Scheme Selection
18 questions. Each answer is explained.
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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 | Not published by NISM |
NISM Series V-A Mutual Fund Distributors
Exam rules read on NISM's site on 3 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 3 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 18 questions on Scheme Selection, with answers
Q1A first-time investor asks a distributor which mutual fund scheme to choose. What should the distributor establish first?
Option A. Which scheme had the highest return in the most recent month.
Why it is wrong: A recent winner may be unsuitable for the investor’s horizon or loss-bearing capacity.
Option B. Which new scheme is being offered at the lowest stated unit price.
Why it is wrong: A lower unit price alone does not establish better value or a suitable risk profile.
Option C. Which available scheme offers the distributor the highest commission.
Why it is wrong: Commission is not the investor’s financial objective or a suitability criterion.
Option D. The investor’s goal, time horizon, liquidity needs and risk profile. — Correct answer
Answer: D. These facts establish the basis for a suitability-led comparison. The goal and horizon identify what the money must achieve and when it may be required. Liquidity needs and risk profile help assess which risks are tolerable. Only then can product features be compared meaningfully. Remember: Start with the investor, then compare products against those requirements.
Hint, shown before you answer in practice mode: Common mistake: Treating scheme selection as a search for the highest recent return or the lowest NAV.
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Q2A fund led its category in returns last year. How should that information be used when assessing the fund?
Option A. As the main forecast of the return the fund should deliver next year.
Why it is wrong: A realised past return is not an established forecast of the next year.
Option B. As one input, alongside suitability, benchmark performance, risk and a broader history. — Correct answer
Option C. As a reason to rank the fund above alternatives regardless of the investor’s horizon.
Why it is wrong: An unsuitable horizon is not corrected by a high historical return.
Option D. As information to discard because historical performance has no analytical use.
Why it is wrong: Historical results can inform analysis even though they do not determine the future.
Answer: B. This answer retains the information while placing it within a wider, suitability-led assessment. The result can be compared with a relevant benchmark, peer group and the risk taken to achieve it. A single year may reflect a market phase or strategy exposure. A broader review is more informative than mechanically selecting or rejecting the fund from that one number. Remember: Use history as evidence to investigate, not as a promise or an automatic selection rule.
Hint, shown before you answer in practice mode: Common mistake: Choosing between the two extremes of blindly extrapolating history and ignoring it completely.
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Q3An investor must make an essential payment in three months and has little capacity to replace a loss. Among the fund profiles below, which is the closest fit for that need, subject to checking actual risks and redemption arrangements?
Option A. Long-maturity government debt with high price sensitivity
Why it is wrong: Government credit quality does not remove the price risk of a long-maturity portfolio before a near-term sale.
Option B. A sector equity portfolio with a strong recent return
Why it is wrong: Recent gains do not remove equity and concentration risk over the three-month period.
Option C. Short-maturity, high-quality debt with limited price sensitivity — Correct answer
Option D. Lower-rated debt chosen for a higher stated yield
Why it is wrong: A higher yield does not compensate for the investor’s inability to replace a near-term loss as a matter of suitability.
Answer: C. Its stated maturity, quality and price-sensitivity profile is closer to a near-term payment need than the other choices. This does not make it risk-free. The payment is essential and only three months away. There is little time or financial capacity to recover from a loss. A long-maturity portfolio can have substantial price sensitivity even when its borrowers have strong credit quality. Equity and lower-rated debt introduce other risks that conflict with the stated need. Among the choices, the short-maturity, high-quality profile is the closer fit. Actual scheme credit exposure, liquidity, settlement, costs and the investor’s circumstances still require review. No mutual fund is treated as a guaranteed substitute for the essential payment. The comparison is among the four stated profiles, not a personalised product recommendation. Remember: For a near-term essential goal, assess liquidity, price sensitivity and credit quality instead of choosing the highest recent return or yield.
Hint, shown before you answer in practice mode: Common mistake: Equating government debt with low short-term price risk, or selecting a fund only for its yield.
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Q4An investor can select and monitor schemes without a distributor and wants the direct plan. Which check is most relevant before confirming a purchase through an online platform?
Option A. The investor chooses a lump sum instead of an SIP
Why it is wrong: Payment frequency and plan choice are separate. An SIP is not automatically regular and a lump sum is not automatically direct.
Option B. The purchase is made on a mobile phone rather than on paper
Why it is wrong: Device or form type does not by itself determine whether a direct or regular plan has been selected.
