Skip to content
Is the market open today? Today
SearchCtrl K
EnglishHinglish
My learning
Is the market open today? Today

Find your next idea

Unit study guide · NISM Series X-A

Mutual Funds

25 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

A scheme has assets of ₹52 crore, liabilities of ₹2 crore and 2 crore units outstanding. What is its NAV per unit?

₹25 correctly divides net assets by outstanding units. Net assets = ₹52 crore − ₹2 crore = ₹50 crore. The liability is deducted once from the gross asset figure. NAV per unit = ₹50 crore ÷ 2 crore units = ₹25 per unit. The crore factors cancel because both numerator and denominator use that scale. This is an accounting value per unit at the stated valuation point. The calculation does not establish a future return or whether the scheme is suitable for a particular investor. Remember: Subtract scheme liabilities before dividing by the unit count.

Hint Common mistake: Mixing rupees, crore rupees and crore units, or using gross rather than net assets.

X-A-126

From the practice bank · 2

A scheme has net assets of ₹50 crore and 2 crore units outstanding, giving NAV ₹25. It receives a ₹50,000 subscription and issues units at exactly ₹25, with no charges, valuation movement or other cash flow. What is NAV immediately after issuing the new units?

₹25 reflects the matching increases in assets and units. Units issued = ₹50,000 ÷ ₹25 = 2,000 units. Net assets increase from ₹50,00,00,000 to ₹50,00,50,000. Outstanding units increase from 2,00,00,000 to 2,00,02,000. Dividing ₹50,00,50,000 by 2,00,02,000 still gives ₹25. The fresh money increases the size of the fund, not the value of each existing unit. Ignoring the new units would falsely treat someone else’s subscription as an investment gain for existing investors. Remember: Fair-value unit issuance changes fund size without creating a windfall for existing holders.

Hint Common mistake: Counting subscription inflows as portfolio investment returns.

X-A-127

From the practice bank · 3

An investor redeems 1,500 units at the applicable NAV of ₹40. For this hypothetical redemption, the exit load is exactly 1% of the gross redemption value. There are no other deductions. How much cash is payable?

₹59,400 deducts the stated ₹600 load from gross proceeds. Gross redemption value = 1,500 units × ₹40 = ₹60,000. Exit load = 1% × ₹60,000 = ₹600. Net payment = ₹60,000 − ₹600 = ₹59,400. The 1% is a scenario term, not a statement about the current load of any real fund. The question already supplies the applicable NAV and does not require deciding a transaction cut-off or tax treatment. Remember: Identify the specified load base, compute gross value and then apply the deduction.

Hint Common mistake: Treating an assumed load as a universal rule for mutual funds.

X-A-128

From the practice bank · 4

A scheme has assets of ₹1,00,00,000 and 5,00,000 units. An expense of ₹20,000 has just been recognised as payable but is not yet paid. It is the only liability and is not already deducted from the stated assets. What is NAV after recognising this expense?

₹19.96 deducts the ₹20,000 expense once through the liability. Net assets = ₹1,00,00,000 − ₹20,000 = ₹99,80,000. The asset figure is gross of this newly recognised liability. NAV = ₹99,80,000 ÷ 5,00,000 units = ₹19.96. The decrease from ₹20 is ₹20,000 ÷ 5,00,000 = ₹0.04 per unit. When the payable is later settled, cash and the liability both fall by ₹20,000. That settlement alone would not create a second expense or a second NAV reduction. Remember: Recognise an expense once. Later payment of the payable is not another identical expense.

Hint Common mistake: Waiting for cash payment before considering an accrued liability, or double-counting it.

X-A-129

From the practice bank · 5

An investor puts ₹10,000 into Fund A at NAV ₹10 and a separate ₹10,000 into Fund B at NAV ₹50. During the same period both NAVs rise exactly 10%, with no distributions, charges or further transactions. Which ending-value comparison is correct?

