NISM Series V-D Ch.6: Fund Distribution and Channel Management Practices — Practice Questions

Q: A key regulatory distinction exists between a SEBI Registered Investment Adviser (RIA) and a mutual fund distributor regarding their remuneration. How are RIAs primarily compensated for their services related to mutual funds, as per SEBI (Investment Advisers) Regulations, 2013?

Through direct fees charged to the client for advice. As per SEBI (Investment Advisers) Regulations, 2013, a key principle for RIAs is the 'fee-only' model. This means RIAs must charge fees directly to their clients for the advice provided and are prohibited from receiving any commissions or incentives from product manufacturers (like AMCs) for products they recommend or advise on. Distributors, conversely, are compensated by AMCs through commissions.

Q: An MFD recommends a highly volatile sector-specific equity fund to a retired individual with a low-risk appetite and immediate need for regular income. This action is most likely a violation of which AMFI principle?

Principle of suitability. Recommending an unsuitable product (high-risk, volatile fund) to an investor with a low-risk appetite and income needs is a direct violation of the Principle of Suitability, which mandates distributors to recommend products aligned with the investor's financial situation, investment objectives, and risk tolerance.

Multiple Choice Questions (49)

Q1MCQHardAdvisory vs. Distribution - Remuneration

A key regulatory distinction exists between a SEBI Registered Investment Adviser (RIA) and a mutual fund distributor regarding their remuneration. How are RIAs primarily compensated for their services related to mutual funds, as per SEBI (Investment Advisers) Regulations, 2013?

AThrough upfront and trail commissions paid by Asset Management Companies (AMCs).

BThrough transaction charges deducted from the investor's investment.

CThrough direct fees charged to the client for advice.

DThrough a combination of commissions from AMCs and fees from clients.

Q2MCQHardAMFI Code of Conduct and Ethical Practices

An MFD recommends a highly volatile sector-specific equity fund to a retired individual with a low-risk appetite and immediate need for regular income. This action is most likely a violation of which AMFI principle?

APrinciple of fair dealing.

BPrinciple of timely disclosure.

CPrinciple of suitability.

DPrinciple of transparency of charges.

Q3MCQEasyAMFI Registration Number (ARN)

What is the primary purpose of the AMFI Registration Number (ARN) for a mutual fund distributor?

ATo track the distributor's annual sales targets.

BTo enable the distributor to receive commissions for sales.

CTo certify the distributor as a registered investment advisor.

DTo identify distributors for tax compliance purposes only.

Q4MCQEasyARN and EUIN

What is the primary purpose of the Employee Unique Identification Number (EUIN) in mutual fund transactions?

ATo identify the employee of the distributor who advised the investor.

BTo identify the distributor firm or organization.

CTo identify the investor's bank account for redemption purposes.

DTo track the fund manager's performance for incentive calculation.

Q5MCQEasyARN Validity and Renewal

What is the standard validity period for an ARN (AMFI Registration Number) issued to individual mutual fund distributors?

A1 year

B3 years

C5 years

DPerpetual, once registered

Q6MCQEasyBank as a Distributor

Banks acting as mutual fund distributors leverage their extensive branch network and existing customer base. Which of the following is a primary regulatory requirement for banks distributing mutual funds?

AThey must offer only direct plans to their customers.

BThey are exempt from obtaining an ARN from AMFI.

CThey must ensure compliance with SEBI and AMFI guidelines for distribution, including KYC and investor suitability.

DThey are allowed to charge a separate advisory fee for mutual fund recommendations to their banking customers.

Q7MCQMediumCode of Conduct for Distributors / Restrictions on gifts/inducements

According to the AMFI Code of Conduct for Mutual Fund Distributors, what is the maximum value of a gift or benefit that a distributor can accept from an AMC or its associate for business promotion purposes per year?

AINR 1,000

BINR 2,500

CINR 5,000

DNo limit, provided it is disclosed to the investor.

Q8MCQHardCommission Clawback

In which of the following scenarios is a mutual fund distributor most likely to face a 'clawback' of commissions by the Asset Management Company (AMC)?

