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Unit study guide · NISM Series V-A

Mutual Fund Products

22 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

A large-cap fund has total assets of ₹250 crore. Under SEBI’s February 2026 categorisation, what minimum amount must normally be invested in equity and equity-related instruments of large-cap companies?

80% of total assets is ₹250 crore × 0.80 = ₹200 crore. The February 2026 category table sets the large-cap minimum at 80% of total assets. Required amount = total assets × minimum percentage = ₹250 crore × 80 ÷ 100. The result is ₹200 crore. This is a floor, not a requirement to hold exactly that amount. Remember: Apply the specified category percentage to total assets and distinguish a minimum from an exact allocation.

Hint Common mistake: Using another category’s percentage or treating the minimum as a 100% investment requirement.

VA-007

From the practice bank · 2

A company is ranked 250th in the applicable list based on full market capitalisation. For mutual fund categorisation, it falls in which segment?

The mid-cap band includes ranks 101 through 250, so the endpoint belongs to that band. Use the applicable classification list, rather than an intraday change in a share price. The mid-cap definition covers the 101st through the 250th companies by full market capitalisation. Rank 250 is the last rank in the mid-cap band. The next rank, 251, begins the small-cap band. Remember: Remember both the inclusive boundaries and the full-market-cap basis of classification.

Hint Common mistake: Confusing full market capitalisation with free-float market capitalisation, or excluding rank 250 from mid caps.

VA-008

From the practice bank · 3

An investor has three ELSS unit allotments from SIP instalments. On the proposed redemption date, the first has completed three years, the second two years and the third one year. Which can be redeemed under the ordinary lock-in rule?

Only these units have completed their own three-year lock-in. Identify how long each allotment has been held. The three allotments have completed three, two and one year respectively. The ordinary ELSS lock-in is three years. Only the first allotment has met that duration. The later units remain locked for their own remaining periods. The investor may also continue holding the first allotment instead of redeeming it. Remember: For ELSS SIPs, check the three-year clock separately for each unit allotment.

Hint Common mistake: Assuming that all SIP units become redeemable when the first instalment completes three years.

VA-009

From the practice bank · 4

An SWP pays ₹6,000 each month. The applicable NAV is ₹30 for one withdrawal and ₹24 for the next. Ignoring loads and taxes, how many units are redeemed for the two withdrawals, respectively?

₹6,000 ÷ ₹30 = 200 units and ₹6,000 ÷ ₹24 = 250 units. Units redeemed = withdrawal amount ÷ applicable NAV per unit. First withdrawal: ₹6,000 ÷ ₹30 per unit = 200 units. Second withdrawal: ₹6,000 ÷ ₹24 per unit = 250 units. The lower NAV requires 50 more units to generate the same ₹6,000. The cash can include the investor’s capital, not just investment gains. Remember: A fixed-amount SWP sells more units when NAV is lower.

Hint Common mistake: Treating SWP cash as interest income or assuming that the same number of units is redeemed every month.

VA-015

From the practice bank · 5

An STP between two schemes of the same mutual fund redeems a gross value of ₹24,000 from the source scheme at NAV ₹12. For this question, a 1% exit load is deducted from that value. The entire balance buys destination units at NAV ₹24. Ignoring all other taxes and charges, how many destination units are allotted?

The transferable amount is ₹24,000 − ₹240 = ₹23,760. Dividing by destination NAV ₹24 gives 990 units. Source units redeemed = ₹24,000 ÷ ₹12 = 2,000 units. The instruction specifies gross redemption value, not net transfer value. Hypothetical exit load = ₹24,000 × 1% = ₹240. Amount available for the destination purchase = ₹24,000 − ₹240 = ₹23,760. Destination units = ₹23,760 ÷ ₹24 = 990 units. The source and destination unit counts need not be equal. Remember: Convert the source redemption into net cash before dividing by the destination NAV.

Hint Common mistake: Ignoring the source exit load or using the source NAV for the destination allotment.

VA-016

From the practice bank · 6

Which objective best describes a conventional index fund?

The specified index is the performance target that the fund seeks to follow. The index determines the reference portfolio or exposure that the fund seeks to track. Implementation costs and other practical factors can produce a difference between fund and benchmark returns. Replication is an objective, not a claim of perfect equality. Remember: For an index fund, judge implementation against its stated index-tracking objective.

