Mutual Fund Scheme Selection
10 questions. Each answer is explained.
Question 1 of 10Practice · 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
- Concept & Role of a Mutual Fund4
- 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
- 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 | 10 of 150 marks (6.7%) |
Source: July 2026 Annexure I, Chapter 12: Mutual Fund Scheme Selection
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 10 questions on Mutual Fund Scheme Selection, with answers
Q1Ritu must use her investment for a house deposit in three months and cannot accept a large shortfall. Which proposal most clearly conflicts with that need?
Option A. Keep the essential goal amount separate from a long-term risk portfolio until the deposit
Why it is wrong: Separating goals can prevent a near-term obligation from depending on volatile assets.
Option B. Check capital risk and access to money against the payment date before investing
Why it is wrong: That directly addresses the stated need.
Option C. Invest the entire amount in a volatile sector-equity fund to chase its recent return — Correct answer
Option D. Review product terms and potential exit charges before choosing where to hold the money
Why it is wrong: Those are relevant to cash available on the required date.
Answer: C. A concentrated equity allocation can fluctuate substantially over three months. The proposal exposes an essential dated payment to a risk that the investor has explicitly said she cannot bear. Remember: Match the investment horizon to the time available to recover from losses.
Hint, shown before you answer in practice mode: A short, essential goal has limited room to recover from a market fall.
V-D-059easyapplication
Q2Two otherwise comparable funds have NAVs of ₹10 and ₹100. An investor says the ₹10 fund is automatically cheaper and has more room to grow. What is the correct response?
Option A. The ₹10 fund must earn ten times the percentage return of the other fund
Why it is wrong: The unit denomination does not determine portfolio growth.
Option B. The ₹100 fund is unable to increase further because its NAV is already high
Why it is wrong: There is no such ceiling implied by its current NAV.
Option C. Buying more units automatically increases the percentage return on the investment
Why it is wrong: A larger number of lower-priced units does not itself change the return on total money invested.
Option D. NAV level alone does not determine cheapness or the future percentage return — Correct answer
Answer: D. For a given investment amount, a lower NAV buys more units, but each unit represents a smaller amount of net assets. Suitability and future returns depend on the portfolio and other relevant factors, not the unit’s numerical NAV. Remember: A mutual-fund NAV is not a valuation bargain signal by itself.
Hint, shown before you answer in practice mode: Compare portfolio value changes as percentages of the amount invested.
V-D-060easyconceptual
Q3A client’s agreed plan permits at most 60% of a ₹10 lakh investment pool in equities and requires at least ₹2 lakh to remain readily accessible. Which proposal clearly satisfies both constraints as stated? Assumptions: The reserve and debt allocations have the liquidity and suitability stated in the answer. The 60% ceiling is the client’s agreed limit.
Option A. ₹6 lakh in equity and ₹4 lakh locked in a product beyond the client’s liquidity horizon
Why it is wrong: This respects equity weight but fails the accessible-reserve requirement.
Option B. ₹10 lakh in equity because it may have the highest long-term return over the client’s whole investment horizon
Why it is wrong: Potential return does not override either agreed constraint.
Option C. ₹6 lakh in equity exposure, ₹2 lakh in the required accessible reserve and ₹2 lakh in suitable debt exposure — Correct answer
Option D. ₹8 lakh in equity exposure and ₹2 lakh in the accessible reserve, with nothing in debt
Why it is wrong: This meets the reserve but breaches the 60% equity ceiling.
Answer: C. The first allocation keeps equity at ₹6 lakh/₹10 lakh = 60% and preserves the required ₹2 lakh reserve. Each selected product still needs an appropriate risk and liquidity review. Remember: Suitability can involve several constraints that must all be met.
Hint, shown before you answer in practice mode: Evaluate the equity ceiling and accessible reserve separately.
V-D-061mediumnumerical
Q4An eligible investor asks about a fictional SIF strategy whose disclosed mandate uses concentrated long and short positions and permits substantial interim losses. The investor’s priority is preserving money needed for a near-term medical payment. What is the best assessment? Assumptions: The investor’s eligibility is supplied as a fact. The fictional mandate asserts no actual regulatory threshold or leverage limit.
