📊 NISM Series X-A Chapter 11 of 20 ⚖ 10 marks weightage Case-Based ✓

Ch.11: Mutual Fund

Q: Who sets up (promotes) a mutual fund?

The sponsor. The sponsor sets up the fund, trustees protect unitholders' interests, and the AMC runs the schemes. All are regulated by SEBI.

Q: Which entity maintains investor records and handles communication with unitholders?

The registrar and transfer agent (R&T agent). The R&T agent creates folios from application forms and services investor transactions on the AMC's behalf.

Q: Who owns the portfolio of a mutual fund scheme?

The unitholders, in proportion to their units. The scheme's assets belong only to the investors who contributed, in proportion to their holdings.

Q: An investor puts ₹10,000 into a scheme at ₹10 a unit. How many units does she get?

1,000. Units = amount ÷ price = ₹10,000 ÷ ₹10. Units can also be allotted in fractions.

Q: How is a scheme's NAV calculated?

Net assets ÷ number of units outstanding. Net assets = market value of the portfolio plus current assets, minus fees and expenses.

Q: A scheme has net assets of ₹1,00,000 and 9,000 units (NAV ₹11.11). If 1,000 new units were wrongly issued at ₹10 instead of NAV, what would the new NAV be?

₹11.00. Net assets = ₹1,10,000; units = 10,000; NAV = ₹11. Issuing units below NAV dilutes existing investors, which is why transactions must be at NAV.

Q: What does marking a portfolio to market mean?

Valuing holdings daily at current market prices. NAV must reflect what investors would get if the portfolio were sold today. SEBI sets methods for securities that are untraded or have stale prices.

Q: What happens to the unit capital of an open-ended scheme?

It changes with every purchase and redemption. Open-ended schemes sell and buy back units continuously at NAV and have no fixed maturity.

Practice questions for NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination (mandated by SEBI under the Investment Advisers Regulations, 2013). Chapter 11 carries 10 out of 150 marks in the final examination. The exam has 90 MCQs + 9 case-based sets (5 sub-questions each, mixed 1-mark and 2-mark weighting), 180-minute duration, 60% passing score, and 25% negative marking on the marks of each wrong answer.

MCQ

Case Sets

Total Qs

Exam Marks

60%

Pass Score

−25%

Neg. Marking

What You Will Learn in This Chapter

Understand mutual fund structure, types and NAV calculation
Know the role of AMCs, trustees and SEBI mutual fund regulations
Evaluate mutual fund schemes using key performance ratios

Key Terms:NAVAMCexpense ratioSIPexit loadequity funddebt fundbenchmarkalpha

Chapter 11 in 10 minutes: mutual funds

Chapter 11 is a big, number-heavy chapter. X-A questions focus on how NAV works, scheme structures, SEBI's category rules (the percentages), systematic plans and the direct-versus-regular choice. Learn the category table below; it alone answers many questions.

1. Structure and NAV

Sponsor sets up the fund, trustees protect investors, the AMC manages schemes, and the R&T agent keeps records. The regulator is SEBI, under the MF Regulations, 1996. AMFI is the industry body. MF Lite (December 2024) covers fund houses running only passive schemes.
NAV = net assets ÷ units outstanding. Buying or redeeming at NAV leaves NAV unchanged. Issuing units below NAV would dilute existing investors.
Portfolios are marked to market daily.

2. Scheme structures

Type	Key feature
Open-ended	Continuous buy and sell at NAV; unit capital changes
Close-ended	Units sold only in the NFO; listed; unit capital fixed
Interval	Opens for at least 2 days, with at least 15 days between windows; listed
ETF	Traded on an exchange at real-time prices through demat

