Concept & Role of a Mutual Fund
4 questions. Each answer is explained.
Question 1 of 4Practice · Series V-D — Mutual Fund - Specialized Investment Fund Distributors
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Learn these topics
More units in NISM Series V-D
- The Investment Landscape5
- Legal Structure of Mutual Funds in India3
- Legal and Regulatory Framework7
- Scheme Related Information7
- Fund Distribution and Channel Management Practices4
- Net Asset Value, Total Expense Ratio and Pricing of Units5
- Taxation3
- Investor Services10
- Risk, Return and Performance of Funds5
- Mutual Fund Scheme Performance5
- Mutual Fund Scheme Selection10
- Basics of Derivatives10
- Understanding Index5
- Introduction to Forwards and Futures15
- Introduction to Options13
- Strategies Using Equity Futures and Equity Options9
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets6
- Interest Rate Derivatives2
- Exchange Traded Interest Rate Futures10
- Exchange Traded Interest Rate Options6
- Strategies Using Interest Rate Derivatives6
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 10% · 0.1 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | 4 of 150 marks (2.7%) |
Source: July 2026 Annexure I, Chapter 2: Concept & Role of a Mutual Fund
NISM Series V-D Mutual Fund - Specialized Investment Fund Distributors
Exam rules read on NISM's site on 30 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 30 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 4 questions on Concept & Role of a Mutual Fund, with answers
Q1Which description best captures the basic economic role of a mutual fund?
Option A. It allows each unitholder to choose the scheme’s daily trades independently
Why it is wrong: The fund manager makes portfolio decisions within the scheme mandate.
Option B. It converts all market-linked investments into guaranteed deposits
Why it is wrong: Pooling does not remove investment risk or create a deposit guarantee.
Option C. It pools investors’ money in a portfolio managed according to a stated investment objective — Correct answer
Option D. It gives every investor direct ownership of an identical number of each underlying share
Why it is wrong: Investors hold fund units. Individual security ownership is not allocated to each investor in that way.
Answer: C. A mutual fund brings money together and invests it under a defined mandate. Each investor’s units represent an interest in the scheme’s net assets, subject to its terms. Remember: Pooling and professional management do not mean guaranteed outcomes.
Hint, shown before you answer in practice mode: Think of a common portfolio represented by units.
V-D-006easyconceptual
Q2Which feature generally distinguishes an open-ended mutual fund scheme from a close-ended scheme?
Option A. A guarantee that its NAV never falls below the price at which the units were bought
Why it is wrong: Both structures can face investment losses.
Option B. A rule requiring all units to trade only through a stock exchange after the offer
Why it is wrong: Open-ended schemes normally offer ongoing transactions with the fund. Exchange-only trading is not the defining feature.
Option C. A fixed maturity that prevents every redemption until that date, with no exceptions
Why it is wrong: A fixed maturity is characteristic of a close-ended structure.
Option D. Ongoing purchase and redemption with the fund at applicable prices, subject to its terms — Correct answer
Answer: D. Open-ended schemes generally remain available for subscription and redemption under their disclosed terms. A close-ended scheme has a specified tenure, and exchange trading may provide an exit during that tenure. Remember: Fund structure affects transaction access and liquidity.
Hint, shown before you answer in practice mode: The distinction concerns ongoing access to units, not a promise about returns.
V-D-007easyconceptual
Q3A scheme states that it seeks to replicate a broad-market index. Its return is slightly below the index after expenses. Which explanation is most reasonable?
Option A. A passive scheme has no market risk at all because it simply follows an index
Why it is wrong: It remains exposed to the market represented by the index.
Option B. Expenses and implementation differences can cause a passive fund to lag its index — Correct answer
Option C. A lower fund return than the index proves that the benchmark itself must be wrong
Why it is wrong: A tracking difference can arise even when the benchmark is calculated correctly.
Option D. Every passive scheme is required by rule to beat its index after paying expenses
Why it is wrong: Replication is an objective. Consistent outperformance is not promised.
Answer: B. An index calculation does not incur the same fund expenses and trading frictions as an actual portfolio. A passive fund can therefore have a tracking difference while still pursuing its replication mandate. Remember: Passive management limits active selection. It does not remove costs or market risk.
Hint, shown before you answer in practice mode: Separate the benchmark’s calculation from the costs of implementing a portfolio.
V-D-008mediumconceptual
Q4A rules-based fund weights stocks by a single value factor and currently has a large exposure to one industry. Which statement is most appropriate?
Option A. Every smart-beta portfolio has the same weights as a market-capitalisation index
Why it is wrong: Alternative rules can produce substantially different weights.
Option B. A formula-based selection method eliminates concentration risk
Why it is wrong: A rule can systematically concentrate the portfolio.
Option C. The large industry exposure guarantees a higher return
Why it is wrong: Concentration may increase risk without guaranteeing a reward.
Option D. The rules-based method can still create factor and industry concentration risk — Correct answer
Answer: D. Smart-beta strategies use specified selection or weighting rules. Those rules can lead to exposures that differ from a broad market and must be examined for suitability. Remember: Look through the strategy label to the risks created by its actual portfolio.
Hint, shown before you answer in practice mode: A systematic method can be consistent and still produce concentrated exposures.
V-D-009mediumconceptual
Concept & Role of a Mutual Fund: common questions
How many practice questions are there on Concept & Role of a Mutual Fund?
4 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 22 practice topics for NISM Series V-D, which has 150 questions in total.
Are these real NISM Series V-D questions on Concept & Role of a Mutual Fund?
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 V-D exam is Concept & Role of a Mutual Fund?
NISM's published syllabus outline gives it 4 of the paper's 150 marks, or 2.7% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 2: Concept & Role of a Mutual Fund
Does negative marking apply to NISM Series V-D?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. 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.
Legal Structure of Mutual Funds in India
3 questions on Legal Structure of Mutual Funds in India. Its quiz opens on that unit.
Open Legal Structure of Mutual Funds in IndiaPaper Trading Try it on the practice trading desk