Chapter 4 — All 200 Questions
Q1MediumKey Constituents and their Roles - Asset Management Company (AMC)
What is the minimum net worth requirement for an Asset Management Company (AMC) to operate a mutual fund, as per current SEBI (Mutual Funds) Regulations for existing AMCs?
✓INR 50 Crores
BINR 75 Crores
CINR 100 Crores
DINR 125 Crores
💡 Regulation 21(1)(f) of SEBI (Mutual Funds) Regulations, 1996, stipulates that an operational AMC shall have a minimum net worth of not less than fifty crore rupees. For new AMCs, the requirement is INR 100 Crores.
Q2MediumTotal Expense Ratio (TER), SEBI Regulations
According to SEBI regulations, what is the maximum additional expense ratio that an Asset Management Company (AMC) is permitted to charge for new inflows from retail investors beyond the Top 30 cities?
A0.10% of daily net assets
B0.20% of daily net assets
✓0.30% of daily net assets
D0.50% of daily net assets
💡 SEBI allows AMCs to charge an additional expense ratio of up to 0.30% of daily net assets if the new inflows from retail investors from beyond Top 30 cities are at least 30% of the total new inflows in the scheme or 15% of the average AUM (whichever is higher). This incentive is aimed at promoting financial inclusion.
Q3HardSEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003
Under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, which of the following actions would most likely constitute 'fraud'?
AProviding financial advice without disclosing potential conflicts of interest.
✓Spreading false or misleading information to induce the sale or purchase of securities.
CFailure of an investor to submit a KYC document on time.
DDelay in processing a redemption request due to administrative oversight by the AMC.
💡 As per SEBI (PFUTP) Regulations, 2003, 'fraud' includes any act, omission, concealment of any material fact or misrepresentation of any material fact, done knowingly with an intent to deceive, to induce another person to enter into a contract or transaction. Spreading false or misleading information with the intent to influence investment decisions directly falls under this definition. The other options represent different types of regulatory or operational issues, but not necessarily fraud as defined.
Q4EasyValuation Norms
For unlisted equity shares held in a mutual fund scheme, how frequently must their valuation be carried out as per SEBI regulations?
AOnce every financial year.
BOnce every six months.
✓Once every quarter.
DOnce every month.
💡 As per SEBI (Mutual Funds) Regulations, 1996, and related circulars, unlisted equity shares must be valued at least once every quarter. This ensures that the Net Asset Value (NAV) accurately reflects the value of the underlying assets, even for less liquid instruments.
Q5MediumAMC Board Composition and Governance
What is the minimum percentage of independent directors required on the Board of an Asset Management Company (AMC) as per SEBI (Mutual Funds) Regulations, 1996?
✓At least one-half
BAt least two-thirds
CAt least three-fourths
DAll directors must be independent
💡 As per SEBI (Mutual Funds) Regulations, 1996, Regulation 21(2)(b), the Asset Management Company (AMC) shall have a minimum of half of its directors as independent directors. This ensures proper governance and reduces potential conflicts of interest.
Q6EasyKey Constituents and their Roles - Custodian
Which entity is responsible for the safe-keeping of the securities and other assets of a mutual fund scheme?
AThe Sponsor
BThe Asset Management Company (AMC)
CThe Registrar and Transfer Agent (RTA)
✓The Custodian
💡 The Custodian is responsible for the safe-keeping of the securities and other assets of the mutual fund scheme. They hold the physical and electronic securities on behalf of the Trustees and ensure their safekeeping, as per SEBI (Mutual Funds) Regulations, 1996.
Q7MediumSEBI (Mutual Funds) Regulations - AMC
According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent directors required on the board of directors of an Asset Management Company (AMC)?
AOne-third
✓Half
CTwo-thirds
DThree-fourths
💡 SEBI (Mutual Funds) Regulations, 1996, Chapter III, Regulation 21(1)(d) mandates that at least half of the directors of the Asset Management Company shall be independent directors and shall not be associated in any manner with the sponsor or any of its subsidiaries or the trustee company or any other company in the same group.
Q8MediumEligibility Criteria for AMC, SEBI (Mutual Funds) Regulations, 1996
What is the minimum net worth that an Asset Management Company (AMC) is required to maintain at all times as per SEBI (Mutual Funds) Regulations, 1996?
AINR 10 Crores
BINR 25 Crores
✓INR 50 Crores
DINR 100 Crores
💡 As per Regulation 21(1)(b) of SEBI (Mutual Funds) Regulations, 1996, an Asset Management Company (AMC) is required to have a minimum net worth of not less than INR 50 Crores at all times. This ensures the financial stability of the AMC.
Q9MediumSEBI (Mutual Funds) Regulations - AMC Board Composition
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum percentage of independent directors required on the board of the Asset Management Company (AMC)?
AAt least one-third of the directors
✓At least 50% of the directors
CAt least two-thirds of the directors
DAll directors must be independent
💡 SEBI (Mutual Funds) Regulations, 1996, mandate that at least 50% of the directors on the board of the Asset Management Company (AMC) must be independent directors. This ensures proper governance and protection of unitholders' interests.
Q10MediumSponsor's Eligibility and Obligations
According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum percentage of the Asset Management Company's (AMC) net worth that the sponsor (or its associates) must hold at all times?
💡 As per SEBI (Mutual Funds) Regulations, 1996, the sponsor, or if there is more than one sponsor, the lead sponsor, must hold at least 40% of the net worth of the Asset Management Company. This ensures the sponsor's continued commitment and stake in the AMC.
Q11HardSEBI (Mutual Funds) Regulations - AMC Ownership
Under the SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of the total voting rights in the Asset Management Company (AMC) that a single investor, other than the sponsor, can hold?
💡 As per SEBI (Mutual Funds) Regulations, 1996, no single investor, other than the sponsor, can hold more than 10% of the total voting rights or equity share capital in the Asset Management Company (AMC). This regulation aims to prevent excessive concentration of control in the AMC by entities other than the sponsor, safeguarding unitholder interests.
Q12MediumCode of Conduct for Mutual Fund Distributors
Which of the following actions by a mutual fund distributor would be considered a violation of the AMFI Code of Conduct for Mutual Fund Distributors?
AAdvising clients on suitable schemes based on their risk profile
BProviding clients with the Key Information Memorandum (KIM) before investment
✓Sharing a portion of the commission received with the client
DAttending training sessions organised by AMCs
💡 The AMFI Code of Conduct for Mutual Fund Distributors explicitly prohibits distributors from sharing commissions or any other form of remuneration received from AMCs with their clients. This is to ensure fair practice and prevent unethical inducements.
Q13EasyFit and Proper criteria
Which regulatory body is responsible for laying down the 'fit and proper' criteria for key personnel of an Asset Management Company (AMC) and its distributors in the Indian mutual fund industry?
AReserve Bank of India (RBI)
BMinistry of Finance (MoF)
✓Securities and Exchange Board of India (SEBI)
DAssociation of Mutual Funds in India (AMFI)
💡 SEBI, as the primary regulator of the securities market, including mutual funds, lays down the 'fit and proper' criteria for various market intermediaries, including AMCs and their key personnel, as well as distributors, to ensure integrity and competence. AMFI, under SEBI's broad framework, also develops specific codes of conduct and certification requirements.
Q14HardAdvertisement Code
According to SEBI's Advertisement Code for Mutual Funds, an advertisement should not contain any statement that is:
AFactual
BExpressed in simple language
✓False, misleading, or deceptive
DApproved by AMFI
💡 SEBI's Advertisement Code for Mutual Funds explicitly prohibits any statement that is false, misleading, or deceptive. It mandates that advertisements be truthful, clear, and not omit material information.
Q15EasyKey Constituents and their Roles - Custodian
Which of the following describes the primary responsibility of a Custodian in a mutual fund structure?
AManaging the investment portfolio of the scheme.
BRegistering unit holders and processing transactions.
✓Holding the securities and other assets of the mutual fund in trust for the unitholders.
DMarketing the schemes to potential investors.
💡 The primary responsibility of a Custodian, appointed by the Trustees, is to hold the securities and other assets of the mutual fund schemes in custody, ensuring their safekeeping in trust for the unitholders, as per SEBI (Mutual Funds) Regulations, 1996.
Q16HardInvestment Restrictions
Under what specific condition can a mutual fund scheme invest in a scheme of another mutual fund or in a scheme of the same mutual fund?
AOnly if the target scheme is a debt fund.
BOnly if the target scheme is a liquid fund.
✓Only if no investment management fees are charged twice (i.e., by the investing scheme and the target scheme).
DOnly if the investment is less than 1% of the investing scheme's net assets.
💡 As per SEBI (Mutual Funds) Regulations, 1996, Fifth Schedule, Clause 1 (Prohibition and Restrictions), a mutual fund scheme shall not invest in any scheme of any other mutual fund or in any scheme of the same mutual fund, unless the scheme in which the investment is made does not charge any investment management fees. This regulation prevents 'double-charging' of management fees to investors.
Q17HardPrevention of Money Laundering Act (PMLA)
Under the Prevention of Money Laundering Act (PMLA), 2002, what is the reporting obligation for a mutual fund distributor if they suspect a transaction involves proceeds of crime?
AThey must report it directly to the local police station.
✓They must report it to their respective Asset Management Company (AMC) for onward reporting to the Financial Intelligence Unit - India (FIU-IND).
CThey are not required to report, as PMLA applies only to the Mutual Fund itself, not distributors.
DThey must report it directly to the Serious Fraud Investigation Office (SFIO).
💡 While the mutual fund (AMC) is the 'reporting entity' under PMLA, distributors, as intermediaries or agents, are required to escalate any suspicious transaction reports (STRs) to the Principal Officer of their respective AMCs. The AMC then has the responsibility for reporting to FIU-IND. (Refer to SEBI's Master Circular for MFs, Section D - Prevention of Money Laundering (PML) and Combating the Financing of Terrorism (CFT)).
Q18MediumPrevention of Money Laundering Act (PMLA)
Under the Prevention of Money Laundering Act (PMLA), 2002, mutual funds are classified as 'reporting entities'. What is a key obligation for mutual funds under PMLA?
ATo obtain a special license from the Financial Intelligence Unit - India (FIU-IND) before commencing operations.
✓To regularly report suspicious transactions and maintain comprehensive records of client identification and transactions.
CTo invest a minimum percentage of their assets in government securities as a compliance measure.
DTo conduct annual audits specifically for PMLA compliance by a government-appointed agency.
💡 As 'reporting entities' under PMLA, mutual funds are obligated to undertake client due diligence (KYC), maintain records of transactions for a specified period (typically 5 years from the end of the business relationship), and report suspicious transactions to the Financial Intelligence Unit - India (FIU-IND).
Q19MediumInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, an open-ended mutual fund scheme cannot invest more than what percentage of its net assets in unlisted equity shares or debt instruments?
💡 SEBI (Mutual Funds) Regulations, 1996, Schedule VII, Clause 1(1)(aa) specifies that mutual funds cannot invest more than 5% of the net assets of a scheme in unlisted equity shares or unlisted debt instruments. This limit is crucial for managing liquidity and risk.
Q20EasyGovernance of AMC, SEBI (Mutual Funds) Regulations, 1996
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum percentage of independent directors required on the board of an Asset Management Company (AMC)?
💡 Regulation 21(1)(f) of SEBI (Mutual Funds) Regulations, 1996, mandates that at least 50% of the directors on the board of the Asset Management Company must be independent directors. This ensures good corporate governance and investor protection.
Q21MediumComposition of Trustee board
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent directors required on the board of trustees of a mutual fund?
AAt least one-third
BAt least half
✓At least two-thirds
DAll directors must be independent
💡 Regulation 16(1)(e) of SEBI (Mutual Funds) Regulations, 1996, mandates that at least two-thirds of the trustees shall be independent trustees and shall not be associated in any manner with the sponsor or any of its subsidiaries or the Asset Management Company.
Q22HardKey Constituents and their Roles - Trustees / Auditors
Who is primarily responsible for the appointment and removal of the statutory auditor for a mutual fund?
AThe Asset Management Company (AMC) board.
BThe Sponsor of the mutual fund.
✓The Board of Trustees, with prior approval of SEBI.
DThe unitholders by a special resolution.
💡 Regulation 22(1) of SEBI (Mutual Funds) Regulations, 1996, states that the Trustees shall appoint auditors for the mutual fund with the prior approval of SEBI. They also have the power to remove auditors, ensuring auditor independence from the AMC.
Q23HardPMLA, FATCA, and CRS compliance
What is the primary objective of implementing the Common Reporting Standard (CRS) by mutual funds in India, as part of their regulatory compliance?
ATo prevent insider trading activities
✓To facilitate automatic exchange of financial account information between tax authorities globally
CTo ensure timely redemption of units
DTo standardize the valuation of mutual fund assets
💡 The Common Reporting Standard (CRS) is an information standard for the automatic exchange of information (AEOI) on financial accounts between tax authorities worldwide. Mutual funds, as financial institutions, are required to collect and report certain information about their account holders to tax authorities to combat tax evasion. This is part of PMLA compliance and international agreements.
Q24EasyDisclosure requirements (KIM)
Which document provides essential information about a mutual fund scheme in a summarized, user-friendly format, and must be updated at least once every two years?
AStatement of Additional Information (SAI)
BScheme Information Document (SID)
✓Key Information Memorandum (KIM)
DAnnual Report
💡 The Key Information Memorandum (KIM) is a concise document containing essential information about a scheme and must be updated at least once every two years. It serves as an abridged version of the SID.
