Mutual Funds
30 questions. Each answer is explained.
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Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | None · a wrong answer costs nothing beyond the mark |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XII Securities Markets Foundation
Exam rules read on NISM's site on 17 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 17 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 30 questions on Mutual Funds, with answers
Q1What is a basic feature of a mutual fund scheme?
Option A. Each investor directly selects every security purchased
Why it is wrong: The scheme’s investment manager chooses holdings under its objective.
Option B. Each unit represents a loan to the fund manager
Why it is wrong: Units represent an interest in the scheme rather than a personal loan to its manager.
Option C. Investors’ money is pooled into a managed portfolio — Correct answer
Option D. Each investor receives a fixed contractual interest rate
Why it is wrong: An ordinary mutual fund investment does not provide a fixed contractual return.
Answer: C. A mutual fund scheme pools investors’ money into a managed portfolio. Investors bear the gains, losses and costs associated with their holdings. Remember: Mutual funds combine pooled investing with professional portfolio management.
Hint, shown before you answer in practice mode: Common mistake: Treating a mutual fund unit like a fixed-interest deposit. Think about how many investors can participate in a common portfolio.
XII-106easyconceptual
Q2Which authority is the securities-market regulator for mutual funds in India?
Option A. PFRDA
Why it is wrong: PFRDA regulates the pension sector rather than acting as the mutual fund securities regulator.
Option B. SEBI — Correct answer
Option C. AMFI
Why it is wrong: AMFI is the mutual fund industry association rather than the statutory securities regulator.
Option D. RBI
Why it is wrong: RBI is the central bank rather than the securities-market regulator of mutual funds.
Answer: B. SEBI regulates mutual funds as part of its securities-market responsibilities. AMFI is an industry association and is not a substitute for the regulator. Remember: The mutual fund regulator and the mutual fund industry association have different roles.
Hint, shown before you answer in practice mode: Common mistake: Confusing industry guidance from AMFI with statutory regulation by SEBI. Distinguish the statutory regulator from an industry association.
XII-107easyregulatory
Q3What does a mutual fund’s net asset value per unit measure?
Option A. Net scheme assets attributable to each outstanding unit — Correct answer
Option B. Annual scheme income attributable to each outstanding unit
Why it is wrong: Income per unit is not the same as the value of net assets per unit.
Option C. Gross scheme assets attributable to each outstanding unit
Why it is wrong: Using gross assets fails to account for scheme liabilities.
Option D. Original face value assigned to each outstanding unit
Why it is wrong: Face value is an accounting denomination rather than current net asset value.
Answer: A. Net asset value per unit measures net scheme assets divided by outstanding units. It can change as the portfolio value and liabilities change. Remember: Net asset value is a per-unit measure of the scheme’s net assets.
Hint, shown before you answer in practice mode: 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.
XII-108easyconceptual
Q4Which feature generally distinguishes an open-ended mutual fund scheme from a closed-ended scheme?
Option A. A requirement that every investor trades only on an exchange
Why it is wrong: Investors can ordinarily transact with an open-ended scheme rather than only on an exchange.
Option B. A return fixed in advance for every investor
Why it is wrong: Open-ended structure does not guarantee returns.
Option C. Ongoing purchase and redemption with the scheme — Correct answer
Option D. An obligation to invest only in government bonds
Why it is wrong: Open-ended schemes can follow different asset strategies.
Answer: C. An open-ended scheme generally offers ongoing purchase and redemption, subject to its terms. A closed-ended scheme is structured for a stated tenure. Remember: Open-ended and closed-ended describe the scheme’s subscription and exit structure.
Hint, shown before you answer in practice mode: 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.
XII-109easyconceptual
Q5Which entity makes the day-to-day investment decisions for a mutual fund’s portfolio?
Option A. The scheme’s securities custodian
Why it is wrong: Custody safeguards and settles assets rather than selecting the investment portfolio.
Option B. Asset management company — Correct answer
Option C. The scheme’s registrar and transfer agent
Why it is wrong: The registrar maintains investor transaction records rather than selecting holdings.
Option D. The scheme’s board of trustees
Why it is wrong: Trustees provide oversight rather than the manager’s daily portfolio selection.
Answer: B. The asset management company manages the scheme’s investments under its stated objective. Other service providers perform different supporting functions. Remember: Portfolio management is the asset management company’s responsibility.
Hint, shown before you answer in practice mode: Common mistake: Confusing trading or custody infrastructure with the portfolio manager. Recall which participant is appointed to manage the invested money.