AThe investor redeems their investment after holding it for five years.

BThe distributor fails to submit the investor's KYC documents on time for a new investment.

CThe investor switches from a regular plan to a direct plan within a short period (e.g., 365 days) after initial investment.

DThe distributor advises the investor to invest in a low-cost index fund suitable for their profile.

Q9MCQHardCommission disclosure and transparency

According to SEBI regulations, which statement is true regarding the disclosure of commissions paid to distributors for mutual fund schemes?

AOnly the upfront commission paid to distributors needs to be explicitly disclosed to investors.

BTrail commission paid to distributors is automatically adjusted in the Net Asset Value (NAV) and does not require separate disclosure.

CThe total expense ratio (TER) already includes all distributor commissions, making separate disclosure redundant.

DDistributors are required to disclose all types of commissions (upfront and trail) received from AMCs to their investors in the Consolidated Account Statement (CAS) and also in the Scheme Information Document (SID).

Q10MCQMediumCommission Structure and TER

Distributor commissions for regular plan mutual funds are primarily paid out of which component?

ADirectly by the Asset Management Company (AMC) from its profits.

BFrom the Total Expense Ratio (TER) charged to the scheme's assets.

CBy SEBI as an incentive for promoting mutual funds.

DDirectly by the investor as a separate fee at the time of investment.

Q11MCQEasyCommission Structures and Transaction Charges

For a mutual fund investment of INR 10,000 or more, what is the maximum transaction charge a distributor can levy for an EXISTING investor in a scheme?

AINR 150

BINR 100

CINR 250

DNo transaction charge can be levied.

Q12MCQMediumCommissions and Disclosure

As per SEBI regulations, what is the mandatory requirement regarding commission disclosure by a mutual fund distributor to an investor for a specific transaction?

AThe distributor must disclose the exact percentage of commission received for that transaction.

BThe distributor is only required to disclose that they receive commissions, without specifying the amount.

CThe AMC must disclose the aggregate commission paid to the distributor in the scheme information document.

DThe distributor must disclose the commission received, if it exceeds a certain threshold, as mandated by AMFI.

Q13MCQMediumCompensation and Disclosure

How does the Total Expense Ratio (TER) of a mutual fund scheme relate to the distributor's commission in a Regular Plan?

ADistributor commissions are paid directly by the investor and are separate from the TER.

BThe TER has no bearing on distributor commissions, as commissions are determined solely by the AMC.

CDistributor commissions are paid out of the TER, meaning a higher TER can accommodate higher commissions, subject to SEBI limits.

DDistributors receive a fixed percentage of the fund's NAV, irrespective of the TER.

Q14MCQMediumDigital Distribution and Online Platforms

An online platform that facilitates mutual fund transactions for investors, offering both regular and direct plans, typically operates under which of the following regulatory models for its distribution activities?

AIt acts solely as an Investment Adviser, charging only advisory fees.

BIt typically registers as a mutual fund distributor (e.g., with AMFI) and earns trail commissions from AMCs for regular plans.

CIt operates as a stockbroker, charging brokerage on mutual fund units.

DIt functions as an Asset Management Company (AMC), directly managing investor funds.

Q15MCQMediumDigitalization and Online Distribution

What is a key advantage of using digital platforms for mutual fund distribution from an investor's perspective?

APersonalized, in-depth financial planning services.

BLower expense ratios for regular plans.

CConvenience of transactions and easy access to direct plans.

DGuaranteed higher returns due to automated advice.

Q16MCQMediumDigitalization in Distribution - Robo-advisors

Which statement best describes the nature of services offered by a Robo-advisor in the context of mutual fund distribution?

AThey provide human-led, personalized financial planning and investment advice.

BThey use algorithms and technology to provide automated, data-driven investment advice and portfolio management.

CThey primarily act as a platform for direct investment into individual stocks and bonds.

DThey are restricted from recommending mutual funds and only deal with exchange-traded funds (ETFs).