Option C. The platform displays the scheme’s recent return prominently
Why it is wrong: A return display does not identify the plan selected or establish the distribution arrangement.
Option D. The selected scheme option explicitly identifies the Direct Plan — Correct answer
Answer: D. The plan selected determines whether the transaction is in the direct plan. Merely using an online interface does not establish this. The scenario states that the investor can make and monitor their own scheme choice, so distributor assistance is not assumed to be needed. A direct plan does not route the investment through a distributor. The investor should verify the explicit plan selection in the purchase details. An online platform can be only the transaction interface. It does not, by itself, prove which plan the investor is buying. The investor must still assess the scheme’s suitability and the platform’s separate terms. Lower distribution-related expenses do not make the underlying scheme suitable for every goal. Remember: Confirm the plan name rather than inferring it from the device, payment schedule or platform appearance.
Hint, shown before you answer in practice mode: Common mistake: Assuming that every online mutual fund purchase automatically goes into a direct plan.
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Q5Two index funds track the same benchmark, which returned 10% over a stated year. Fund X returned 9.40% with a TER of 0.10%. Fund Y returned 9.70% with a TER of 0.20%. Both reported tracking error of 0.20% on the same basis. The fund returns are already net of scheme expenses. Which conclusion follows?
Option A. Fund Y’s net return was closer to the benchmark despite its higher TER. — Correct answer
Option B. Fund X’s net return was closer because its TER was lower.
Why it is wrong: The lower stated TER does not change the observed net returns in the question.
Option C. Their net return shortfalls were equal because their tracking errors were equal.
Why it is wrong: Tracking error describes variability of return differences, not equality of cumulative net shortfalls.
Option D. The TER must be deducted again before their net shortfalls can be compared.
Why it is wrong: The stem explicitly states that the fund returns already include scheme expenses.
Answer: A. The 0.30-percentage-point shortfall is smaller than 0.60 percentage points. Fund X’s shortfall = 10.00% − 9.40% = 0.60 percentage points. Fund Y’s shortfall = 10.00% − 9.70% = 0.30 percentage points. Its net return was closer for this period. Equal tracking error does not imply equal net shortfalls. The lower TER alone does not reverse the observed net-return comparison. Because the returns are already net, subtracting TER again would double-count expenses. This historical comparison does not establish future superiority or personal suitability. Remember: Compare realised net tracking results as well as costs, and do not treat equal tracking error as equal return.
Hint, shown before you answer in practice mode: Common mistake: Choosing an index fund from its TER alone or deducting the TER twice.
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Q6A client enjoys volatile investments but will need the entire proposed investment for an essential, non-negotiable payment in six months. There are no backup funds. Which assessment best fits this goal?
Option A. High financial capacity for loss, but low willingness to take risk.
Why it is wrong: It reverses the evidence: willingness is high, while loss-bearing capacity for this goal is constrained.
Option B. High willingness to take risk, but limited financial capacity for loss. — Correct answer
Option C. Low capacity and low willingness because the payment is near.
Why it is wrong: The short horizon constrains capacity but does not erase the client’s stated willingness.
Option D. High capacity and high willingness because the client enjoys volatility.
Why it is wrong: Enthusiasm for risk does not create replacement funds for the required payment.
Answer: B. This answer separates the client’s preference from the financial ability to absorb a loss. The client’s stated enjoyment of volatility indicates willingness, not an ability to replace lost money. The near, non-negotiable payment and absence of backup funds restrict the capacity to absorb a loss for this goal. Neither willingness nor capacity should be inferred solely from the other. Remember: Assess willingness and capacity separately, then relate them to the particular goal.
Hint, shown before you answer in practice mode: Common mistake: Using a risk questionnaire’s preference answers as a complete measure of financial suitability.
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Q7A goal originally 15 years away is now two years away. The required amount is almost accumulated, remains heavily invested in equity and is needed on a fixed date. The investor cannot easily replace a shortfall. Which review is most consistent with the changed circumstances?
Option A. Increase equity to close the small shortfall without reassessing the investor’s loss capacity
Why it is wrong: Trying to finish funding faster does not resolve the stated inability to replace a loss. The risk review cannot be skipped.
Option B. Retain the original equity allocation until the exact target is reached, regardless of time left
Why it is wrong: A target amount does not remove the need to review risk as the fixed payment date approaches. Waiting for an exact value may expose the nearly funded goal to an unaffordable loss.