3. SEBI categories you must know

Category	Rule
Large / Mid / Small cap	Ranks 1–100 / 101–250 / 251+; min 80% / 65% / 65%
Large & mid cap	At least 35% each
Multi cap	At least 75% equity; at least 25% each in large, mid and small
Flexi cap	At least 65% equity, any market cap
Sector / thematic	At least 80% in the sector or theme
Focused	Maximum 30 stocks
Value or contra	An AMC may offer only one of the two
ELSS	At least 80% equity; 3-year lock-in; 80C only under the old regime
Overnight / Liquid / Money market	1 day / up to 91 days / up to 1 year
Ultra short → Long duration	3–6 mo, 6–12 mo, 1–3 yr (short), 3–4 yr (medium), 4–7 yr, 7+ yr
Corporate bond / Credit risk	80% in AA+ and above / 65% in AA and below
Banking & PSU / Gilt	At least 80% each; gilt 10-year constant duration = 10-year duration
Floater	At least 65% in floating-rate instruments
Conservative / Balanced / Aggressive hybrid	10–25% / 40–60% / 65–80% equity
Multi asset	At least 10% in each of three or more asset classes
Equity savings	At least 65% equity (with arbitrage), at least 10% debt
FoF / ETF	At least 95% in the underlying fund / index securities

Also note: FMPs are close-ended and TMFs open-ended, and both roll down to a maturity. Life Cycle Funds run 5 to 30 years, have a glide path, and charge exit loads of 3%, 2% and 1% in years one to three. Infrastructure debt schemes need at least ₹1 crore. SIFs need ₹10 lakh, sitting between mutual funds and PMS (₹50 lakh).

4. Transactions and options

An IDCW payout cuts the NAV and may include your own capital. Growth keeps gains inside the NAV.
Instant Access Facility: lower of ₹50,000 or 90% of value, per day per scheme, for resident individuals in liquid funds.
Triggers redeem or transfer automatically on a set return, NAV, value, date or index level.
A folio below the minimum balance may be closed. Schemes being wound up are listed to give an exit route.

5. Systematic plans

SIP: fixed amount, rupee cost averaging. SWP: regular redemptions; exit load and tax apply. STP: SWP from one scheme into an SIP in another, useful for moving gradually out of equity near a goal. DTP: dividends from one scheme invested into another. Value averaging: invest more when the portfolio is below its target value and less when above.

6. Direct vs regular

Same portfolio, but the direct plan has a lower expense ratio. A regular plan brings a distributor's help with processes and problems. The adviser should explain both and judge whether the client has the knowledge and time for the do-it-yourself route.

Summary written by BullWiser from the NISM Series X-A workbook (March 2026 edition), Chapter 11. Always refer to the current NISM workbook before your exam.

Multiple Choice Questions (48)

Q1 MCQ · 1 mark EasyStructure

Who sets up (promotes) a mutual fund?

AThe sponsor

BThe trustee

CThe AMC

DThe registrar and transfer agent

Q2 MCQ · 1 mark MediumStructure

Which entity maintains investor records and handles communication with unitholders?

ASEBI

BThe registrar and transfer agent (R&T agent)

CThe custodian

DThe sponsor

Q3 MCQ · 1 mark EasyStructure

Who owns the portfolio of a mutual fund scheme?

AThe sponsor

BThe AMC

CThe unitholders, in proportion to their units

DThe trustees

Q4 MCQ · 1 mark MediumDocuments

What is the Key Information Memorandum (KIM)?

AThe AMC's annual report

BSEBI's approval letter

CThe fund manager's daily trading log

DAn abridged version of the offer document that comes with the application form

Q5 MCQ · 1 mark EasyUnits

An investor puts ₹10,000 into a scheme at ₹10 a unit. How many units does she get?

A10

B1,000

C100

D10,000

Q6 MCQ · 1 mark MediumNAV

How is a scheme's NAV calculated?

ANet assets ÷ number of units outstanding

BTotal assets ÷ number of investors

CMarket cap of holdings ÷ face value

DExpenses ÷ units outstanding

Q7 MCQ · 1 mark MediumNAV

When an investor redeems units at the current NAV, what happens to the NAV?

