Unit study guide · NISM Series V-D
Mutual Fund Scheme Selection
10 questions in this unit
What this unit covers
- Ritu must use her investment for a house deposit in three months and cannot accept a large shortfall. Which proposal most clearly conflicts with that need?
- Two otherwise comparable funds have NAVs of ₹10 and ₹100. An investor says the ₹10 fund is automatically cheaper and has more room to grow. What is the correct response?
- A client’s agreed plan permits at most 60% of a ₹10 lakh investment pool in equities and requires at least ₹2 lakh to remain readily accessible. Which proposal clearly satisfies both constraints as stated? Assumptions: The reserve and debt allocations have the liquidity and suitability stated in the answer. The 60% ceiling is the client’s agreed limit.
- An eligible investor asks about a fictional SIF strategy whose disclosed mandate uses concentrated long and short positions and permits substantial interim losses. The investor’s priority is preserving money needed for a near-term medical payment. What is the best assessment? Assumptions: The investor’s eligibility is supplied as a fact. The fictional mandate asserts no actual regulatory threshold or leverage limit.
- A retiree chooses an IDCW option because she believes it guarantees a fixed monthly income while leaving principal untouched. What should the distributor explain?
- An investor works for an information-technology company, owns substantial employer shares and already holds a technology-heavy fund. Which issue should be examined before adding another technology-sector fund?
- A fund has the highest return over the last three months. Which conclusion is justified by that fact alone?
- An eligible client considers a fictional SIF strategy that accepts redemptions only at quarter-end under its stated terms. The client needs ₹60,000 at each of the next two month-ends and currently holds only ₹50,000 outside the strategy. No other income or borrowing is available. What is the most appropriate action before investing the remaining money? Assumptions: Both payments occur before the next permitted redemption date. The quarterly redemption term is fictional and is not asserted as a rule for all SIFs.
- For a simplified comparison, two funds each earn exactly 8% gross annually for two years. Fund A’s annual cost is defined in this exercise as 1 percentage point of return, and Fund B’s as 0.5 percentage points, so their net annual returns are 7% and 7.5%. On ₹1,00,000 invested for both years, how much more does B end with? Ignore taxes and all other differences. Assumptions: The cost deduction in percentage points is an explicitly simplified teaching model, not a universal formula for actual TER accrual. Both funds have identical fixed gross returns for the illustration. No future return is promised.
- A client has money for a long-term retirement goal and a separate emergency reserve. Why should the distributor identify these as separate needs before selecting schemes?
Key ideas
From the practice bank · 1
Ritu must use her investment for a house deposit in three months and cannot accept a large shortfall. Which proposal most clearly conflicts with that need?
A concentrated equity allocation can fluctuate substantially over three months. The proposal exposes an essential dated payment to a risk that the investor has explicitly said she cannot bear. Remember: Match the investment horizon to the time available to recover from losses.
Hint A short, essential goal has limited room to recover from a market fall.
V-D-059From the practice bank · 2
Two otherwise comparable funds have NAVs of ₹10 and ₹100. An investor says the ₹10 fund is automatically cheaper and has more room to grow. What is the correct response?
For a given investment amount, a lower NAV buys more units, but each unit represents a smaller amount of net assets. Suitability and future returns depend on the portfolio and other relevant factors, not the unit’s numerical NAV. Remember: A mutual-fund NAV is not a valuation bargain signal by itself.
Hint Compare portfolio value changes as percentages of the amount invested.
V-D-060From the practice bank · 3
A client’s agreed plan permits at most 60% of a ₹10 lakh investment pool in equities and requires at least ₹2 lakh to remain readily accessible. Which proposal clearly satisfies both constraints as stated? Assumptions: The reserve and debt allocations have the liquidity and suitability stated in the answer. The 60% ceiling is the client’s agreed limit.
The first allocation keeps equity at ₹6 lakh/₹10 lakh = 60% and preserves the required ₹2 lakh reserve. Each selected product still needs an appropriate risk and review. Remember: Suitability can involve several constraints that must all be met.
Hint Evaluate the equity ceiling and accessible reserve separately.
