Mutual Funds

Hint Common mistake: Treating a mutual fund unit like a fixed-interest deposit. Think about how many investors can participate in a common portfolio.

Hint Common mistake: Confusing industry guidance from AMFI with statutory regulation by SEBI. Distinguish the statutory regulator from an industry association.

Hint Common mistake: Confusing a unit’s current net asset value with its original face value. Consider what remains for unit holders after scheme liabilities are recognised.

Hint Common mistake: Assuming that open-ended means the portfolio has no investment risk. Focus on how investors can enter and leave the scheme over time.

Hint Common mistake: Confusing trading or custody infrastructure with the portfolio manager. Recall which participant is appointed to manage the invested money.

Hint Common mistake: Assuming the manager and the oversight function are the same role. Distinguish oversight on behalf of investors from daily security selection.

Hint Common mistake: Confusing a known maturity period with a known maturity profit. Focus on the scheme’s lifespan rather than the assets it may own.

Hint Common mistake: Assuming that passive management eliminates market risk. Think about the role of the benchmark in the portfolio design.

Hint Common mistake: Treating an investing schedule as a separate risk-free product. Distinguish regularly adding money from regularly taking it out.

Hint Common mistake: Using gross assets instead of net assets. Find the amount belonging to unit holders before dividing it among units.

Hint Common mistake: Applying additional deductions when the question already states the amount available for allotment. Determine how many units the amount available can purchase.

Hint Common mistake: Confusing a one-percent charge with a one-rupee charge per unit. Apply the stated percentage to the redemption value, not the unit count.

Hint Common mistake: Assuming expenses are irrelevant because they are not separately collected from a bank account. Treat the expense as a claim against the scheme’s assets.

Hint Common mistake: Interpreting the word growth as a promise that the net asset value cannot fall. Distinguish accumulation inside the investment from a cash distribution.

Hint Common mistake: Adding the cash distribution to an unchanged pre-distribution unit value. Consider the cash received and the value remaining invested together.

Hint Common mistake: Treating a lower expense ratio as zero expenses. Consider which distribution service differs between the two purchase routes.

Hint Common mistake: Mistaking every scheduled withdrawal for income earned without using capital. Trace where the withdrawal money comes from.

Hint Common mistake: Assuming a transfer has no transaction consequences because the fund organisation is unchanged. Follow the money out of one scheme and into the other.

Hint Common mistake: Assuming every mutual fund directly holds only individual shares and bonds. Focus on the type of investment held one level below the scheme.

Hint Common mistake: Assuming pooled debt investments remove issuer default risk. Identify the party expected to make the bond’s promised payments.

Hint Common mistake: Treating government-bond funds as immune to changes in bond prices. Separate an issuer’s repayment strength from sensitivity to market yields.

Hint Common mistake: Assuming that combining asset classes eliminates the risks of each one. Think about combining different kinds of financial exposure.

Hint Common mistake: Counting holdings without checking whether their business risks overlap. Distinguish the number of companies from the variety of economic exposures.

Hint Common mistake: Relying only on a recent return figure instead of reading the scheme’s purpose and risks. Recall the formal document describing how the scheme intends to invest.

Hint Common mistake: Taking the simple average of prices instead of dividing total cost by total units. Find the units purchased by each instalment before calculating the combined cost.

Hint Common mistake: Ignoring distributions when comparing the initial and final unit values. Combine the change in unit value with cash received and compare with initial cost.

Hint Common mistake: Double-counting accrued expenses when a total liability figure already includes them. Check whether the stated liability total already contains the expense.

Hint Common mistake: Assuming a low net asset value means a fund offers more return potential. Compare the rupee amount invested and percentage return rather than the number of units.

Hint Common mistake: Subtracting the same unit quantity for equal cash withdrawals at different prices. Calculate the units removed at each withdrawal price before valuing what remains.

Hint Common mistake: Assuming the exchange quote must always equal the scheme’s per-unit asset value. Compare the amount above asset value with that asset value.