Option C. Review reducing risk on the amount needed, allowing for liquidity and transaction costs — Correct answer
Option D. Apply the same de-risking decision to all savings, including unrelated long-term goals
Why it is wrong: The money required for this near-term payment needs its own assessment. Unrelated goals can have different horizons and risk capacities.
Answer: C. The remaining two-year horizon, near-complete funding and limited shortfall capacity justify reviewing how to protect the goal amount rather than relying on its original horizon. The relevant horizon for the review is now two years, not the original 15 years. The goal is nearly funded and the payment date is fixed. A large loss could therefore create a shortfall that the investor cannot easily replace. Reviewing a reduction in risk on the amount needed is more consistent with these facts than maintaining or increasing equity risk solely because it was once a long-term goal. A practical transition must consider redemption timing, available liquidity, taxes and transaction costs. The question does not prescribe an exact equity percentage or require an immediate sale of every unit. Money genuinely surplus to this goal may have a different purpose and horizon, so its allocation need not automatically match the goal amount. Remember: Reassess the remaining time and shortfall capacity as a goal approaches, rather than mechanically preserving the starting allocation.
Hint, shown before you answer in practice mode: Common mistake: Treating the original goal horizon as permanent, or interpreting de-risking as a universal instruction to sell every equity holding at once.
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Q8An investor needs a scheme’s detailed investment strategy and the mutual fund’s constitution and general legal information. Which document pairing is the most appropriate starting point, respectively?
Option A. Statement of Additional Information and Scheme Information Document
Why it is wrong: This reverses the primary functions of the documents. They should be read together, but the scheme strategy belongs principally in the SID.
Option B. Consolidated Account Statement and Statement of Additional Information
Why it is wrong: The SAI is relevant to general fund information, but a CAS records the investor’s holdings and transactions rather than the detailed scheme strategy.
Option C. Scheme Information Document and Statement of Additional Information — Correct answer
Option D. Scheme Information Document and Consolidated Account Statement
Why it is wrong: The SID is relevant to scheme strategy, but the investor’s CAS is not the main source for the mutual fund’s constitution and general legal information.
Answer: C. The SID gives detailed scheme information. The SAI provides the mutual fund’s general, constitutional, tax and legal information. Identify what each part of the request needs. Investment strategy is specific to the selected scheme, while constitution and general legal information concern the mutual fund more broadly. The SID is the starting point for detailed scheme information. The standard document directs investors to the SAI for general mutual fund, tax and legal information. The documents complement each other, so the answer does not mean the investor should read one and ignore the other. Check relevant updates and addenda too. A personal account statement serves a different purpose and cannot replace these disclosures. Remember: Use SID for the scheme and SAI for general fund information, and read the relevant current documents together.
Hint, shown before you answer in practice mode: Common mistake: Treating a personal account statement or one disclosure document as a substitute for the complete information needed.
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Q9What is the main role of the Key Information Memorandum supplied with a mutual fund application?
Option A. To replace the scheme and fund documents with a complete legal record
Why it is wrong: KIM is not an exhaustive replacement. Its prescribed wording directs investors to SID and SAI for further details.
Option B. To give a concise scheme summary, with fuller details in SID and SAI — Correct answer
Option C. To record the investor’s completed purchases and redemption history
Why it is wrong: That is the purpose of transaction or account reporting, not the pre-investment summary accompanying an application.
Option D. To certify that SEBI has approved the scheme’s investment merits
Why it is wrong: Filing scheme information with SEBI does not mean the regulator has approved the investment or certified the adequacy of KIM.
Answer: B. KIM provides essential information for the prospective investor and directs the reader to the fuller scheme and fund documents. The application stage requires a compact summary of the information an investor should know before subscribing. The prescribed KIM directs investors to SID and SAI for further scheme, fund, risk and legal details. Its summary format does not eliminate the need to consult those fuller documents and their applicable updates. The prescribed wording also distinguishes filing with SEBI from an approval of the investment’s merits. Remember: Treat KIM as a useful summary, not a replacement for fuller disclosures or proof of regulatory endorsement.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a short official-format document contains every detail or that filing it amounts to SEBI recommending the fund.
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Q10A printed SID states a ₹5,000 minimum for fresh subscriptions. An official addendum changes it to ₹1,000 for fresh subscriptions from 1 October. An investor applies for ₹1,500 on 10 October. With no later change or other issue, how should the minimum be assessed?
