Unit study guide · NISM Series II-B
Basics of Mutual Funds
14 questions in this unit
What this unit covers
- What is a mutual fund unit?
- What is the main benefit of pooling money in a mutual fund?
- Which fund type generally permits ongoing purchase and redemption of units from the scheme?
- What does Assets under Management represent for a scheme?
- A scheme has net assets of ₹24 lakh and 1.2 lakh units. What is its NAV?
- Which expense measure reflects ongoing operating costs relative to scheme assets?
- Why does a direct plan generally have a lower expense burden than its regular counterpart?
- An investor places ₹5,000 into a scheme at NAV ₹25 with no applicable charges. How many units arise?
- If outstanding units stay constant but scheme liabilities rise, what happens to NAV?
- A scheme starts with 1,000 units at NAV ₹10. It issues 100 more at ₹10 and markets stay unchanged. What is NAV just after the issue?
- Two investors hold units in the same scheme, one direct and one regular. Which statement is generally correct?
- What is unit capital in a mutual fund?
- What does the scheme's investment objective primarily describe?
- A scheme's gross assets are ₹80 lakh, liabilities ₹4 lakh and units 4 lakh. What is NAV?
Key ideas
From the practice bank · 1
What is a mutual fund unit?
A mutual fund unit represents an investor's share of a pooled scheme's net assets.
Hint Think about fractional ownership of pooled assets.
II-B-055From the practice bank · 2
What is the main benefit of pooling money in a mutual fund?
Pooling allows investors to access a managed portfolio with diversification opportunities.
Hint Think about diversification and shared management.
II-B-056From the practice bank · 3
Which fund type generally permits ongoing purchase and redemption of units from the scheme?
An open-ended scheme generally permits continuous subscriptions and redemptions under its terms.
Hint Look for ongoing issue and redemption at applicable NAV.
II-B-057From the practice bank · 4
What does Assets under Management represent for a scheme?
AUM measures the value of the assets managed by the mutual fund scheme.
Hint Consider the size of the managed portfolio.
II-B-058From the practice bank · 5
A scheme has net assets of ₹24 lakh and 1.2 lakh units. What is its NAV?
NAV equals ₹24,00,000 ÷ 1,20,000 = ₹20 per unit.
Hint Divide net assets by total outstanding units.
II-B-059From the practice bank · 6
Which expense measure reflects ongoing operating costs relative to scheme assets?
Total Expense Ratio expresses scheme expenses as a proportion of relevant assets.
Hint Think about annual running costs charged to a scheme.
II-B-060From the practice bank · 7
Why does a direct plan generally have a lower expense burden than its regular counterpart?
A direct plan avoids the distribution commission cost embedded in a regular plan's expenses.
Hint Think about the distribution cost component.
II-B-061From the practice bank · 8
An investor places ₹5,000 into a scheme at NAV ₹25 with no applicable charges. How many units arise?
Units allocated equal ₹5,000 ÷ ₹25 = 200 units.
Hint Link the amount invested to the price of one unit.
II-B-062From the practice bank · 9
If outstanding units stay constant but scheme liabilities rise, what happens to NAV?
Higher liabilities reduce net assets and therefore reduce NAV when unit count is unchanged.
Hint Calculate the effect on net assets before dividing by units.
II-B-063From the practice bank · 10
A scheme starts with 1,000 units at NAV ₹10. It issues 100 more at ₹10 and markets stay unchanged. What is NAV just after the issue?
Assets rise from ₹10,000 to ₹11,000 and units from 1,000 to 1,100, so NAV remains ₹10.
Hint Include subscription cash as well as additional units.
II-B-064From the practice bank · 11
Two investors hold units in the same scheme, one direct and one regular. Which statement is generally correct?
Direct and regular plans can have different NAVs due to expense differences within the same scheme.
Hint Separate plan expenses from the investment portfolio.
II-B-065From the practice bank · 12
What is unit capital in a mutual fund?
Unit capital represents the issued units of the mutual fund scheme at their relevant nominal measure.
Hint Focus on units issued to investors.
II-B-066From the practice bank · 13
What does the scheme's investment objective primarily describe?
The scheme objective states the goal and investment approach disclosed to investors.
Hint Think about why the fund invests in certain assets.
II-B-067From the practice bank · 14
A scheme's gross assets are ₹80 lakh, liabilities ₹4 lakh and units 4 lakh. What is NAV?
Net assets are ₹80 lakh − ₹4 lakh = ₹76 lakh, and ₹76 lakh ÷ 4 lakh units gives NAV ₹19.
Hint Use assets net of liabilities before working out unit value.
II-B-068