Both ₹11,000 follows from the same starting investment and 10% increase. Fund A: ₹10,000 ÷ ₹10 = 1,000 units. Its NAV rises to ₹11, so value becomes 1,000 × ₹11 = ₹11,000. Fund B: ₹10,000 ÷ ₹50 = 200 units. Its NAV rises to ₹55, so value becomes 200 × ₹55 = ₹11,000. Both investments gain ₹1,000 because both started with the same capital and experienced the same stipulated percentage return. These assumptions do not assert that two real schemes will have equal returns. Remember: Compare percentage performance, portfolio characteristics and costs—not the nominal NAV alone.

Hint Common mistake: Assuming that more units necessarily mean more profit.

X-A-130

From the practice bank · 6

A debt fund values its fixed-rate bonds at current market prices. Market yields rise, and those bond prices fall. The issuers continue to pay every contractual coupon on time. With other assets, liabilities and units unchanged, which conclusion follows?

A NAV decline is consistent with the price falls despite punctual coupons. The question specifies current market-price valuation. Lower bond market prices reduce the value of the fund’s assets even when each issuer performs its payment promises. With liabilities and unit count unchanged, lower net assets mean a lower NAV per unit. Future opportunities to reinvest at higher yields do not cancel the stated current valuation decline. The result is not proof of default and does not mean all debt funds respond equally. Holdings, duration, cash flows and valuation assumptions determine the size of the effect. Remember: “Fixed income” describes contractual cash flows, not a promise that a fund’s NAV never falls.

Hint Common mistake: Equating no default with no change in market value.

X-A-131

From the practice bank · 7

A hypothetical scheme permits subscriptions and redemptions with the fund only during specified recurring transaction windows, rather than continuously. Which scheme-structure label most directly describes that pattern?

An interval scheme is the label matching specified recurring transaction windows. The scheme is not continuously open for the stated transactions, so describing its access as continuously open-ended would contradict the premise. The repeated windows identify the interval pattern. A single final redemption date would be different from recurring transaction opportunities. The question describes access to the fund, not secondary-market trading. Actual dates, conditions and must be read from the relevant scheme terms. None are invented here. Remember: Distinguish transactions with a fund from exchange trading in its units.

Hint Common mistake: Assuming that a professionally managed fund always provides continuous redemption access.

X-A-132

From the practice bank · 8

An ETF’s published NAV is ₹100 per unit. At the moment of purchase, an exchange sell quote of ₹101.20 is available for the investor’s entire order of 200 units, and all 200 execute at that quote. Ignoring costs, how much does the investor pay?

₹20,240 correctly multiplies executed price by executed quantity. The question specifies both available quantity and the actual execution: 200 units at ₹101.20 each. Cash paid = 200 × ₹101.20 = ₹20,240. This is ₹240 more than 200 units valued at the published ₹100 NAV. The quote is 1.2% above that NAV because (₹101.20 − ₹100) ÷ ₹100 = 1.2%. The example does not assert a universal ETF premium or that the same quote is always available. Remember: Keep an ETF’s NAV and the actual exchange execution price distinct.

Hint Common mistake: Assuming every exchange trade must occur exactly at the published NAV.

X-A-133

From the practice bank · 9

Two hypothetical fund accounts each start at ₹1,00,000 and each earns a gross gain of ₹10,000 over the period. At period-end, Account A is charged ₹1,000 and Account B ₹2,000. No other flows or charges occur. How much higher is A’s ending value?

₹1,000 is the difference between the two charges and between ending values. A ends at ₹1,00,000 + ₹10,000 − ₹1,000 = ₹1,09,000. B ends at ₹1,00,000 + ₹10,000 − ₹2,000 = ₹1,08,000. The difference is ₹1,000. This deliberately uses fixed end-of-period rupee charges. It is not a prescribed total-expense-ratio calculation or an assumption that two different real funds will earn identical gross returns. Remember: When gross performance is held equal, the expense difference changes what the investor retains.

Hint Common mistake: Confusing a controlled cost comparison with a forecast of real fund performance.

X-A-134

From the practice bank · 10

For this comparison, a scheme’s direct and regular plans are stated to use the same portfolio and objective. The regular plan includes a distribution expense that the direct plan does not. All other expenses are equal. Which conclusion is justified by those facts?

