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Unit study guide · NISM Series V-A

Accounting, Valuation and Taxation

19 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

A scheme has assets valued at ₹520 crore, total liabilities of ₹20 crore and 25 crore units outstanding. What is its NAV per unit?

₹500 crore of net assets divided by 25 crore units gives ₹20 per unit. Net assets = total assets − total liabilities = ₹520 crore − ₹20 crore = ₹500 crore. NAV per unit = ₹500 crore ÷ 25 crore units = ₹20 per unit. The crore factor cancels between the numerator and denominator. Liabilities are subtracted once. Remember: Use net assets, not gross assets, when calculating NAV.

Hint Common mistake: Ignoring liabilities or confusing rupees per unit with a total corpus amount.

VA-003

From the practice bank · 2

An investor bought 1,000 units at ₹25 per unit. All units are redeemed at an applicable NAV of ₹31 with a 1% exit load on their redemption value. Ignoring taxes and other charges, what amount is received?

This answer deducts the ₹310 load from the ₹31,000 redemption value. Gross redemption value = 1,000 × ₹31 = ₹31,000. Exit load = 1% × ₹31,000 = ₹310. Net amount received = ₹31,000 − ₹310 = ₹30,690. The ₹25 purchase NAV is relevant to the original cost, not the base for the stated exit load. Remember: Distinguish redemption proceeds from investment profit.

Hint Common mistake: Charging an exit load on the purchase cost or reporting only the gain.

VA-004

From the practice bank · 3

An investor calculates a 10% one-year return from a growth plan’s published NAVs. Its TER was 1.5% during that year. What further adjustment is required for the same recurring scheme expenses?

No second deduction is needed for costs already included in the NAV calculation. Recurring expenses reduce the net assets from which NAV is calculated. A return calculated from published NAVs therefore already reflects those expenses. Deducting the same costs again double-counts them. This does not establish the investor’s after-tax or after-exit-load return. Those are separate issues and are excluded here. Remember: Before subtracting an expense, check whether the stated return is gross or already net of that expense.

Hint Common mistake: Applying “gross return minus expenses” to a return that is already calculated from net NAVs.

VA-005

From the practice bank · 4

For the same scheme and option, which comparison of its direct and regular plans is correct?

This answer correctly separates the common portfolio from the differing costs and plan NAVs. The direct plan does not carry the distribution commission expense of the regular plan. The different expenses lead to separately calculated NAVs. Choosing the direct plan does not, by itself, replace the underlying portfolio with a lower-risk one. Remember: Compare the same scheme and option: the portfolio is common, while plan costs and NAVs differ.

Hint Common mistake: Treating a direct plan as either a different portfolio or a plan with no operating expenses at all.

VA-006

From the practice bank · 5

For tax year 2026–27, qualifying equity-oriented mutual fund long-term gains fall under Section 198 of the Income-tax Act, 2025. What base rate applies to the portion above the annual ₹1,25,000 threshold? Assume no unused basic exemption and ignore surcharge and cess.

Section 198(2)(a), in the official Year 2026 version inspected, applies 12.5% to qualifying long-term gains exceeding ₹1,25,000. The question already establishes that the fund units and transfer qualify for Section 198. For fund units, the inspected section includes an STT-on-transfer condition. Apply the annual ₹1,25,000 threshold to the qualifying aggregate gains, not a separate allowance to every scheme. The remaining qualifying gains attract the 12.5% base rate in the Year 2026 section. The question removes any unused basic exemption and does not ask for surcharge or cess. This is a rate question, not a calculation of the investor’s entire annual tax bill. Remember: Use the rate, threshold and eligibility conditions for the tax year stated in the question.

Hint Common mistake: Remembering a rate without checking the transfer period, qualifying asset and annual threshold.

VA-010

From the practice bank · 6

An equity-oriented mutual fund redemption in September 2025 produces a gain that qualifies as short-term capital gains under Section 111A. With the basic exemption fully used, what base tax rate applies to this gain, before surcharge and cess?

The official Income Tax Department explanation specifies 20% for qualifying Section 111A transfers on or after 23 July 2024. September 2025 falls in that period. The question classifies the gain under Section 111A and gives a September 2025 redemption. It therefore removes uncertainty about the asset’s eligibility and the gain’s holding-period classification. The inspected official tax explanation gives a 20% base rate for qualifying transfers on or after 23 July 2024. The earlier 15% rate does not apply to the date specified. The 12.5% long-term rate is also irrelevant because the gain is expressly short-term. The basic exemption is already used and surcharge and cess are excluded, so no additional personal-tax calculation is needed. Remember: A dated short-term-gains question requires the rate for that transfer date, not the long-term rate.