V-D-061From the practice bank · 4
An eligible investor asks about a fictional SIF strategy whose disclosed mandate uses concentrated long and short positions and permits substantial interim losses. The investor’s priority is preserving money needed for a near-term medical payment. What is the best assessment? Assumptions: The investor’s eligibility is supplied as a fact. The fictional mandate asserts no actual regulatory threshold or leverage limit.
Even an investor who satisfies entry requirements can have an unsuitable objective or horizon for a strategy. Here, substantial interim losses conflict with preserving an essential near-term payment. Remember: Product eligibility is only one input. Goals, liquidity and loss capacity remain essential.
Hint Ask whether the investor can bear the strategy’s possible outcome when the money is needed.
V-D-062From the practice bank · 5
A retiree chooses an IDCW option because she believes it guarantees a fixed monthly income while leaving principal untouched. What should the distributor explain?
The investor needs to understand the actual distribution policy and risks. An IDCW payout is not a promise of an unchanged principal balance plus a fixed recurring income. Remember: Choose cash-flow arrangements using their economics and terms, not their labels.
Hint Distinguish a distribution choice from a contractual guaranteed-income product.
V-D-063From the practice bank · 6
An investor works for an information-technology company, owns substantial employer shares and already holds a technology-heavy fund. Which issue should be examined before adding another technology-sector fund?
The investor may be exposed to the same sector through salary, employer shares and funds. An additional sector allocation could worsen concentration even if the new fund looks attractive in isolation. Remember: Evaluate a fund as part of the investor’s whole financial position.
Hint Consider risks across the investor’s balance sheet and income, not just one fund.
V-D-064From the practice bank · 7
A fund has the highest return over the last three months. Which conclusion is justified by that fact alone?
The ranking describes a historical comparison for the selected period. Selection should also consider mandate, risk, costs, consistency and the investor’s circumstances. Remember: Do not turn a short performance window into a universal recommendation.
Hint Keep the inference within the time period and evidence actually observed.
V-D-065From the practice bank · 8
An eligible client considers a fictional SIF strategy that accepts redemptions only at quarter-end under its stated terms. The client needs ₹60,000 at each of the next two month-ends and currently holds only ₹50,000 outside the strategy. No other income or borrowing is available. What is the most appropriate action before investing the remaining money? Assumptions: Both payments occur before the next permitted redemption date. The quarterly redemption term is fictional and is not asserted as a rule for all SIFs.
The two payments total ₹1,20,000. With ₹50,000 already accessible, at least ₹70,000 more must remain available for those payments. A separate emergency buffer would be an additional consideration. Remember: Plan cash availability using redemption terms and payment dates, not NAV alone.
Hint Add both payments that arise before redemption is available, then subtract accessible cash.
V-D-066From the practice bank · 9
For a simplified comparison, two funds each earn exactly 8% gross annually for two years. Fund A’s annual cost is defined in this exercise as 1 percentage point of return, and Fund B’s as 0.5 percentage points, so their net annual returns are 7% and 7.5%. On ₹1,00,000 invested for both years, how much more does B end with? Ignore taxes and all other differences. Assumptions: The cost deduction in percentage points is an explicitly simplified teaching model, not a universal formula for actual TER accrual. Both funds have identical fixed gross returns for the illustration. No future return is promised.
B ends at ₹1,00,000 × 1.075² = ₹1,15,562.50. A ends at ₹1,00,000 × 1.07² = ₹1,14,490. The difference is ₹1,072.50 under the expressly simplified cost model. Remember: Recurring cost differences can compound, but comparisons must hold other assumptions constant.
Hint Compound each supplied net annual return separately for two years.
V-D-067From the practice bank · 10
A client has money for a long-term retirement goal and a separate emergency reserve. Why should the distributor identify these as separate needs before selecting schemes?
A long-term goal may allow a different risk allocation from money that must be available without notice. Separating the purposes makes the scheme-selection decision more coherent. Remember: Assess suitability for each goal and money bucket, not only for the investor in general.
Hint The same investor can have different requirements for different portions of money.
V-D-068Liquidity in the stock market means how easily a quantity can be bought or sold.
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