The conclusion keeps the stated expense difference separate from the shared investment risks. With all other expenses equal, adding distribution expense makes the regular plan’s stated total expense higher in this comparison. Lower expenses leave more value after costs for an otherwise identical gross outcome. They do not remove exposure to a fall in the common portfolio. The facts do not specify actual expense rates, adviser fees outside the plans, future returns or which service arrangement best fits an investor. This is a controlled comparison, not a universal personal recommendation. Remember: Distinguish a plan’s expense structure from the risk and objective of its portfolio.

Hint Common mistake: Assuming a lower-cost plan is a risk-free or universally suitable investment.

X-A-135

From the practice bank · 11

A fund of funds invests 60% of its net assets in Fund A and 40% in Fund B, with no cash or borrowing. Fund A holds 80% equity and Fund B holds 20% equity. Treat all percentages as simultaneous net-asset weights and ignore other exposures. What is the fund of funds’ look-through equity weight?

56% correctly combines the two weighted equity exposures. The contribution from Fund A is 60% × 80% = 48% of the fund of funds’ net assets. The contribution from Fund B is 40% × 20% = 8%. Total equity exposure is 48% + 8% = 56%. The remaining 44% is non-equity exposure under the stated simplified allocations. This is portfolio arithmetic, not a claim that a specific legal or tax category follows from the result. Remember: Multiply each fund allocation by its underlying exposure before adding the contributions.

Hint Common mistake: Using an unweighted average when the top-level portfolio weights differ.

X-A-136

From the practice bank · 12

An investor makes three SIP contributions of ₹12,000 each at NAVs ₹40, ₹30 and ₹24 respectively. There are no charges or distributions. What is the average acquisition cost per unit across the three purchases?

₹30 divides the complete investment by the complete unit count. Units purchased are ₹12,000 ÷ ₹40 = 300. ₹12,000 ÷ ₹30 = 400. And ₹12,000 ÷ ₹24 = 500. Total units = 300 + 400 + 500 = 1,200. Total investment = ₹36,000. Average acquisition cost = ₹36,000 ÷ 1,200 = ₹30. Lower NAVs bought more units in this example. That arithmetic does not guarantee a profit: the eventual value still depends on the NAV when holdings are valued or redeemed. Remember: For equal-cash systematic purchases, calculate units first and average cost second.

Hint Common mistake: Claiming that averaging acquisition cost eliminates market risk.

X-A-137

From the practice bank · 13

An investor holds 1,000 units at NAV ₹20. A systematic withdrawal pays ₹4,000 by redeeming units at that NAV, with no charges or other changes. How many units remain immediately afterwards?

800 deducts the 200 redeemed units from the original 1,000. Units redeemed = ₹4,000 ÷ ₹20 = 200. The holding falls from 1,000 units to 800 units. The remaining units are worth 800 × ₹20 = ₹16,000. Adding the ₹4,000 cash withdrawal gives ₹20,000, equal to the pre-withdrawal holding value under the unchanged-NAV assumptions. The transaction alone creates no profit. Repeated withdrawals can consume capital. Their sustainability depends on withdrawals, returns and the investment horizon. Remember: An SWP payment funded by selling units can include return of the investor’s capital.

Hint Common mistake: Treating every regular cash withdrawal as interest or a dividend.

X-A-138

From the practice bank · 14

Under a hypothetical systematic transfer, 100 units of Source Fund are redeemed at NAV ₹30 and all resulting cash buys Destination Fund units at NAV ₹50. Ignore taxes, loads and timing differences. How many Destination Fund units are purchased?

60 converts the source units to cash and then cash into destination units. Source redemption produces 100 units × ₹30 = ₹3,000. No deduction is assumed in this exercise. Destination units acquired = ₹3,000 ÷ ₹50 = 60 units. The value transferred is ₹3,000 even though the unit count falls from 100 to 60. Different unit counts do not themselves create a gain or loss. In actual transactions, applicable charges, taxes and NAV rules need separate verification. The question expressly excludes those issues. Remember: Follow a switch or transfer through its cash amount before calculating destination units.