Option A. A specialised label removes the need for a risk discussion with an eligible investor before any money is invested
Why it is wrong: The actual mandate and risks must still be explained.
Option B. Eligibility alone does not establish suitability. The strategy’s stated risks conflict with this essential near-term need — Correct answer
Option C. The short positions guarantee that capital is preserved, so the medical payment money is safe
Why it is wrong: Short positions do not provide an unconditional capital guarantee.
Option D. Meeting eligibility automatically makes every SIF strategy suitable for that investor’s purpose
Why it is wrong: Eligibility and suitability address different issues.
Answer: B. Even an investor who satisfies entry requirements can have an unsuitable objective or horizon for a strategy. Here, substantial interim losses conflict with preserving an essential near-term payment. Remember: Product eligibility is only one input. Goals, liquidity and loss capacity remain essential.
Hint, shown before you answer in practice mode: Ask whether the investor can bear the strategy’s possible outcome when the money is needed.
V-D-062mediumconceptual
Q5A retiree chooses an IDCW option because she believes it guarantees a fixed monthly income while leaving principal untouched. What should the distributor explain?
Option A. An IDCW label guarantees a fixed monthly amount for life while leaving the principal untouched
Why it is wrong: The label itself does not create such a promise.
Option B. Every distribution is a bonus added without reducing investment value or the scheme’s NAV
Why it is wrong: Cash paid out leaves the scheme’s assets.
Option C. Distributions are not automatically fixed or guaranteed, and paying them reduces the scheme’s assets and NAV — Correct answer
Option D. Growth options cannot ever be redeemed to meet cash needs, so IDCW is the only route to income
Why it is wrong: A growth option can generally be redeemed subject to its terms. The option label does not forbid withdrawals.
Answer: C. The investor needs to understand the actual distribution policy and risks. An IDCW payout is not a promise of an unchanged principal balance plus a fixed recurring income. Remember: Choose cash-flow arrangements using their economics and terms, not their labels.
Hint, shown before you answer in practice mode: Distinguish a distribution choice from a contractual guaranteed-income product.
V-D-063mediumapplication
Q6An investor works for an information-technology company, owns substantial employer shares and already holds a technology-heavy fund. Which issue should be examined before adding another technology-sector fund?
Option A. Only the new fund’s recent ranking
Why it is wrong: A ranking does not capture the household’s existing concentration.
Option B. Only whether the new fund uses a different brand name
Why it is wrong: A different brand can still hold similar underlying exposures.
Option C. Only the number of units the new purchase would create
Why it is wrong: Unit count does not show economic concentration.
Option D. Combined employment and investment exposure to the same sector — Correct answer
Answer: D. The investor may be exposed to the same sector through salary, employer shares and funds. An additional sector allocation could worsen concentration even if the new fund looks attractive in isolation. Remember: Evaluate a fund as part of the investor’s whole financial position.
Hint, shown before you answer in practice mode: Consider risks across the investor’s balance sheet and income, not just one fund.
V-D-064mediumapplication
Q7A fund has the highest return over the last three months. Which conclusion is justified by that fact alone?
Option A. It is necessarily the best choice for every investor, whatever their goal or risk tolerance
Why it is wrong: Suitability differs across goals, horizons and risk capacities.
Option B. Its risks and expenses no longer need to be reviewed because the recent return is so high
Why it is wrong: A recent result does not remove the need for due diligence.
Option C. It led the chosen comparison over that historical period, but future superiority is not established — Correct answer
Option D. Its next three-month return must also be the highest, since recent leaders keep leading
Why it is wrong: Past ranking does not determine future ranking.
Answer: C. The ranking describes a historical comparison for the selected period. Selection should also consider mandate, risk, costs, consistency and the investor’s circumstances. Remember: Do not turn a short performance window into a universal recommendation.
Hint, shown before you answer in practice mode: Keep the inference within the time period and evidence actually observed.