Q17MCQEasyDirect Plan vs. Regular Plan

What is the primary characteristic that differentiates a 'Direct Plan' from a 'Regular Plan' in a mutual fund scheme?

ADirect Plans invest only in equity schemes, while Regular Plans invest in debt.

BDirect Plans have a higher expense ratio compared to Regular Plans.

CDirect Plans do not involve a distributor and thus have a lower expense ratio.

DDirect Plans are exclusively for institutional investors, while Regular Plans are for retail investors.

Q18MCQMediumDirect Plans vs. Regular Plans

An investor chooses to invest in a 'Direct Plan' of a mutual fund scheme. What is the primary implication for a mutual fund distributor in this scenario?

AThe distributor will receive a lower upfront commission.

BThe distributor will receive a lower trail commission.

CThe distributor will not receive any commission from the AMC.

DThe distributor's ARN is not required for the transaction.

Q19MCQMediumDirect vs. Regular Plans

An investor opting for a 'Direct Plan' of a mutual fund scheme instead of a 'Regular Plan' will typically experience which of the following?

AA higher expense ratio compared to the Regular Plan.

BA lower Net Asset Value (NAV) compared to the Regular Plan over the long term.

CA higher Net Asset Value (NAV) compared to the Regular Plan over the long term.

DNo difference in expense ratio or NAV, only in the mode of purchase.

Q20MCQEasyDistribution Channels

Which of the following distribution channels typically offers the widest reach and highest penetration across various geographical locations due to their existing branch networks?

AIndividual Financial Advisors (IFAs)

BOnline Platforms

CBanks

DStockbrokers

Q21MCQEasyDistribution Models: Direct vs. Regular Plans

What is the key distinguishing feature of a 'Direct Plan' of a mutual fund scheme compared to a 'Regular Plan'?

ADirect Plans invest in a different portfolio of securities than Regular Plans of the same scheme.

BDirect Plans have a lower expense ratio because they do not include distribution commission.

CDirect Plans are exclusively offered to institutional investors.

DDirect Plans provide guaranteed returns, unlike Regular Plans.

Q22MCQMediumDistributor Compensation and SEBI Regulations

According to SEBI regulations, what is the current status regarding the payment of upfront commissions to mutual fund distributors by Asset Management Companies (AMCs)?

AUpfront commissions are capped at 1% of the investment amount.

BUpfront commissions are completely banned by SEBI.

CUpfront commissions must be disclosed to the investor but have no specific cap.

DUpfront commissions are only allowed for debt-oriented funds.

Q23MCQMediumDistributor due diligence and compliance (AML)

Which of the following is a critical responsibility of a mutual fund distributor related to Anti-Money Laundering (AML) compliance?

ATo directly report all suspicious transactions to the Financial Intelligence Unit - India (FIU-IND).

BTo maintain the client's bank account and investment portfolio details securely on their behalf.

CTo conduct customer due diligence, including verifying the identity and address of the investor as per PMLA guidelines, and report suspicious activities to the AMC/RTA.

DTo guarantee a minimum return on the investment to attract new clients.

Q24MCQHardDistributor Remuneration and Transaction Charges

As per SEBI regulations, how are transaction charges for mutual fund purchases handled by distributors?

ADistributors must absorb all transaction charges from their own earnings.

BTransaction charges are paid by the AMC from its own books and not deducted from the investor's investment.

CThey are deducted from the investor's subscription amount and paid to the distributor.

DTransaction charges are added to the Total Expense Ratio (TER) of the scheme.

Q25MCQHardDistributor Responsibilities and Due Diligence

Which of the following is NOT a mandatory due diligence requirement for a mutual fund distributor when recommending a scheme to an investor?

AAssessing the investor's risk profile and financial goals.

BEnsuring the investor has completed their Know Your Customer (KYC) process.

CVerifying the investor's current investment portfolio with other AMCs.

DExplaining the features, risks, and expenses of the recommended scheme.

