NISM Series V-A Chapter 7: Net Asset Value, Total Expense Ratio and Pricing of Units Practice Questions

Question 1

The Net Asset Value (NAV) of an open-ended mutual fund scheme is calculated by dividing the net assets of the scheme by:

Accepted Answer

The total number of outstanding units of the scheme.. The fundamental formula for calculating the Net Asset Value (NAV) of a mutual fund is: NAV = (Market Value of Assets - Liabilities) / Total Number of Outstanding Units. It represents the per-unit market value of the scheme's holdings.

Question 2

How is Goods and Services Tax (GST) on investment management fees treated in the calculation of Total Expense Ratio (TER) for a mutual fund scheme?

Accepted Answer

It is charged over and above the prescribed TER limits.. As per SEBI guidelines, GST on investment management fees is not included within the prescribed Total Expense Ratio (TER) limits. Instead, it is charged to the scheme over and above the TER, meaning it is an additional cost borne by the investors of the scheme.

Question 3

A debt fund has a portfolio of securities with an average maturity of 180 days. What is the cut-off time for receiving applications for purchase and redemption to be eligible for the same day's NAV?

Accepted Answer

3:00 PM. A fund with a 180-day average maturity is not a liquid fund (liquid funds hold securities of up to 91 days), so the normal 3:00 PM cut-off applies to both purchases and redemptions. Only liquid and overnight funds have a different purchase cut-off (1:30 PM).

Question 4

An investor holds 100 units of an equity-oriented mutual fund scheme. The current NAV is ₹80. The scheme has an exit load structure of 1% if units are redeemed within 1 year, and 0% thereafter. If the investor redeems all units after 8 months, what is the total amount the investor will receive?

Accepted Answer

₹7,920. Total value of units = 100 units * ₹80/unit = ₹8,000. Since the redemption is within 1 year (after 8 months), an exit load of 1% applies. Exit load amount = 1% of ₹8,000 = ₹80. Amount received by investor = ₹8,000 - ₹80 = ₹7,920.

Question 5

Some mutual funds may implement a mechanism known as 'swing pricing' or 'dilution adjustment' for their NAV calculation. What is the primary purpose of this mechanism?

Accepted Answer

To adjust the NAV to protect long-term investors from costs incurred due to large inflows or outflows.. Swing pricing (or dilution adjustment) is a mechanism used to adjust the NAV of a fund to mitigate the impact of transaction costs arising from large subscriptions or redemptions. It ensures that the costs associated with buying or selling underlying securities to accommodate large inflows or outflows are borne by the transacting investors, thereby protecting the existing long-term unitholders from dilution of their holdings' value.

Question 6

Which of the following statements accurately describes the Total Expense Ratio (TER) for Direct Plans compared to Regular Plans of the same mutual fund scheme?

Accepted Answer

Direct Plans typically have a lower TER than Regular Plans.. Direct Plans have a lower Total Expense Ratio (TER) compared to Regular Plans because they do not include distributor commissions. The distributor commission component is part of the TER in Regular Plans, which is absent in Direct Plans, making them cheaper for investors who invest directly with the AMC. (SEBI (Mutual Funds) Regulations, 2026: the base expense ratio of a direct plan must be lower, excluding distribution expenses and commission.)

Question 7

An investor submits a purchase application for an equity-oriented mutual fund for ₹1,90,000 at 2:45 PM on a business day, and the funds are realized by the AMC on the *next* business day. Which NAV will be applicable for this transaction?

Accepted Answer

The NAV of the next business day when the funds were realized.. For schemes other than liquid and overnight funds, the closing NAV of the business day on which the funds are available for utilisation before the 3:00 PM cut-off applies, for any amount (the old ₹2 lakh distinction was removed from 1 February 2021). The funds were realised on the next business day, so that day's NAV applies (assuming they were available before its 3:00 PM cut-off).

Question 8

When a mutual fund scheme incurs an expense, such as audit fees or legal charges, how does this typically impact the scheme's Net Asset Value (NAV)?

Accepted Answer

It decreases the NAV as it reduces the net assets of the scheme.. NAV is calculated as (Market Value of Assets - Liabilities) / Number of Units Outstanding. Any expense incurred by the fund is a liability that reduces the net assets, thereby decreasing the NAV.

Question 9

What is the primary purpose of an Exit Load in a mutual fund scheme?

Accepted Answer

To deter short-term investors and protect long-term unitholders.. Exit loads are primarily levied to discourage short-term redemptions from the fund. This helps in maintaining portfolio stability and protecting the interests of long-term investors by reducing the impact of frequent entries and exits on the fund's portfolio management and associated transaction costs.