XII-110easyconceptual
Q6What is the central role of trustees in a mutual fund structure?
Option A. Maintain each investor’s unit transaction register
Why it is wrong: That is an investor recordkeeping function rather than the trustees’ central oversight role.
Option B. Execute the portfolio’s routine buy and sell decisions
Why it is wrong: Daily portfolio decisions are the investment manager’s role rather than the trustees’ central oversight function.
Option C. Oversee management in the interests of unit holders — Correct answer
Option D. Safeguard and settle the portfolio’s securities holdings
Why it is wrong: That describes a custody function rather than the trustees’ central role.
Answer: C. Trustees oversee the management of the mutual fund in the interests of unit holders. This oversight is different from day-to-day portfolio selection. Remember: Trustees provide oversight rather than guaranteed investment results.
Hint, shown before you answer in practice mode: Common mistake: Assuming the manager and the oversight function are the same role. Distinguish oversight on behalf of investors from daily security selection.
XII-111easyconceptual
Q7Which feature is characteristic of a closed-ended mutual fund scheme?
Option A. A portfolio that never changes any holding
Why it is wrong: Closed-ended structure does not require an unchanged portfolio.
Option B. An obligation to accept fresh subscriptions every day
Why it is wrong: Continuous subscriptions are not the defining closed-ended feature.
Option C. A specified tenure for the scheme — Correct answer
Option D. A guaranteed redemption value above the issue price
Why it is wrong: A fixed tenure does not guarantee a profit.
Answer: C. A closed-ended scheme has a specified tenure. Its structure does not guarantee an investor’s return over that tenure. Remember: Closed-ended tenure is different from return certainty.
Hint, shown before you answer in practice mode: 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.
XII-112easyconceptual
Q8What is the investment objective of a passively managed index fund?
Option A. Outperform a benchmark through discretionary security selection
Why it is wrong: That describes an active rather than a passive objective.
Option B. Maintain a fixed rupee net asset value in every market
Why it is wrong: Tracking an index allows unit value to fluctuate with market conditions.
Option C. Follow only the single largest company in the index
Why it is wrong: Tracking an index is not normally achieved by holding only its largest member.
Option D. Track the performance of a specified index — Correct answer
Answer: D. A passively managed index fund aims to track a specified index. Costs and implementation differences can cause its return to differ from the index. Remember: Passive management aims at tracking rather than discretionary outperformance.
Hint, shown before you answer in practice mode: Common mistake: Assuming that passive management eliminates market risk. Think about the role of the benchmark in the portfolio design.
XII-113easyconceptual
Q9What does a systematic investment plan usually arrange for an investor?
Option A. Periodic redemptions of existing fund units
Why it is wrong: Periodic redemptions describe a systematic withdrawal plan.
Option B. Periodic conversion of every unit into a bond
Why it is wrong: Systematic investing does not automatically change units into bonds.
Option C. Periodic investments of a specified amount — Correct answer
Option D. Periodic interest guaranteed by the fund manager
Why it is wrong: A systematic investment plan does not guarantee interest.
Answer: C. A systematic investment plan arranges periodic investments of a specified amount. The units bought depend on the applicable price and transaction terms. Remember: A systematic investment plan is an investing process, not a return guarantee.
Hint, shown before you answer in practice mode: Common mistake: Treating an investing schedule as a separate risk-free product. Distinguish regularly adding money from regularly taking it out.
XII-114easyconceptual
Q10A scheme has assets of ₹52 lakh, liabilities of ₹2 lakh and 2 lakh units. What is its net asset value per unit?
Option A. ₹26
Why it is wrong: ₹26 divides gross assets by units without deducting liabilities.
Option B. ₹27
Why it is wrong: ₹27 adds liabilities to assets instead of subtracting them.
Option C. ₹24
Why it is wrong: ₹24 deducts the stated liabilities twice.
Option D. ₹25 — Correct answer
Answer: D. The net asset value is ₹25 per unit. Net assets = ₹52 lakh − ₹2 lakh = ₹50 lakh. Value per unit = ₹50 lakh ÷ 2 lakh units = ₹25. Remember: Liabilities are deducted before calculating value per unit.
Hint, shown before you answer in practice mode: Common mistake: Using gross assets instead of net assets. Find the amount belonging to unit holders before dividing it among units.
XII-115mediumnumerical
Q11Exactly ₹12,000 is available for unit allotment at an applicable net asset value of ₹30. How many units are allotted?
Option A. 30 units
Why it is wrong: ₹30 is the per-unit price rather than the allotment quantity.