Hint Common mistake: Using a familiar historical 15% rate or the 12.5% long-term rate without checking the question’s date and classification.

VA-011

From the practice bank · 7

In tax year 2026–27, a resident individual has qualifying Section 198 equity-fund long-term gains of ₹1,00,000 from one scheme and ₹80,000 from another. There are no other such gains or capital losses, and the basic exemption is fully used. What is the tax on these gains before surcharge and cess?

Aggregate gains are ₹1,80,000. After the single ₹1,25,000 threshold, ₹55,000 is taxed at 12.5%, giving ₹6,875. Aggregate the two gains: ₹1,00,000 + ₹80,000 = ₹1,80,000. There are no capital losses or unused basic exemption to adjust. Apply the single Section 198 threshold: ₹1,80,000 − ₹1,25,000 = ₹55,000. Calculate the base tax: ₹55,000 × 12.5/100 = ₹6,875. The result is tax on the specified gains, before surcharge and cess. It is not tax on total income and is not a tax on the redemption proceeds. Remember: Aggregate qualifying gains first, then use the annual threshold once and apply the correct rate.

Hint Common mistake: Treating the annual threshold as a separate exemption for every mutual fund scheme.

VA-012

From the practice bank · 8

An investor receives ₹20,000 gross IDCW, from which ₹2,000 tax has been withheld and credited. For this illustration, assume the entire gross distribution is taxable at 20%, with no deductions, rebates, surcharge or cess. What further tax remains attributable to this distribution after the TDS credit?

Tax on gross IDCW is ₹20,000 × 20% = ₹4,000. Subtract the credited TDS of ₹2,000 to get a further ₹2,000. The investor’s gross distribution is ₹20,000. The cash paid after withholding is ₹20,000 − ₹2,000 = ₹18,000. Use the expressly hypothetical final tax assumption: ₹20,000 × 20% = ₹4,000. The ₹2,000 withheld has been credited, so remaining tax attributable to this income is ₹4,000 − ₹2,000 = ₹2,000. The assumed 20% rate is not a claim that all IDCW investors have the same tax rate. Actual liability depends on the applicable law and investor circumstances. Remember: Compute tax on the specified gross taxable income, then deduct credited TDS once.

Hint Common mistake: Treating TDS as final tax or computing taxable income from the net bank credit.

VA-027

From the practice bank · 9

An investor buys 100 units at NAV ₹40. Later the NAV is ₹44 immediately before a ₹2-per-unit IDCW payout. With no market movement or other change, assume the NAV falls by the payout amount. Ignoring taxes and charges, what total return has the investor earned after receiving the cash?

After the payout the units are worth 100 × ₹42 = ₹4,200 and the cash is ₹200. Total value is ₹4,400 against ₹4,000 invested, a 10% gain. Initial investment = 100 × ₹40 = ₹4,000. Under the supplied assumption, post-payout NAV = ₹44 − ₹2 = ₹42, so the remaining units are worth ₹4,200. Cash received = 100 × ₹2 = ₹200. Total post-payout wealth = ₹4,200 + ₹200 = ₹4,400. Total return = (₹4,400 − ₹4,000) / ₹4,000 = 10%. Do not add the distribution to the pre-payout value. That value already contains the amount which is being paid out. Remember: Measure total return using both the value left in the units and distributions received, without double-counting.

Hint Common mistake: Ignoring the cash distribution or adding it to a NAV that has not yet been reduced for the payout.

VA-073

From the practice bank · 10

A scheme has net assets of ₹12 crore and 40 lakh units before two adjustments. A bond carried at ₹80 lakh must be valued at ₹68 lakh, and an unrecorded ₹4 lakh expense has accrued. No other values or unit counts change. What is the adjusted NAV?

Both the ₹12 lakh valuation loss and the ₹4 lakh accrued expense are deducted before dividing by the unchanged units. Express the starting net assets in lakh: ₹12 crore = ₹1,200 lakh. The bond write-down is ₹80 lakh − ₹68 lakh = ₹12 lakh. Deduct only this change because the original bond value is already included. The additional accrued expense reduces net assets by another ₹4 lakh. Adjusted net assets = ₹1,200 lakh − ₹12 lakh − ₹4 lakh = ₹1,184 lakh. NAV = ₹1,184 lakh ÷ 40 lakh units = ₹29.60 per unit. Remember: Update both security values and accrued obligations before calculating NAV.