Hint Common mistake: Comparing unit counts across funds as though each unit has the same value.

X-A-139

From the practice bank · 15

An investor owns 1,000 units at NAV ₹20 immediately before a cash distribution of ₹2 per unit. The distribution is paid from scheme assets. Units remain unchanged and no other assets, liabilities or prices change. What is the combined value of the remaining holding and distribution cash immediately afterwards?

₹20,000 accounts for both the reduced holding and the received cash. The investor receives 1,000 × ₹2 = ₹2,000 cash. The corresponding NAV decrease is ₹2, taking NAV from ₹20 to ₹18. The remaining units are worth 1,000 × ₹18 = ₹18,000. Holding plus cash totals ₹18,000 + ₹2,000 = ₹20,000. That matches the original 1,000 × ₹20 holding value. Earlier investment gains or future performance are separate from this mechanical distribution effect. The payment alone is not an extra return. Remember: Assess total value after a distribution, including both the fund holding and cash received.

Hint Common mistake: Treating a distribution as free additional wealth without the associated NAV adjustment.

X-A-140

From the practice bank · 16

An investor owns 1,000 eligible units and receives a distribution of ₹2 per unit. The entire distribution is reinvested at the stated post-distribution NAV of ₹18, with fractional units permitted and no charges. How many additional units are acquired, rounded to four decimal places?

111.1111 is the correctly rounded additional allotment. Distribution cash available = 1,000 × ₹2 = ₹2,000. Additional units = ₹2,000 ÷ ₹18 = 111.111111… units, rounded to 111.1111. Total units after reinvestment would be 1,111.111111…, but the question asks only for the increase. Fractional units are expressly allowed. The calculation therefore does not require rounding up to a whole unit or inventing extra cash. Keep full precision until the requested final rounding. Remember: Use the post-distribution reinvestment NAV and distinguish new units from total units.

Hint Common mistake: Dividing by the pre-distribution NAV or rounding intermediate units prematurely.

X-A-141

From the practice bank · 17

A fund unit is purchased for ₹20. By the end of the holding period its NAV is ₹21 and a cash distribution of ₹2 per original unit has been received and not reinvested. There are no other cash flows or costs. Ignoring interest on the distribution, what is the holding-period total return?

15% includes the NAV movement and cash distribution once each. NAV gain = ₹21 − ₹20 = ₹1 per unit. Add the ₹2 distribution to obtain total economic gain of ₹3. Holding-period total return = ₹3 ÷ ₹20 × 100 = 15%. The NAV-gain component is 5%, and the distribution component relative to original cost is 10%. No length of the holding period is specified. Therefore 15% is not presented as an . It is also not a forecast of another period’s distribution or performance. Remember: Compare complete cash flows and ending value with the original cost.

Hint Common mistake: Mistaking a distribution yield or NAV-only change for total investment return.

X-A-142

From the practice bank · 18

Over a year, an index fund returns 11.0% and its benchmark returns 12.5%. What is the fund's tracking difference?

−1.5 percentage points is the stated fund-minus-benchmark gap. Tracking difference = 11.0% − 12.5% = −1.5 percentage points. The order of subtraction is expressly stated. Dividing the gap by benchmark return would answer a relative-ratio question instead. Adding the two returns would not measure a gap at all. One annual observation does not establish tracking error, which concerns variation in the return differences over a series. The calculation also does not identify how much of the gap arose from expenses versus other factors. Remember: Keep the sign, the percentage-point unit and the definition of the tracking measure explicit.

Hint Common mistake: Calling a single-period return shortfall tracking error or reversing the sign.

X-A-143

From the practice bank · 19

A fund’s mandate is to replicate a stated market index, subject to expenses and implementation differences. Which management action most closely fits that passive mandate?

Benchmark-aligned maintenance follows the stated tracking objective. Keeping exposures aligned with the stated benchmark supports the replication objective. Adjustments can be necessary even though the approach is described as passive. Stock selection based primarily on expected outperformance or discretionary movement entirely into cash introduces active decisions that can materially depart from the given mandate. The question specifies ordinary replication, not a leveraged-index objective. Tracking also does not promise exact equality after every expense or removal of the index’s market risk. Remember: Passive means benchmark-directed management, not no operational decisions and not no investment risk.