Option B. 400 units — Correct answer
Option C. 360 units
Why it is wrong: 360 units would use only ₹10,800 at the stated price.
Option D. 4,000 units
Why it is wrong: 4,000 units is ten times the quantity the stated amount can buy.
Answer: B. The allotment is 400 units. Units allotted = ₹12,000 ÷ ₹30 = 400. The question gives the amount already available for allotment. Remember: Unit allotment uses the investible amount and the applicable per-unit price.
Hint, shown before you answer in practice mode: Common mistake: Applying additional deductions when the question already states the amount available for allotment. Determine how many units the amount available can purchase.
XII-116mediumnumerical
Q12An investor redeems 200 units at ₹40 each. Assume a hypothetical 1% exit load and no other deduction. What amount is received?
Option A. ₹7,800
Why it is wrong: ₹7,800 deducts ₹1 per unit rather than 1% of the redemption value.
Option B. ₹8,080
Why it is wrong: An exit load reduces the payment rather than increasing it.
Option C. ₹8,000
Why it is wrong: ₹8,000 is the redemption value before the stated exit load.
Option D. ₹7,920 — Correct answer
Answer: D. The investor receives ₹7,920 under the stated assumption. Gross value = 200 × ₹40 = ₹8,000. Exit load = 1% × ₹8,000 = ₹80. Receipt = ₹8,000 − ₹80 = ₹7,920. Remember: A percentage exit load is applied to the relevant redemption value.
Hint, shown before you answer in practice mode: 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.
XII-117mediumnumerical
Q13If portfolio values are unchanged, how do additional expenses charged to a scheme affect its net asset value?
Option A. They reduce the value attributable to unit holders — Correct answer
Option B. They leave net assets unchanged by definition
Why it is wrong: Recognised scheme expenses affect net assets.
Option C. They affect only the face value of each unit
Why it is wrong: Operating expenses do not simply change unit face value.
Option D. They increase the value attributable to unit holders
Why it is wrong: An expense reduces net assets rather than increasing them.
Answer: A. Additional scheme expenses reduce net assets available to unit holders, other things equal. They therefore reduce net asset value per unit. Remember: Fund expenses matter because investors bear them through scheme value.
Hint, shown before you answer in practice mode: 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.
XII-118mediumconceptual
Q14Under a mutual fund’s growth option, what generally happens to gains retained within the scheme?
Option A. They must be paid out after every profitable trade
Why it is wrong: A growth option generally retains gains rather than requiring such payouts.
Option B. They remain invested and are reflected in unit value — Correct answer
Option C. They are converted into guaranteed annual interest
Why it is wrong: Retaining gains does not create an interest guarantee.
Option D. They are removed from the scheme without affecting its value
Why it is wrong: Removing assets would affect scheme value rather than preserve it unchanged.
Answer: B. Gains retained under the growth option remain invested and are reflected in unit value. That value can still fall if portfolio losses occur. Remember: Growth describes accumulation, not a guarantee of rising value.
Hint, shown before you answer in practice mode: 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.
XII-119mediumconceptual
Q15A scheme pays a cash distribution from its assets. Ignore tax and market movement. Why does this payment not itself create extra investor wealth?
Option A. Every distribution is an additional payment from the regulator
Why it is wrong: The regulator does not fund the scheme’s distributions.
Option B. The cash received is offset by the reduction in scheme assets — Correct answer
Option C. The unit count automatically doubles after every cash distribution
Why it is wrong: A cash distribution does not automatically double the number of units.
Option D. The investor receives cash while the same assets remain in the scheme
Why it is wrong: Paying the distribution removes assets from the scheme.
Answer: B. The distribution moves value from scheme assets to the investor’s cash, ignoring other effects. It does not by itself increase their combined value. Remember: A fund distribution is a transfer of value, not free additional wealth.
Hint, shown before you answer in practice mode: Common mistake: Adding the cash distribution to an unchanged pre-distribution unit value. Consider the cash received and the value remaining invested together.
XII-120mediumapplication
Q16What cost difference generally explains a direct plan’s lower expenses than the regular plan of the same mutual fund scheme?
Option A. Absence of every management expense in the direct plan
Why it is wrong: A direct plan can still bear management and other scheme expenses.
Option B. A different risk-free portfolio for the direct plan
Why it is wrong: The distribution route does not replace the underlying scheme portfolio with risk-free assets.
Option C. A guaranteed fixed net asset value for the direct plan
Why it is wrong: A direct plan’s net asset value can change and is not fixed by its distribution route.