Q25EasyInvestment Restrictions - Inter-scheme
As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund scheme (other than a Fund of Funds scheme) can invest a maximum of what percentage of its net assets in another scheme of the same mutual fund?
💡 SEBI (Mutual Funds) Regulations, 1996, Schedule VII, Clause 1(f) states that a mutual fund scheme (other than a Fund of Funds scheme) shall not invest more than 5% of its net asset value in the units of another scheme of the same mutual fund. This is to prevent excessive inter-scheme investments and potential layering of costs.
Q26MediumSEBI's Powers and Functions
If SEBI finds that a mutual fund's operations are being carried out in a manner detrimental to the interest of investors, what immediate action can it take under the SEBI Act/Regulations?
AIssue a public advisory to investors to redeem their units.
✓Direct the mutual fund to suspend the issue and redemption of units for a specified period.
CImpose a monetary penalty on the mutual fund's unitholders.
DMandate a change in the fund's investment objective without unitholder approval.
💡 Under the SEBI (Mutual Funds) Regulations, 1996, SEBI has the power to issue directions to mutual funds. If operations are found to be detrimental to investors, SEBI can direct the mutual fund to suspend the issue and redemption of units for a specified period, among other actions, to protect investors' interests.
Q27HardSEBI (Mutual Funds) Regulations - Valuation Norms
As per SEBI (Mutual Funds) Regulations, 1996, and subsequent guidelines, if a security is not traded on any stock exchange or is illiquid, how should its valuation be primarily determined for NAV calculation?
AAt the last available traded price, irrespective of its liquidity
BBased on a valuation provided by the AMC's internal valuation team
✓By an independent valuer appointed by the AMC, or based on fair value determined in good faith by the AMC
DAt cost price until it becomes liquid again
💡 SEBI (Mutual Funds) Regulations, 1996 (Fourth Schedule, Part A, 1(c) and subsequent circulars) mandate that unlisted or illiquid securities shall be valued in good faith on the basis of fair value determined by the AMC on a prudent basis, or by an independent valuer appointed by the AMC, in consultation with the Trustees. The valuation policy needs to be approved by the Trustees.
Q28MediumInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of a mutual fund scheme's corpus that can be invested in unrated debt instruments, excluding those where the issuer has a rated debt instrument outstanding?
💡 Regulation 44(1) read with Schedule VII, Clause 1, Sub-clause (e) of the SEBI (Mutual Funds) Regulations, 1996, specifies that a mutual fund scheme shall not invest more than 5% of its net assets in unrated debt instruments issued by a single issuer. This limit is 5% where the issuer does not have any rated debt outstanding. If the issuer has other rated debt outstanding, the limit can go up to 10% of the net assets of the scheme in unrated debt instruments.
Q29HardSEBI Guidelines for Mutual Funds - Investment Restrictions
What is the maximum permissible investment by a mutual fund scheme in unlisted equity shares or unlisted debt instruments, as per SEBI regulations?
✓5% of the NAV of the scheme
B10% of the NAV of the scheme
C15% of the NAV of the scheme
D20% of the NAV of the scheme
💡 SEBI (Mutual Funds) Regulations, 1996, read with subsequent circulars, state that a mutual fund scheme shall not invest more than 5% of its net asset value in unlisted equity shares or unlisted debt instruments, to manage liquidity and valuation risks.
Q30MediumAMFI – Self-Regulatory Organization
What is the primary purpose of the AMFI Code of Conduct for Intermediaries?
ATo provide guidelines for the valuation of mutual fund assets.
BTo ensure uniform pricing of mutual fund schemes across all distributors.
✓To establish standards of ethical conduct and fair practices for mutual fund distributors.
DTo regulate the investment strategies adopted by Asset Management Companies.
💡 The primary purpose of the AMFI Code of Conduct for Intermediaries is to establish standards of ethical conduct, fair practices, and professionalism for mutual fund distributors and other intermediaries. It aims to protect investor interests and enhance the reputation of the mutual fund industry by ensuring intermediaries act with integrity and competence.
Q31EasySEBI (Mutual Funds) Regulations - Sponsor Eligibility
As per SEBI (Mutual Funds) Regulations, 1996, a sponsor applying to establish a mutual fund must have a sound track record of not less than how many years in financial services?
A3 years
✓5 years
C7 years
D10 years
💡 As per Regulation 7(a) of SEBI (Mutual Funds) Regulations, 1996, a sponsor must have a sound track record and general reputation of fairness and integrity, and in all its business activities, particularly in the financial services sector, for a period of not less than five years.
Q32HardInter-scheme Transfers and Restrictions
As per SEBI regulations, what is the maximum permissible value of inter-scheme transfers of investments (at cost) that an AMC can execute for a scheme in a financial year?
A10% of the scheme's average weekly AUM
B15% of the scheme's average weekly AUM
✓20% of the scheme's average weekly AUM
D25% of the scheme's average weekly AUM
💡 SEBI circulars specify that inter-scheme transfers of investments from one scheme to another scheme of the same mutual fund are permitted up to 20% of the average weekly AUM of the transferor scheme in a financial year. This is to prevent excessive churning or misuse of assets between schemes.
Q33MediumAMC Prohibitions / Conflicts of Interest
Under which of the following conditions is an Asset Management Company (AMC) **prohibited** from investing its own funds in any of the schemes managed by it?
AWhen the investment is for seed capital requirements.
BWhen the investment is for meeting minimum corpus requirements.
✓When the investment is made at a concessional entry load or on more favourable terms.
DWhen the investment is made on the same terms as other investors.
💡 SEBI regulations prohibit an AMC from investing its own funds in any scheme managed by it at a concessional entry load or on terms more favourable than those offered to other investors. Investments for seed capital or meeting minimum corpus are generally allowed if on an arm's length basis.
Q34EasyRole of Custodian
What is the primary role of a Custodian in the mutual fund structure?
AManaging the fund's investment portfolio
✓Holding the securities and assets of the fund
CMarketing and selling fund units
DRegistering unit holders and processing transactions
💡 The Custodian is responsible for the safekeeping of the mutual fund's securities and assets, ensuring their physical and electronic security as per SEBI (Mutual Funds) Regulations.
Q35HardInvestment Restrictions for Mutual Funds
A mutual fund scheme is generally restricted from investing more than a certain percentage of its net assets in unlisted equity shares or unlisted debt instruments. What is this percentage limit as per SEBI regulations?
💡 SEBI (Mutual Funds) Regulations, 1996, specifically Schedule VII, Point 2 (h), states that a mutual fund shall not invest more than 10% of its net assets in unlisted equity shares or unlisted debt instruments. This restriction aims to manage liquidity and valuation risks.
Q36EasyDisclosure Requirements (SAI)
The Statement of Additional Information (SAI) of a mutual fund primarily provides detailed information about which of the following?
AThe specific investment objective and strategy of a particular scheme.
BThe fund's performance over various periods and its expense ratio.
✓The constitution of the mutual fund, its sponsors, trustees, and general information about the AMC.
DKey features, investment options, and risk factors of a specific scheme in a simplified format.
💡 The Statement of Additional Information (SAI) provides statutory information about the mutual fund's structure, including details about the sponsor, trustees, AMC, their responsibilities, auditors, legal counsel, and other general information not typically found in the Scheme Information Document (SID) or Key Information Memorandum (KIM).
Q37HardInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of the total assets of a scheme that can be invested in the securities of group companies of the sponsor?
A5% of the total assets of the scheme
B10% of the total assets of the scheme
C15% of the total assets of the scheme
✓20% of the total assets of the scheme
💡 SEBI (Mutual Funds) Regulations, 1996, Fourth Schedule, Part A, Clause 1(f) specifies that a mutual fund scheme shall not invest more than 20% of its total assets in the securities of group companies of the sponsor. This restriction is in place to mitigate concentration risk and potential conflicts of interest.
Q38EasyKYC Norms and Officially Valid Documents (OVDs)
Which of the following is NOT listed as an 'Officially Valid Document' (OVD) for KYC purposes, as per the Prevention of Money Laundering (Maintenance of Records) Rules, 2005?
APassport
BDriving License
✓Credit Card Statement
DAadhaar Card
💡 As per the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, Officially Valid Documents (OVDs) primarily include Passport, Driving License, Aadhaar Card, NREGA Job Card, and Letter issued by the National Population Register. While a Credit Card Statement can be used as proof of address, it is not explicitly defined as an OVD under these specific rules.
Q39EasyInvestor Grievance Redressal - SCORES
Which online platform is primarily used by investors to lodge grievances against SEBI-registered intermediaries, including mutual funds and their distributors?
ACPGRAMS (Centralized Public Grievance Redress and Monitoring System)
✓SCORES (SEBI Complaints Redress System)
CRBI Complaint Management System
DNational Consumer Helpline
💡 SCORES (SEBI Complaints Redress System) is the dedicated online platform launched by SEBI for investors to lodge complaints against various entities regulated by SEBI, including mutual funds and their distributors.
Q40EasyAdvertisement Code
According to the SEBI (Mutual Funds) Regulations, 1996, and the SEBI Advertisement Code, what is the maximum period of past performance that can be prominently displayed in a mutual fund advertisement without being accompanied by a suitable warning that 'past performance is not indicative of future results'?
A6 months
✓1 year
C3 years
D5 years
💡 The SEBI Advertisement Code for Mutual Funds stipulates that past performance data for periods exceeding one year must be accompanied by a prominent warning that 'past performance is not indicative of future results'. Therefore, performance for up to one year can be displayed without this specific warning, though general disclaimers are always required.
Q41MediumRole and Responsibilities of AMC
As per SEBI (Mutual Funds) Regulations, 1996, what proportion of the directors on the board of an Asset Management Company (AMC) must be independent directors?
AAt least one-third
✓At least half
CAt least two-thirds
DAll directors must be independent
💡 SEBI (Mutual Funds) Regulations, 1996, mandate that at least half of the directors on the board of an Asset Management Company (AMC) must be independent directors. This ensures objectivity and protects the interests of unitholders.
Q42EasyRole of Registrar and Transfer Agents (RTAs)
What is the primary function of a Registrar and Transfer Agent (RTA) for a mutual fund?
ATo manage the investment portfolio of the schemes.
BTo hold the securities and other assets of the schemes in custody.
✓To maintain records of unit holder transactions and facilitate transfer of units.
DTo provide investment advisory services to unit holders.
💡 RTAs are primarily responsible for maintaining investor records, processing unit holder transactions (subscriptions, redemptions, switches, transfers), and sending account statements and other communications to unit holders.
Q43EasyRole of Custodian
What is the primary role of a Custodian in the structure of a mutual fund?
AManaging the investment portfolio
BMarketing and selling units to investors
✓Holding the securities and assets of the fund
DProviding investment advisory services to the AMC
💡 The custodian is responsible for the safekeeping of the securities and other assets of the mutual fund, ensuring their physical and electronic security, and handling settlement of transactions. The AMC manages the portfolio, distributors sell units, and investment advisors provide advice.
Q44HardOffer Document Validity and Updates
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum validity period for the Scheme Information Document (SID) and Statement of Additional Information (SAI) before they generally need to be updated?
A6 months from the date of the last update.
B12 months from the date of the last audited annual financial results.
✓12 months from the date of the Offer Document.
DThey are perpetual documents and only require updates if there are material changes.
💡 As per SEBI (Mutual Funds) Regulations, 1996, the Scheme Information Document (SID) and Statement of Additional Information (SAI) must be updated at least once every 12 months from the date of the Offer Document. This ensures that investors receive current and accurate information about the scheme and the mutual fund house.
Q45EasyMutual fund structure and legal basis
The legal framework that governs the formation and operation of a mutual fund as a 'Trust' in India is primarily derived from which of the following acts?
ACompanies Act, 2013
✓Indian Trusts Act, 1882
CSecurities Contracts (Regulation) Act, 1956
DSEBI Act, 1992
💡 Mutual funds in India are constituted as trusts, and their legal structure is governed by the Indian Trusts Act, 1882. The SEBI (Mutual Funds) Regulations, 1996, then govern their specific operations as investment vehicles.
Q46MediumSEBI (Mutual Funds) Regulations - Advertisement Code
According to the SEBI (Mutual Funds) Regulations and the Advertisement Code, which of the following is strictly prohibited in mutual fund advertisements?
ADisclosing past performance of the scheme
BUsing hypothetical illustrations without disclaimers
✓Making exaggerated or misleading claims
DMentioning the fund manager's experience
💡 SEBI (Mutual Funds) Regulations and the Advertisement Code explicitly prohibit making exaggerated, misleading, or unsubstantiated claims in mutual fund advertisements. While hypothetical illustrations require disclaimers and past performance must be presented fairly, exaggerated claims are outright forbidden.
Q47MediumRole and Responsibilities of Trustees
As per SEBI (Mutual Funds) Regulations, 1996, the Trustees of a mutual fund are primarily responsible for which of the following?
AManaging the investment portfolio and making day-to-day investment decisions.
✓Holding the assets of the mutual fund for the benefit of the unitholders.
CMarketing and selling the mutual fund schemes to investors.
DCalculating and declaring the Net Asset Value (NAV) of the schemes.
💡 The Trustees are fiduciaries who hold the assets of the mutual fund in trust for the benefit of the unitholders. Their primary role is to protect the interests of the unitholders and ensure that the AMC operates in accordance with the trust deed and SEBI Regulations. Investment management is handled by the AMC, marketing by distributors, and NAV calculation by the AMC/RTA.
