Operational Concepts 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
- Basics of Mutual Funds14
- Structure and Constituents of Mutual Funds11
- Mutual Fund Products12
- 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 — Operational Concepts of Mutual Funds and Structure and Constituents of Mutual Funds and Mutual Fund Products — 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 9 to 11 (Structure and Constituents of Mutual Funds to Operational Concepts 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Operational Concepts of Mutual Funds, with answers
Q1What does NFO stand for in mutual fund operations?
Option A. New Fund Offer — Correct answer
Option B. Nominee Folio Order
Why it is wrong: Nomination records use different terminology.
Option C. National Fund Overdraft
Why it is wrong: An overdraft is a banking facility.
Option D. Net Futures Obligation
Why it is wrong: That is not the mutual fund offer term.
Answer: A. NFO means New Fund Offer, the initial period when a scheme offers units to investors.
Hint, shown before you answer in practice mode: Recall the initial offer of a new scheme.
II-B-092easyconceptual
Q2Why is cash reconciliation important during an NFO?
Option A. It determines stock exchange listing prices for the units
Why it is wrong: Exchange prices come from trading.
Option B. It confirms subscriptions received match bank collections — Correct answer
Option C. It sets the future equity market return for the new scheme
Why it is wrong: Bank matching cannot determine security returns.
Option D. It replaces investor identification checks during the offer
Why it is wrong: KYC remains a separate requirement.
Answer: B. NFO reconciliation checks investor subscription records against actual collections.
Hint, shown before you answer in practice mode: Match application totals with real cleared money.
II-B-093mediumconceptual
Q3A scheme has assets ₹5 crore, liabilities ₹20 lakh and 24 lakh units. What is NAV?
Option A. ₹19
Why it is wrong: That uses the wrong net asset value.
Option B. ₹20.83
Why it is wrong: That ignores the liabilities and uses gross assets.
Option C. ₹20 — Correct answer
Option D. ₹22
Why it is wrong: That adds rather than subtracts liabilities.
Answer: C. Net assets equal ₹5 crore − ₹20 lakh = ₹4.8 crore, and ₹4.8 crore ÷ 24 lakh units = ₹20.
Hint, shown before you answer in practice mode: Deduct liabilities before dividing by outstanding units.
II-B-094mediumnumerical
Q4What determines which transaction receipt time is used for applicable NAV eligibility?
Option A. The last year's highest NAV of the scheme
Why it is wrong: Historical peak NAV does not govern today's transaction.
Option B. Investor's preferred NAV alone, as requested
Why it is wrong: An investor cannot choose a NAV outside rules.
Option C. The RTA's marketing target for the month
Why it is wrong: Targets do not override NAV rules.
Option D. Valid time stamp and relevant scheme rules — Correct answer
Answer: D. Applicable NAV depends on valid receipt timing and the scheme's applicable cut-off and funds rules.
Hint, shown before you answer in practice mode: Think about recorded request time and required funds availability.
II-B-095hardconceptual
Q5Why is a purchase receipt time insufficient by itself for some NAV determinations?
Option A. Cleared funds availability can also be required — Correct answer
Option B. Fund managers personally choose the purchaser's NAV
Why it is wrong: Rules govern NAV application, not discretionary selection.
Option C. Every subscription is processed at issue face value
Why it is wrong: Ongoing purchases normally use applicable NAV.
Option D. Any late application receives the best NAV
Why it is wrong: Late receipts do not create a best-price guarantee.
Answer: A. Purchase NAV eligibility may depend on both valid request receipt and availability of realised funds.
Hint, shown before you answer in practice mode: Remember money and paperwork are separate inputs.
II-B-096hardconceptual
Q6What is the purpose of time stamping incoming mutual fund transactions?
Option A. Guarantee the unit price will increase
Why it is wrong: Receipt timing does not promise future prices.
Option B. Record when a valid request was received — Correct answer
Option C. Determine the investor's income bracket
Why it is wrong: Income brackets are not receipt-time calculations.
Option D. Replace reconciliation with a bank
Why it is wrong: Time stamps do not prove funds were received.
Answer: B. Time stamping preserves evidence of the transaction's authorised receipt time.
Hint, shown before you answer in practice mode: Think about traceable submission time.
II-B-097easyconceptual
Q7What is a business day for mutual fund transaction processing?
Option A. Every calendar day without exception, including market holidays
Why it is wrong: Weekends and holidays may not be operational days.
Option B. Only the day the investor gets a salary credited to the bank account
Why it is wrong: Salary timing does not define a business day.
Option C. A day on which relevant scheme operations are open under applicable rules — Correct answer
Option D. Only the fund's launch day, when its new fund offer opens for subscription
Why it is wrong: Schemes process transactions beyond launch dates.
Answer: C. A business day is defined by the scheme's relevant operational calendar and rules.
Hint, shown before you answer in practice mode: Think about market and scheme operating calendars.