Option D. Absence of distributor commission in the direct plan — Correct answer
Answer: D. A direct plan excludes distributor commission and therefore generally has lower expenses than the regular plan of the same scheme. It can still have other scheme expenses. Remember: Direct plans reduce distribution-related cost rather than eliminate all costs.
Hint, shown before you answer in practice mode: Common mistake: Treating a lower expense ratio as zero expenses. Consider which distribution service differs between the two purchase routes.
XII-121mediumconceptual
Q17An investor receives a fixed monthly amount through a systematic withdrawal plan. Why might the invested capital shrink?
Option A. The monthly payment is separately guaranteed by the exchange
Why it is wrong: The exchange does not guarantee a systematic withdrawal payment.
Option B. The payment must consist only of newly earned interest
Why it is wrong: A withdrawal is not restricted to interest earned during that month.
Option C. The payment can require redemption of the investor’s units — Correct answer
Option D. The fund must add units whenever a withdrawal occurs
Why it is wrong: Withdrawals ordinarily redeem units rather than add them.
Answer: C. A systematic withdrawal plan can pay out by redeeming units, which reduces the unit balance. Payments need not consist only of profits. Remember: Regular withdrawals can include return of invested capital.
Hint, shown before you answer in practice mode: Common mistake: Mistaking every scheduled withdrawal for income earned without using capital. Trace where the withdrawal money comes from.
XII-122mediumapplication
Q18What transactions normally form a systematic transfer between two schemes of the same mutual fund?
Option A. Redemption from the source and purchase in the destination — Correct answer
Option B. A loan from the source that the destination must repay
Why it is wrong: A systematic transfer is not a loan between the investor’s holdings.
Option C. Purchase in the source and redemption from the destination
Why it is wrong: This reverses the direction of the transfer.
Option D. A change of scheme name without any unit transactions
Why it is wrong: A transfer involves transactions rather than merely renaming a holding.
Answer: A. A systematic transfer normally redeems units in the source scheme and purchases units in the destination scheme. Each side follows its applicable transaction terms. Remember: An internal transfer still involves a redemption and a purchase.
Hint, shown before you answer in practice mode: 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.
XII-123mediumconceptual
Q19What does a fund of funds primarily invest in to implement its investment strategy?
Option A. A fixed mix of shares and bonds held directly
Why it is wrong: A direct mixed-asset portfolio is not the defining fund-of-funds structure.
Option B. Units of other investment funds — Correct answer
Option C. Shares issued by other fund-management companies
Why it is wrong: Owning the management companies is different from holding their fund units.
Option D. Only securities newly issued through public offers
Why it is wrong: A fund of funds is defined by fund holdings, not exclusively by new public issues.
Answer: B. A fund of funds primarily invests in units of other funds. The investor therefore has an additional layer between their scheme and the underlying assets. Remember: A fund of funds provides exposure through other funds.
Hint, shown before you answer in practice mode: 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.
XII-124mediumconceptual
Q20A debt fund owns a bond whose issuer becomes less able to repay. Which risk has directly increased?
Option A. Interest-rate risk
Why it is wrong: This concerns changing market yields rather than the stated deterioration in issuer repayment capacity.
Option B. Operational risk
Why it is wrong: Processing or control failures do not describe the issuer’s worsening creditworthiness.
Option C. Liquidity risk
Why it is wrong: Difficulty selling a holding is different from the specific repayment weakness described.
Option D. Credit risk — Correct answer
Answer: D. Credit risk has increased because the bond issuer’s ability to make promised payments has weakened. Holding the bond through a fund does not remove this exposure. Remember: Debt funds can carry the credit risk of their underlying issuers.
Hint, shown before you answer in practice mode: Common mistake: Assuming pooled debt investments remove issuer default risk. Identify the party expected to make the bond’s promised payments.
XII-125mediumapplication
Q21A fund holds long-maturity domestic government bonds. Market interest rates rise. Which risk can still reduce the portfolio’s value?
Option A. Foreign-exchange risk
Why it is wrong: The case concerns domestic bonds and changing interest rates rather than exchange-rate movements.
Option B. Subscription processing risk
Why it is wrong: An administrative subscription error does not explain the effect of higher market rates on bond prices.
Option C. Interest-rate risk — Correct answer
Option D. Corporate default risk
Why it is wrong: The stated loss mechanism is changing market yields on government bonds, not a company failing to repay.