Q48EasyRole of AMFI
What is the primary role of the Association of Mutual Funds in India (AMFI)?
ATo regulate all mutual funds and their intermediaries in India.
✓To act as a self-regulatory organization (SRO) for the mutual fund industry.
CTo manage and invest the assets of various mutual fund schemes.
DTo provide direct investment advice to retail investors.
💡 AMFI is a self-regulatory organization (SRO) for the mutual fund industry in India. Its primary role is to promote ethical and professional standards, protect the interests of investors, and work with SEBI to develop the industry, rather than direct regulation (which is SEBI's role) or asset management.
Q49EasyAMC Eligibility Criteria
What is the minimum net worth requirement for an Asset Management Company (AMC) at all times, as per SEBI (Mutual Funds) Regulations, 1996?
A₹10 crore
B₹25 crore
✓₹50 crore
D₹100 crore
💡 Regulation 21(f) of SEBI (Mutual Funds) Regulations, 1996, mandates that an Asset Management Company (AMC) must have a minimum net worth of at least fifty crore rupees (₹50 crore) at all times. This ensures the financial stability of the AMC.
Q50HardMutual Fund Advertisements and Sales Practices
Under SEBI (Mutual Funds) Regulations, 1996, which of the following statements regarding mutual fund advertisements is FALSE?
AAdvertisements must contain a standard warning about market risks.
✓Advertisements can guarantee returns if the fund has a consistent track record of high performance.
CAdvertisements must be in a language easily understood by the target investors.
DAdvertisements must be truthful, fair, and clear, and should not be misleading.
💡 SEBI (Mutual Funds) Regulations strictly prohibit any advertisement that guarantees returns from mutual fund schemes, regardless of past performance. Mutual fund investments are subject to market risks, and advertisements must always carry a standard risk warning and be fair, clear, and not misleading.
Q51EasyAMFI Code of Conduct for Intermediaries
According to the AMFI Code of Conduct for Intermediaries, a mutual fund distributor must primarily ensure that the recommendations made to investors are:
AOnly for schemes with high returns
✓Suitable for the investor's risk profile and financial objectives
CFrom the distributor's preferred fund house
DFocused on schemes with the highest commission payouts
💡 The AMFI Code of Conduct for Intermediaries mandates that distributors must act in the best interest of investors, ensuring that recommendations are suitable based on the investor's risk profile, financial situation, and investment objectives.
Q52MediumAMFI's Role and Disciplinary Powers
Which of the following actions can AMFI take against a mutual fund distributor found violating its Code of Conduct for Intermediaries (ARN Holders)?
AImpose a monetary penalty of up to Rs. 1 crore.
✓Recommend suspension or cancellation of the distributor's ARN to SEBI.
CInitiate criminal proceedings against the distributor.
DDirectly revoke the distributor's SEBI registration.
💡 AMFI, as a self-regulatory organization, can take disciplinary action against ARN holders for violations of its Code of Conduct. This includes issuing warnings, imposing fines, or recommending the suspension or cancellation of their ARN to SEBI. AMFI does not have the power to impose large monetary penalties, initiate criminal proceedings, or directly revoke SEBI registration.
Q53MediumRole of Trustees and Scheme Changes
Which of the following statements most accurately describes the Board of Trustees' responsibility regarding material changes to a mutual fund scheme's fundamental attributes?
AThey must approve all material changes to a scheme, irrespective of unit holder consent.
BThey must obtain the explicit consent of 75% of the unit holders by value for any fundamental attribute change.
✓They must ensure that material changes to a scheme, especially fundamental ones, are communicated to unit holders, and if fundamental, provide an exit option.
DThey are solely responsible for designing new schemes and their fundamental attributes, not for changes.
💡 The Board of Trustees is responsible for overseeing the mutual fund's operations and protecting unit holders' interests. This includes ensuring that all material changes to a scheme, particularly fundamental attributes, are properly communicated to unit holders. If a fundamental attribute is changed, they must ensure that an exit option is provided to dissenting unit holders without any exit load, as per SEBI (Mutual Funds) Regulations, 1996.
Q54HardSEBI Powers and Intervention
In which of the following extreme circumstances can SEBI supersede the Board of Trustees or the Asset Management Company (AMC) of a mutual fund?
AIf the fund consistently underperforms its benchmark for three consecutive years.
BIf the fund fails to launch a new scheme within one year of obtaining SEBI approval.
✓If the fund management is found to be detrimental to the interests of the unit holders.
DIf the fund's Assets Under Management (AUM) falls below a prescribed minimum for two consecutive quarters.
💡 SEBI (Mutual Funds) Regulations, 1996, grant SEBI powers to supersede the Board of Trustees or the AMC if it is satisfied that the management of the mutual fund is being conducted in a manner detrimental to the interests of the unit holders or to the mutual fund industry. This is a severe action taken in cases of serious misconduct or mismanagement, not merely poor performance or AUM decline.
Q55EasyKYC and AML Regulations
The primary objective of Know Your Customer (KYC) norms in the mutual fund industry is to:
AEnsure that investors have sufficient funds to invest in mutual funds.
✓Prevent money laundering, terrorist financing, and other illicit financial activities.
CEvaluate the investment suitability and risk profile for each investor.
DTrack the geographical location and demographic data of all investors.
💡 KYC norms are a critical part of Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations. Their primary objective is to identify and verify the identity of investors to prevent the misuse of the financial system for illegal activities.
Q56EasyInter-Scheme Transfers
As per SEBI (Mutual Funds) Regulations, 1996, an inter-scheme transfer of investments between different schemes of the same mutual fund is generally permissible under which condition?
✓Only if the transfer is at market price (or fair value for unquoted instruments) and is in the interest of the unitholders of both schemes.
BOnly if approved by SEBI on a case-by-case basis before execution.
CIt is strictly prohibited under all circumstances to prevent conflicts of interest.
DOnly for debt instruments, and never for equity or other asset classes.
💡 Inter-scheme transfers are allowed under Regulation 43 of SEBI (Mutual Funds) Regulations, 1996, provided they are done at the prevailing market price for quoted instruments (or fair value for unquoted instruments) and are demonstrably in the interest of both the transferring and receiving schemes, without adversely affecting unitholders.
Q57MediumAsset Management Company (AMC) Requirements
What is the minimum net worth requirement for an Asset Management Company (AMC) as per SEBI (Mutual Funds) Regulations, 1996?
ARs. 10 crore
BRs. 25 crore
✓Rs. 50 crore
DRs. 100 crore
💡 As per SEBI (Mutual Funds) Regulations, 1996, an Asset Management Company (AMC) must have a minimum net worth of Rs. 50 crore. This requirement ensures that the AMC has sufficient financial strength and stability to manage investor funds and meet its operational obligations.
Q58HardTrustee Board Composition
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent trustees required on the Board of Trustees of a mutual fund?
AOne-third
BHalf
✓Two-thirds
DThree-fourths
💡 Regulation 16(b) of the SEBI (Mutual Funds) Regulations, 1996, mandates that 'at least two-thirds of the trustees shall be independent trustees and shall not be associated in any manner with the sponsor or the asset management company'. This ensures independent oversight of the mutual fund's operations.
Q59EasyDisclosure Documents
Which of the following mutual fund documents provides essential information about a scheme in a summary format, typically used for application forms?
AOffer Document
BStatement of Additional Information (SAI)
✓Key Information Memorandum (KIM)
DAbridged Annual Report
💡 The Key Information Memorandum (KIM) is a summary of the Offer Document that provides essential information about a mutual fund scheme in a concise format and is typically accompanied with the application form.
Q60EasyRole of AMFI
What is the primary role of the Association of Mutual Funds in India (AMFI)?
ATo directly regulate mutual funds and protect investors from fraudulent schemes.
✓To act as a self-regulatory organization (SRO) for the mutual fund industry, promoting best practices and ethical standards.
CTo manage the investment portfolios of various mutual fund schemes on behalf of AMCs.
DTo license mutual fund distributors and conduct their annual performance reviews.
💡 AMFI functions as a self-regulatory organization (SRO) for the mutual fund industry in India. Its primary role is to develop the market, set ethical and professional standards (e.g., through its Code of Conduct), and promote best practices among its members, while SEBI remains the primary regulator.
Q61EasyRole of Registrar and Transfer Agent (RTA)
Which of the following is a key function of a Registrar and Transfer Agent (RTA) for a mutual fund?
AProviding investment advice to investors
BManaging the fund's equity portfolio
✓Maintaining records of unit holders and their transactions
DConducting independent audits of the fund
💡 The Registrar and Transfer Agent (RTA) is responsible for maintaining all records of unit holders, processing purchase, redemption, and switch transactions, and sending account statements.
Q62MediumAMFI and Code of Conduct
The AMFI Code of Conduct for Intermediaries is primarily aimed at achieving which of the following objectives?
ATo regulate the stock market operations of mutual funds.
✓To ensure fair and ethical practices by mutual fund distributors and other intermediaries.
CTo set the investment objectives for various mutual fund schemes.
DTo dictate the fee structure for Asset Management Companies.
💡 The AMFI Code of Conduct aims to promote ethical and professional standards among mutual fund intermediaries, ensuring they act in the best interest of investors and the industry, maintaining transparency and integrity in their dealings.
Q63EasyRole of Custodian
What is the primary responsibility of a custodian in the mutual fund structure?
ATo manage the investment portfolio and execute trades on behalf of the fund.
✓To hold the securities and other assets of the mutual fund in safekeeping.
CTo distribute mutual fund units to investors and collect subscription amounts.
DTo provide independent financial audit services to the mutual fund.
💡 The primary responsibility of a custodian is to hold the securities and other assets of the mutual fund in safekeeping. This includes ensuring the safety, integrity, and proper segregation of these assets, thereby playing a crucial role in investor protection and regulatory compliance.
Q64MediumSEBI (Mutual Funds) Regulations - Investment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund scheme is permitted to invest in unlisted equity shares or equity-related instruments of a company only up to a certain percentage of its net assets. What is this maximum percentage?
💡 Regulation 44(a) of SEBI (Mutual Funds) Regulations, 1996, specifically states that a mutual fund scheme shall not invest more than 5% of its net assets in unlisted equity shares or unlisted equity related instruments.
Q65MediumDistributor Obligations and KYD
Which of the following is a mandatory requirement for mutual fund distributors as per AMFI regulations?
AProviding guaranteed returns on mutual fund investments to clients
BActing as a registrar and transfer agent for mutual fund units
✓Undergoing the Know Your Distributor (KYD) process
DManaging the investment portfolios of their clients directly
💡 Undergoing the Know Your Distributor (KYD) process is a mandatory requirement for mutual fund distributors as per AMFI regulations. This process helps in ensuring that distributors meet certain eligibility and ethical standards.
Q66EasySponsor's Contribution to AMC
What is the minimum contribution a sponsor must make to the net worth of the Asset Management Company (AMC) as per SEBI (Mutual Funds) Regulations, 1996?
ANot less than 1% of the AMC's net worth
BNot less than 2% of the AMC's net worth
✓Not less than 4% of the AMC's net worth
DNot less than 5% of the AMC's net worth
💡 As per SEBI (Mutual Funds) Regulations, 1996, a sponsor must contribute at least 4% to the net worth of the Asset Management Company (AMC). This ensures the sponsor has a significant stake and commitment to the AMC's operations.
Q67MediumTrustee Responsibilities regarding AMC
When appointing the Asset Management Company (AMC), what is a key responsibility of the Board of Trustees of a mutual fund, as per SEBI regulations?
ATo ensure the AMC has a minimum net worth of INR 100 crores for each of the preceding five years.
BTo approve the appointment of the AMC only if the sponsor owns 100% of its share capital.
✓To ensure that the AMC has adequate systems, infrastructure, and qualified personnel to manage the fund's operations.
DTo directly manage the day-to-day investment decisions and portfolio allocation of the AMC.
💡 The Board of Trustees is responsible for overseeing the AMC and ensuring that it acts in the best interest of unit holders. This includes ensuring that the AMC has the necessary infrastructure, operational systems, and qualified personnel to efficiently manage the mutual fund's assets and operations, as mandated by SEBI (Mutual Funds) Regulations, 1996.
Q68MediumScheme Information Document (SID) Content
Which of the following information is a mandatory disclosure in the Scheme Information Document (SID) of a mutual fund scheme, specifically related to the scheme's liquidity?
AThe personal net worth of the AMC's CEO
BThe detailed educational qualifications of all fund managers
✓The investment objective and policies, including any restrictions on redemption
DThe complete list of all past legal disputes involving the sponsor
💡 The SID must provide full and fair disclosure of all information, including the scheme's investment objective, policies, asset allocation, and importantly, the terms and conditions of redemption, including any restrictions or lock-in periods, which directly relate to the scheme's liquidity. Other options are either irrelevant or covered in other sections/documents or not mandatory for the SID in this specific manner.
Q69MediumEligibility criteria for AMC
What is the minimum initial net worth requirement for an Asset Management Company (AMC) as per SEBI (Mutual Funds) Regulations, 1996?
✓INR 50 Crores
BINR 100 Crores
CINR 5 Crores
DINR 25 Crores
💡 As per SEBI (Mutual Funds) Regulations, 1996, an Asset Management Company (AMC) must have a minimum net worth of INR 50 Crores at all times.
Q70EasyKey Constituents and their Roles - AMC
Which of the following entities is primarily responsible for calculating and declaring the Net Asset Value (NAV) of mutual fund schemes?
