Unit study guide · NISM Series V-D
Concept & Role of a Mutual Fund
4 questions in this unit
What this unit covers
- Which description best captures the basic economic role of a mutual fund?
- Which feature generally distinguishes an open-ended mutual fund scheme from a close-ended scheme?
- A scheme states that it seeks to replicate a broad-market index. Its return is slightly below the index after expenses. Which explanation is most reasonable?
- A rules-based fund weights stocks by a single value factor and currently has a large exposure to one industry. Which statement is most appropriate?
Key ideas
From the practice bank · 1
Which description best captures the basic economic role of a mutual fund?
A mutual fund brings money together and invests it under a defined mandate. Each investor’s units represent an interest in the scheme’s net assets, subject to its terms. Remember: Pooling and professional management do not mean guaranteed outcomes.
Hint Think of a common portfolio represented by units.
V-D-006From the practice bank · 2
Which feature generally distinguishes an open-ended mutual fund scheme from a close-ended scheme?
Open-ended schemes generally remain available for subscription and redemption under their disclosed terms. A close-ended scheme has a specified tenure, and exchange trading may provide an exit during that tenure. Remember: Fund structure affects transaction access and .
Hint The distinction concerns ongoing access to units, not a promise about returns.
V-D-007From the practice bank · 3
A scheme states that it seeks to replicate a broad-market index. Its return is slightly below the index after expenses. Which explanation is most reasonable?
An index calculation does not incur the same fund expenses and trading frictions as an actual portfolio. A passive fund can therefore have a tracking difference while still pursuing its replication mandate. Remember: Passive management limits active selection. It does not remove costs or market risk.
Hint Separate the benchmark’s calculation from the costs of implementing a portfolio.
V-D-008From the practice bank · 4
A rules-based fund weights stocks by a single value factor and currently has a large exposure to one industry. Which statement is most appropriate?
Smart-beta strategies use specified selection or weighting rules. Those rules can lead to exposures that differ from a broad market and must be examined for suitability. Remember: Look through the strategy label to the risks created by its actual portfolio.
Hint A systematic method can be consistent and still produce concentrated exposures.
V-D-009Liquidity in the stock market means how easily a quantity can be bought or sold.
Read more