Basics of Mutual Funds
14 questions. Each answer is explained.
Question 1 of 10Practice · Series II-B — Registrars to an Issue and Share Transfer Agents - Mutual Fund
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Learn these topics
More units in NISM Series II-B
- Introduction to Securities5
- Characteristic of Equities7
- Characteristics of Debt Securities7
- Characteristics of Other Securities5
- SEBI- Role and Regulations6
- Basics of Registrars and Transfer Agents12
- Registrars and Transfer Agents Regulations12
- Structure and Constituents of Mutual Funds11
- Mutual Fund Products12
- Operational Concepts of Mutual Funds14
- Investors in Mutual Funds10
- Banking Operations in Mutual Funds12
- Financial Transactions12
- Non-Financial Transactions11
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 | 25 of 100 marks (25%) |
That figure belongs to one published unit covered under these headings — Basics of Mutual Funds and Basics of Registrars and Transfer Agents and Registrars and Transfer Agents Regulations — so the marks belong to the whole group. They are quoted together because no source divides them among its headings.
Source: March 2025 Annexure I, Units 6 to 8 (Basics of Registrars and Transfer Agents to Basics of Mutual Funds): 25%
NISM Series II-B Registrars to an Issue and Share Transfer Agents - Mutual Fund
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 14 questions on Basics of Mutual Funds, with answers
Q1What is a mutual fund unit?
Option A. An ordinary share of the RTA that services the scheme
Why it is wrong: Unit ownership is not equity in the registrar.
Option B. A guaranteed repayment certificate issued by the trustees
Why it is wrong: Mutual fund units carry investment risk.
Option C. A fixed deposit held in the AMC's own bank account
Why it is wrong: Mutual fund units are not bank deposits.
Option D. An investor's proportional interest in a scheme portfolio — Correct answer
Answer: D. A mutual fund unit represents an investor's share of a pooled scheme's net assets.
Hint, shown before you answer in practice mode: Think about fractional ownership of pooled assets.
II-B-055easyconceptual
Q2What is the main benefit of pooling money in a mutual fund?
Option A. Access to professionally managed diversified investments — Correct answer
Option B. Exemption from market-price movements in the portfolio
Why it is wrong: Underlying securities still change value.
Option C. A fixed bank deposit rate paid on the pooled money
Why it is wrong: Mutual funds are investment products, not bank deposits.
Option D. A guaranteed positive return every year for each investor
Why it is wrong: Pooling does not remove market risk.
Answer: A. Pooling allows investors to access a managed portfolio with diversification opportunities.
Hint, shown before you answer in practice mode: Think about diversification and shared management.
II-B-056mediumconceptual
Q3Which fund type generally permits ongoing purchase and redemption of units from the scheme?
Option A. Preference share
Why it is wrong: A preference share is company capital.
Option B. Open-ended mutual fund — Correct answer
Option C. Closed-ended scheme during a fixed locked subscription period
Why it is wrong: Closed-ended schemes do not normally offer daily direct redemption during their tenure.
Option D. Non-convertible bond
Why it is wrong: A bond is not a mutual fund structure.
Answer: B. An open-ended scheme generally permits continuous subscriptions and redemptions under its terms.
Hint, shown before you answer in practice mode: Look for ongoing issue and redemption at applicable NAV.
II-B-057easyconceptual
Q4What does Assets under Management represent for a scheme?
Option A. A guaranteed redemption amount for investors
Why it is wrong: AUM is a valuation measure rather than a guarantee.
Option B. Only the number of folio holders in the scheme
Why it is wrong: Investor count is not asset value.
Option C. Market value of assets managed by the scheme — Correct answer
Option D. Only one day's subscriptions received by the scheme
Why it is wrong: Daily subscriptions are one flow, not total assets.
Answer: C. AUM measures the value of the assets managed by the mutual fund scheme.
Hint, shown before you answer in practice mode: Consider the size of the managed portfolio.
II-B-058easyconceptual
Q5A scheme has net assets of ₹24 lakh and 1.2 lakh units. What is its NAV?
Option A. ₹24
Why it is wrong: This treats lakh assets as if there were one lakh units.
Option B. ₹2
Why it is wrong: This divides using an extra factor of ten.
Option C. ₹12
Why it is wrong: This incorrectly halves the computed value.
Option D. ₹20 — Correct answer
Answer: D. NAV equals ₹24,00,000 ÷ 1,20,000 = ₹20 per unit.
Hint, shown before you answer in practice mode: Divide net assets by total outstanding units.
II-B-059mediumnumerical
Q6Which expense measure reflects ongoing operating costs relative to scheme assets?
Option A. Total Expense Ratio — Correct answer
Option B. Share premium
Why it is wrong: Premium is the amount paid above nominal share value.
Option C. Dividend yield
Why it is wrong: Dividend yield measures distributions relative to price.
Option D. Credit coupon
Why it is wrong: Coupon is interest on debt.
Answer: A. Total Expense Ratio expresses scheme expenses as a proportion of relevant assets.
Hint, shown before you answer in practice mode: Think about annual running costs charged to a scheme.
II-B-060mediumconceptual
Q7Why does a direct plan generally have a lower expense burden than its regular counterpart?
Option A. Its portfolio is legally required to hold only cash and gold
Why it is wrong: Direct and regular plans can invest in the same portfolio.
Option B. It does not include the same distributor commission component — Correct answer
Option C. It never incurs fund management costs
Why it is wrong: Direct plans can still charge other expenses.
Option D. Its NAV cannot fluctuate
Why it is wrong: Plan NAVs move with portfolio valuations.
Answer: B. A direct plan avoids the distribution commission cost embedded in a regular plan's expenses.