AThe Sponsor
BThe Board of Trustees
✓The Asset Management Company (AMC)
DThe Custodian
💡 The Asset Management Company (AMC) is primarily responsible for the day-to-day management of the mutual fund, which includes the calculation and declaration of the Net Asset Value (NAV) for all its schemes, as per SEBI regulations.
Q71MediumSponsor's Role and Requirements
What is the minimum contribution a sponsor must make to the net worth of the Asset Management Company (AMC) as per SEBI regulations?
AAt least 25% of the AMC's net worth
✓At least 40% of the AMC's net worth
CAt least 51% of the AMC's net worth
DAt least 75% of the AMC's net worth
💡 As per SEBI (Mutual Funds) Regulations, 1996, Regulation 21(b), the sponsor(s) shall contribute at least 40% to the net worth of the Asset Management Company (AMC). This ensures that the sponsor has a significant stake and commitment to the AMC's operations.
Q72MediumInvestor Grievance Redressal
What is the maximum timeline stipulated by SEBI for an Asset Management Company (AMC) to resolve an investor complaint received through SCORES?
A7 working days
✓15 calendar days
C30 calendar days
D60 calendar days
💡 SEBI has stipulated that all investor complaints received through the SCORES platform must be resolved by the respective AMC within 15 calendar days.
Q73EasyRole of Custodian
Which entity is responsible for holding the securities and other assets of a mutual fund scheme in trust for the unitholders?
AThe Sponsor
BThe Asset Management Company (AMC)
✓The Custodian
DThe Registrar and Transfer Agent (RTA)
💡 The Custodian is appointed by the Trustees and is responsible for safe-keeping the securities and other assets of the mutual fund on behalf of the unitholders, as per SEBI (Mutual Funds) Regulations, 1996.
Q74EasyRole and Appointment of Custodian
Who is responsible for appointing the Custodian for a mutual fund, subject to the approval of the Trustees?
ASponsor
✓Asset Management Company (AMC)
CRegistrar and Transfer Agent (RTA)
DBoard of Trustees directly
💡 Regulation 26(1) of the SEBI (Mutual Funds) Regulations, 1996, states that 'The asset management company shall appoint a custodian with the approval of the trustees'. The custodian must be independent of the sponsor and the AMC.
Q75EasyPrevention of Money Laundering Act (PMLA)
The Prevention of Money Laundering Act (PMLA), 2002, requires financial institutions like mutual funds to report suspicious transactions to which central agency?
AReserve Bank of India (RBI)
BSecurities and Exchange Board of India (SEBI)
✓Financial Intelligence Unit - India (FIU-IND)
DEnforcement Directorate (ED)
💡 Under the Prevention of Money Laundering Act (PMLA), 2002, reporting entities (which include mutual funds) are mandated to report suspicious transactions and cash transactions above a specified threshold to the Financial Intelligence Unit - India (FIU-IND). FIU-IND is the central national agency responsible for receiving, processing, analyzing, and disseminating information relating to suspect financial transactions.
Q76MediumInvestment restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of a mutual fund scheme's net assets that can be invested in the equity shares or debt instruments of its sponsor's associate or group companies?
💡 Regulation 44 (2) of SEBI (Mutual Funds) Regulations, 1996, states that a mutual fund shall not invest more than 25% of its net assets in the equity shares or debt instruments, including those which are unlisted, of the associate or group companies of the sponsor.
Q77MediumAMC Board Composition
What is the minimum percentage of independent directors required on the Board of Directors of an Asset Management Company (AMC)?
💡 As per SEBI (Mutual Funds) Regulations, 1996, at least half (50%) of the directors of the AMC must be independent directors and shall not be associated with the Sponsor or the Trustee.
Q78MediumWinding Up of Schemes
As per SEBI (Mutual Funds) Regulations, 1996, under which of the following situations can a mutual fund scheme be wound up only after obtaining the consent of the unit holders and approval of SEBI?
AUpon the expiry of the period specified in the scheme offer document
BIf the SEBI is of the opinion that it is necessary in the interest of unit holders
✓If the trustees are of the opinion that the interests of the unit holders are being adversely affected
DIf the net asset value (NAV) falls below a certain threshold continuously for 3 months
💡 Regulation 39(2)(c) of SEBI (Mutual Funds) Regulations, 1996, states that 'Where the trustees are of the opinion that the interests of the unit holders are being adversely affected, the scheme may be wound up after obtaining the consent of the unit holders and the approval of the Board (SEBI).' Other options represent automatic winding up or SEBI-initiated winding up that do not primarily require unit holder consent for the decision.
Q79EasyRole and Responsibilities of Custodian
Which of the following entities is explicitly prohibited from acting as a custodian for a mutual fund?
AA bank registered with SEBI as a custodian.
✓A subsidiary of the mutual fund's sponsor.
CA company with no direct or indirect association with the AMC or its sponsor.
DA company that meets SEBI's net worth requirements for custodians.
💡 As per SEBI (Mutual Funds) Regulations, 1996, the custodian must be an entity independent of the sponsor and the Asset Management Company (AMC). Therefore, a subsidiary of the mutual fund's sponsor is explicitly prohibited from acting as a custodian to ensure there are no conflicts of interest and to maintain the independence of operations.
Q80EasySEBI (Mutual Funds) Regulations - Role of Trustees
How frequently are the Trustees of a mutual fund required to review the activities of the Asset Management Company (AMC) and ensure compliance with SEBI (Mutual Funds) Regulations?
AAnnually
BBi-annually
✓Quarterly
DMonthly
💡 Regulation 18(16) of SEBI (Mutual Funds) Regulations, 1996 states that the Trustees shall review the activities of the Asset Management Company and compliance with the regulations at least quarterly.
Q81EasyCorporate governance of AMC
What is the minimum proportion of independent directors required on the board of directors of an Asset Management Company (AMC)?
AOne-third
✓Half
CTwo-thirds
DOne-fourth
💡 As per SEBI (Mutual Funds) Regulations, 1996, at least half of the directors on the board of the Asset Management Company (AMC) must be independent directors. This ensures objectivity and good governance.
Q82HardSEBI (Mutual Funds) Regulations - Trustees
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent trustees required on the board of trustees of a mutual fund?
AOne-third
BHalf
✓Two-thirds
DThree-fourths
💡 SEBI (Mutual Funds) Regulations, 1996, Chapter II, Regulation 16(b) states that at least two-thirds of the trustees shall be independent persons and shall not be associated in any manner with the sponsor or any of its subsidiaries or the asset management company or any other company in the same group.
Q83EasyDistributors and AMFI
As per SEBI regulations, what is the mandatory requirement for individuals engaged in selling and marketing mutual fund products in India?
AA minimum graduate degree in finance.
BRegistration with the Reserve Bank of India.
✓Obtaining an NISM certification (e.g., NISM Series V-A).
DMembership in a recognized stock exchange.
💡 SEBI mandates that all persons engaged in selling and marketing mutual fund products must pass the NISM Series V-A (Mutual Fund Distributors Certification Examination) or an equivalent NISM certification and obtain an AMFI Registration Number (ARN). This ensures a basic level of knowledge and professionalism.
Q84MediumDisclosure Norms
What is the frequency for publishing the abridged half-yearly financial results and portfolio statements for mutual fund schemes?
AQuarterly
✓Half-yearly
CAnnually
DBi-annually at the AMC's discretion
💡 Mutual funds are required to publish their abridged half-yearly financial results and portfolio statements within one month from the close of each half-year (March 31 and September 30) as part of their disclosure requirements.
Q85MediumFATCA and CRS Regulations
Under FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard), which of the following entities is primarily responsible for identifying and reporting financial accounts held by foreign tax residents?
AThe individual investor holding the account.
✓The Asset Management Company (AMC) of the mutual fund.
CThe Reserve Bank of India (RBI).
DThe income tax department of the investor's country of residence.
💡 Financial institutions, including Asset Management Companies (AMCs) for mutual funds, are primarily responsible for identifying and reporting financial accounts held by foreign tax residents under FATCA and CRS. They collect the necessary information from investors and report it to their local tax authorities (e.g., Indian tax authorities), who then exchange information with other countries.
Q86HardRedemption processing and timelines
For open-ended schemes, excluding specific fund types like Liquid funds, within how many business days must the Asset Management Company (AMC) dispatch the redemption proceeds to the unitholders from the date of receipt of the redemption request?
A3 business days
B7 business days
✓10 business days
D15 calendar days
💡 As per SEBI (Mutual Funds) Regulations, 1996, and subsequent circulars, an AMC must dispatch redemption proceeds within 10 business days from the date of receipt of the redemption request for open-ended schemes, excluding specific types like Liquid funds which have shorter timelines. Failure to do so may attract penal interest.
Q87MediumInvestment Restrictions, Diversification, SEBI (Mutual Funds) Regulations, 1996
As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund scheme is generally restricted from investing more than what percentage of its net assets in the equity shares or equity-related instruments of any single company?
💡 Regulation 44(1) of SEBI (Mutual Funds) Regulations, 1996, generally restricts a mutual fund scheme from investing more than 10% of its net assets in the equity shares or equity-related instruments of any single company. This is a diversification norm to reduce concentration risk.
Q88EasyRole of Custodian
What is the primary role of a Custodian in the mutual fund structure?
ATo manage the investment portfolio of the mutual fund
✓To hold the securities and assets of the mutual fund in safekeeping
CTo distribute mutual fund units to investors
DTo oversee the day-to-day operations of the Asset Management Company (AMC)
💡 The primary role of a Custodian in the mutual fund structure is to hold the securities and other assets of the fund in safekeeping, ensuring their safety and integrity. This is distinct from the roles of the AMC (portfolio management), distributors, or trustees (oversight).
Q89HardInvestor Grievance Redressal - SCORES
An investor facing a grievance against a mutual fund can lodge a complaint through the SEBI Complaints Redress System (SCORES). Which of the following statements about SCORES is FALSE?
ASCORES is an online platform for investors to lodge and track complaints.
✓Complaints related to a scheme's performance or investment strategy can be directly resolved by SEBI through SCORES.
CThe concerned mutual fund or its AMC is required to respond to the complaint within a stipulated timeframe.
DSCORES allows investors to escalate their complaints if they are not satisfied with the initial resolution.
💡 SCORES is an online platform for lodging and tracking complaints against market intermediaries, including mutual funds. However, SEBI does not directly resolve complaints related to a scheme's performance or investment strategy, as these are commercial decisions of the AMC and subject to market risks. SEBI intervenes on regulatory breaches, not investment outcomes. The concerned entity must respond within a specified time.
Q90MediumSpecific Scheme Regulations - Fund of Funds (FoF)
As per SEBI guidelines, what is the maximum percentage that a 'Fund of Funds' (FoF) scheme can invest in a single underlying scheme?
A10% of the FoF's net assets
✓20% of the FoF's net assets
C25% of the FoF's net assets
D30% of the FoF's net assets
💡 SEBI guidelines for mutual funds specify that a Fund of Funds (FoF) scheme can invest up to 20% of its net assets in a single underlying scheme. This is part of diversification norms for FoFs.
Q91EasyRole of Registrar and Transfer Agent (RTA)
What is the primary function of a Registrar and Transfer Agent (RTA) in the mutual fund ecosystem?
AManaging the investment portfolio and making trading decisions for the fund.
BSafekeeping the securities and other assets of the fund.
✓Maintaining investor records, processing transactions like subscriptions, redemptions, and dividend payouts.
DProviding investment advice and financial planning services to unit holders.
💡 The primary role of an RTA is to maintain all records related to unit holders (unit holder register) and to process all transactions such as subscriptions, redemptions, switches, systematic investment plans (SIPs), systematic withdrawal plans (SWPs), and dividend payouts. They are the backbone for investor servicing.
Q92EasyRole of AMFI
Which organization is primarily responsible for prescribing the Code of Conduct for Mutual Fund Distributors in India?
ASecurities and Exchange Board of India (SEBI)
BReserve Bank of India (RBI)
✓Association of Mutual Funds in India (AMFI)
DInsurance Regulatory and Development Authority of India (IRDAI)
💡 AMFI (Association of Mutual Funds in India) is a self-regulatory organization that prescribes the Code of Conduct for Mutual Fund Distributors to ensure ethical practices and investor protection in the industry.
Q93EasyChange in Control of AMC
In case of a change in control of an Asset Management Company (AMC), what is a mandatory requirement as per SEBI (Mutual Funds) Regulations, 1996?
AApproval from the Ministry of Finance only
✓Prior approval from SEBI and consent of the unit holders
CAutomatic approval upon intimation to AMFI
DNo specific regulatory approval is required
💡 Any change in control of the Asset Management Company requires prior approval from SEBI. Additionally, the unit holders of the schemes managed by the AMC must be given an option to exit at the prevailing Net Asset Value (NAV) without any exit load, implying their consent is crucial.
Q94MediumInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of a mutual fund scheme's net assets that can be invested in unlisted equity shares or equity-related instruments?
💡 SEBI (Mutual Funds) Regulations, 1996, Fifth Schedule, Clause 1(f) states that a mutual fund scheme shall not invest more than 5% of its net assets in unlisted equity shares or unlisted equity-related instruments, subject to certain conditions.
Q95HardTrustee board composition
According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent directors required on the board of trustees of a mutual fund?
