutual Funds for investments above
______ .
(a) Rs 2000
(b) Rs 5000
(c) Rs 10000
(d) Rs 25000
Correct Answer 40 Rs 10000

Answer SEBI permits transaction charge as follows:
Explanation - Rs 150 per investment of Rs10,000 and above from a first time investor in
mutual funds
- Rs 100 per investment of Rs10,000 and above from existing investors in
mutual funds
Question 41 An investor has kept his financial goals quiet high. The financial planner
is aware that such goals are not likely to be achieved. What should the
Financial Planner do ?
(a) Financial Planner should help the investor understand the difference between
'want' and 'need'
(b) Financial Planner should suggest ways to increase the investors income
(c) Financial Planner should inform the investor so that he prepared
Question 42 Which exit load is applicable at the time of redemption from a Mutual
Fund unit ?
(a) Exit load as stated at the time of application
(b) Current declared Exit load
(c) Either 1 or 2, which ever is higher
Correct Answer 42 Exit load as stated at the time of application

Answer Exit load is mentioned in the Offer Document for the scheme.
Explanation
Public announcement is made for any change in the load structure; such
change will be applicable on only fresh subscriptions made by the investors in
the open-end scheme after the change is notified.
The exit load that is effective at the time of subscription is applicable

whenever the investor redeems those units.
Question 43 The Long term capital gains tax on Equity scheme mutual funds is ______
for individuals.
(a) 20% with indexation + 3% cess
(b) 15% + 3% cess
(c) 10%
(d) Nil
Question 44 When an investor invests in the equity shares of a company, he will get
_______ .
(a) an ownership in the company
(b) an exposure to the future profits of the company
(c) both 1 and 2
Correct Answer 43 10%

Answer Finance Act 2018 levies Income Tax at the rate of 10% (without indexation
Explanation benefit) on long-term capital gains exceeding Rs. 1,00,000 in a financial year
provided transfer of such units, subject to Securities Transaction Tax. All
capital gains upto January 31, 2018 have been grandfathered.
Correct Answer 44 both 1 and 2

Answer Equity is a growth asset. Investment in equity shares of a company represents
Explanation an exposure to the future profits and performance of the company.
Question 45 In Passive funds, the tracking error is always negative - State True or
False ?
(a) TRUE
(b) FALSE
Question 46 _______ has to be done before AMFI registration.
(a) Know Your Distributor (KYD)
(b) NISM Certification
(c) Both 1 and 2

Answer Passive fund invests on the basis of a specified index, whose performance it
Explanation seeks to track, for eg an Index fund can track the NSE Nifty Index.
However, there are gaps in the performance of these funds as compared to the
index. This gap in performance is its 'tracking error'.
It can be positive or negative i.e. the passive fund performance can be better or
worse than the concerned index, for various reasons.

Answer After passing the NISM examination and completing KYD requirements, the
Explanation next stage is to register with AMFI to become a Mutual Fund distributor.
Question 47 The proposed asset allocation of a Mutual Fund scheme is mentioned in

the Investment Policy in the Offer Document - State True of False ?
(a) TRUE
(b) FALSE
Question 48 Which of the below is /are qualities of a professionally managed Mutual

Fund ?
(a) ensuring that prudent investment processes are followed
(b) investing in line with the investment objective
(c) investing based on adequate research

Answer The investment policy gets into details of how the portfolio is proposed to be
Explanation distributed between different types of assets (also called asset allocation).
For example: Equities 80 to 100% - Debt 0-20%.

Answer There are several aspects to professional management of a Mutual Fud scheme
Explanation viz. investing in line with the investment objective, investing based on
adequate research, and ensuring that prudent investment processes are
followed.
Question 49 Nifty is an index of the National Stock Exchange of India and consists of
30 shares which are actively traded on it - State True or False ?
(a) TRUE
(b) FALSE
Question 50 Which is the right time to review the investment plan ?
(a) At regular periods, so that the portfolios can be churned to take advantage of
stock market movements
(b) At regular periods and also when there is a change in the financial situation of
the client
(c) Only when the client feels ok to review it
(d) Never, as a investment plan is for the long term

Answer Nifty consists of 50 actively traded shares on the NSE.
Explanation
Correct Answer 50 At regular periods and also when there is a change in the financial situation of
the client
Answer A Financial plan has to be reviewed at regular intervals to accommodate the
Explanation clients current financial situation and his needs.
Practice Question Banks also available for :
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NISM Series V A: Mutual Fund Distributors Certification Exam
NISM Series VI: Depository Operations Certification Exam
NISM Series VII: Securities Operations and Risk Management
NISM Series VII: Equity Derivatives Certification Exam
NISM Series III A: Securities Intermediaries Compliance Certification Exam
NISM Series X A : Investment Adviser (Level 1) Certification Exam
NISM Series X B: Investment Adviser (Level 2) Certification Exam
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NISM II A – Registrar to an Issue & Share Transfer Agent
NISM IV – Interest Rate Derivatives Certification Exam
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BSE
Certificate on Security Market (BCSM)


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NISM SERIES V B - MUTUAL FUND

LAST DAY REVISION TEST . 1

Correct Answer 1 Rs 39.60

(a) Standard Deviation

(c) Both 1 and 2

(d) None of the above

Question 4 ________ sets out standards of good practices to be followed by AMCs in

Correct Answer 3 Both 1 and 2

Correct Answer 4 ACE

(a) floating rate schemes

(c) Debenture Linked schemes

(d) Both 1 and 2

Question 6 The benchmark for Li-BEX is ________ .

(a) Gilt schemes of short maturity

(b) Gilt schemes of medium maturity

(c) Gilt schemes of long maturity

(d) Composite gilt schemes

Correct Answer 5 Both 1 and 2

Correct Answer 6 Gilt schemes of long maturity

Correct Answer 7 Daily

Correct Answer 8 TRUE

(a) Employees of organizations engaged in sales and distribution of Mutual Funds

(b) Individual Mutual Fund Distributors

(c) Employees of Asset Management Companies specially persons engaged in

(d) All of the above

Question 10 ___________ is responsible for mobilizing money under various schemes.

(a) Chief Marketing Officer (CMO)

(b) Compliance Officer

(c) Chief Investment Officer (CIO)

(d) Fund manager

Correct Answer 9 All of the above

Correct Answer 10 Chief Marketing Officer (CMO)

Question 11 According to Certified Financial Planner - Board of Standards (USA),

(a) Gather Client Data, Define Client Goals

(b) Analyse and Evaluate Client's Financial Status

(c) Establish and Define the Client-Planner Relationship

(d) Develop and Present Financial Planning Recommendations and / or Options

Question 12 ________ is a measure of risk-adjusted return.

(a) Sharpe Ratio

(b) Standard Deviation

(d) None of the above

Correct Answer 11 Establish and Define the Client-Planner Relationship

Correct Answer 12 Sharpe Ratio

(a) RBI requirements

(b) SEBI requirements

(c) Both 1 and 2

(d) None of the above

(a) Gold schemes

(b) Bank Fixed Deposits

(d) Conventional debt schemes

Correct Answer 13 Both 1 and 2

Correct Answer 14 Conventional debt schemes

Question 15 ________ is considered as a safe haven asset class

(a) Gilt Funds

(d) Real Estate

(a) one year

(b) three years

(c) five years