Question 10

A new individual investor from a B-30 city makes a lump sum investment through an MFD. Under SEBI's November 2025 framework, what condition must be met for the MFD to receive the additional incentive?

Accepted Answer

The investor must remain invested for at least 1 year. For a lump sum, the MFD earns 1% of the first application (maximum Rs 2,000) only if the investor stays invested for at least 1 year, with claw-back. The old 30%-of-inflows condition belonged to the withdrawn additional B-30 TER.

Question 11

Which of the following mutual fund plans typically has a lower Total Expense Ratio (TER) compared to the others?

Accepted Answer

Direct Plan. Direct Plans do not involve distributor commissions, as investors invest directly with the AMC. This absence of distribution costs results in a lower expense ratio (TER) compared to Regular Plans, which include distributor commissions.

Question 12

Under the SEBI (Mutual Funds) Regulations, 2026, what is the maximum Total Expense Ratio for an open-ended equity-oriented scheme on the first ₹500 crore of daily net assets?

Accepted Answer

2.10%. Under the SEBI (Mutual Funds) Regulations, 2026, the maximum Total Expense Ratio (base expense ratio) for an open-ended equity-oriented scheme is 2.10% on the first ₹500 crore of daily net assets, reducing for higher slabs; for schemes other than equity-oriented it is 1.85%. The earlier 2018 limit of 2.25% no longer applies.

Question 13

Which of the following events would directly lead to a decrease in a mutual fund's Net Asset Value (NAV) per unit, assuming all other factors remain constant?

Accepted Answer

Increase in the scheme's total liabilities. The NAV is calculated as (Total Assets - Total Liabilities) / Total Number of Units Outstanding. An increase in the scheme's total liabilities (e.g., accrued expenses) would reduce the net assets, thereby decreasing the NAV per unit. Appreciation in securities value and dividend income would increase assets and thus NAV. Issuance of new units at a premium would typically increase assets proportionally to units, maintaining or slightly increasing NAV, not decreasing it.

Question 14

What is the cut-off time for purchase applications (and switch-ins) in liquid funds?

Accepted Answer

1:30 PM. For liquid and overnight funds, the cut-off for purchases and switch-ins is 1:30 PM. If the application is received and the funds are available for utilisation before 1:30 PM, the closing NAV of the day immediately preceding the day of receipt applies. If the funds are available only after the cut-off, the closing NAV of the day immediately preceding the next business day applies. Other schemes have a 3:00 PM cut-off and get the NAV of the business day on which funds are available.

Question 15

Which of the following is explicitly excluded from the Total Expense Ratio (TER) calculation of a mutual fund scheme and is charged separately?

Accepted Answer

Brokerage and Securities Transaction Tax (STT). Brokerage and Securities Transaction Tax (STT) are expenses that are charged over and above the Total Expense Ratio (TER) limits. All other options are components typically included within TER.

Question 16

Which of the following best describes the Net Asset Value (NAV) of a mutual fund unit?

Accepted Answer

The total value of assets less total liabilities, divided by the number of units outstanding.. The Net Asset Value (NAV) represents the per-unit market value of a mutual fund's assets. It is calculated by taking the total market value of the fund's investments, adding other assets (like cash), subtracting liabilities (like expenses payable), and then dividing the result by the total number of units outstanding.

Question 17

How frequently are mutual funds mandated to disclose their Net Asset Value (NAV) for all schemes?

Accepted Answer

Daily (on all business days). As per SEBI regulations, Asset Management Companies (AMCs) are required to compute and disclose the Net Asset Value (NAV) for all their schemes on every business day. This ensures transparency and provides investors with up-to-date pricing information.

Question 18

Which of the following, when incurred by a mutual fund scheme, would directly lead to a reduction in its Net Asset Value (NAV)?

Accepted Answer

Payment of management fees to the Asset Management Company (AMC).. Management fees are an expense incurred by the mutual fund scheme. Expenses reduce the net assets of the fund, thereby directly leading to a reduction in the scheme's Net Asset Value (NAV). Accrued income, receipt of dividends, and appreciation in asset values generally increase NAV.

Question 19

For open-ended equity schemes, what is the minimum frequency at which the Net Asset Value (NAV) must be calculated and declared?

Accepted Answer

Daily. SEBI regulations mandate that NAV for all open-ended schemes, except for Liquid and Overnight funds (which declare NAV for all business days), must be calculated and declared on every business day.

Question 20

Which of the following expenses is NOT typically included in the Total Expense Ratio (TER) of a mutual fund scheme?