AAt least one-third
BAt least 50%
✓At least two-thirds
DAll directors must be independent
💡 Regulation 16(b) of SEBI (Mutual Funds) Regulations, 1996, states that at least two-thirds of the trustees must be independent persons and not associated with the sponsor or any of its group companies in any manner.
Q96EasyCompliance and Audit
According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum frequency for the audit of the accounts of an Asset Management Company (AMC) and each scheme of the mutual fund?
AQuarterly
BHalf-yearly
✓Annually
DBi-annually
💡 As per SEBI (Mutual Funds) Regulations, 1996, Regulation 55, the accounts of the Asset Management Company (AMC) and each scheme must be audited at least once in a financial year by an independent auditor.
Q97HardRole of Trustees, SEBI (Mutual Funds) Regulations, 1996
According to SEBI (Mutual Funds) Regulations, 1996, within what maximum period must the Trustees review the activities of the Asset Management Company (AMC) and submit a report to SEBI after the close of each financial year?
A30 days
B60 days
C90 days
✓180 days
💡 As per Regulation 18(23)(a) of SEBI (Mutual Funds) Regulations, 1996, the Trustees are required to review the activities of the Asset Management Company and submit a report to SEBI within 180 days of the close of each financial year.
Q98MediumAMFI Code of Conduct for Distributors
As per the AMFI Code of Conduct for Mutual Fund Distributors, a distributor must ensure that the recommendations made to investors are suitable. Which of the following factors is most crucial for determining suitability?
AOnly the investor's current income level and tax bracket.
BThe distributor's commission structure for different schemes.
✓The investor's age, financial situation, investment experience, and investment objectives.
DThe past performance of the recommended fund over the last one year.
💡 The AMFI Code of Conduct for Mutual Fund Distributors mandates that distributors must recommend schemes suitable for the investor. This requires a comprehensive understanding of the investor's profile, including their age, financial situation, investment experience, and investment objectives, to align recommendations with their needs and risk appetite.
Q99EasyStructure of Mutual Funds, Role of Sponsor
In the structure of an Indian mutual fund, which entity is primarily responsible for establishing the mutual fund and appointing the board of trustees?
AAsset Management Company (AMC)
BCustodian
✓Sponsor
DRegistrar and Transfer Agent (RTA)
💡 The Sponsor is the entity that establishes the mutual fund, gets it registered with SEBI, and appoints the Trustees. The Sponsor acts as the promoter of the fund.
Q100MediumAdvertisement and disclosure requirements
The advertisement code for mutual funds, which dictates the content and manner of mutual fund advertisements, is primarily specified in which regulatory framework?
ASEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
BSEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003
✓SEBI (Mutual Funds) Regulations, 1996
DAMFI's Code of Conduct for Intermediaries
💡 Chapter VIII of the SEBI (Mutual Funds) Regulations, 1996, specifically deals with 'Advertisements' and lays down the advertisement code for mutual funds. AMFI's code complements these regulations.
Q101MediumRole of AMFI
Which body is primarily responsible for framing and enforcing the Code of Conduct for Mutual Fund Distributors in India?
ASecurities and Exchange Board of India (SEBI)
BReserve Bank of India (RBI)
✓Association of Mutual Funds in India (AMFI)
DMinistry of Finance
💡 AMFI (Association of Mutual Funds in India) is the self-regulatory organization for the mutual fund industry. One of its key roles is to frame and enforce the Code of Conduct for Mutual Fund Distributors, ensure their certification, and handle distributor-related grievances. While SEBI is the overall regulator, AMFI handles the day-to-day self-regulation of distributors.
Q102EasyRole of AMFI
One of the key objectives of the Association of Mutual Funds in India (AMFI) is to recommend and enforce a Code of Ethics and Standard Best Practices for its members. What is the primary purpose of this objective?
ATo set NAV calculation standards for all schemes
✓To ensure fair and ethical conduct in the mutual fund industry
CTo directly regulate mutual fund advertisements
DTo act as a direct grievance redressal body for investors
💡 AMFI's objectives include promoting the interests of mutual funds and unit holders, setting and enforcing ethical standards, and promoting best practices in the industry, primarily through its Code of Ethics and Standard Best Practices. While it influences advertising and grievance redressal, its core self-regulatory function is to ensure ethical conduct.
Q103HardPMLA and AML Regulations
As per the Prevention of Money Laundering Act (PMLA), 2002, and its rules, what is the minimum period for which records related to client identification and transaction data must be maintained by reporting entities?
A3 years from the date of cessation of the transaction
✓5 years from the date of cessation of the transaction
C7 years from the date of cessation of the transaction
D10 years from the date of cessation of the transaction
💡 The PMLA, 2002, mandates that reporting entities (including mutual funds) must maintain records of all transactions and client identification data for a minimum period of five years from the date of cessation of the transaction or the business relationship, whichever is later.
Q104EasyStructure of Mutual Funds - Role of Trustees
Which entity in the mutual fund structure holds the assets of the mutual fund in trust for the benefit of the unitholders?
AThe Sponsor
BThe Asset Management Company (AMC)
✓The Board of Trustees
DThe Custodian
💡 The Board of Trustees (or the Trustee company) is the primary entity that holds the assets of the mutual fund in trust for the benefit of the unitholders. They act as fiduciaries and oversee the AMC's operations to ensure compliance with regulations and protection of unitholders' interests. The Custodian holds the physical securities, but the legal ownership in trust rests with the Trustees.
Q105MediumCategorization and rationalization of mutual fund schemes
The SEBI circular on 'Categorization and Rationalization of Mutual Fund Schemes' primarily aimed to achieve which of the following?
ATo reduce the total number of mutual fund schemes available in the market to a fixed limit.
✓To ensure that mutual fund schemes are true to label and investors can compare similar schemes easily.
CTo mandate a uniform expense ratio across all categories of schemes for greater transparency.
DTo restrict mutual funds from investing in certain asset classes deemed too risky for retail investors.
💡 The SEBI circular on 'Categorization and Rationalization of Mutual Fund Schemes' (October 2017) was introduced to standardize scheme categories and ensure that schemes are 'true to label,' making it easier for investors to understand and compare different schemes based on their investment objectives and strategies, thereby reducing mis-selling.
Q106EasyDisclosure Requirements, Scheme Documents
Which statutory document is designed to provide investors with essential information about a mutual fund scheme in a concise and simplified format, typically used for marketing and sales purposes?
AStatement of Additional Information (SAI)
BScheme Information Document (SID)
✓Key Information Memorandum (KIM)
DOffer Document
💡 The Key Information Memorandum (KIM) is a concise document that summarizes the key features of a scheme, including investment objectives, asset allocation pattern, fees, and past performance. It is a part of the Scheme Information Document (SID) and is intended for easy investor comprehension.
Q107EasyKey Constituents and their Roles - Trustees
The primary responsibility of the Board of Trustees in a mutual fund structure is to:
AManage the investment portfolio of the schemes
BPromote new mutual fund schemes
✓Oversee and ensure compliance with regulations and protect unitholder interests
DMarket the mutual fund products to investors
💡 The Trustees act as guardians of the unitholders' money, ensuring that the AMC operates within the framework of the trust deed and SEBI regulations, thereby protecting unitholder interests.
Q108MediumRole of Custodian
What is a key regulatory requirement for the appointment of a Custodian for a mutual fund?
AThe Custodian must be a subsidiary of the Asset Management Company (AMC).
BThe Custodian must have a minimum net worth of Rs. 100 crore.
✓The Custodian must be independent of the Sponsor and the Asset Management Company (AMC).
DThe Custodian must be registered with the Reserve Bank of India (RBI).
💡 As per SEBI (Mutual Funds) Regulations, 1996, Regulation 26(b), the custodian must be an entity independent of the sponsor and the asset management company, and must be registered with SEBI as a custodian of securities.
Q109EasyKey Constituents and their Roles - Asset Management Company (AMC)
According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent directors required on the board of an Asset Management Company (AMC)?
AOne-third
✓Half
CTwo-thirds
DThree-fourths
💡 Regulation 21(2)(b) of SEBI (Mutual Funds) Regulations, 1996, mandates that at least half of the directors of the AMC board must be independent directors.
Q110MediumRole and Responsibilities of Trustees
The Board of Trustees of a mutual fund is primarily responsible for:
AFormulating the specific investment strategies for individual schemes.
✓Ensuring that the Asset Management Company (AMC) operates in the interest of the unitholders and in accordance with regulations.
CDirectly managing the day-to-day trading and portfolio rebalancing activities.
DSetting the expense ratios and management fees for all schemes.
💡 The Trustees act as guardians of the unitholders' interests. Their primary responsibility is to oversee the AMC's activities and ensure that the fund's assets are managed in accordance with the Trust Deed and SEBI (Mutual Funds) Regulations, 1996, safeguarding unitholder interests.
Q111HardSEBI (Mutual Funds) Regulations, 1996 - AMC Requirements
What is the minimum net worth requirement for an Asset Management Company (AMC) as per SEBI (Mutual Funds) Regulations, 1996?
A₹10 crores
B₹25 crores
✓₹50 crores
D₹100 crores
💡 SEBI (Mutual Funds) Regulations, 1996, specify that an Asset Management Company (AMC) must have a minimum net worth of ₹50 crores at all times to ensure its financial stability and capacity to manage funds.
Q112EasyRole of Trustees
The primary responsibility of the Board of Trustees in a mutual fund structure is to:
AManage the fund's investments
✓Protect the interests of the unitholders
CMarket the mutual fund schemes
DSet the investment objectives of the schemes
💡 The Trustees act as fiduciaries for the unitholders and their primary duty is to protect the interests of the unitholders in accordance with the Trust Deed and SEBI (Mutual Funds) Regulations, 1996.
Q113MediumPrevention of Money Laundering Act (PMLA)
According to the Prevention of Money Laundering Act (PMLA), 2002, and its rules, for how long are Asset Management Companies (AMCs) required to maintain records of transactions and client identities?
A3 years from the date of transaction.
✓5 years from the date of transaction.
C8 years from the date of cessation of the business relationship.
D10 years from the date of cessation of the business relationship.
💡 As per PMLA, 2002, and PMLA (Maintenance of Records) Rules, 2005, AMCs, being reporting entities, are required to maintain records of transactions for a period of five years from the date of transaction and records of client identity for five years after the business relationship has ended.
Q114MediumSEBI (Investment Advisers) Regulations, 2013
As per SEBI (Investment Advisers) Regulations, 2013, an entity providing investment advice to clients and receiving consideration for it must register as an Investment Adviser. What is the key distinction that allows a mutual fund distributor to recommend schemes without registering as an Investment Adviser?
ADistributors only recommend mutual funds, not other securities
✓Distributors receive commissions from AMCs, not direct fees from clients for advice
CDistributors are regulated by AMFI, not directly by SEBI for advice
DDistributors only serve retail investors, not HNIs
💡 The SEBI (Investment Advisers) Regulations, 2013, mandate registration for those who provide investment advice for consideration. Mutual fund distributors are generally exempt if their advice is incidental to their distribution activity, and their remuneration comes solely from commissions paid by AMCs, not from clients for advice. If they charge a direct fee for advice, they must register as an IA.
Q115MediumStructure of Mutual Funds - Trustees
Which of the following is a specific duty of the Board of Trustees of a mutual fund as per SEBI (Mutual Funds) Regulations, 1996?
ATo make investment decisions for the schemes.
BTo calculate and declare the Net Asset Value (NAV) daily.
✓To approve the appointment and terms of appointment of the Asset Management Company.
DTo manage the day-to-day operations of the mutual fund.
💡 Regulation 18(11) of SEBI (Mutual Funds) Regulations, 1996, specifically states that the trustees shall 'approve the appointment of the asset management company and the terms of the appointment.' The trustees also have the power to dismiss the AMC with due notice.
Q116MediumValuation Norms
As per SEBI (Mutual Funds) Regulations, 1996, and subsequent guidelines, what is the minimum frequency for the valuation of money market and debt securities held by a mutual fund for which market prices are not readily available?
AMonthly
BWeekly
✓Daily
DFortnightly
💡 SEBI circulars on valuation of money market and debt securities mandate daily valuation for all debt and money market instruments. For instruments where market prices are not readily available, valuation agencies provide daily prices based on appropriate methodologies to ensure fair valuation.
Q117HardInvestment Restrictions - Inter-scheme Transfers
Under what specific condition are inter-scheme transfers of investments generally permitted between two schemes of the same mutual fund?
✓At the prevailing market price for quoted instruments, without generating brokerage.
BAt a price decided by the AMC, even if it differs from the market price.
COnly if approved by SEBI on a case-by-case basis.
DOnly for unquoted securities, at a valuation determined by the AMC's internal committee.
💡 SEBI (Mutual Funds) Regulations, 1996, allow inter-scheme transfers of investments only if they are done at the prevailing market price for quoted instruments (or fair value for unquoted instruments), without generating brokerage, to ensure fairness to both schemes.
Q118MediumRole of Asset Management Company (AMC)
Under the SEBI (Mutual Funds) Regulations, 1996, the appointment of an Asset Management Company (AMC) requires prior approval from:
AThe Ministry of Finance
BThe Reserve Bank of India
✓The Securities and Exchange Board of India (SEBI)
DThe Association of Mutual Funds in India (AMFI)
💡 As per SEBI (Mutual Funds) Regulations, 1996, the appointment of an Asset Management Company (AMC) by the Trustees, including any change in the AMC, requires prior approval from SEBI.
Q119MediumStructure of a Mutual Fund - Trustees
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum percentage of independent directors required on the board of trustees of a mutual fund?