Q26MCQHardDistributor vs. Investment Adviser

An individual holding an ARN (AMFI Registration Number) wishes to also register as an Investment Adviser (IA) under SEBI (Investment Advisers) Regulations, 2013. Which of the following statements is TRUE regarding this dual role?

AThe individual can provide both advisory and distribution services to the same client for the same product, provided full disclosure is made.

BThe individual must segregate advisory and distribution activities by maintaining separate client accounts and distinct service offerings.

CThe individual is strictly prohibited from holding both an ARN and an IA registration simultaneously.

DThe individual can only provide advisory services and cannot earn any commission from product distribution, even to different clients.

Q27MCQEasyDistributor's Post-Sales Role

Which of the following is primarily a post-sales service expected from a mutual fund distributor?

AConducting investor risk profiling before investment.

BExplaining different fund categories and their risks.

CAssisting investors with changes in nomination or redemption requests.

DProviding advice on market timing for investment.

Q28MCQHardDistributor's role in investor interest and plan switches

An investor, who previously invested in a Regular Plan through a distributor, decides to switch their existing investments to a Direct Plan of the same scheme. What is a key responsibility of the original distributor in this scenario, as per industry best practices and AMFI guidelines regarding investor interest?

AThe distributor must try to convince the investor to stay in the Regular Plan by offering higher returns or incentives.

BThe distributor should facilitate the switch process for the investor, ensuring they understand the implications, even if it means losing future trail commissions.

CThe distributor is obligated to immediately inform all other AMCs the investor is invested with about the switch.

DThe distributor must charge an exit load to the investor specifically for switching to a Direct Plan.

Q29MCQHardEmployee Unique Identification Number (EUIN)

An investor invests in a mutual fund through an online platform where no specific distributor's employee directly facilitated the transaction. However, the investor had previously interacted with a distributor's employee for general advice on mutual funds. In such a scenario, what is the correct practice regarding the Employee Unique Identification Number (EUIN)?

AThe EUIN of the distributor's employee must still be captured to link the transaction to their advice, even if not directly facilitated.

BSince no direct interaction for the specific transaction occurred, capturing an EUIN is not mandatory.

CThe online platform's ARN should be sufficient, and EUIN is not required.

DThe investor should be prompted to voluntarily provide the EUIN of any distributor they previously interacted with.

Q30MCQHardEthical Conduct and Best Practices - Mis-selling and Suitability

A mutual fund distributor advises a retired, risk-averse individual to invest a significant portion of their life savings into a sector-specific equity fund, emphasizing potential high returns without adequately disclosing the associated high risks. This action is a clear violation of which fundamental principle for mutual fund distributors?

APrinciple of 'Know Your Distributor' (KYD).

BPrinciple of 'Best Execution'.

CPrinciple of 'Suitability and Appropriateness'.

DPrinciple of 'Fair Disclosure' by the AMC.

Q31MCQHardEthical Practices: Mis-selling and Churning

A mutual fund distributor frequently advises an investor to switch between different schemes or plans within a short period, even when these switches do not align with the investor's stated financial goals or risk profile, and primarily result in transaction costs and increased commissions for the distributor. This unethical practice is commonly known as:

APortfolio rebalancing.

BMarket timing.

CChurning.

DAsset allocation.

Q32MCQMediumEUIN and Distributor Accountability

The Employee Unique Identification Number (EUIN) is mandatory for mutual fund transactions where advice or interaction has occurred. What is its primary purpose?

ATo identify the specific Asset Management Company (AMC) employee who processed the transaction.

BTo identify the distributor's employee who advised or interacted with the investor for the transaction.

CTo track the investor's transaction history across different distributors.

DTo ensure the investor's Know Your Customer (KYC) details are linked to the transaction.

Q33MCQMediumEvolution of Commission Structure (Ban on Upfront Commissions)

What was the primary impact of SEBI's ban on upfront commissions for mutual fund distributors, which came into effect in 2009?

AIt led to a complete cessation of all forms of distributor remuneration from AMCs.

BIt shifted the distributor's business model primarily towards trail commissions, incentivizing long-term retention and service.