AIt resets to ₹10

BIt rises

CIt does not change, because net assets and units fall in proportion

DIt falls

Q8 MCQ · 1 mark HardNAV

A scheme has net assets of ₹1,00,000 and 9,000 units (NAV ₹11.11). If 1,000 new units were wrongly issued at ₹10 instead of NAV, what would the new NAV be?

A₹11.11

B₹10.00

C₹12.00

D₹11.00

Q9 MCQ · 1 mark MediumMark to market

What does marking a portfolio to market mean?

AValuing holdings daily at current market prices

BValuing holdings once a year

CMarking which stocks to sell

DValuing holdings at purchase cost

Q10 MCQ · 1 mark MediumScheme structure

What happens to the unit capital of an open-ended scheme?

AIt can change only during the NFO

BIt stays fixed for the life of the scheme

CIt is fixed by SEBI

DIt changes with every purchase and redemption

Q11 MCQ · 1 mark MediumScheme structure

How can an investor exit a close-ended scheme before maturity?

AThey cannot exit before maturity under any circumstances

BBy redeeming with the AMC at NAV on any day

CBy selling units on the stock exchange where they are listed

DBy switching to an open-ended scheme free of cost

Q12 MCQ · 1 mark HardInterval funds

Which statement about interval funds is correct?

AThey are open every day like open-ended funds

BThey open for transactions for at least 2 days, with at least 15 days between windows, and are listed

CThey open only once at maturity

DThey are never listed

Q13 MCQ · 1 mark MediumETFs

How does buying an ETF differ from buying an open-ended fund from the AMC?

AETFs cannot be sold before maturity

BETFs do not need a demat account

CETF units trade between investors on an exchange at real-time prices through the day

DETFs are bought from the AMC at end-of-day NAV

Q14 MCQ · 1 mark EasyRegulation

Which regulations govern mutual funds in India?

ABanking Regulation Act, 1949

BCompanies Act, 2013

CSEBI (Portfolio Managers) Regulations, 2020

DSEBI (Mutual Funds) Regulations, 1996

Q15 MCQ · 1 mark MediumRegulation

SEBI's MF Lite regulations, rolled out in December 2024, apply to mutual funds that run:

AOnly passive funds

BOnly close-ended funds

COnly ELSS

DOnly debt funds

Q16 MCQ · 1 mark MediumCategorisation

How many schemes per category can a mutual fund normally offer?

AThree

BOne, with exceptions such as index funds, ETFs, FoFs and sector/thematic funds

CTwo

DUnlimited

Q17 MCQ · 1 mark EasyMarket cap

According to SEBI, which companies are large caps?

AThe top 250

BThe top 100 by full market capitalisation in AMFI's list

CAny company with a market cap over ₹1,000 crore

DCompanies ranked 101 to 250

Q18 MCQ · 1 mark MediumMarket cap

What is the minimum allocation to large caps for a large cap fund?

A25%

B65%

C35%

D80%

Q19 MCQ · 1 mark HardMarket cap

How must a multi cap fund allocate its assets?

AAt least 75% in equity, with at least 25% each in large, mid and small caps

BAt least 80% in large caps

CAt least 65% in equity with no segment limits

DEqual thirds across equity, debt and gold

Q20 MCQ · 1 mark MediumSector and thematic

What is the minimum investment in the chosen sector for an open-ended sector fund?

A65%

B50%

C80% of total assets

D95%

Q21 MCQ · 1 mark MediumInvestment style

Which pair of funds can an AMC NOT offer at the same time?

AAn index fund and an ETF

BA large cap fund and a mid cap fund

CA liquid fund and an overnight fund

DA value fund and a contra fund

Q22 MCQ · 1 mark MediumInvestment style

What is the maximum number of stocks a focused fund can hold?

A20

B30

C100

D50

Q23 MCQ · 1 mark MediumELSS

Which statement about ELSS is correct?

AIt gives 80C deduction under the new tax regime

BIt can be pledged during the lock-in

CIt has a 3-year lock-in and must hold at least 80% in equity

DIt has a 5-year lock-in

Q24 MCQ · 1 mark EasyDebt funds

What is the maximum maturity of securities held by a liquid fund?