Answer: C. Interest-rate risk can reduce the value of existing bonds when market yields rise. Strong repayment capacity does not prevent market-price fluctuations. Remember: Low default risk does not mean no interest-rate risk.
Hint, shown before you answer in practice mode: Common mistake: Treating government-bond funds as immune to changes in bond prices. Separate an issuer’s repayment strength from sensitivity to market yields.
XII-126mediumapplication
Q22Which portfolio description best fits the basic idea of a hybrid mutual fund?
Option A. A mix of bonds with several different maturity dates
Why it is wrong: Different maturities remain within debt rather than creating the stated asset-class mix.
Option B. A mix of companies within only one equity sector
Why it is wrong: Several companies in one sector still provide only equity exposure.
Option C. A mix of direct and regular units of one equity scheme
Why it is wrong: Distribution-plan choices do not by themselves create multiple underlying asset classes.
Option D. A mix of asset classes such as equity and debt — Correct answer
Answer: D. A hybrid fund combines asset classes such as equity and debt according to its mandate. The mix determines how different risks contribute to the portfolio. Remember: Hybrid describes an asset-class mix rather than a risk-free product.
Hint, shown before you answer in practice mode: Common mistake: Assuming that combining asset classes eliminates the risks of each one. Think about combining different kinds of financial exposure.
XII-127mediumconceptual
Q23A sector fund owns many companies from one industry. Which concentration can remain despite the number of holdings?
Option A. Exposure to common industry-specific developments — Correct answer
Option B. Exposure confined to just one issuer’s repayment capacity
Why it is wrong: The stated common concentration is the industry, not only one issuer.
Option C. Exposure removed entirely by using many company names
Why it is wrong: A larger company count does not remove shared sector influences.
Option D. Exposure created only by the fund’s distribution route
Why it is wrong: Sector concentration comes from portfolio businesses rather than the purchase channel.
Answer: A. Industry-specific concentration remains because many holdings share the same sector exposure. A large company count does not ensure broad sector diversification. Remember: Diversification across companies is different from diversification across sectors.
Hint, shown before you answer in practice mode: Common mistake: Counting holdings without checking whether their business risks overlap. Distinguish the number of companies from the variety of economic exposures.
XII-128mediumapplication
Q24Which scheme document should be consulted for its investment objective, asset allocation and principal risks?
Option A. Scheme Information Document — Correct answer
Option B. Statement of Additional Information
Why it is wrong: This principally contains statutory information about the mutual fund rather than being the particular scheme’s detailed document.
Option C. A stock exchange’s daily trading summary
Why it is wrong: A trading summary does not replace the scheme’s objective, allocation and risk disclosures.
Option D. An investor’s periodic account statement
Why it is wrong: An account statement records holdings and transactions rather than the detailed scheme mandate.
Answer: A. The Scheme Information Document describes the scheme’s objective, allocation and principal risks. It should be read alongside applicable updates and other scheme documents. Remember: The scheme’s disclosures are the starting point for understanding its mandate.
Hint, shown before you answer in practice mode: 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.
XII-129mediumconceptual
Q25Two instalments of ₹6,000 buy units at ₹20 and ₹30. All money buys units and there are no charges. What is the average cost per unit?
Option A. ₹30
Why it is wrong: ₹30 ignores the first instalment at the lower price.
Option B. ₹24 — Correct answer
Option C. ₹25
Why it is wrong: ₹25 is the simple average of the two prices and ignores unequal unit quantities.
Option D. ₹20
Why it is wrong: ₹20 ignores the second instalment at the higher price.
Answer: B. The average cost is ₹24 per unit. First purchase = ₹6,000 ÷ ₹20 = 300 units. Second purchase = ₹6,000 ÷ ₹30 = 200 units. Average cost = ₹12,000 ÷ 500 units = ₹24. Remember: Equal rupee instalments buy different quantities when unit prices differ.
Hint, shown before you answer in practice mode: 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.
XII-130hardnumerical
Q26A unit costs ₹20 and later has a net asset value of ₹21. The investor also receives ₹1 in cash. Ignoring tax, costs and reinvestment, what is the total return?
Option A. 4.76%
Why it is wrong: This uses ending value as the denominator and omits part of the return.
Option B. 15%
Why it is wrong: 15% adds an extra ₹1 gain that the question does not provide.
Option C. 10% — Correct answer
Option D. 5%
Why it is wrong: 5% counts only the ₹1 rise in unit value and omits the cash received.