Accepted Answer

Brokerage and transaction costs for portfolio churn. Brokerage and transaction costs for executing trades can be charged over and above the TER, up to 0.06% of trade value in the cash market and 0.02% in derivatives (the older, higher caps no longer apply). Investment management fees, RTA fees, custodian and audit fees are part of the TER.

Question 21

What is 'swing pricing' or 'dilution adjustment' in the context of mutual funds?

Accepted Answer

An adjustment to the NAV to protect long-term investors from transaction costs incurred due to large inflows/outflows.. Swing pricing (or dilution adjustment) is a mechanism used by some mutual funds, particularly in international markets, to adjust the NAV per unit to pass on the transaction costs incurred by the fund due to large inflows or outflows directly to the transacting investors. This protects the existing long-term investors from the dilution of their holdings' value caused by such trading activity.

Question 22

When an investor makes a purchase in a mutual fund scheme, how does the applicable Stamp Duty affect the unit allocation?

Accepted Answer

It is deducted from the investment amount, reducing the units allotted.. As per SEBI circular dated June 30, 2020, stamp duty is levied on mutual fund transactions. For purchases, the stamp duty is debited from the investment amount, meaning the actual amount available for unit allotment is reduced by the stamp duty amount, thereby reducing the number of units allotted.

Question 23

Which statement about the additional MFD incentive for new B-30 and women investors (SEBI circular, 27 November 2025) is correct?

Accepted Answer

It is paid in addition to the regular trail commission.. The incentive is paid in addition to trail commission, from the 2 bps investor education set-aside, and there is no dual incentive for the same investor or investment. The old additional 0.30% TER for B-30 inflows no longer exists.

Question 24

For an investment of ₹8,000 in a mutual fund scheme, what is the transaction charge applicable for a new investor investing through a distributor?

Accepted Answer

₹0. As per SEBI regulations, transaction charges are applicable only for purchases of ₹10,000 and above. For investments below ₹10,000, no transaction charges are levied. For new investors investing ₹10,000 or more, the charge is ₹150.

Question 25

What is the current status of entry loads charged by mutual funds in India?

Accepted Answer

Entry loads are prohibited for all mutual fund schemes.. Effective August 1, 2009, SEBI banned the charging of entry loads by all mutual fund schemes in India. Investors no longer pay any entry load when purchasing mutual fund units.

Question 26

Securities Transaction Tax (STT) is applicable on which of the following mutual fund transactions?

Accepted Answer

Redemption of units in an equity-oriented mutual fund scheme.. Securities Transaction Tax (STT) is currently applicable on the redemption of units in equity-oriented mutual fund schemes. It is not applicable on purchases or switches into equity funds, nor on any transactions in debt mutual funds. (Income Tax Act, 1961, Section 98 and relevant notifications).

Question 27

An investor redeems 1,000 units from a mutual fund scheme at an NAV of Rs. 25.00. The scheme has an exit load of 0.5% if units are redeemed within 180 days. If the investor redeems after 100 days, what is the net amount received by the investor?

Accepted Answer

Rs. 24,875. The total value of units redeemed is 1,000 units * Rs. 25.00/unit = Rs. 25,000. Since the redemption is within 180 days, an exit load of 0.5% is applicable. Exit load = 0.5% of Rs. 25,000 = Rs. 125. The net amount received by the investor is Rs. 25,000 - Rs. 125 = Rs. 24,875.

Question 28

An investor opts for dividend reinvestment in a growth option scheme. On the record date, the scheme declares a dividend of ₹2 per unit. If the NAV before dividend declaration was ₹50 and the investor held 100 units, what will be the approximate number of units held by the investor *immediately after* the dividend reinvestment, assuming the ex-dividend NAV is ₹48?

Accepted Answer

104.16 units.. Total dividend payable to the investor = Number of units * Dividend per unit = 100 units * ₹2/unit = ₹200. In a dividend reinvestment option, this dividend amount is used to purchase additional units at the ex-dividend NAV. Additional units purchased = Total dividend / Ex-dividend NAV = ₹200 / ₹48 = 4.1666... units. Total units after reinvestment = Original units + Additional units = 100 + 4.1666... = 104.16 units (approximately).

Question 29

A mutual fund scheme declares a dividend. How does this dividend declaration typically affect the scheme's Net Asset Value (NAV) on the record date?

Accepted Answer

The NAV decreases by the amount of the dividend declared.. When a mutual fund scheme declares a dividend, the amount of the dividend is paid out of the scheme's distributable surplus. On the record date, the NAV of the scheme is reduced by the dividend amount per unit, reflecting the payout to investors. This is similar to how a stock's price drops by the dividend amount on its ex-dividend date.

Question 30

For liquid and overnight mutual fund schemes, what is the cut-off time for purchase applications, provided funds are realized and available for utilization on the same day?