Option A. Apply the ₹1,000 minimum from the addendum with the SID — Correct answer
Option B. Apply ₹5,000 until the printed SID is physically replaced
Why it is wrong: An effective applicable addendum is not suspended merely because an older printed SID remains in circulation.
Option C. Require ₹6,000 by adding the SID and addendum amounts
Why it is wrong: The addendum changes the minimum. It does not create an additional minimum to be added to the earlier one.
Option D. Reject the application because two disclosed amounts can never be reconciled
Why it is wrong: The effective date and stated scope explain which amount applies. This is a dated update, not an unresolved simultaneous contradiction.
Answer: A. The addendum is effective for this fresh subscription and must be read with the SID. ₹1,500 meets the resulting minimum. The original printed minimum is ₹5,000. The official addendum replaces it with ₹1,000 for fresh subscriptions from 1 October. The application is a fresh subscription on 10 October, so both the date and the transaction type fall within the update. Read the SID with the applicable addendum and compare ₹1,500 with ₹1,000. The application meets this minimum condition. That conclusion is limited to the stated minimum. It is not a claim that every other purchase requirement has automatically been met. Remember: Match the transaction date and type to the latest applicable addendum rather than relying only on an old printed figure.
Hint, shown before you answer in practice mode: Common mistake: Ignoring an effective addendum or adding a replacement minimum to the figure it supersedes.
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Q11A factsheet lists only a scheme’s ten largest holdings. An investor needs its exposure to one issuer across every security as at the same month-end. Which additional information is most useful?
Option A. The complete issuer-level portfolio from the previous year-end, with security weights.
Why it is wrong: It may be complete but relates to a different date, so it does not establish the requested month-end exposure.
Option B. The full portfolio for the required month-end, with security weights and issuers. — Correct answer
Option C. The broad equity, debt and cash allocation for the required month-end, with percentages.
Why it is wrong: Broad asset-class totals do not identify the individual securities and issuers within each category.
Option D. The ten largest holdings from a more recent month-end factsheet, with issuers.
Why it is wrong: A newer top-ten list is still incomplete and does not describe the requested earlier snapshot.
Answer: B. This provides both the full set of holdings and the correct date for aggregating the issuer’s security exposures. The ten largest holdings may omit smaller securities of the same issuer. The full dated disclosure allows the investor to identify all relevant holdings and add the exposures using a consistent denominator. It establishes a snapshot for the stated date, not a guarantee of the holdings on a later day. Remember: Match the completeness and date of portfolio information to the exposure question.
Hint, shown before you answer in practice mode: Common mistake: Treating a top-ten list as if it disclosed the entire portfolio.
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Q12A fund report defines portfolio turnover as the lower of annual purchases and annual sales divided by average net assets. It reports purchases of ₹90 crore, sales of ₹60 crore and average net assets of ₹150 crore. Using that stated method, what is the turnover?
Option A. 60%
Why it is wrong: This divides purchases of ₹90 crore by ₹150 crore instead of using the lower of purchases and sales.
Option B. 40% — Correct answer
Option C. 100%
Why it is wrong: This adds purchases and sales to obtain ₹150 crore and divides that by average assets. The report does not define its numerator that way.
Option D. 20%
Why it is wrong: This uses the ₹30 crore difference between purchases and sales. Net buying is not the specified turnover numerator.
Answer: B. The lower trading amount is ₹60 crore, which is 40% of average net assets of ₹150 crore. The report defines the numerator as the lower of purchases and sales. The lower amount is ₹60 crore. Divide by the stated average net assets: ₹60 crore ÷ ₹150 crore = 0.40. Convert to a percentage: 0.40 × 100 = 40%. The crore units cancel. This result uses the report’s specified method. It does not mean that 40% of investors redeemed or that the fund earned a 40% return. Remember: Read a ratio’s disclosed calculation method before interpreting its percentage.
Hint, shown before you answer in practice mode: Common mistake: Adding purchases and sales when the stated turnover method uses the lower of the two.
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Q13An investor holds ₹3 lakh in Fund P, which has 20% in Company X, and ₹2 lakh in Fund Q, which has 10% in Company X. The investor adds ₹1 lakh to Fund R, which has 40% in Company X. Assume these percentages and values remain unchanged. What is the combined exposure to Company X as a percentage of the ₹6 lakh portfolio?
Option A. 20.00% — Correct answer
Option B. 23.33%
Why it is wrong: This is the unweighted mean of 20%, 10% and 40%. It assumes equal amounts in the three funds.