Hint Common mistake: Assuming that passive management either guarantees identical returns or means equal-weighted holdings.

VA-025

From the practice bank · 7

A multi-cap fund has total assets of ₹400 crore: large-cap equity ₹160 crore, mid-cap equity ₹80 crore, small-cap equity ₹60 crore and other permitted assets ₹100 crore. Under SEBI’s February 2026 categorisation, what minimum amount must move from large caps to mid and small caps to meet their category floors? Assume unchanged asset values and no costs.

Each segment needs ₹100 crore. Mid caps need ₹20 crore and small caps ₹40 crore, totalling ₹60 crore. The category requires at least 75% in equity and equity-related instruments, including at least 25% of total assets in each of the three segments. Each segment’s floor is ₹400 crore × 25% = ₹100 crore. Mid-cap shortfall = ₹100 crore − ₹80 crore = ₹20 crore. Small-cap shortfall = ₹100 crore − ₹60 crore = ₹40 crore. Move ₹20 crore and ₹40 crore respectively from large caps. Large caps then equal ₹160 crore − ₹60 crore = ₹100 crore. The final allocations are ₹100 crore each in large, mid and small caps. They total ₹300 crore, or 75% of the unchanged ₹400 crore assets. Remember: Meeting a total equity floor does not automatically meet every sub-category floor.

Hint Common mistake: Checking only the 75% equity total while overlooking the three separate 25% requirements.

VA-033

From the practice bank · 8

Under SEBI’s February 2026 categorisation, which focused-fund portfolio meets BOTH the normal equity-allocation minimum and the maximum number of stocks? Percentages are of total assets.

This answer is within the 30-stock maximum and above the 80% equity minimum. The February 2026 table specifies no more than 30 stocks for a focused fund. It also sets an equity and equity-related allocation of at least 80% of total assets. The portfolio with 28 stocks and 82% equity meets both tests. Each other portfolio fails at least one. Remember: Check every category condition, and use the specified regulatory version rather than a remembered older percentage.

Hint Common mistake: Remembering the 30-stock limit but carrying forward the older 65% equity figure.

VA-034

From the practice bank · 9

Under SEBI’s February 2026 categorisation, what is the maximum remaining maturity of a debt or money-market security eligible for a liquid fund, considering the maturity condition alone?

The liquid-fund category specifies debt and money-market securities maturing within 91 days. Identify the scheme as a liquid fund, rather than another short-maturity debt category. The February 2026 table allows debt and money-market securities with maturity up to 91 days. This answer addresses only maturity. A security must still satisfy any other applicable investment and eligibility rules. Remember: Do not substitute a portfolio average for a maturity ceiling on eligible securities.

Hint Common mistake: Assuming a longer-dated security is acceptable simply because shorter holdings pull down the average maturity.

VA-035

From the practice bank · 10

Which allocation meets an aggressive hybrid fund’s normal equity and debt bands under SEBI’s February 2026 categorisation? Each pair shows equity followed by debt, as a percentage of total assets.

Equity is within 65%–80% and debt is within 20%–35%. For an aggressive hybrid fund, the stated normal equity band is 65%–80% of total assets. The debt band is 20%–35% of total assets. The 70%/30% pair falls inside both bands. Testing only one asset class can miss a breach of the other band. Remember: Check both the equity and debt bounds before identifying a hybrid category.

Hint Common mistake: Treating every mix of equity and debt as an aggressive hybrid fund.

VA-036

From the practice bank · 11

An investor puts ₹10,000 into an NFO at ₹10 per unit and another ₹10,000 into an existing scheme at NAV ₹50. Assume both unit values subsequently rise by exactly 10%, with no distributions or charges. What are the two investment values then?

The investor holds 1,000 NFO units worth ₹11 each and 200 existing-scheme units worth ₹55 each. Both holdings are ₹11,000. Units allotted in the NFO are ₹10,000 / ₹10 = 1,000. Units in the existing scheme are ₹10,000 / ₹50 = 200. After the assumed 10% rise, the respective unit values are ₹10 × 1.10 = ₹11 and ₹50 × 1.10 = ₹55. Final values are 1,000 × ₹11 = ₹11,000 and 200 × ₹55 = ₹11,000. The lower starting unit price produces more units, not a larger percentage return on the same capital. Equal returns here are a supplied assumption, not a forecast for two actual schemes. Remember: Compare percentage returns and scheme characteristics, not unit counts or the face value of an NFO.