Answer: C. The total return is 10%. Gain = (₹21 − ₹20) + ₹1 = ₹2 per unit. Return = ₹2 ÷ ₹20 × 100 = 10%. Remember: Total return includes both price change and cash received.
Hint, shown before you answer in practice mode: 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.
XII-131hardnumerical
Q27A scheme has assets of ₹105 lakh and liabilities of ₹3 lakh, already including ₹1 lakh of accrued expenses. With 4 lakh units, what is its net asset value?
Option A. ₹25.50 — Correct answer
Option B. ₹26.25
Why it is wrong: ₹26.25 uses gross assets without deducting liabilities.
Option C. ₹27.00
Why it is wrong: ₹27 adds liabilities to assets instead of deducting them.
Option D. ₹25.25
Why it is wrong: ₹25.25 deducts the ₹1 lakh expense again even though it is already included in liabilities.
Answer: A. The net asset value is ₹25.50 per unit. Net assets = ₹105 lakh − ₹3 lakh = ₹102 lakh. Value per unit = ₹102 lakh ÷ 4 lakh units = ₹25.50. The accrued expense must not be deducted twice. Remember: An expense already included in liabilities is deducted only once.
Hint, shown before you answer in practice mode: Common mistake: Double-counting accrued expenses when a total liability figure already includes them. Check whether the stated liability total already contains the expense.
XII-132hardnumerical
Q28Two schemes have unit values of ₹10 and ₹100. Each earns 10% after expenses, without distributions. Ignoring transaction costs, how do equal ₹10,000 investments grow?
Option A. The ₹10 scheme earns ten times as much
Why it is wrong: More units at a lower starting price do not multiply the percentage return.
Option B. The ₹10 scheme must finish with the higher portfolio value
Why it is wrong: Identical percentage returns on equal money produce equal final values.
Option C. The ₹100 scheme earns ten times as much
Why it is wrong: A higher per-unit price does not multiply the return on equal invested amounts.
Option D. Both earn ₹1,000 despite different unit counts — Correct answer
Answer: D. Both investments earn ₹1,000 because each applies a 10% return to ₹10,000. A lower starting unit value alone does not make a scheme cheaper in investment-value terms. Remember: Unit price alone does not determine the return on an equal investment amount.
Hint, shown before you answer in practice mode: 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.
XII-133hardapplication
Q29An investor starts with 1,000 units and withdraws ₹6,000 at ₹20, then ₹6,000 at ₹15. Ignore costs. What is the remaining value at ₹15 per unit?
Option A. ₹4,500 — Correct answer
Option B. ₹6,000
Why it is wrong: ₹6,000 assumes 400 units remain rather than the correct 300.
Option C. ₹15,000
Why it is wrong: ₹15,000 values all original units without deducting either redemption.
Option D. ₹10,500
Why it is wrong: ₹10,500 values the 700 units after only the first withdrawal.
Answer: A. The remaining value is ₹4,500. First redemption = ₹6,000 ÷ ₹20 = 300 units. Second redemption = ₹6,000 ÷ ₹15 = 400 units. Remaining units = 1,000 − 300 − 400 = 300. Value = 300 × ₹15 = ₹4,500. Remember: A fixed cash withdrawal requires more units when the per-unit value falls.
Hint, shown before you answer in practice mode: 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.
XII-134hardnumerical
Q30An exchange-traded fund has a net asset value of ₹100 per unit and trades at ₹103. What is its premium to net asset value?
Option A. 0.03%
Why it is wrong: 0.03% fails to convert the decimal difference into a percentage correctly.
Option B. 3% — Correct answer
Option C. 103%
Why it is wrong: 103% is the market price as a percentage of net asset value, not the excess premium.
Option D. 2.91%
Why it is wrong: 2.91% uses market price rather than net asset value as the comparison base.
Answer: B. The fund trades at a 3% premium to net asset value. Premium = (₹103 − ₹100) ÷ ₹100 × 100 = 3%. Remember: An exchange-traded fund’s market price can differ from its net asset value.
Hint, shown before you answer in practice mode: 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.
XII-135hardnumerical
Mutual Funds: common questions
How many practice questions are there on Mutual Funds?
30 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 6 practice topics for NISM Series XII, which has 150 questions in total.
Are these real NISM Series XII questions on Mutual Funds?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XII?
No. NISM applies no negative marking to Series XII. A wrong answer costs nothing beyond the mark you did not earn, so a blank is never better than an attempt. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Derivative Markets
15 questions on Derivative Markets. Its quiz opens on that unit.
Open Derivative MarketsPaper Trading Try it on the practice trading desk