Option C. 16.00%
Why it is wrong: This is the old exposure of ₹0.80 lakh divided by the old ₹5 lakh portfolio, before Fund R is added.
Option D. 70.00%
Why it is wrong: This simply adds the three fund-level percentages without applying their different investor weights.
Answer: A. The rupee exposures total ₹1.20 lakh out of ₹6 lakh, giving 20%. Company X exposure through P = ₹3 lakh × 20% = ₹0.60 lakh. Exposure through Q = ₹2 lakh × 10% = ₹0.20 lakh, and through R = ₹1 lakh × 40% = ₹0.40 lakh. Total Company X exposure = ₹0.60 lakh + ₹0.20 lakh + ₹0.40 lakh = ₹1.20 lakh. Combined percentage = ₹1.20 lakh ÷ ₹6 lakh × 100 = 20%. The additional fund raises the exposure from its earlier level despite adding another fund name. Remember: Count underlying exposure in rupees before deciding whether adding another fund improves diversification.
Hint, shown before you answer in practice mode: Common mistake: Assuming three fund names create three independent exposures, or averaging their holdings percentages equally.
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Q14An investor comparing options within the same scheme specifically wants returns retained in the option’s NAV without an IDCW declaration and reinvestment step. Which option matches that preference?
Option A. IDCW payout option
Why it is wrong: The payout option makes a declared IDCW amount available as a payout, contrary to the stated preference.
Option B. IDCW reinvestment option
Why it is wrong: Reinvestment keeps the declared amount invested through an additional allotment. It still involves the declaration and reinvestment step.
Option C. Both IDCW options equally
Why it is wrong: Both IDCW choices depend on an IDCW declaration. They therefore do not match the stated preference.
Option D. Growth option — Correct answer
Answer: D. The growth option matches accumulation without an IDCW declaration-and-reinvestment process. Its NAV can still rise or fall with investment results. The preference excludes both a cash IDCW payment and a declaration followed by reinvestment. The growth option retains the investment outcome within its NAV rather than making an IDCW distribution under that option. IDCW reinvestment can also keep money invested, but it follows a declaration and additional-unit mechanism. That is precisely the extra step the investor wants to avoid. Remember: Keeping money invested through IDCW reinvestment is not the same mechanism as choosing the growth option.
Hint, shown before you answer in practice mode: Common mistake: Assuming “no cash paid out” makes IDCW reinvestment identical to growth in unit and distribution mechanics.
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Q15A scheme advertises a ten-year performance record. Its current fund manager joined nine months ago, and the earlier returns were earned under another manager. Which interpretation is most appropriate when assessing the current manager?
Option A. Treat all ten years as the current manager’s personal record
Why it is wrong: This attributes results from before the manager joined to the current manager.
Option B. Discard the entire scheme history because the manager changed
Why it is wrong: A change of manager does not make the factual scheme history disappear. Its relevance must be assessed rather than dismissed wholesale.
Option C. Separate the scheme’s history from the current manager’s nine-month tenure — Correct answer
Option D. Treat the predecessor’s returns as the benchmark for the current manager
Why it is wrong: A predecessor’s realised performance series is not automatically the scheme’s appropriate market benchmark.
Answer: C. This preserves the scheme record while avoiding unsupported personal attribution to the current manager. The ten-year series belongs to the scheme, including years when a different manager was responsible. Only nine months fall within the current manager’s stated tenure. Attributing the entire series to that manager would misstate the responsibility described. The earlier scheme history may still be useful context. It should be assessed alongside manager tenure, continuity of process and portfolio strategy, rather than automatically transferred or discarded. Remember: Check who managed the scheme during the period shown before attributing performance to an individual.
Hint, shown before you answer in practice mode: Common mistake: Confusing the age of a scheme’s return series with the tenure of the person now managing it.
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Q16For a practice exercise, a debt allocation must contain only AAA-rated bonds and have a value-weighted modified duration no greater than 1.5 years. Fund P holds only AAA-rated bonds and has duration 1 year. Fund Q holds only AAA-rated bonds and has duration 3 years. Fund R holds only A-rated bonds and has duration 0.5 year. Which mix satisfies BOTH conditions? Use the stated weighted-duration method.
Option A. 75% P and 25% Q — Correct answer
Option B. 50% P and 50% Q
Why it is wrong: Its credit condition is met, but the two-year weighted duration exceeds the limit.
