Basics of Mutual Funds
10 questions. Each answer is explained.
Question 1 of 10Practice · Series II-A — Registrars to an Issue and Share Transfer Agents - Corporate
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Learn these topics
More units in NISM Series II-A
- Introduction to Securities10
- Characteristics of Equity Shares10
- Characteristics of Debt Securities10
- Characteristics of Other Securities10
- SEBI – Role and Regulations10
- Public Offer of Securities10
- Modes of allotment of shares other than Public Offers10
- Processes related to Public Offering of Shares10
- Roles and Responsibilities in a Public Issue10
- Depository Services10
- Processes Related to Depositories10
- Investor Interface with the R&T Agent10
- Secondary Market Transactions10
- Client Servicing10
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 50% · 50 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 | 3 of 100 marks (3%) |
Source: March 2025 Annexure I, Unit 5: Basics of Mutual Funds
NISM Series II-A Registrars to an Issue and Share Transfer Agents - Corporate
Exam rules read on NISM's site on 31 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 31 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 10 questions on Basics of Mutual Funds, with answers
Q1Why is a mutual fund described as a collective investment vehicle?
Option A. It pools money from investors into a portfolio — Correct answer
Option B. It keeps every investor’s money in separate shares
Why it is wrong: Pooling does not require a separate security portfolio for every investor.
Option C. It guarantees the same profit to every investor
Why it is wrong: Pooling does not guarantee identical rupee profits or any profit.
Option D. It gives each investor control of every trade
Why it is wrong: Individual unit holders do not normally direct each portfolio trade.
Answer: A. A mutual fund pools investor money into a portfolio managed according to the scheme’s objective. Remember: Mutual fund investors participate through units in a pooled portfolio.
Hint, shown before you answer in practice mode: Think about how contributions are combined and managed. Common mistake: Confusing shared ownership with individual control of portfolio trades.
II-A-041easyconceptual
Q2What does a unit normally represent in a mutual fund scheme?
Option A. A direct ownership stake in the fund manager
Why it is wrong: Unit holders do not become shareholders of the fund manager merely by holding scheme units.
Option B. A proportionate interest in the scheme’s net assets — Correct answer
Option C. A fixed claim on one named portfolio share
Why it is wrong: A unit generally represents the pooled scheme, not one named portfolio share.
Option D. A guarantee that the original capital will be repaid
Why it is wrong: A unit does not by itself guarantee repayment of the investment.
Answer: B. A unit represents a proportionate interest in the scheme’s net assets, rather than ownership of a specific underlying share. Remember: Fund units represent interests in the scheme, not in its management company.
Hint, shown before you answer in practice mode: Focus on the scheme rather than the management company or one portfolio security. Common mistake: Treating scheme units as equity shares of the fund manager.
II-A-042easyconceptual
Q3Which feature usually distinguishes an open-ended mutual fund scheme from a closed-ended scheme?
Option A. A permanently unchanged number of units throughout its life
Why it is wrong: Ongoing purchases and redemptions can change the number of units.
Option B. A compulsory stock-market profit for investors each trading day
Why it is wrong: Open-ended status does not guarantee daily profits.
Option C. Ongoing purchase and redemption availability under scheme terms — Correct answer
Option D. An obligation to hold only government bonds in the portfolio
Why it is wrong: The open-ended structure does not itself restrict a scheme to government bonds.
Answer: C. An open-ended scheme normally offers ongoing purchases and redemptions under its terms rather than only operating for a fixed closed-ended tenure. Remember: Open-ended and closed-ended describe the scheme structure, not its risk level.
Hint, shown before you answer in practice mode: Consider whether investors can normally enter or exit through the scheme on an ongoing basis. Common mistake: Assuming open-ended means risk-free or permanently liquid without conditions.
II-A-043easyconceptual
Q4A scheme has assets of ₹52 crore, liabilities of ₹2 crore and 2 crore units. What is its net asset value per unit?
Option A. ₹27
Why it is wrong: ₹27 adds liabilities to assets before dividing.
Option B. ₹25 — Correct answer
Option C. ₹26
Why it is wrong: ₹26 divides gross assets by units without subtracting liabilities.
Option D. ₹50
Why it is wrong: ₹50 reports net assets in crore as though they were value per unit.
Answer: B. The net asset value per unit is ₹25. Net assets = ₹52 crore − ₹2 crore = ₹50 crore. NAV = ₹50 crore ÷ 2 crore units = ₹25. Remember: Net asset value uses net assets, not gross assets.
Hint, shown before you answer in practice mode: Unit holders share the assets remaining after scheme liabilities. Common mistake: Ignoring liabilities when computing NAV.
II-A-044mediumnumerical
Q5A scheme has 15 lakh units with ₹10 face value and ₹18 net asset value. What is its unit capital?
Option A. ₹1.5 crore — Correct answer
Option B. ₹1.2 crore
Why it is wrong: ₹1.2 crore is the difference between net assets and nominal unit capital.
Option C. ₹15 crore
Why it is wrong: ₹15 crore is a factor-of-ten conversion error.
Option D. ₹2.7 crore
Why it is wrong: ₹2.7 crore is the value of net assets at the stated NAV.
Answer: A. Unit capital is ₹1.5 crore. Calculation: 15 lakh units × ₹10 face value = ₹150 lakh = ₹1.5 crore. Remember: Unit capital and net assets need not be equal.
Hint, shown before you answer in practice mode: Unit capital is based on nominal value rather than the current value of net assets. Common mistake: Multiplying units by NAV when asked for unit capital.