AUp to 91 days

B1 year

C3 years

D1 day

Q25 MCQ · 1 mark MediumDebt funds

What is the Macaulay duration range of a short duration fund?

A3 to 4 years

B1 to 3 years

CMore than 7 years

D3 to 6 months

Q26 MCQ · 1 mark MediumDebt funds

What is the minimum investment in AA+ and above corporate bonds for a corporate bond fund?

A80%

B50%

C100%

D65%

Q27 MCQ · 1 mark MediumDebt funds

What happens to a long-duration debt fund's returns when interest rates fall?

AThey fall, because coupons fall

BThe fund must close

CThey rise, because bond prices go up and add capital gains

DThey stay the same

Q28 MCQ · 1 mark MediumDebt funds

What is special about a gilt fund with 10-year constant duration?

AIt has a 10-year lock-in

BIt guarantees a return for 10 years

CIt invests only in 10-year corporate bonds

DIt keeps at least 80% in G-secs with a portfolio Macaulay duration of 10 years

Q29 MCQ · 1 mark MediumDebt funds

Why do floating-rate funds have low interest rate risk?

ASEBI fixes their NAV

BTheir coupons reset periodically in line with market rates

CThey hold only cash

DThey never mark to market

Q30 MCQ · 1 mark MediumFMPs and TMFs

What is a key difference between FMPs and target maturity funds (TMFs)?

ABoth are equity funds

BFMPs are open-ended; TMFs are close-ended

CNeither has a maturity date

DFMPs are close-ended; TMFs are open-ended with a defined maturity

Q31 MCQ · 1 mark HardFMPs

Why are FMPs attractive when interest rates are expected to rise?

ATheir NAV rises when rates rise

BThey have no credit risk

CInvestors can lock in high yields and, if held to maturity, avoid price risk

DThey switch to equity automatically

Q32 MCQ · 1 mark MediumHybrid funds

What equity range defines an aggressive hybrid fund?

A65% to 80%

BAt least 90%

C40% to 60%

D10% to 25%

Q33 MCQ · 1 mark MediumHybrid funds

What is the minimum allocation per asset class in a multi asset allocation fund?

ANo minimum

BAt least 10% in each of at least three asset classes

CAt least 33% in each of three classes

DAt least 25% in each of four classes

Q34 MCQ · 1 mark MediumHybrid funds

How do arbitrage funds earn returns?

ABy lending to companies

BBy holding long-term gilts

CBy buying in the cash market and selling in the derivatives market to capture the price gap

DBy picking high-growth stocks

Q35 MCQ · 1 mark MediumHybrid funds

What is the minimum equity and debt mix of an equity savings fund?

AAt least 80% equity and 20% gold

BAt least 50% each in equity and debt

CAt least 25% equity

DAt least 65% in equity (including arbitrage) and at least 10% in debt

Q36 MCQ · 1 mark HardLife cycle funds

Which statement about SEBI's Life Cycle Funds is correct?

AThey are open-ended, with tenures of 5 to 30 years in multiples of 5 and a glide path

BThey can only hold equity

CThey have no exit load at any stage

DThey are close-ended with a 1-year tenure

Q37 MCQ · 1 mark MediumFund of funds

At least what share of a fund of funds' assets must be in the underlying fund(s)?

A50%

B80%

C65%

D95%

Q38 MCQ · 1 mark MediumGold ETFs

Up to what share of net assets can a gold ETF place in bank gold deposit schemes?

A20%

B50%

C5%

D100%

Q39 MCQ · 1 mark HardInfrastructure debt

What is the minimum investment in an infrastructure debt scheme?

A₹50 lakh

B₹5,000

C₹1 crore, with a minimum unit face value of ₹10 lakh

D₹10 lakh

Q40 MCQ · 1 mark MediumSIF

What gap does the Specialised Investment Fund (SIF) fill?