Option C. 50% P and 50% R
Why it is wrong: Its weighted duration is 0.75 year, but the allocation to A-rated bonds violates the AAA-only condition.
Option D. 25% Q and 75% R
Why it is wrong: Its weighted duration is 1.125 years, but R again introduces A-rated bonds and fails the credit condition.
Answer: A. The mix is AAA-only and its weighted duration is exactly 1.5 years, which satisfies “no greater than 1.5”. Any allocation to R fails the AAA-only condition because R holds A-rated bonds, even though its duration is low. This eliminates the two mixes containing R. For 75% P and 25% Q, weighted duration = 0.75 × 1 + 0.25 × 3 = 1.5 years. Both funds hold only AAA-rated bonds, so this mix meets both conditions. For 50% P and 50% Q, duration = 0.50 × 1 + 0.50 × 3 = 2 years, which exceeds the limit. Only the 75% P and 25% Q mix passes the two stated tests. Passing this exercise is not proof that the mix is suitable for every investor or free from loss. Remember: Apply all selection conditions separately before identifying the option that passes them together.
Hint, shown before you answer in practice mode: Common mistake: Accepting a lower-duration mix while overlooking a separate credit-quality restriction.
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Q17A hypothetical scheme’s current SID permits equity between 40% and 80% of assets. Its month-end portfolio disclosure shows 55% equity. Which conclusion follows from these two documents alone?
Option A. Equity is required to remain at 55% until the SID changes
Why it is wrong: A dated actual allocation is not itself a fixed rule requiring a SID amendment to move within the range.
Option B. The scheme breached its mandate by not holding 80% equity
Why it is wrong: 80% is the stated maximum, not a compulsory point allocation.
Option C. The reported 55% is within the range, but is not a fixed future allocation — Correct answer
Option D. Every future allocation within the range will have the same risk as 55%
Why it is wrong: Different equity proportions can change the exposure. The documents do not establish identical risk at all allocations.
Answer: C. This correctly separates the permissible range from the dated observation. The disclosed 55% lies between the hypothetical 40% minimum and 80% maximum. It therefore satisfies this particular range at the reported date. That finding alone does not establish compliance with every other restriction. The snapshot is not a promise to retain 55% equity. Allocation can change within the stated mandate, and a different mix can change the risk exposure. Remember: Read permitted limits and actual holdings as different kinds of information.
Hint, shown before you answer in practice mode: Common mistake: Treating one month-end portfolio as a permanent commitment.
VA-149mediumapplication
Q18A switch would lower a ₹5 lakh holding’s annual expense rate from 1.40% to 1.00%, but creates a one-time ₹6,000 cost. For a simplified comparison, keep the expense base at ₹5 lakh and ignore compounding, return differences and all other costs. The investor plans to exit in two years. When do cumulative expense savings first equal the switching cost?
Option A. After 1 year, before the planned exit
Why it is wrong: One year saves ₹2,000, which is less than the ₹6,000 cost.
Option B. After 2 years, at the planned exit
Why it is wrong: Two years saves ₹4,000. That is not yet break-even.
Option C. After 15 years, after the planned exit
Why it is wrong: Fifteen years can arise from misreading ₹5 lakh as ₹1 lakh when calculating the annual saving.
Option D. After 3 years, after the planned exit — Correct answer
Answer: D. Three years of ₹2,000 savings equal ₹6,000 and fall beyond the two-year horizon. Annual rate saving = 1.40% − 1.00% = 0.40 percentage points, or 0.004. With the fixed ₹5,00,000 base, annual saving = ₹5,00,000 × 0.004 = ₹2,000. Simple break-even time = ₹6,000 ÷ ₹2,000 a year = 3 years. After the planned two years, savings total only ₹4,000, which is ₹2,000 below the one-time cost. Under these assumptions the expense saving alone has not recovered the cost by exit. Remember: Compare recurring savings with both the switching cost and the remaining holding period.
Hint, shown before you answer in practice mode: Common mistake: Choosing a lower expense figure without checking how long the one-time cost takes to recover.
VA-150hardnumerical
Scheme Selection: common questions
How many practice questions are there on Scheme Selection?
18 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 8 practice topics for NISM Series V-A, which has 150 questions in total.
Are these real NISM Series V-A questions on Scheme Selection?
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 V-A?
No. NISM applies no negative marking to Series V-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.
Try a paper on all of NISM Series V-A
This is the last unit of Mutual Fund Distributors. The series page runs one quiz across every unit.
Open the NISM Series V-A practice page