CIt resulted in AMCs directly paying all scheme expenses to investors as a rebate.

DIt made all mutual fund schemes 'Direct Plans' by default, eliminating the role of distributors.

Q34MCQMediumInvestor Grievance Redressal

If an investor has a grievance or complaint specifically against a mutual fund distributor regarding their services, what is the recommended initial step for seeking redressal?

ADirectly file a complaint with the Securities and Exchange Board of India (SEBI) through SCORES.

BContact the Association of Mutual Funds in India (AMFI) immediately.

CApproach the concerned Asset Management Company (AMC) whose scheme was distributed.

DFirst approach the distributor themselves, and if unresolved, then escalate to the concerned AMC.

Q35MCQHardKYD (Know Your Distributor) and Due Diligence by AMCs

As per SEBI/AMFI guidelines, what is a key expectation from an Asset Management Company (AMC) regarding its empaneled distributors under the 'Know Your Distributor' (KYD) principle?

AAMCs are required to guarantee the business performance of their distributors.

BAMCs must conduct ongoing due diligence on their distributors, including checks on their business practices, investor complaints, and adherence to the Code of Conduct.

CAMCs are responsible for providing all necessary office infrastructure to their empaneled distributors.

DAMCs must ensure that distributors only recommend funds managed by that specific AMC.

Q36MCQHardOnline Distribution Platforms (MFU)

The Mutual Fund Utilities (MFU) platform offers several benefits to investors and distributors in the mutual fund ecosystem. Which of the following is NOT a primary feature or benefit offered directly by MFU?

AProviding a single window for transacting across multiple Asset Management Companies (AMCs).

BEnabling investors to switch between Regular and Direct plans for their existing mutual fund investments.

COffering personalized investment advice and fund recommendations to investors based on their risk profile.

DFacilitating the creation of a Common Account Number (CAN) for simplified portfolio management.

Q37MCQMediumOnline Platforms (MFU)

The MF Utilities (MFU) platform offers several benefits to mutual fund investors. Which of the following is a primary advantage of using MFU for transacting in mutual funds?

AIt allows investors to receive upfront commissions on their investments.

BIt provides a single window for transacting across multiple AMCs using a Common Account Number (CAN).

CIt guarantees higher returns compared to direct investments with AMCs.

DIt offers exclusive access to segregated portfolios not available elsewhere.

Q38MCQHardRegulations for Distributors (KYC, AML)

Under SEBI (Mutual Funds) Regulations, 1996, while distributors are responsible for collecting KYC documents, which entity bears the ultimate responsibility for ensuring that investors in their mutual fund schemes comply with Know Your Client (KYC) norms and Anti-Money Laundering (AML) guidelines?

AThe Association of Mutual Funds in India (AMFI).

BThe individual mutual fund distributor.

CThe Asset Management Company (AMC) whose schemes are being distributed.

DThe Securities and Exchange Board of India (SEBI).

Q39MCQHardRegulatory Framework for Distributors - EUIN

What is the primary objective of the Employee Unique Identification Number (EUIN) for employees of mutual fund distributors, as mandated by SEBI?

ATo track the total sales generated by the distributor's firm.

BTo ensure that the specific employee who advised the investor is identified, even if the employee moves to another organization.

CTo calculate the monthly commission payable to the distributor's firm.

DTo verify the employee's academic qualifications before they can advise investors.

Q40MCQEasyRegulatory Requirements - EUIN

What is the primary purpose of the Employee Unique Identification Number (EUIN) in mutual fund transactions?

ATo track the assets under management (AUM) of the distributor's firm.

BTo identify the specific employee/sales person of a distributor who advised the investor.

CTo link the investor's Permanent Account Number (PAN) with the distributor's ARN.

DTo ensure the distributor has completed mandatory training modules.

Q41MCQMediumRemuneration to Distributors / B30 incentives

What is the primary objective of the 'B30 incentive' for mutual fund distributors?

ATo encourage investments from the top 30 cities (T30 cities).