Hint Common mistake: Assuming that an index mandate authorises any strategy labelled market-related.

X-A-144

From the practice bank · 20

An investor holds 1,000 units. A hypothetical instruction says: when the holding value first reaches at least ₹1,10,000, redeem 10% of the units then held. The trigger is evaluated and executed at NAV ₹112, with no charges or execution delay. What cash is generated?

₹11,200 follows the triggered quantity rule at the stated execution NAV. At NAV ₹112 the holding is worth 1,000 × ₹112 = ₹1,12,000, which meets the at-least-₹1,10,000 condition. The instruction redeems 10% of 1,000 units, or 100 units. At the stated execution NAV, cash generated is 100 × ₹112 = ₹11,200. The question removes execution delay and costs to isolate the rule. An actual trigger should not be assumed to guarantee the threshold price or eliminate losses without inspecting its terms. Remember: Read a trigger’s activation condition separately from the amount or units it instructs you to transact.

Hint Common mistake: Using a threshold value as the execution amount when the instruction uses a different base.

X-A-145

From the practice bank · 21

CASE: A fund's NAV is ₹24. It pays a cash distribution of ₹2 a unit from its assets, and nothing else changes. What is the NAV just after?

The payout leaves the fund, so NAV falls by ₹2. ₹24 − ₹2 = ₹22. Remember: Use the NAV immediately before a distribution, not the investor’s historical purchase price.

Hint Common mistake: Adding a distribution to both NAV and the investor’s separate cash balance.

X-A-146

From the practice bank · 22

CASE: An investor holds 5,000 units at NAV ₹24. The fund pays ₹2 a unit in cash, so NAV falls to ₹22. What are the investor's units plus cash worth just after?

Units = 5,000 × ₹22 = ₹1,10,000. Cash = 5,000 × ₹2 = ₹10,000. Total = ₹1,20,000, the same as before the payout. Remember: Track every location of value while keeping the observation date consistent.

Hint Common mistake: Combining a current cash payout with an unadjusted earlier NAV.

X-A-147

From the practice bank · 23

CASE: An investor holding 5,000 units receives ₹2 a unit and reinvests it all at the new NAV of ₹22. How many extra units does the investor get, to four decimals?

Cash = 5,000 × ₹2 = ₹10,000. Extra units = ₹10,000 ÷ ₹22 = 454.5455. Remember: The relevant NAV is the one attached to the reinvestment transaction, not the original investment.

Hint Common mistake: Mixing historical acquisition price with a later unit allotment.

X-A-148

From the practice bank · 24

CASE: An investor kept a ₹10,000 distribution in cash and still holds 5,000 units. All units are redeemed at NAV ₹25 with a 1% exit load. What is the investor's total cash afterwards?

Redemption = 5,000 × ₹25 × 0.99 = ₹1,23,750. Add the ₹10,000 kept earlier, giving ₹1,33,750. Remember: Apply charges only to their stated base and distinguish ending wealth from net profit.

Hint Common mistake: Charging a final redemption load on cash that was never reinvested.

X-A-149

From the practice bank · 25

CASE: An investor paid ₹1,00,000 for 5,000 units. After reinvesting a distribution, the investor holds 5,454.5455 units. All are redeemed at NAV ₹25 with a 1% exit load. What is the holding-period return?

Proceeds = 5,454.5455 × ₹25 × 0.99 = ₹1,35,000. Return = ₹35,000 ÷ ₹1,00,000 = 35%. Remember: After reinvestment, distribution value is represented by extra units, not both extra units and retained cash.

Hint Common mistake: Double-counting a reinvested distribution or labelling a holding-period return annualised.

X-A-150

Read the related lesson

Liquidity

Liquidity describes how easily a given quantity can be traded.

Read more
CAGR (Compound Annual Growth Rate)

CAGR expresses the change between a starting value and an ending value as a single constant annual rate.

Read more