V-D-065easyapplication
Q8An eligible client considers a fictional SIF strategy that accepts redemptions only at quarter-end under its stated terms. The client needs ₹60,000 at each of the next two month-ends and currently holds only ₹50,000 outside the strategy. No other income or borrowing is available. What is the most appropriate action before investing the remaining money? Assumptions: Both payments occur before the next permitted redemption date. The quarterly redemption term is fictional and is not asserted as a rule for all SIFs.
Option A. Keep at least another ₹70,000 accessible outside the strategy to cover the two known payments — Correct answer
Option B. Assume the strategy will grant early redemption without checking its terms
Why it is wrong: The stated cash plan cannot rely on an unconfirmed exception.
Option C. Invest all remaining money because a positive strategy NAV ensures immediate access
Why it is wrong: A valuation does not override the stated redemption schedule.
Option D. Keep only another ₹10,000 accessible because one month’s payment is ₹60,000
Why it is wrong: There are two payments before the next quarter-end, not one.
Answer: A. The two payments total ₹1,20,000. With ₹50,000 already accessible, at least ₹70,000 more must remain available for those payments. A separate emergency buffer would be an additional consideration. Remember: Plan cash availability using redemption terms and payment dates, not NAV alone.
Hint, shown before you answer in practice mode: Add both payments that arise before redemption is available, then subtract accessible cash.
V-D-066hardconceptual
Q9For a simplified comparison, two funds each earn exactly 8% gross annually for two years. Fund A’s annual cost is defined in this exercise as 1 percentage point of return, and Fund B’s as 0.5 percentage points, so their net annual returns are 7% and 7.5%. On ₹1,00,000 invested for both years, how much more does B end with? Ignore taxes and all other differences. Assumptions: The cost deduction in percentage points is an explicitly simplified teaching model, not a universal formula for actual TER accrual. Both funds have identical fixed gross returns for the illustration. No future return is promised.
Option A. ₹5,000.00
Why it is wrong: This mistakes a 0.5-percentage-point annual difference for five percentage points.
Option B. ₹500.00
Why it is wrong: This is the first-year difference only and ignores the second year and compounding.
Option C. ₹1,000.00
Why it is wrong: This adds two simple ₹500 differences without compounding.
Option D. ₹1,072.50 — Correct answer
Answer: D. B ends at ₹1,00,000 × 1.075² = ₹1,15,562.50. A ends at ₹1,00,000 × 1.07² = ₹1,14,490. The difference is ₹1,072.50 under the expressly simplified cost model. Remember: Recurring cost differences can compound, but comparisons must hold other assumptions constant.
Hint, shown before you answer in practice mode: Compound each supplied net annual return separately for two years.
V-D-067hardnumerical
Q10A client has money for a long-term retirement goal and a separate emergency reserve. Why should the distributor identify these as separate needs before selecting schemes?
Option A. Emergency money should always be invested in whichever fund has the highest recent return
Why it is wrong: Immediate accessibility and shortfall risk matter for emergency needs.
Option B. All money owned by one person must always use the same scheme
Why it is wrong: One investor can have several goals requiring different allocations.
Option C. They have different liquidity needs and capacities to tolerate short-term market losses — Correct answer
Option D. Long-term goals never need a risk review
Why it is wrong: A longer horizon does not eliminate the need for suitability and risk assessment.
Answer: C. A long-term goal may allow a different risk allocation from money that must be available without notice. Separating the purposes makes the scheme-selection decision more coherent. Remember: Assess suitability for each goal and money bucket, not only for the investor in general.
Hint, shown before you answer in practice mode: The same investor can have different requirements for different portions of money.
V-D-068easyapplication
Mutual Fund Scheme Selection: common questions
How many practice questions are there on Mutual Fund Scheme Selection?
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 22 practice topics for NISM Series V-D, which has 150 questions in total.
Are these real NISM Series V-D questions on Mutual Fund 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.
How much of the NISM Series V-D exam is Mutual Fund Scheme Selection?
NISM's published syllabus outline gives it 10 of the paper's 150 marks, or 6.7% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 12: Mutual Fund Scheme Selection
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.
Basics of Derivatives
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