Hint Common mistake: Treating more units at a lower NAV as an automatic economic advantage.

VA-064

From the practice bank · 12

A fund of funds has 60% of its assets in Fund P, 30% in Fund Q and 10% in cash. P has 80% equity exposure and Q has 40%, each measured on its own assets. With no leverage or other equity exposure, what is the FoF’s look-through equity exposure?

The two weighted equity contributions are 48% and 12%, totalling 60%. Fund P contributes 60% × 80% = 48% of the FoF’s assets as equity exposure. Fund Q contributes 30% × 40% = 12%. The FoF’s own 10% cash contributes no equity exposure. Total equity exposure = 48% + 12% = 60% of total FoF assets. This is an economic exposure calculation. It does not determine the scheme’s legal category or its tax classification. Remember: Look through every layer of fund ownership and keep the denominator as total FoF assets.

Hint Common mistake: Treating all money invested in underlying funds as equity or excluding the FoF’s cash from the denominator.

VA-082

From the practice bank · 13

An ETF has an indicative NAV of ₹100. Its best bid is ₹99.60 and best ask is ₹100.40, with sufficient quantity at both prices. An investor buys 100 units at the ask and immediately sells 100 at the unchanged bid. Ignoring all charges, what is the round-trip result?

Buying at the ask and selling at the bid produces a ₹0.80 loss on each of 100 units. The purchase costs 100 × ₹100.40 = ₹10,040. The sale receives 100 × ₹99.60 = ₹9,960. Net result = ₹9,960 − ₹10,040 = −₹80. The round trip crosses the full ₹0.80 spread per unit. The indicative NAV is a reference value, not an offered trade price in this example. Remember: For an ETF trade, use the actual execution prices rather than substituting indicative NAV.

Hint Common mistake: Counting only one half of the spread or assuming every ETF trade executes at NAV.

VA-083

From the practice bank · 14

A listed close-ended fund has NAV ₹18 and an available exchange buying quote of ₹16.80. It offers no repurchase facility before maturity. An investor needs to exit now. Which statement is correct?

An exchange sale can occur at a discount or premium to NAV, subject to available trading . The stem explicitly excludes a repurchase facility before maturity. The available exit is an exchange sale if a buyer and sufficient quantity are available. The exchange price reflects the available order, not a compulsory NAV payment by the AMC, exchange or custodian. Remember: Check the scheme’s redemption terms separately from whether its units are listed.

Hint Common mistake: Assuming listing guarantees exit at the latest NAV.

VA-084

From the practice bank · 15

A scheme permits purchases and repurchases with the fund only during specified recurring transaction periods rather than on every business day. Which structure does this describe?

Transactions with the fund at stated recurring intervals are the identifying feature. The key feature is recurring transaction windows for purchases and repurchases with the fund. That feature describes an interval structure. A close-ended fund with no such facility does not offer these recurring windows. The question concerns transactions with the fund. It does not equate those windows with exchange trading or make a general claim about whether interval units are listed. Remember: Distinguish continuous fund transactions, specified interval windows and secondary-market exchange trading.

Hint Common mistake: Treating the ability to transact only at stated intervals as the same thing as daily dealing.

VA-085

From the practice bank · 16

An investor wants a mutual fund to remove one company only from the portfolio supporting his units, without changing the scheme’s other investors’ holdings. Which statement best explains the limitation?

The common portfolio explains why ordinary units cannot be customised in the way requested. The investor owns units that participate in the common scheme portfolio. A request to remove a particular security only for that investor would require a separate individual mandate rather than ordinary pooled units. A direct plan, an additional folio or a growth option does not give the unitholder stock-by-stock control of the common portfolio. Remember: Distinguish selecting a suitable pooled scheme from directing a personalised portfolio inside it.

Hint Common mistake: Treating a folio, plan or distribution option as a separate discretionary investment mandate.

VA-094

From the practice bank · 17

An index selects shares using published value and quality scores and rebalances under a stated rule. A fund seeks to track that index rather than make discretionary stock selections. Which description fits best?