AAt least one-third
BAt least one-half
✓At least two-thirds
DAll directors must be independent
💡 SEBI (Mutual Funds) Regulations, 1996, mandate that at least two-thirds of the directors on the board of trustees must be independent directors. This ensures robust governance and protects unitholder interests.
Q120MediumInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of the net assets of a mutual fund scheme that can be invested in the securities of its associate or group companies?
💡 Regulation 44(1) read with Schedule VII, Clause 1, Sub-clause (f) of the SEBI (Mutual Funds) Regulations, 1996, states that 'a mutual fund shall not invest more than 25% of its net assets in the securities of group companies of the sponsor'.
Q121HardSEBI (Mutual Funds) Regulations - Borrowing Restrictions
Under what circumstances and up to what maximum percentage of its net assets can a mutual fund scheme borrow funds?
AFor investment purposes, up to 10% of net assets for 30 days
BFor liquidity management, up to 15% of net assets for 60 days
CFor meeting redemption requirements, up to 20% of net assets for 6 months
✓For meeting redemption and dividend payout requirements, up to 20% of net assets for a temporary period not exceeding six months
💡 Regulation 44(d) of SEBI (Mutual Funds) Regulations, 1996 permits a mutual fund scheme to borrow for the purpose of meeting temporary liquidity needs for redemption or dividend payout, up to a maximum of 20% of its net assets for a temporary period not exceeding six months.
Q122HardAMC Board Composition
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent directors required on the Board of Directors of an Asset Management Company (AMC)?
AAt least one-third
✓At least half
CAt least two-thirds
DAt least three-fourths
💡 SEBI (Mutual Funds) Regulations, 1996, Regulation 21(f) states that the Board of Directors of the Asset Management Company (AMC) shall have at least half of the directors as independent directors.
Q123EasyAMFI's Role and Code of Conduct
Under the AMFI Code of Conduct for Intermediaries, what is a key obligation for a mutual fund distributor regarding product suitability?
ATo recommend any scheme that offers the highest commission.
✓To ensure that the investor fully understands the features and risks of the recommended scheme.
CTo only recommend schemes from a single AMC.
DTo guarantee returns on the schemes recommended to investors.
💡 The AMFI Code of Conduct for Intermediaries emphasizes that distributors must ensure that the investor fully understands the features, risks, and suitability of the recommended scheme before investing. They are prohibited from guaranteeing returns or prioritizing commissions.
Q124EasyPMLA and KYC
Under the Prevention of Money Laundering Act (PMLA), 2002, what is the threshold for a single cash transaction that triggers mandatory reporting by financial institutions, including mutual funds, to the Financial Intelligence Unit - India (FIU-IND)?
ARs. 50,000 or more
BRs. 1 Lakh or more
CRs. 5 Lakh or more
✓Rs. 10 Lakh or more
💡 As per PMLA, 2002, financial institutions are required to report all cash transactions of value Rs. 10 Lakh or more, or a series of integrally connected cash transactions where the aggregate value exceeds Rs. 10 Lakh, to FIU-IND.
Q125HardInvestment limits and restrictions (Inter-scheme transfer)
As per SEBI (Mutual Funds) Regulations, 1996, an inter-scheme transfer of investments from one scheme to another scheme within the same mutual fund is generally permitted only under which of the following conditions?
✓At the prevailing market price for listed securities and at a fair valuation for unlisted securities.
BOnly if the transfer is done at historical cost to avoid market price fluctuations between schemes.
CInter-scheme transfers are strictly prohibited under all circumstances to prevent conflicts of interest.
DOnly for debt and money market instruments, not for equity or equity-related instruments.
💡 Regulation 44(1) of SEBI (Mutual Funds) Regulations, 1996, permits inter-scheme transfers of investments provided that such transfers are done at the prevailing market price for listed securities and at a fair valuation for unlisted securities, and are in the interest of the unit holders of both schemes. Such transfers must also be consistent with the investment objective of the transferee scheme.
Q126EasyAMFI Code of Conduct for Intermediaries
The AMFI Code of Conduct for Intermediaries primarily aims to ensure:
AThat mutual funds only invest in highly rated securities.
✓Fair and transparent dealings by distributors with investors.
CThe financial solvency of Asset Management Companies (AMCs).
DCompliance with international tax regulations like FATCA.
💡 The AMFI Code of Conduct for Intermediaries (distributors) is designed to ensure that distributors conduct their business with honesty, integrity, and in a fair and transparent manner, always prioritizing the best interests of the investors. It sets ethical standards for sales and advisory practices.
Q127EasyKey Constituents and their Roles - Custodian
Which entity in the mutual fund structure is primarily responsible for holding the securities and other assets of the scheme on behalf of the unitholders?
ASponsor
BTrustee
CAsset Management Company (AMC)
✓Custodian
💡 As per SEBI (Mutual Funds) Regulations, 1996, the Custodian is responsible for holding the securities and other assets of the mutual fund schemes in trust for the unitholders.
Q128EasyPrevention of Money Laundering Act (PMLA), 2002
Under the Prevention of Money Laundering Act, 2002 (PMLA), every reporting entity, including mutual funds, is required to designate a 'Principal Officer'. Who is this Principal Officer primarily responsible for?
AHandling investor grievances
✓Ensuring compliance with PMLA obligations
CManaging the fund's investment portfolio
DOverseeing marketing and distribution activities
💡 The Principal Officer, as defined under PMLA, is responsible for ensuring compliance with the PMLA obligations, including reporting of suspicious transactions and cash transactions to the Financial Intelligence Unit - India (FIU-IND).
Q129EasyPrevention of Money Laundering Act (PMLA)
Which of the following is a 'reporting entity' under the Prevention of Money Laundering Act (PMLA), 2002, in the context of mutual funds?
AThe Association of Mutual Funds in India (AMFI)
BThe Registrar and Transfer Agent (RTA)
✓The Asset Management Company (AMC)
DThe Custodian of the mutual fund
💡 Under the Prevention of Money Laundering Act (PMLA), 2002, financial institutions are considered 'reporting entities'. An Asset Management Company (AMC), which manages the mutual fund and handles transactions, falls under the definition of a financial institution and is thus a reporting entity responsible for complying with PMLA obligations like KYC and reporting suspicious transactions.
Q130HardPowers of SEBI
Under which of the following circumstances can SEBI supersede the Board of Directors of an Asset Management Company (AMC) and appoint an administrator?
AIf the AMC fails to declare dividends annually.
BIf the AMC's net worth falls below Rs. 50 crore for a brief period.
✓If the AMC acts in a manner detrimental to the interests of the unitholders or the securities market.
DIf the AMC changes its fund manager without prior approval from SEBI.
💡 Regulation 28(1) of SEBI (Mutual Funds) Regulations, 1996, grants SEBI the power to supersede the Board of Directors of an AMC and appoint an administrator if it is satisfied that the AMC is acting in a manner detrimental to the interests of the unitholders or the securities market.
Q131EasyRole of AMFI
Which of the following is a primary objective of the Association of Mutual Funds in India (AMFI)?
ATo regulate mutual funds and their intermediaries
✓To promote investor education and ethical standards in the mutual fund industry
CTo act as a central registrar and transfer agent for all mutual funds
DTo manage the investment portfolios of mutual fund schemes
💡 AMFI's primary objectives include promoting the mutual fund industry, promoting ethical and professional standards among members and intermediaries, and conducting investor awareness and education programs, not direct regulation or fund management.
Q132HardSEBI (Mutual Funds) Regulations - Sponsor Eligibility
Which of the following statements is TRUE regarding the sponsor of a mutual fund as per SEBI (Mutual Funds) Regulations, 1996?
AThe sponsor must have a sound track record of at least 3 years in financial services.
BThe sponsor must contribute at least 51% to the net worth of the Asset Management Company (AMC).
CThe sponsor must have a positive net worth in all 5 preceding years.
✓The sponsor must have a profit after tax in at least 3 out of the immediately preceding 5 years, including the fifth year.
💡 As per SEBI (Mutual Funds) Regulations, 1996, a sponsor must have a sound track record, including having a profit after tax in at least 3 out of the immediately preceding 5 years, including the fifth year. This ensures the financial stability and credibility of the entity launching the mutual fund.
Q133HardSEBI (PFUTP) Regulations
The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations) are applicable to mutual funds primarily to prevent which of the following?
AOver-allocation of units to specific investors during NFOs.
✓Misleading advertisements or dissemination of false information about schemes.
CFailure to maintain accurate records of unitholder transactions.
DCharging excessive expense ratios by the AMC.
💡 The PFUTP Regulations prohibit any person from directly or indirectly engaging in fraudulent or unfair trade practices related to securities, which explicitly includes making misstatements, misleading advertisements, or disseminating false information about mutual fund schemes to influence investment decisions. While other options relate to compliance, misleading communication directly falls under PFUTP.
Q134EasyRole of Sponsor
What is the minimum net worth requirement for a sponsor to establish a mutual fund in India, as per SEBI (Mutual Funds) Regulations, 1996?
AINR 50 crores for each of the immediately preceding five years.
BINR 100 crores for each of the immediately preceding three years.
✓INR 50 crores for each of the immediately preceding three years.
DINR 25 crores for each of the immediately preceding three years.
💡 As per SEBI (Mutual Funds) Regulations, 1996, a sponsor must have a sound track record and a minimum net worth of INR 50 crores for each of the immediately preceding three years. This is a key eligibility criterion for obtaining SEBI's approval to act as a sponsor.
Q135MediumTrustee Board Composition
What is the minimum proportion of independent trustees required on the board of trustees of a mutual fund, as per SEBI (Mutual Funds) Regulations, 1996?
AAt least one-third
BAt least half
✓At least two-thirds
DAt least three-fourths
💡 SEBI (Mutual Funds) Regulations, 1996, Regulation 16(1)(e) states that the Board of Trustees shall have at least two-thirds of the trustees as independent trustees.
Q136EasyKYC/AML Regulations
For mutual fund investments, which document is mandatory for all investors, including joint holders and nominees, to comply with KYC norms, irrespective of the transaction amount?
AAadhaar Card
BDriving License
CPassport
✓Permanent Account Number (PAN)
💡 Permanent Account Number (PAN) is mandatory for all financial transactions, including mutual fund investments, irrespective of the amount. It is a key requirement under the Prevention of Money Laundering Act (PMLA) and SEBI (KYC) Regulations, 2011, for identification and tracking of financial transactions. Aadhaar, Driving License, and Passport are valid Proofs of Identity (PoI) but PAN is specifically required for financial market transactions.
Q137EasyStructure of a Mutual Fund
In the Indian mutual fund structure, which entity is established as a trust under the Indian Trusts Act, 1882, with the primary objective of holding the assets on behalf of the unitholders?
AThe Sponsor
BThe Asset Management Company (AMC)
CThe Custodian
✓The Mutual Fund
💡 As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund must be established as a trust under the Indian Trusts Act, 1882. The trust holds the assets for the benefit of the unitholders and is managed by the AMC under the supervision of the Trustees.
Q138HardValuation Norms for Debt Securities
For unlisted debt securities, where market quotes are not available, how frequently must their valuation be reviewed by a valuation agency approved by the Board of AMC and Trustees?
AAnnually
BHalf-yearly
CQuarterly
✓Monthly
💡 As per SEBI circulars on valuation of money market and debt securities, for unlisted debt securities where market quotes are not available, their valuation must be reviewed by an independent valuation agency approved by the Board of AMC and Trustees at least once a month. This ensures that the Net Asset Value (NAV) accurately reflects the fair value of such instruments.
Q139EasyTrustee Board Composition
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent trustees required on the Board of Trustees of a mutual fund?
AOne-fourth
BOne-third
CHalf
✓Two-thirds
💡 Regulation 16(b) of SEBI (Mutual Funds) Regulations, 1996 mandates that at least two-thirds of the trustees must be independent trustees and shall not be associated with the Sponsor or the Asset Management Company.
Q140MediumEligibility Criteria for AMC
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum net worth required for an Asset Management Company (AMC) at all times?
A₹ 25 crore
✓₹ 50 crore
C₹ 75 crore
D₹ 100 crore
💡 Regulation 21(f) of SEBI (Mutual Funds) Regulations, 1996, along with Schedule VI, mandates that an Asset Management Company (AMC) must have a minimum net worth of ₹ 50 crore at all times.
Q141MediumSEBI (Mutual Funds) Regulations - Inter-scheme Investment
Under the SEBI (Mutual Funds) Regulations, 1996, if a scheme of a mutual fund invests in another scheme of the same mutual fund, what is the maximum percentage of the net assets of the investing scheme that can be invested in the other scheme?
💡 As per SEBI (Mutual Funds) Regulations, 1996, a scheme of a mutual fund shall not invest more than 5% of its net assets in the units of another scheme of the same mutual fund. This restriction is to prevent excessive layering and potential conflict of interest within the same fund house.
Q142HardRegulatory Approvals for AMC
Which of the following changes concerning an Asset Management Company (AMC) requires prior approval from SEBI under the SEBI (Mutual Funds) Regulations, 1996?
AChange in the fund manager for an existing scheme.
BChange in the registered office address of the AMC within the same city.
✓Change in the shareholding pattern of the AMC leading to a change in control.
DIntroduction of a new scheme with minor modifications to an existing investment objective.