II-B-098mediumconceptual
Q8Why do investors sometimes hold mutual fund units in dematerialised form?
Option A. To guarantee a higher scheme return
Why it is wrong: Holding format does not change portfolio performance.
Option B. To avoid unit valuation
Why it is wrong: Demat holdings are still valued.
Option C. To become a voting shareholder of the AMC
Why it is wrong: Fund units do not confer AMC share ownership.
Option D. To maintain units through a depository account — Correct answer
Answer: D. Dematerialised mutual fund units are held and serviced through the depository system.
Hint, shown before you answer in practice mode: Think about the custody format of units.
II-B-099mediumconceptual
Q9A purchase application is recorded but the bank shows a failed transfer. What should the RTA do?
Option A. Keep allotment pending and reconcile the payment status — Correct answer
Option B. Allot units as fully paid despite failure
Why it is wrong: That creates unsupported investor unit capital.
Option C. Record the transfer as successful without evidence
Why it is wrong: False banking records misstate collections.
Option D. Move money from another investor's folio
Why it is wrong: Other investors' balances cannot cover the shortfall.
Answer: A. The RTA must verify collections and resolve payment failure before treating an application as funded.
Hint, shown before you answer in practice mode: Check actual money rather than the application alone.
II-B-100mediumapplication
Q10Which term describes tax withheld by a payer when required by law?
Option A. Gross Asset Value
Why it is wrong: Gross assets are a valuation measure.
Option B. Tax Deducted at Source — Correct answer
Option C. Share premium reserve
Why it is wrong: Share premium relates to share issuance.
Option D. Total Expense Ratio
Why it is wrong: TER is a fund operating cost measure.
Answer: B. Tax Deducted at Source is tax withheld and remitted by the payer where the law requires it.
Hint, shown before you answer in practice mode: Think about a tax amount deducted before payment.
II-B-101easyconceptual
Q11What is the purpose of FATCA and CRS information collected from certain investors?
Option A. Select the scheme's portfolio benchmark for performance
Why it is wrong: Benchmark choice is unrelated to tax residency.
Option B. Replace the investor's bank account with a foreign account
Why it is wrong: A tax declaration cannot substitute for payment instructions.
Option C. Support required tax-residency and account reporting — Correct answer
Option D. Guarantee the investor an exemption from all taxes
Why it is wrong: Tax reporting does not automatically remove liability.
Answer: C. FATCA and CRS declarations support tax-residency checks and applicable financial-account reporting.
Hint, shown before you answer in practice mode: Think about international tax information exchange.
II-B-102hardconceptual
Q12A fund has net assets ₹7.5 crore and NAV ₹15. How many units are outstanding?
Option A. 75 lakh units
Why it is wrong: That divides by ₹10 instead of ₹15.
Option B. 5 lakh units
Why it is wrong: That introduces an extra factor of ten.
Option C. 45 lakh units
Why it is wrong: That understates units relative to the given net assets.
Option D. 50 lakh units — Correct answer
Answer: D. Outstanding units equal ₹7.5 crore ÷ ₹15 = 50 lakh units.
Hint, shown before you answer in practice mode: Reverse the usual NAV calculation.
II-B-103mediumnumerical
Q13An operator backdates a request to before the cut-off time after it was actually received later. What is the core issue?
Option A. False receipt evidence leading to incorrect NAV treatment — Correct answer
Option B. A harmless change to presentation only
Why it is wrong: NAV eligibility may change with the timestamp.
Option C. A change required by market volatility
Why it is wrong: Price movement does not permit false receipt times.
Option D. Normal correction of a typing error that needs no audit trail
Why it is wrong: Deliberate backdating is not an ordinary documented correction.
Answer: A. Backdating misrepresents request receipt and can cause improper application of NAV rules.
Hint, shown before you answer in practice mode: Focus on integrity of transaction timing.
II-B-104hardapplication
Q14A mutual fund purchase is submitted before cut-off, but required funds arrive after the relevant deadline. What should decide NAV?
Option A. The distributor's verbal assurance that the money is coming
Why it is wrong: An assurance cannot substitute for regulatory conditions.
Option B. The applicable combined cut-off and realised-funds rules — Correct answer
Option C. The investor's preferred earlier NAV on the request date
Why it is wrong: Investor preference cannot override funds eligibility.
Option D. The highest NAV of the week in which the request was made
Why it is wrong: The highest NAV is not an eligibility rule.
Answer: B. The applicable NAV must be determined under the relevant timing and funds-availability conditions.
Hint, shown before you answer in practice mode: Do not treat submission time as the only condition.
II-B-105hardapplication
Operational Concepts of Mutual Funds: common questions
How many practice questions are there on Operational Concepts 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 Operational Concepts 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 Operational Concepts 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 (Operational Concepts of Mutual Funds and Structure and Constituents of Mutual Funds and Mutual Fund Products). 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 9 to 11 (Structure and Constituents of Mutual Funds to Operational Concepts 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.
Investors in Mutual Funds
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