BTo promote investments in direct plans, reducing distribution costs.

CTo incentivize mutual fund distributors to procure business from cities beyond the top 30 cities.

DTo encourage foreign institutional investors to invest in Indian mutual funds.

Q42MCQMediumRemuneration/Commissions (Direct vs. Regular Plans)

An investor chooses to invest in a 'Direct Plan' of a mutual fund scheme. What is the primary implication for a mutual fund distributor who might have advised this investor?

AThe distributor will receive an upfront commission from the AMC.

BThe distributor will receive a lower trail commission than a 'Regular Plan'.

CThe distributor will not receive any commission from the AMC for this investment.

DThe distributor can charge a separate fee directly to the investor for their services.

Q43MCQMediumRole and Responsibilities of Distributors

Which of the following is NOT typically considered a primary responsibility of a mutual fund distributor towards an investor, unless separately registered as an Investment Advisor?

AFacilitating KYC compliance and documentation.

BProviding specific investment advice tailored to the investor's financial goals and risk profile.

CAssisting with transaction processing (subscriptions, redemptions, switches).

DExplaining the features and risks of mutual fund products.

Q44MCQEasyRole of Mutual Fund Distributors

Which of the following is NOT a primary service offered by a Mutual Fund Distributor (MFD) to investors?

AAssisting with KYC compliance.

BProviding transaction processing support.

COffering guarantees on fund performance.

DExplaining different fund categories and their risks.

Q45MCQMediumSEBI (Mutual Funds) Regulations / Segregation of advisory and distribution activities

A SEBI Registered Investment Adviser (RIA) who also wishes to distribute mutual fund products must adhere to which of the following regarding their activities?

AThey must only distribute direct plans of mutual funds.

BThey must charge a separate fee for advisory and distribution, and these fees can be for the same product.

CThey must maintain a clear segregation between their advisory and distribution activities to avoid conflicts of interest.

DThey are prohibited from distributing mutual funds if they are registered as an RIA.

Q46MCQMediumSEBI Code of Conduct for Distributors

According to the SEBI (Mutual Funds) Regulations, which of the following actions by a mutual fund distributor would be considered a violation of the Code of Conduct?

AAdvising an investor to shift investments from a regular plan to a direct plan if it's suitable for their financial goals.

BDisclosing the amount of commission received for a specific transaction to an investor upon request.

CRecommending a scheme primarily based on the higher commission payout, disregarding investor suitability.

DConducting investor awareness programs without charging any fee.

Q47MCQHardTotal Expense Ratio (TER) and Distribution Expenses

As per SEBI regulations, the Total Expense Ratio (TER) of a mutual fund scheme includes various expenses. Which component of TER specifically covers the distribution and marketing expenses of the scheme?

ARegistrar and Transfer Agent (RTA) fees for record-keeping.

BInvestment management and advisory fees paid to the AMC.

CCommission payments to distributors and marketing expenses.

DCustodian fees and statutory audit fees.

Q48MCQEasyTransaction Charges

As per AMFI guidelines, what is the maximum transaction charge an AMC can deduct for a subscription of Rs. 10,000 or more for a NEW investor?

ARs. 100

BRs. 150

CRs. 200

DRs. 250

Q49MCQEasyTypes of Distributors

Which of the following types of mutual fund distributors typically operates with a pan-India presence, has a large network of branches, and offers a wider range of financial products beyond just mutual funds?

AIndividual Financial Advisor (IFA)

BBank

CNational Distributor

DRobo-advisor

About this content: These practice questions are based on the NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination Workbook published by the National Institute of Securities Markets (NISM), Mumbai (March 2026 edition). NISM is a SEBI-established institution. Questions cover Chapter 6: Fund Distribution and Channel Management Practices with verified answers and explanations. BullWiser is an independent exam preparation platform — not affiliated with NISM, SEBI or AMFI. Last updated: July 24, 2026.

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Ch.6: Fund Distribution and Channel Management Practices

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Multiple Choice Questions (49)

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