Hint Common mistake: Ignoring an unrealised loss or deducting the bond’s full revised value instead of the write-down.

VA-079

From the practice bank · 11

A scheme has net assets of ₹5 crore and 20 lakh units. A fresh ₹50 lakh subscription is fully invested at the existing NAV. With no market change, tax, charge or other transaction, what is the NAV immediately after allotment?

Both sides increase proportionately, leaving the per-unit value unchanged at ₹25. Before the subscription, NAV = ₹500 lakh ÷ 20 lakh units = ₹25. New units = ₹50 lakh ÷ ₹25 = 2 lakh units. After allotment, net assets are ₹550 lakh and units are 22 lakh. NAV = ₹550 lakh ÷ 22 lakh = ₹25. Existing investors have not gained merely because another investor supplied capital. Remember: For a subscription at NAV, add the cash and the newly issued units together.

Hint Common mistake: Mistaking growth in assets under management for a gain in NAV.

VA-080

From the practice bank · 12

After an approved portfolio segregation, an investor holds 2,000 main-portfolio units and 2,000 segregated-portfolio units. She redeems all main units at NAV ₹18 but keeps the segregated units. The segregated portfolio has 5,00,000 units and later distributes a net recovery of ₹3,00,000 pro rata. Ignoring loads and taxes, what total cash does she receive from these two events?

This adds the main redemption to the pro-rata recovery attributable to the segregated units still held. Main-portfolio redemption cash = 2,000 × ₹18 = ₹36,000. The retained share of the segregated portfolio is 2,000 ÷ 5,00,000 = 0.004, or 0.4%. Recovery entitlement = 0.004 × ₹3,00,000 = ₹1,200. Equivalently, the recovery is ₹0.60 per segregated unit. Total cash from the two events = ₹36,000 + ₹1,200 = ₹37,200. The main units must not be added to the segregated-unit denominator. Remember: Track the units and cash entitlement of a segregated portfolio separately from the main portfolio.

Hint Common mistake: Cancelling or diluting the segregated entitlement merely because the main units were redeemed.

VA-099

From the practice bank · 13

For this question only, assume stamp duty is 0.005% of the ₹2,00,000 subscription and is deducted before units are allotted. The applicable NAV is ₹40. With no other deduction, how many units are allotted?

The ₹10 deduction leaves ₹1,99,990, which purchases exactly 4,999.75 units at NAV ₹40. Convert 0.005% to decimal form: 0.005 ÷ 100 = 0.00005. Stamp duty under the stated assumption = ₹2,00,000 × 0.00005 = ₹10. Net subscription available for units = ₹2,00,000 − ₹10 = ₹1,99,990. Units allotted = ₹1,99,990 ÷ ₹40 = 4,999.75 units. The deduction reduces the amount invested, not the stated NAV. Remember: First calculate the rupee deduction using the correct percentage scale, then divide the net amount by NAV.

Hint Common mistake: Confusing 0.005% with 0.005 as a decimal and overstating the deduction by a factor of 100.

VA-107

From the practice bank · 14

For FY 2025–26 under the Income-tax Act, 1961 framework, an investor has short-term capital gains of ₹70,000, long-term capital gains of ₹30,000 and a long-term capital loss of ₹50,000. There are no other gains or losses. After permitted set-off, what remains? Ignore tax rates and exemptions.

Only the long-term gain is absorbed. The short-term gain survives and ₹20,000 of long-term loss remains unabsorbed. Under the stated 1961 Act framework, a long-term capital loss can be set off against long-term , not short-term capital gains. Use ₹30,000 of the ₹50,000 long-term loss against the ₹30,000 long-term gain. The remaining long-term gain is nil. The unabsorbed long-term loss is ₹50,000 − ₹30,000 = ₹20,000. The short-term gain remains ₹70,000. These are amounts remaining after set-off, not a tax calculation. Eligibility to carry the remaining loss forward is a separate question and is not assumed here. Remember: Classify the loss before netting capital gains. Long-term and short-term amounts are not one unrestricted pool.

Hint Common mistake: Adding all gains and subtracting all losses without applying the loss-type restriction.

