C. To pool money from investors and invest in diversified securities
D. To grant loans to companies
Mutual Funds collect money from investors and invest in stocks, bonds, and other securities to provide diversification and professional management.
2. Which body regulates Mutual Funds in India?
A. SEBI
B. RBI
C. Ministry of Finance
D. IRDAI
In India, Mutual Funds are regulated by SEBI (Securities and Exchange Board of India) under SEBI (Mutual Funds) Regulations, 1996.
3. Who manages the investments of a Mutual Fund?
A. Trustees
B. Custodians
C. Sponsors
D. Asset Management Company (AMC)
An AMC (Asset Management Company) manages the funds by making investment decisions in line with the scheme’s objectives.
4. In which year was Unit Trust of India (UTI), the first Mutual Fund in India, established?
A. 1996
B. 1963
C. 1987
D. 2003
UTI was established in 1963 as the first Mutual Fund in India, marking the beginning of the Mutual Fund industry in the country.
5. A bank employee explains to a customer that Mutual Funds reduce investment risk by diversification. This is an example of which Mutual Fund function?
A. Offering fixed guaranteed returns
B. Providing insurance protection
C. Risk reduction through diversification
D. Providing loan against investment
Diversification spreads investments across multiple securities, reducing overall risk for investors.
6. Which of the following is NOT a role of Mutual Fund Trustees?
A. Making day-to-day investment decisions
B. Safeguarding investors’ interests
C. Ensuring compliance with SEBI regulations
D. Supervising the AMC’s functioning
Day-to-day investment decisions are handled by the AMC, not the trustees. Trustees oversee compliance and investor protection.
7. Which type of Mutual Fund has no maturity period and 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
Open-ended funds have no fixed maturity and investors can buy or redeem units anytime at NAV-related prices.
8. An investor wants a Mutual Fund that invests primarily in government bonds and corporate debentures. Which category should he choose?
A. Equity Fund
B. Hybrid Fund
C. Debt Fund
D. ELSS Fund
Debt funds primarily invest in fixed-income securities such as government bonds, corporate bonds, and money market instruments.
9. Mutual Funds play a significant role in financial markets by:
A. Issuing currency notes
B. Acting as lenders of last resort
C. Providing insurance cover to investors
D. Mobilizing savings and channelizing them into capital markets
Mutual Funds mobilize retail investors’ savings and invest them into equity and debt markets, improving liquidity and capital formation.
10. Who has the primary responsibility for supervising the functioning of Mutual Funds in India?
A. SEBI
B. RBI
C. Ministry of Finance
D. IRDAI
SEBI supervises and regulates Mutual Funds under SEBI (Mutual Funds) Regulations, 1996 to ensure investor protection and transparency.
11. Before launching a New Fund Offer (NFO), an Asset Management Company (AMC) must file which document with SEBI?
A. Certificate of Incorporation
B. Board Resolution
C. Offer Document / Scheme Information Document
D. Letter of Intent
For a New Fund Offer, the AMC must file a Scheme Information Document (SID) with SEBI and make it available to investors.
12. A New Fund Offer (NFO) is most similar to which of the following in the stock market?
A. Rights Issue
B. Initial Public Offer (IPO)
C. Bonus Issue
D. Buyback of shares
An NFO is similar to an IPO since it is the first-time offer of a Mutual Fund scheme to the public.
13. Which of the following is a risk commonly associated with Mutual Funds?
A. Market risk
B. Interest rate risk
C. Credit risk
D. All of the above
Mutual Funds are exposed to various risks such as market fluctuations, changes in interest rates, and default by issuers (credit risk).
14. A Debt Mutual Fund that invests in long-term government bonds is most exposed to which risk?
A. Credit risk
B. Interest rate risk
C. Liquidity risk
D. Market risk
Long-term debt funds are highly sensitive to changes in interest rates, which directly impact bond prices.
15. The Riskometer introduced by SEBI is used for:
A. Measuring interest rates in the economy
B. Rating the performance of AMCs
C. Depicting the level of risk in a Mutual Fund scheme
D. Measuring inflation risk
SEBI mandates all Mutual Funds to use a Riskometer to disclose the risk level of each scheme (from Low to Very High).
16. Which is the highest risk category shown in the SEBI-prescribed Riskometer?
A. Very High
B. Moderately High
C. High
D. Medium
The Riskometer has six categories: Low, Low to Moderate, Moderate, Moderately High, High, and Very High. "Very High" represents the maximum risk.
17. How is the Net Asset Value (NAV) of a Mutual Fund scheme calculated?
A. Market value of assets – liabilities
B. Total investments ÷ 100
C. Units issued × Market price
D. (Market value of assets – liabilities) ÷ Number of units outstanding
NAV is the per-unit value of a Mutual Fund scheme calculated by dividing the net assets (assets – liabilities) by the total units outstanding.
18. A Mutual Fund scheme has assets worth ₹500 crore and liabilities of ₹20 crore. If 48 crore units are outstanding, what is the NAV per unit?
A. ₹9.50
B. ₹10.00
C. ₹10.50
D. ₹11.00
NAV = (500 – 20) ÷ 48 = 480 ÷ 48 = ₹10 per unit.
19. What does the Expense Ratio of a Mutual Fund represent?
A. The profit margin earned by the AMC
B. The percentage of assets invested in equities
C. The percentage of fund assets charged annually to cover management and administrative costs
D. The tax levied on investor withdrawals
Expense ratio indicates how much of the fund’s assets are used annually for expenses like management fees, administration, and marketing.
20. In a “Load Fund,” the term “load” refers to:
A. The sales charge paid by the investor while buying or redeeming units
B. The tax deducted on dividends
C. The credit risk of the fund
D. The interest charged on borrowings
A “load” is a sales charge or commission paid by investors during entry (entry load) or exit (exit load). SEBI has abolished entry loads in India.
21. Which of the following strategies is commonly used by investors in Mutual Funds to reduce market timing risk?
A. Lump-sum investment
B. Systematic Investment Plan (SIP)
C. Borrowing to invest
D. Arbitrage trading
SIP allows investors to invest small amounts at regular intervals, averaging out market volatility and reducing timing risk.
22. Mutual Funds contribute to the development of capital markets by:
A. Acting as the central bank
B. Issuing government bonds
C. Providing direct credit to industries
D. Channelizing household savings into equity and debt markets
By pooling savings and investing in securities, Mutual Funds provide liquidity, depth, and stability to the capital market.
23. Alternative Investment Funds (AIFs) in India are regulated by SEBI under which regulations?
A. SEBI (Portfolio Managers) Regulations, 1993
B. SEBI (Mutual Funds) Regulations, 1996
C. SEBI (Alternative Investment Funds) Regulations, 2012
D. SEBI (Collective Investment Schemes) Regulations, 1999
SEBI introduced the AIF Regulations in 2012 to govern funds such as private equity, venture capital, hedge funds, and infrastructure funds.
24. Category I AIFs mainly include:
A. Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds
B. Hedge Funds and Private Equity Funds
C. Real Estate Funds and Debt Funds
D. Fund of Funds investing in other AIFs
Category I AIFs are those that invest in socially or economically desirable sectors like startups, SMEs, and infrastructure.