💡 Regulation 28(3) of SEBI (Mutual Funds) Regulations, 1996, states that no sponsor shall, without the prior approval of the Board, reduce its shareholding below forty per cent. of the paid-up equity capital of the asset management company. More broadly, any change in control of the AMC, including changes in the shareholding pattern that lead to a change in control, requires prior approval from SEBI to ensure the continued integrity and stability of the mutual fund operations.
Q143MediumRole of Trustees
Which of the following is a primary responsibility of the Board of Trustees of a mutual fund, distinct from the AMC's role?
AManaging the investment portfolio of the scheme
✓Ensuring compliance with SEBI (MF) Regulations and the trust deed
CMarketing and distributing the mutual fund schemes
DCalculating and publishing the Net Asset Value (NAV)
💡 The Trustees are the guardians of the unitholders' interests and are primarily responsible for ensuring that the mutual fund and the AMC operate in compliance with SEBI (MF) Regulations, the Trust Deed, and the Offer Documents. Investment management, marketing, and NAV calculation are primarily AMC functions.
Q144EasyScope of SEBI (Mutual Funds) Regulations
The SEBI (Mutual Funds) Regulations, 1996, primarily govern which aspect of mutual funds in India?
AOnly the taxation of mutual fund investments.
✓The complete regulatory framework for the establishment, operation, and winding up of mutual funds.
COnly the marketing and distribution practices of mutual fund distributors.
DThe prudential norms for banks investing in mutual funds.
💡 The SEBI (Mutual Funds) Regulations, 1996, are the primary legislation that lays down the comprehensive regulatory framework covering all aspects of mutual funds in India, from their constitution and management to their operations, disclosures, and winding up.
Q145EasyInvestor Grievance Redressal
If an investor has a grievance against a mutual fund, the first point of contact for redressal should typically be:
AThe Securities and Exchange Board of India (SEBI)
BThe Association of Mutual Funds in India (AMFI)
✓The Asset Management Company (AMC) of the respective mutual fund
DThe Registrar and Transfer Agent (RTA)
💡 For any grievance against a mutual fund, the investor should first approach the Asset Management Company (AMC) of the respective mutual fund. AMCs have established investor service departments and grievance redressal mechanisms to handle unitholder complaints. If the issue remains unresolved, the investor can then escalate it to AMFI or SEBI (e.g., through SCORES).
Q146MediumInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund scheme cannot invest more than what percentage of its net assets in the securities of a single company?
💡 The Fourth Schedule, Part A, Clause 1(a) of SEBI (Mutual Funds) Regulations, 1996, stipulates that a mutual fund scheme shall not invest more than 10% of its net assets in the securities of a single company. This restriction aims to diversify the portfolio and limit concentration risk.
Q147MediumKYC/AML Regulations
Which of the following is a key objective of the Prevention of Money Laundering Act (PMLA), 2002, as it applies to mutual fund operations?
ATo ensure timely redemption of mutual fund units.
✓To prevent money generated from illegal activities from being integrated into the legitimate financial system through mutual funds.
CTo regulate the advertisement practices of mutual funds.
DTo prescribe investment limits for mutual fund schemes.
💡 The PMLA, 2002, aims to combat money laundering by requiring financial institutions, including mutual funds, to report suspicious transactions and verify customer identities (KYC) to prevent the use of the financial system for illegal activities.
Q148MediumSEBI Guidelines for Mutual Funds - Investment Restrictions
SEBI (Mutual Funds) Regulations, 1996, restrict a mutual fund from investing more than a certain percentage of its net asset value (NAV) in another scheme managed by the same Asset Management Company (AMC). What is this limit?
✓5% of its NAV
B10% of its NAV
C15% of its NAV
D20% of its NAV
💡 As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund scheme cannot invest more than 5% of its net asset value (NAV) in the units of another scheme under the management of the same asset management company, to prevent concentration risk and self-dealing.
Q149HardPrevention of Money Laundering Act (PMLA)
Under the Prevention of Money Laundering Act, 2002 (PMLA), when is a mutual fund primarily required to file a Suspicious Transaction Report (STR) with the Financial Intelligence Unit - India (FIU-IND)?
AFor all cash transactions exceeding Rs. 10 lakhs.
✓When transactions appear to be structured to avoid reporting thresholds, regardless of amount.
CFor all international wire transfers exceeding USD 5,000.
DWhen the aggregate value of transactions in a month by a client exceeds Rs. 50 lakhs.
💡 A Suspicious Transaction Report (STR) is filed when there are reasonable grounds to believe that a transaction (or a series of transactions) involves proceeds of crime, regardless of the amount. This includes transactions that appear to be structured to avoid reporting thresholds, unusual patterns, or those lacking economic rationale. The focus for STR is on the nature and suspicion, not just fixed monetary thresholds.
Q150MediumSEBI (Mutual Funds) Advertisement Code
According to the SEBI (Mutual Funds) Advertisement Code, if an advertisement refers to the past performance of a mutual fund scheme, it must disclose performance for which of the following periods?
AOnly the last one year
✓At least the last one, three, and five years
COnly since inception
DAny period chosen by the AMC
💡 The SEBI Advertisement Code for Mutual Funds mandates that if past performance is depicted, it must be shown for at least the last one, three, and five years, along with performance since inception (if applicable), to provide a comprehensive view and prevent cherry-picking of favorable periods.
Q151MediumRestrictions on business activities of AMC
An Asset Management Company (AMC) is generally prohibited from engaging in which of the following activities, as per SEBI (Mutual Funds) Regulations, 1996?
AManaging pension funds or provident funds with prior approval from Trustees and SEBI.
BProviding discretionary portfolio management services (PMS) with prior approval from Trustees and SEBI.
CUndertaking activities as a venture capital fund manager with prior approval from Trustees and SEBI.
✓Engaging in any other business activities not specifically approved by the Trustees and SEBI.
💡 Regulation 24(b) of SEBI (Mutual Funds) Regulations, 1996, specifies that the AMC shall not undertake any other business activity other than managing the mutual fund and acting as an AMC of a venture capital fund, or managing pension funds, provident funds, etc., with the prior approval of the trustees and SEBI. The general prohibition is on 'any other business activities' without such specific approvals.
Q152EasyRole of AMFI
What is the primary role of the Association of Mutual Funds in India (AMFI) in the Indian mutual fund industry?
ATo regulate mutual funds and protect investor interests.
✓To act as a self-regulatory organization (SRO) for the mutual fund industry.
CTo manage the investment portfolios of various mutual fund schemes.
DTo approve new mutual fund schemes before their launch.
💡 AMFI is the self-regulatory organization (SRO) for the mutual fund industry in India. Its primary role includes developing best practices, setting ethical standards (Code of Ethics), and promoting investor awareness, while SEBI remains the principal regulator.
Q153HardPrevention of Money Laundering Act (PMLA)
Under the Prevention of Money Laundering Act (PMLA), 2002, which specific entity within the mutual fund structure is designated as a 'reporting entity' and has obligations to report suspicious transactions?
AThe Board of Trustees
BThe Sponsor
✓The Asset Management Company (AMC)
DThe Registrar and Transfer Agent (RTA)
💡 Under the Prevention of Money Laundering Act (PMLA), 2002, and subsequent amendments/rules, the Asset Management Company (AMC) is designated as a 'reporting entity'. The AMC has the responsibility to conduct customer due diligence, maintain records, and report suspicious transactions and high-value transactions to the Financial Intelligence Unit - India (FIU-IND).
Q154HardPrevention of Money Laundering Act (PMLA)
Under the Prevention of Money Laundering Act (PMLA), 2002, and subsequent rules, which type of transaction is *mandatory* for a mutual fund to report to the Financial Intelligence Unit - India (FIU-IND)?
AAll cash transactions above INR 1 lakh
BAll international wire transfers
✓Transactions suspected to involve proceeds of crime, regardless of amount
DAll transactions involving politically exposed persons (PEPs)
💡 The PMLA mandates reporting of 'Suspicious Transactions' to FIU-IND, which are transactions whether or not made in cash, which to a person acting in good faith, gives rise to a reasonable suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the amount involved. While other categories like cash transactions above a certain limit (e.g., Rs. 50,000 for non-account based, or Rs. 10 lakh for account-based) or transactions with PEPs also have specific reporting requirements, the defining characteristic of a 'Suspicious Transaction Report (STR)' is the suspicion of proceeds of crime, without any monetary threshold.
Q155MediumEligibility Criteria for Sponsor
According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum net worth requirement for an applicant to be eligible to act as a Sponsor of a mutual fund for the last five consecutive years?
AAt least ₹50 crore
✓At least ₹100 crore
CAt least ₹200 crore
DAt least ₹500 crore
💡 As per SEBI (Mutual Funds) Regulations, 1996 (Regulation 7), a sponsor must have a sound track record and a minimum net worth of ₹100 crore for the last five consecutive years, including a positive net worth in all these years.
Q156EasyAMC Capital Requirements
What is the minimum net worth requirement for an Asset Management Company (AMC) at all times, as per SEBI regulations?
A₹10 crores
B₹25 crores
✓₹50 crores
D₹100 crores
💡 As per SEBI (Mutual Funds) Regulations, 1996, an AMC must have a minimum net worth of not less than ₹50 crores at all times.
Q157MediumInvestment Restrictions, SEBI (Mutual Funds) Regulations, 1996
As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund scheme can invest a maximum of what percentage of its net assets in unlisted equity shares or unlisted equity-related instruments?
💡 SEBI (Mutual Funds) Regulations, 1996, specify that a mutual fund scheme shall not invest more than 5% of its net assets in unlisted equity shares or unlisted equity-related instruments. This is a measure to manage liquidity and risk.
Q158MediumAdvertisement Code and Disclosure
As per SEBI regulations, which of the following is a mandatory risk disclosure that must be prominently displayed in all mutual fund advertisements?
AComparison with fixed deposit returns
✓Past performance may or may not be sustained in future
CGuaranteed returns from the scheme
DDetailed breakdown of fund manager's salary
💡 SEBI's Advertisement Code for Mutual Funds mandates the disclosure 'Past performance may or may not be sustained in future' (or similar phrasing like 'Past performance is not indicative of future results'). This is crucial to manage investor expectations and highlight the market risk inherent in mutual fund investments. Options a, c, and d are either prohibited or irrelevant for mandatory risk disclosure.
Q159MediumAdvertisement Code
As per the SEBI (Mutual Funds) Regulations, 1996, and associated circulars, if an advertisement displays the past performance of a mutual fund scheme, it must disclose performance for which of the following periods, provided the scheme has been in existence for such period?
AOnly for the last 1 year
BOnly for the last 3 years
✓For 1 year, 3 years, 5 years, and since inception
DFor 5 years and since inception
💡 SEBI's Advertisement Code for Mutual Funds requires that if past performance is shown, it must be disclosed for 1 year, 3 years, 5 years, and since inception, provided the scheme has been in existence for such periods. This provides a comprehensive view of performance.
Q160MediumNAV Cut-off Timings
For subscriptions in liquid and overnight funds, what is the regulatory cut-off time to receive same-day NAV, provided the funds are available for utilization by the AMC?
✓1:00 PM
B2:00 PM
C3:00 PM
D4:00 PM
💡 As per SEBI regulations, for subscriptions in liquid and overnight funds, if the application is received before 1:00 PM and funds are available for utilization by the AMC, the investor gets the NAV of the same business day. For applications received after 1:00 PM, the next business day's NAV is applicable.
Q161MediumKey Constituents and their Roles - Asset Management Company (AMC) (Internal controls)
Which of the following is a key responsibility of the Compliance Officer of an Asset Management Company (AMC)?
AManaging the investment portfolio of all schemes
BMarketing mutual fund products to distributors
✓Ensuring adherence to all regulatory requirements and internal policies
DHandling investor grievance redressal exclusively
💡 The Compliance Officer is responsible for monitoring and ensuring that the AMC, its employees, and its operations comply with all relevant laws, regulations, and internal policies, including SEBI (Mutual Funds) Regulations.
Q162EasyRole of AMFI
The Association of Mutual Funds in India (AMFI) primarily functions as a:
ARegulatory body for mutual funds
✓Self-regulatory organization (SRO) for mutual funds
CInvestment advisor for unitholders
DFund manager for small investors
💡 AMFI is a self-regulatory organization (SRO) that promotes ethical and professional standards in the Indian mutual fund industry, working under the overall supervision of SEBI.
Q163EasySponsor's Eligibility Criteria
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum net worth required for a sponsor to establish a mutual fund for the immediately preceding five years?
ARs. 25 crore
✓Rs. 50 crore
CRs. 75 crore
DRs. 100 crore
💡 SEBI (Mutual Funds) Regulations, 1996, Chapter II, Regulation 7(b) specifies that the sponsor must have a sound track record and a net worth of not less than fifty crore rupees for the immediately preceding five years, including the period for which the application is made.
Q164MediumSponsor Eligibility Criteria
Which of the following is a key eligibility criterion for a sponsor to establish a mutual fund in India?
AMust be a foreign entity with global AUM of over $100 billion.
BMust have a minimum of 10 years of experience in the Indian financial services sector.
CMust have been profitable in at least 3 out of the immediately preceding 5 years.
✓Must have a sound track record and general reputation of fairness and integrity.
💡 As per SEBI (Mutual Funds) Regulations, 1996, a sponsor must have a sound track record and general reputation of fairness and integrity. Additionally, they must have been profitable for at least 5 years, including the immediately preceding 5 years (not just 3 out of 5).
Q165MediumAdvertisement Code
Which of the following statements is NOT true regarding mutual fund advertisements, as per SEBI (Mutual Funds) Regulations, 1996, and related guidelines?