ABetween ETFs and index funds

BBetween mutual funds and PMS, with a ₹10 lakh minimum

CBetween equity and debt funds

DBetween bank FDs and savings accounts

Q41 MCQ · 1 mark MediumOptions

What happens to the NAV when an IDCW (dividend) is paid?

AIt falls by the amount paid out

BIt resets to face value

CIt rises

DIt is unchanged

Q42 MCQ · 1 mark MediumTriggers

What does a trigger facility do?

AStops all SIPs during a crash

BForces the AMC to buy back units at face value

CRedeems or transfers units automatically when a preset condition is met

DSends a market tip to investors

Q43 MCQ · 1 mark HardRedemption

What is the Instant Access Facility (IAF) limit for liquid fund redemptions?

A₹2 lakh per day

BLower of ₹50,000 or 90% of the latest value, per day per scheme per investor

C₹10,000 per transaction

D100% of the value, any amount

Q44 MCQ · 1 mark MediumRedemption

Why did SEBI require schemes being wound up to be listed on a stock exchange?

ATo merge them with other schemes

BTo avoid paying exit loads

CTo raise fresh money

DTo give investors an exit route while assets are being realised

Q45 MCQ · 1 mark MediumSystematic plans

What is rupee cost averaging in an SIP?

AInvesting only when markets fall

BAveraging the NAV of all schemes

CBuying the same number of units each month

DInvesting a fixed amount buys more units when prices are low and fewer when high

Q46 MCQ · 1 mark MediumSystematic plans

How does a value averaging plan differ from a regular SIP?

AIt invests more when the portfolio is below its target value and less when above

BIt invests only in debt

CIt invests the same amount every month

DIt withdraws money every month

Q47 MCQ · 1 mark MediumSystematic plans

Why might an investor nearing a goal use an STP from an equity fund to a short-term debt fund?

ATo skip exit loads

BTo avoid all taxes

CTo shift gradually and avoid redeeming everything at a low NAV

DTo increase equity risk

Q48 MCQ · 1 mark MediumDirect vs regular

What is the main trade-off between direct and regular plans?

ADirect plans have a different portfolio

BDirect plans cost less but the investor handles everything without a distributor's help

CDirect plans cannot be redeemed online

DRegular plans always return more

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Case-Based Questions (1 set)

Case 1 Case-Based · 2 marks each Choosing schemes for a client

Kavita, 42, has ₹12 lakh to invest. She needs ₹4 lakh in 2 months for her son's college fees and wants the rest to grow for retirement in 18 years. She also wants to save tax under Section 80C, as she files under the old tax regime. She prefers low costs and is comfortable transacting online. Her adviser suggests: ₹4 lakh in a liquid fund, ₹1.5 lakh in an ELSS, and the balance in a large cap fund through an STP from the liquid fund over 12 months.

Easy Sub-question 1

Why is a liquid fund suitable for the ₹4 lakh needed in 2 months?

AIt holds securities maturing within 91 days, giving low volatility and quick access

BIt guarantees a fixed return

CIt invests 80% in equity

DIt has a 3-year lock-in

Medium Sub-question 2

What restriction applies to her ELSS investment?

AIt has no lock-in

BIt can only be bought through an SIP

CIt cannot be redeemed, transferred or pledged for 3 years

DIt must be held for 5 years

Medium Sub-question 3

Why move money into the large cap fund through an STP rather than all at once?

ATo avoid exit loads entirely

BTo spread entry over time and reduce the risk of investing at a market peak

CTo get a guaranteed NAV

DBecause large cap funds do not accept lump sums

Medium Sub-question 4

Given her preferences, which plan should she use for these schemes?

ARegular plans, because they hold better portfolios

BEither, since costs are identical

CRegular plans, because direct plans have lock-ins

DDirect plans, as she wants low costs and can transact online

About this content: These practice questions are based on the NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination Workbook published by the National Institute of Securities Markets (NISM), Mumbai. NISM is a SEBI-established institution. Questions cover Mutual Fund with verified answers and explanations. BullWiser is an independent exam preparation platform — not affiliated with NISM or SEBI. Last updated: October 02, 2026.

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