The published factor scores and rebalancing rules match a rules-based factor-index approach. The selection process uses specified value and quality scores rather than only company size. The fund aims to track the resulting index, not choose shares through an unrestricted manager view. Those features describe a rules-based factor or smart-beta approach. They do not establish superior performance or capital protection. Remember: Look at how the index is constructed, not only whether the fund is called passive.

Hint Common mistake: Assuming every index-following strategy is based solely on full market capitalisation.

VA-110

From the practice bank · 18

A hypothetical arbitrage trade buys 1,000 shares at ₹500 each and shorts futures on the same 1,000 shares at ₹508. At expiry, both prices are ₹480. Total financing and trading costs are ₹4,000. Ignoring taxes and all other cash flows, what is the combined net result?

Both legs together earn ₹8,000 gross, and the stated costs reduce that to ₹4,000 net. Cash position result = 1,000 × (₹480 − ₹500) = −₹20,000. Short-futures result = 1,000 × (₹508 − ₹480) = +₹28,000. A short position gains when its settlement price is below its entry price. Combined gross result = −₹20,000 + ₹28,000 = ₹8,000. Net result = ₹8,000 − ₹4,000 = ₹4,000 profit. Equivalently, the ₹8 initial spread across 1,000 matched shares produces ₹8,000 before the given costs. Remember: Combine both legs before deducting costs. A loss on the shares alone does not describe the matched trade.

Hint Common mistake: Treating the cash and futures positions as separate winning or losing trades rather than calculating their combined result.

VA-111

From the practice bank · 19

A thematic fund holds companies from construction, power equipment and cement because all are linked to infrastructure spending. Which conclusion is best supported by this description?

This captures both features: multiple industries and a shared infrastructure-related driver. The companies belong to different industries, so the description is broader than one narrowly defined industry. All were selected for their link to infrastructure spending. A slowdown in that spending can affect several holdings together. The number of industry labels therefore does not establish broad-market diversification or eliminate common-theme exposure. Remember: Examine the common economic driver as well as the industry names when assessing diversification.

Hint Common mistake: Counting industry labels without checking whether the holdings depend on the same underlying demand source.

VA-112

From the practice bank · 20

A perpetual bond held by a fund has no contractual maturity date. Its issuer may first call it after five years, but is not required to do so. Which interpretation of that five-year date is correct?

The issuer may exercise the option, but the date alone does not assure repayment. The contract expressly gives the issuer a choice and contains no fixed maturity date. Therefore the first call date cannot by itself establish when principal will be repaid. A fund considering the bond must distinguish that contractual uncertainty from any prescribed valuation convention. Remember: Do not substitute a first call date for maturity when the issuer can choose not to call.

Hint Common mistake: Assuming an instrument will be redeemed on its earliest possible call date.

VA-138

From the practice bank · 21

A floating-rate bond in a fund resets its annual coupon to a reference rate plus 1.20 percentage points. At the next reset, the reference rate is 5.25%. Assuming no floor or cap, what annual coupon rate applies after that reset?

6.45% adds the stated spread once to the current reset reference. The reference rate at the reset is 5.25% and the fixed spread is 1.20 percentage points. New annual coupon = 5.25% + 1.20% = 6.45%. This describes the bond coupon, not the fund’s NAV return or the bond’s market yield. Remember: Use the reference rate applicable at reset and add the spread once.

Hint Common mistake: Confusing the reset coupon with a promised return on the mutual fund holding it.

VA-139

From the practice bank · 22

A fund of funds quotes an annual expense ratio of 0.40%, expressly excluding expenses borne in its underlying funds. Those underlying funds deduct their own expenses in arriving at their NAVs. Which approach is appropriate when assessing the investor’s overall expense burden?

This recognises the expressly described two layers without asserting a particular total or legal cap. The quoted 0.40% explicitly excludes the underlying-fund expenses. It cannot therefore be treated as a complete cost measure. The underlying expenses reduce the NAVs of funds owned by the FoF, while the FoF has its own stated expense. Assess both levels using their actual bases and disclosures. Do not assume that the investor receives a separate bill or simply subtract both again from an already net reported return. Remember: Check whether a quoted cost includes or excludes underlying-fund expenses.

Hint Common mistake: Treating the outer fund’s disclosed ratio as the entire burden or double-deducting costs from a net return.

VA-140

Read the related lesson

Liquidity

Liquidity describes how easily a given quantity can be traded.

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