VA-108

From the practice bank · 15

A scheme has net assets of ₹10 crore, including ₹4 lakh of accrued interest receivable, and 40 lakh units. The full ₹4 lakh interest is received in cash. There is no further accrual, price movement, expense or unit change. What is the NAV immediately after receipt?

The receipt exchanges a ₹4 lakh receivable for ₹4 lakh cash. Net assets and NAV remain unchanged. Before receipt, NAV = ₹10 crore ÷ 40 lakh units = ₹25 per unit. On collection, cash increases by ₹4 lakh and accrued interest receivable decreases by ₹4 lakh. The equal increase and decrease leave total assets and net assets unchanged. Units also remain at 40 lakh. The NAV therefore remains ₹25. This would differ if the interest had not already been recognised or another portfolio value changed. Remember: Check whether income is already accrued before treating its cash receipt as fresh NAV income.

Hint Common mistake: Counting the same interest once when it accrues and again when it is collected.

VA-109

From the practice bank · 16

A scheme splits each existing unit into two units without changing net assets. An investor holds 400 units at NAV ₹75 immediately before the split. With no other change, what are the investor’s units, NAV and holding value immediately afterwards?

Both the unit count and NAV adjust, leaving the ₹30,000 value unchanged. Before the split, the holding is worth 400 × ₹75 = ₹30,000. A two-for-one split doubles the holding to 800 units. Since the scheme’s net assets do not change, NAV halves to ₹75 ÷ 2 = ₹37.50. After the split, 800 × ₹37.50 = ₹30,000. The same economic interest is expressed in more units. Remember: For an unchanged asset pool, a unit-denomination change alone leaves holding value unchanged.

Hint Common mistake: Reading a higher unit balance as an investment gain without checking the new NAV.

VA-134

From the practice bank · 17

An investor holds 600 units allotted 18 months ago and 600 allotted 6 months ago. A hypothetical exit load is 1% for units held 12 months or less and zero thereafter. A redemption of 900 units uses the oldest units first, at NAV ₹50. Ignoring taxes and other charges, what amount is received?

₹44,850 correctly deducts only the ₹150 load attributable to the newer redeemed units. Redeem all 600 older units and then 300 of the newer units to make 900 units. The 600 older units carry no load. The 300 newer units have gross value 300 × ₹50 = ₹15,000. Load on the newer redeemed units is ₹15,000 × 1% = ₹150. Gross total is 900 × ₹50 = ₹45,000. Net receipt = ₹45,000 − ₹150 = ₹44,850. Another 300 newer units remain invested. Remember: Apply the stated redemption sequence first, then calculate the load for each redeemed lot.

Hint Common mistake: Using one age or one load rate for the entire folio.

VA-135

From the practice bank · 18

A scheme bought 1,000 shares at ₹100 each. Their carrying value is now ₹110 each. It sells 400 shares at ₹112 each and values the remaining 600 at ₹110. Ignoring costs and income, what are the realised gain on the sale and the remaining unrealised gain, each measured from original cost?

The two amounts use original cost and keep the sold and remaining shares separate. Realised gain on 400 shares = 400 × (₹112 − ₹100) = ₹4,800. Unrealised gain on the remaining 600 shares = 600 × (₹110 − ₹100) = ₹6,000. The combined gain from original cost is ₹10,800. As a check, cash of ₹44,800 plus remaining shares of ₹66,000 less original cost of ₹1,00,000 also gives ₹10,800. Only ₹800 is additional gain relative to the previous ₹110 valuation of the sold shares. It is not the total gain from their ₹100 original cost. Remember: Label the cost basis and distinguish proceeds, total gain and incremental revaluation.

Hint Common mistake: Adding the full sale gain to an unrealised-gain balance that still includes the sold securities.

VA-136

From the practice bank · 19

For this illustration, assume a distributor’s commission invoice totals ₹23,600 including GST at 18% of the commission before GST. There is no withholding or other adjustment. What are the commission before GST and the GST component?

The pre-tax base and tax add exactly to the invoice total and satisfy the assumed 18% rate. Let the commission before GST be C. The invoice total is C × 1.18 = ₹23,600. C = ₹23,600 ÷ 1.18 = ₹20,000. GST = ₹20,000 × 0.18 = ₹3,600. Check that ₹20,000 + ₹3,600 = ₹23,600. Applying 18% directly to the inclusive total would use the wrong base. Remember: For a tax-inclusive amount, divide by 1 + rate before calculating the tax component.

Hint Common mistake: Deducting the stated tax percentage directly from an amount that already includes the tax.

VA-137

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