Hint, shown before you answer in practice mode: Think about the distribution cost component.
II-B-061mediumconceptual
Q8An investor places ₹5,000 into a scheme at NAV ₹25 with no applicable charges. How many units arise?
Option A. 125 units
Why it is wrong: That results from dividing by ₹40, not ₹25.
Option B. 250 units
Why it is wrong: That results from assuming ₹20 NAV.
Option C. 200 units — Correct answer
Option D. 5,000 units
Why it is wrong: That ignores the purchase price per unit.
Answer: C. Units allocated equal ₹5,000 ÷ ₹25 = 200 units.
Hint, shown before you answer in practice mode: Link the amount invested to the price of one unit.
II-B-062mediumnumerical
Q9If outstanding units stay constant but scheme liabilities rise, what happens to NAV?
Option A. NAV increases
Why it is wrong: Higher liabilities lower net assets.
Option B. NAV stays fixed because AUM is unchanged
Why it is wrong: NAV uses assets after liabilities.
Option C. NAV becomes the face value automatically
Why it is wrong: Current NAV is not forced to equal face value.
Option D. NAV decreases — Correct answer
Answer: D. Higher liabilities reduce net assets and therefore reduce NAV when unit count is unchanged.
Hint, shown before you answer in practice mode: Calculate the effect on net assets before dividing by units.
II-B-063mediumconceptual
Q10A scheme starts with 1,000 units at NAV ₹10. It issues 100 more at ₹10 and markets stay unchanged. What is NAV just after the issue?
Option A. ₹10 — Correct answer
Option B. ₹11
Why it is wrong: Issuance at NAV adds matching assets and units, not a per-unit gain.
Option C. ₹9.09
Why it is wrong: That divides the original assets by the new units but ignores new cash.
Option D. ₹10.90
Why it is wrong: That mistakenly treats unit issuance itself as market appreciation.
Answer: A. Assets rise from ₹10,000 to ₹11,000 and units from 1,000 to 1,100, so NAV remains ₹10.
Hint, shown before you answer in practice mode: Include subscription cash as well as additional units.
II-B-064hardapplication
Q11Two investors hold units in the same scheme, one direct and one regular. Which statement is generally correct?
Option A. The regular plan guarantees greater returns
Why it is wrong: Regular-plan distribution cannot promise returns.
Option B. They may have different NAVs because plan expenses differ — Correct answer
Option C. The direct plan always pays a fixed coupon
Why it is wrong: Mutual fund units are not fixed coupon bonds.
Option D. They must have different underlying stock portfolios
Why it is wrong: Both plans normally share the scheme's underlying portfolio.
Answer: B. Direct and regular plans can have different NAVs due to expense differences within the same scheme.
Hint, shown before you answer in practice mode: Separate plan expenses from the investment portfolio.
II-B-065mediumapplication
Q12What is unit capital in a mutual fund?
Option A. Only the number of fund managers employed by the AMC
Why it is wrong: Staff count is unrelated to capital.
Option B. The fund's outstanding loan principal only, excluding all units
Why it is wrong: Borrowing is not unit capital.
Option C. Capital represented by issued and outstanding scheme units — Correct answer
Option D. Only bank interest received by the scheme during the year
Why it is wrong: Interest is income, not unit capital.
Answer: C. Unit capital represents the issued units of the mutual fund scheme at their relevant nominal measure.
Hint, shown before you answer in practice mode: Focus on units issued to investors.
II-B-066mediumconceptual
Q13What does the scheme's investment objective primarily describe?
Option A. The RTA's office opening hours for investors
Why it is wrong: Office hours are operational details.
Option B. The investor's PAN number and tax status
Why it is wrong: PAN is investor identification, not scheme purpose.
Option C. A guarantee of achieving a stated return
Why it is wrong: Objectives are aims, not return guarantees.
Option D. The intended investment goal and approach — Correct answer
Answer: D. The scheme objective states the goal and investment approach disclosed to investors.
Hint, shown before you answer in practice mode: Think about why the fund invests in certain assets.
II-B-067easyconceptual
Q14A scheme's gross assets are ₹80 lakh, liabilities ₹4 lakh and units 4 lakh. What is NAV?
Option A. ₹19 — Correct answer
Option B. ₹21
Why it is wrong: That adds liabilities rather than subtracting them.
Option C. ₹16
Why it is wrong: That subtracts liabilities twice.
Option D. ₹20
Why it is wrong: That ignores ₹4 lakh of liabilities.
Answer: A. Net assets are ₹80 lakh − ₹4 lakh = ₹76 lakh, and ₹76 lakh ÷ 4 lakh units gives NAV ₹19.
Hint, shown before you answer in practice mode: Use assets net of liabilities before working out unit value.
II-B-068hardapplication
Basics of Mutual Funds: common questions
How many practice questions are there on Basics of Mutual Funds?
14 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-B, which has 150 questions in total.
Are these real NISM Series II-B 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-B exam is Basics of Mutual Funds?
NISM's published syllabus outline gives it 25 of the paper's 100 marks, or 25% of the exam. That figure covers one published unit taught here under more than one heading (Basics of Mutual Funds and Basics of Registrars and Transfer Agents and Registrars and Transfer Agents Regulations). So it is the marks for the group, not for this page alone. No source splits it, so it is not split here. The published unit it comes from: March 2025 Annexure I, Units 6 to 8 (Basics of Registrars and Transfer Agents to Basics of Mutual Funds): 25%
Does negative marking apply to NISM Series II-B?
No. NISM applies no negative marking to Series II-B. 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.
Structure and Constituents of Mutual Funds
11 questions on Structure and Constituents of Mutual Funds. Its quiz opens on that unit.
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