Accepted Answer

1:30 PM. For liquid and overnight funds, the cut-off for purchases and switch-ins is 1:30 PM. If the application is received and the funds are available for utilisation before 1:30 PM, the closing NAV of the day immediately preceding the day of receipt applies. If the funds are available only after the cut-off, the closing NAV of the day immediately preceding the next business day applies. Other schemes have a 3:00 PM cut-off and get the NAV of the business day on which funds are available.

Question 31

During the New Fund Offer (NFO) period, at what price are units of an open-ended mutual fund scheme typically offered to investors?

Accepted Answer

At a fixed price of INR 10 per unit.. During the NFO period, units of an open-ended mutual fund scheme are typically offered at their face value, which is usually INR 10 per unit. This is before the scheme begins investing and generating a fluctuating NAV based on market performance of its portfolio.

Question 32

An investor submits a purchase application for an equity-oriented mutual fund scheme worth ₹1,50,000 at 1:30 PM on a Tuesday. The funds are realized by the AMC's designated bank account at 3:30 PM on Wednesday. Assuming both days are business days and the cut-off time for non-liquid funds is 3:00 PM, which NAV will be applicable for this transaction?

Accepted Answer

Thursday's closing NAV.. For schemes other than liquid and overnight funds, the closing NAV of the business day on which the funds are available for utilisation before the 3:00 PM cut-off applies, for any amount (the old ₹2 lakh distinction was removed from 1 February 2021). This applies irrespective of when the application was received. The funds reached at 3:30 PM on Wednesday, after the cut-off, so the first business day on which they are available before the cut-off is Thursday.

Question 33

For the additional MFD incentive under SEBI's circular of 27 November 2025, who counts as a 'new investor' from a B-30 city?

Accepted Answer

An individual investing in mutual funds for the first time, identified by a new PAN at industry level. The incentive covers new individual investors, identified by a new PAN at industry level, from B-30 cities (and new women investors). The old additional 0.30% TER for B-30 inflows no longer exists.

Question 34

What is the maximum TER for a Fund of Funds that invests at least 65% in equity-oriented schemes, including the weighted TER of the underlying schemes?

Accepted Answer

2.10%. An FoF investing at least 65% in equity-oriented schemes has a total cap of 2.10% including the underlying weighted TER; other FoFs 1.85%, and FoFs in liquid/index/ETFs 0.90%. The old 2.25%/2.00% caps are outdated.

Question 35

How do accrued expenses, such as audit fees or trustee fees, impact the Net Asset Value (NAV) of a mutual fund scheme?

Accepted Answer

They reduce the NAV as they are treated as liabilities.. Accrued expenses are expenses incurred but not yet paid. They are recorded as liabilities in the fund's books. Since NAV is calculated as (Assets - Liabilities) / Units Outstanding, an increase in liabilities (accrued expenses) will reduce the NAV.

Question 36

Which of the following is considered an asset while calculating the Net Asset Value (NAV) of a mutual fund scheme?

Accepted Answer

Investments at market value. Investments held by the scheme, valued at their current market value, are the primary component of the scheme's assets. Accrued expenses and dividend payable are liabilities, while units allotted but not yet paid for would typically not be considered an asset until the funds are realized. The NAV is calculated as (Market value of investments + Other assets - Liabilities) / Number of outstanding units. (NISM V-A Study Material, Chapter 7, Components of NAV)

Question 37

What is the minimum frequency for Mutual Fund AMCs to disclose the Net Asset Value (NAV) for all their schemes?

Accepted Answer

Daily, for all business days.. As per SEBI regulations, Mutual Fund AMCs are required to declare the Net Asset Value (NAV) of their schemes on a daily basis for all business days. This ensures transparency and provides investors with up-to-date information on their investments.

Question 38

For an open-ended equity-oriented scheme, what is the maximum TER on the slab of daily net assets between Rs 500 crore and Rs 750 crore?

Accepted Answer

1.90%. Current equity-oriented slabs are 2.10% on the first Rs 500 crore and 1.90% on the next Rs 250 crore (1.65% for other than equity-oriented). The old 2.00% figure is outdated.

Ch.7: Net Asset Value, Total Expense Ratio and Pricing of Units

What You Will Learn in This Chapter

Multiple Choice Questions (123)

Most candidates guess their way through V-A.
BullWiser makes you prove it.

Ch.7: Net Asset Value, Total Expense Ratio and Pricing of Units

What You Will Learn in This Chapter

Multiple Choice Questions (123)

Most candidates guess their way through V-A.BullWiser makes you prove it.

Most candidates guess their way through V-A.
BullWiser makes you prove it.