II-A-045mediumnumerical
Q6An investor holds 8,000 of a scheme’s 4,00,000 units. What proportion of the scheme’s units does the investor own?
Option A. 20%
Why it is wrong: 20% places the decimal one position too far to the right.
Option B. 2% — Correct answer
Option C. 0.2%
Why it is wrong: 0.2% places the decimal one position too far to the left.
Option D. 5%
Why it is wrong: 5% would require 20,000 units rather than 8,000.
Answer: B. The investor owns 2% of the scheme’s units. Calculation: 8,000 ÷ 4,00,000 × 100 = 2%. Remember: An investor’s proportion depends on units held relative to total units.
Hint, shown before you answer in practice mode: Compare the investor’s units with all outstanding scheme units. Common mistake: Using the investment amount without considering total outstanding units.
II-A-046mediumnumerical
Q7A scheme’s objective is to track a broad equity index. Which portfolio approach is most consistent with that objective?
Option A. Use a concentrated portfolio unrelated to the index
Why it is wrong: A concentrated portfolio unrelated to the index does not pursue the stated tracking objective.
Option B. Maintain exposure designed to follow the stated index — Correct answer
Option C. Replace the benchmark each week with the best recent performer
Why it is wrong: Changing the benchmark each week is inconsistent with following the stated index.
Option D. Hold only short-term cash instruments throughout the cycle
Why it is wrong: A permanent cash-only portfolio would not normally track the stated broad equity index.
Answer: B. Maintaining exposure designed to follow the stated index is consistent with an index-tracking investment objective. Remember: The disclosed objective should guide the fund’s investment approach.
Hint, shown before you answer in practice mode: The investment process should follow the scheme’s disclosed purpose. Common mistake: Judging a portfolio without first checking the scheme’s objective.
II-A-047mediumapplication
Q8A scheme’s net asset value rises from ₹20 to ₹23 without any distribution. What is the percentage increase?
Option A. 15% — Correct answer
Option B. 13.04%
Why it is wrong: 13.04% divides the increase by the ending NAV instead of the starting NAV.
Option C. 115%
Why it is wrong: 115% includes the original value and is not the percentage increase alone.
Option D. 3%
Why it is wrong: 3% mistakes the rupee increase for the percentage increase.
Answer: A. The NAV increase is 15%. Increase = ₹23 − ₹20 = ₹3. Percentage increase = ₹3 ÷ ₹20 × 100 = 15%. Remember: Percentage change is measured against the starting value.
Hint, shown before you answer in practice mode: Compare the increase with the starting value, not with the ending value. Common mistake: Using the ending NAV as the denominator.
II-A-048mediumnumerical
Q9A scheme has ₹20 lakh net assets and 1 lakh units. It receives ₹4 lakh at current NAV, with no costs. What is the new NAV?
Option A. ₹16.67
Why it is wrong: ₹16.67 adds new units while ignoring the incoming cash.
Option B. ₹4
Why it is wrong: ₹4 is the inflow divided by the original units, not the scheme’s NAV.
Option C. ₹24
Why it is wrong: ₹24 adds the cash but ignores the newly issued units.
Option D. ₹20 — Correct answer
Answer: D. The new NAV remains ₹20. Starting NAV = ₹20 lakh ÷ 1 lakh = ₹20. New units = ₹4 lakh ÷ ₹20 = 20,000. New NAV = ₹24 lakh ÷ 1,20,000 units = ₹20. Remember: An inflow at current NAV does not by itself create a gain for existing unit holders.
Hint, shown before you answer in practice mode: New money creates new units at the same value per unit. Common mistake: Treating new investors’ money as investment profit.
II-A-049hardnumerical
Q10A scheme has ₹30 lakh net assets and 1.5 lakh units. It redeems 30,000 units at current NAV without costs. What remains?
Option A. ₹36 lakh net assets and 1.8 lakh units
Why it is wrong: Both totals increase as though this were a purchase rather than a redemption.
Option B. ₹24 lakh net assets and 1.2 lakh units — Correct answer
Option C. ₹30 lakh net assets and 1.2 lakh units
Why it is wrong: ₹30 lakh ignores the cash paid to redeem the units.
Option D. ₹24 lakh net assets and 1.5 lakh units
Why it is wrong: 1.5 lakh units ignores cancellation of the redeemed units.
Answer: B. The scheme retains ₹24 lakh net assets and 1.2 lakh units. NAV = ₹30 lakh ÷ 1.5 lakh = ₹20. Payout = 30,000 × ₹20 = ₹6 lakh. Remaining assets = ₹24 lakh and remaining units = 1.2 lakh. Remember: A redemption at NAV reduces both scheme assets and outstanding units.
Hint, shown before you answer in practice mode: Redemption removes both the redeemed units and the cash paid for them. Common mistake: Removing only the units or only the cash.
II-A-050hardnumerical
Basics of Mutual Funds: common questions
How many practice questions are there on Basics of Mutual Funds?
10 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 15 practice topics for NISM Series II-A, which has 150 questions in total.
Are these real NISM Series II-A questions on Basics of 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.
How much of the NISM Series II-A exam is Basics of Mutual Funds?
NISM's published syllabus outline gives it 3 of the paper's 100 marks, or 3% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: March 2025 Annexure I, Unit 5: Basics of Mutual Funds
Does negative marking apply to NISM Series II-A?
No. NISM applies no negative marking to Series II-A. 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.
SEBI – Role and Regulations
10 questions on SEBI – Role and Regulations. Its quiz opens on that unit.
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