AAdvertisements must contain a standard disclaimer regarding market risks.
BPast performance can be indicated, but it must be accompanied by relevant disclaimers and presented for specified periods.
CPerformance figures should be for at least the last one year, three years, and five years, if the scheme has existed for such periods.
✓Advertisements can guarantee returns if the scheme has a very low-risk profile and invests only in government securities.
💡 Mutual fund advertisements are strictly prohibited from guaranteeing returns, regardless of the scheme's risk profile or investment strategy, as mutual fund investments are subject to market risks. All other options are generally true as per the SEBI Advertisement Code for Mutual Funds.
Q166EasyMutual Fund Structure and Constituents
Which of the following is NOT a mandatory constituent of a mutual fund structure as per SEBI (Mutual Funds) Regulations, 1996?
ASponsor
BTrustee Company
CAsset Management Company (AMC)
✓Independent Financial Advisor (IFA)
💡 As per SEBI (Mutual Funds) Regulations, 1996, a mutual fund must be constituted as a three-tier structure comprising a Sponsor, a Trustee (or Board of Trustees), and an Asset Management Company (AMC). An Independent Financial Advisor (IFA) is an intermediary involved in distribution, not a constituent of the fund's core structure.
Q167MediumOffer Document and Disclosure Norms
If there is a material change in the Offer Document (Scheme Information Document - SID) of a mutual fund scheme, within what period must the unitholders be informed of such changes?
AWithin 7 days of the change
BWithin 30 days of the change
✓Within 3 months of the change
DAt the time of the next annual report
💡 As per SEBI (Mutual Funds) Regulations, 1996, and related circulars, any material changes to the Scheme Information Document (SID) must be communicated to the unitholders within three months of the change. This is typically done through an addendum and disclosure on the AMC's website and AMFI's website.
Q168EasySponsor Eligibility Criteria
As per SEBI (Mutual Funds) Regulations, 1996, a sponsor must have a sound track record of not less than how many years in the financial services business?
A3 years
✓5 years
C7 years
D10 years
💡 SEBI (Mutual Funds) Regulations, 1996, require a sponsor to have a sound track record of not less than five years in the financial services business.
Q169HardInvestor Rights and Obligations, Redemption Suspension, SEBI (Mutual Funds) Regulations, 1996
Under what specific condition can an Asset Management Company (AMC) temporarily suspend or restrict redemptions from a mutual fund scheme, as per SEBI regulations?
AIf the scheme's Net Asset Value (NAV) falls by more than 10% in a single day.
✓If the total redemption requests on any business day exceed 10% of the total assets under management (AUM) of the scheme.
CIf the fund manager decides to rebalance the portfolio significantly.
DIf the market regulator issues a general advisory to suspend redemptions across all funds.
💡 SEBI (Mutual Funds) Regulations, 1996, allow an AMC to temporarily suspend or restrict redemptions if the total redemption requests on any business day exceed 10% of the total assets under management (AUM) of the scheme. This is typically done in exceptional circumstances to protect the interests of remaining unit holders and prevent a 'run' on the fund.
Q170MediumEligibility criteria for Sponsor/AMC
What is the minimum contribution that a sponsor is required to make to the net worth of the Asset Management Company (AMC) in a mutual fund structure?
ANot less than 20% of the net worth of the AMC.
✓Not less than 40% of the net worth of the AMC.
CNot less than 50% of the net worth of the AMC.
DThe sponsor must fully own the AMC.
💡 Regulation 21(c) of SEBI (Mutual Funds) Regulations, 1996, specifies that the sponsor shall contribute at least 40% to the net worth of the Asset Management Company.
Q171HardInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, a mutual fund scheme cannot invest more than what maximum percentage of its Net Asset Value (NAV) in unrated debt instruments?
💡 SEBI (Mutual Funds) Regulations, 1996, specify that a mutual fund scheme shall not invest more than 25% of its NAV in unrated debt instruments. This limit applies to the total investment in unrated debt instruments by the scheme.
Q172MediumInvestment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of a mutual fund scheme's net assets that can be invested in the schemes of any other mutual fund under the same management or associate?
💡 Regulation 44(2) of SEBI (Mutual Funds) Regulations, 1996, restricts a mutual fund from investing more than 5% of its net assets in the schemes of any other mutual fund under the same management or associate.
Q173EasyStructure of Mutual Funds, Role of Custodian
Which entity within the mutual fund structure is responsible for the safekeeping of the scheme's securities and other assets, ensuring their physical and electronic security?
AFund Manager
BRegistrar and Transfer Agent (RTA)
✓Custodian
DAuditor
💡 The Custodian is an independent entity appointed by the Trustees to hold the securities and assets of the mutual fund schemes in safe custody, ensuring their physical and electronic security.
Q174MediumRestrictions on investments by AMC
As per SEBI (Mutual Funds) Regulations, 1996, an Asset Management Company (AMC) is restricted from investing more than what percentage of the scheme's net assets in schemes managed by itself or its associates?
💡 SEBI (Mutual Funds) Regulations, 1996, stipulate that an AMC shall not invest more than 5% of the net assets of any scheme in schemes managed by the AMC or its associates. This is to prevent self-dealing and conflicts of interest.
Q175HardSponsor's Contribution to AMC
What is the minimum contribution a Sponsor is required to make towards the net worth of the Asset Management Company (AMC) as per SEBI (Mutual Funds) Regulations, 1996?
AAt least 26% of the AMC's net worth.
✓At least 40% of the AMC's net worth.
CAt least 51% of the AMC's net worth.
DAt least 75% of the AMC's net worth.
💡 As per Regulation 21(1)(e) of SEBI (Mutual Funds) Regulations, 1996, the sponsor, or if there is more than one sponsor, the sponsors jointly, must have a minimum of 40% shareholding in the net worth of the Asset Management Company. This ensures a significant stake and commitment from the sponsor.
Q176MediumInvestor Grievance Redressal
What is the maximum timeline for a mutual fund to resolve an investor complaint received through the SEBI Complaints Redress System (SCORES)?
A7 working days
B15 calendar days
✓21 calendar days
D30 calendar days
💡 As per SEBI circulars on investor grievance redressal, mutual funds are required to resolve complaints received through SCORES within 21 calendar days from the date of receipt.
Q177HardSponsor's eligibility criteria and contribution
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum percentage of the Asset Management Company's (AMC) net worth that the sponsor(s) must contribute?
💡 SEBI (Mutual Funds) Regulations, 1996, mandate that the sponsor(s) must contribute at least 40% to the net worth of the Asset Management Company (AMC). This ensures significant commitment from the sponsor.
Q178EasyStructure of Mutual Funds - Sponsor
As per SEBI (Mutual Funds) Regulations, 1996, which of the following is a primary responsibility of the Sponsor of a mutual fund?
AManaging the investment portfolio of the scheme.
BHolding the assets of the mutual fund in trust for the unitholders.
✓Appointing the Board of Trustees and the Asset Management Company.
DProviding daily NAV calculations and investor servicing.
💡 The Sponsor is responsible for establishing the mutual fund and appointing the initial Board of Trustees and the Asset Management Company (AMC). This is a foundational role in setting up the mutual fund structure as per SEBI (Mutual Funds) Regulations, 1996, Chapter II, Regulation 7.
Q179MediumEligibility criteria for AMC
As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum net worth requirement for an Asset Management Company (AMC) at all times?
ARs. 25 crore
✓Rs. 50 crore
CRs. 100 crore
DRs. 5 crore
💡 SEBI (Mutual Funds) Regulations, 1996, Regulation 21(f) mandates that the Asset Management Company must have a net worth of not less than Rs. 50 crore at all times.
Q180MediumInvestment restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum percentage of a mutual fund scheme's net assets that can be invested in the debt instruments of a single issuer (excluding CPs, CDs, and T-Bills)?
💡 Regulation 44(1)(a) of SEBI (Mutual Funds) Regulations, 1996, states that a mutual fund scheme shall not invest more than 10% of its net assets in the debt instruments of a single issuer. This limit can be extended to 12% with the approval of the Board of Trustees and the Board of AMC. This excludes CPs, CDs, and T-Bills.
Q181MediumSEBI (Mutual Funds) Regulations, 1996 - Scheme Changes
Under what circumstances is an Asset Management Company (AMC) required to obtain prior approval from the Trustees before making any changes to the fundamental attributes of a mutual fund scheme?
AOnly if the change impacts the expense ratio.
✓Always, for any change to fundamental attributes.
COnly if the change is proposed by SEBI.
DOnly if the change requires a majority vote from unitholders.
💡 As per SEBI (Mutual Funds) Regulations, 1996, any change in the fundamental attributes of a scheme (e.g., investment objective, asset allocation, type of scheme) requires prior approval from the Trustees and must also be communicated to unitholders, who are given an exit option without exit load.
Q182EasyRegulatory Bodies - SEBI
Which regulatory body is primarily responsible for framing regulations for mutual funds in India?
AReserve Bank of India (RBI)
BMinistry of Finance (MoF)
✓Securities and Exchange Board of India (SEBI)
DAssociation of Mutual Funds in India (AMFI)
💡 The Securities and Exchange Board of India (SEBI) is the primary regulator for the securities market in India, including mutual funds. SEBI frames the regulations, primarily the SEBI (Mutual Funds) Regulations, 1996, to govern the establishment and functioning of mutual funds.
Q183MediumInvestor Grievance Redressal
For an investor grievance related to a mutual fund scheme, what is generally considered the first point of contact for redressal?
ASecurities and Exchange Board of India (SEBI) directly.
✓The Asset Management Company (AMC) or its Registrar and Transfer Agent (RTA).
CAssociation of Mutual Funds in India (AMFI).
DThe Ministry of Finance.
💡 The first step for an investor facing a grievance is typically to approach the entity directly responsible for the service or issue. In the case of mutual funds, this is the Asset Management Company (AMC) or its Registrar and Transfer Agent (RTA). If the grievance is not resolved satisfactorily at this level, it can then be escalated to SEBI (through SCORES) or AMFI.
Q184EasyRole and Responsibilities of Trustees
Which entity in the mutual fund structure is primarily responsible for ensuring that the mutual fund and its schemes are managed in accordance with the SEBI (Mutual Funds) Regulations and the provisions of the Trust Deed?
ASponsor
BAsset Management Company (AMC)
✓Board of Trustees
DCustodian
💡 The Board of Trustees is the guardian of the unitholders' interests and is responsible for ensuring that the mutual fund's operations, including those of the AMC, adhere to the Trust Deed and SEBI (Mutual Funds) Regulations, 1996. (SEBI MF Reg 18 - General obligations of the trustees).
Q185EasyRole of Custodian
What is the primary function of a Custodian in the Indian mutual fund industry?
AManaging the investment portfolio of the fund.
BMaintaining records of unitholders and processing transactions.
✓Safekeeping of the securities and other assets of the mutual fund.
DMarketing and selling mutual fund schemes to investors.
💡 The Custodian's primary role, as mandated by SEBI (Mutual Funds) Regulations, 1996, is the safekeeping of the mutual fund's assets (securities, gold, etc.) and ensuring their proper segregation and accounting.
Q186HardInvestment Restrictions and Valuation Norms
Under what specific condition(s) are inter-scheme transfers of investments permitted between schemes managed by the same Asset Management Company (AMC) as per SEBI regulations?
✓Only if the transfer is at the prevailing market price for quoted instruments and at a fair value for unquoted instruments, and is beneficial to the transferring scheme.
BOnly if the transfer is approved by the majority of unitholders of both schemes involved.
COnly if the transfer is done at cost price and does not exceed 10% of the net assets of either scheme.
DInter-scheme transfers are generally prohibited to avoid conflicts of interest.
💡 SEBI (Mutual Funds) Regulations, 1996, permit inter-scheme transfers of investments only under strict conditions: the transfer must be done at the prevailing market price for quoted instruments or at a fair value for unquoted instruments, and it must be beneficial to the transferring scheme, recorded as a purchase and sale, and consistent with the investment objectives of both schemes. Such transfers are not generally prohibited but are highly regulated.
Q187EasyOffer Document - Key Information Memorandum (KIM)
What is the maximum validity period for a Key Information Memorandum (KIM) from the date of its issue, as per SEBI guidelines?
A3 months
✓6 months
C12 months
D24 months
💡 As per SEBI circulars, the Key Information Memorandum (KIM) is valid for a period of six months from the date of its issue and needs to be updated every six months.
Q188EasyRole and Responsibilities of Trustees
What is the minimum frequency for the Board of Trustees of a mutual fund to hold its meetings?
AOnce every calendar year
BOnce every six months
✓Once every quarter (three months)
DOnce every month
💡 The Board of Trustees of a mutual fund is mandated to meet at least once in every quarter (three months) to review the operations of the mutual fund and ensure compliance with regulations. This is a key governance requirement.
Q189MediumAMFI Code of Conduct for Advertisements
As per the AMFI Code of Conduct for Advertisements, what is strictly prohibited when advertising mutual fund schemes?
AUsing past performance data with a clear disclaimer.
BMentioning the name and experience of the fund manager.
✓Projecting future returns or making explicit promises of returns.
DComparing the scheme's performance with a relevant benchmark index.
💡 The AMFI Code of Conduct for Advertisements strictly prohibits making explicit or implicit promises of returns or projecting future returns. This is to prevent misleading investors, as mutual fund returns are subject to market risks and are not guaranteed. While past performance can be shown with disclaimers, and comparisons are allowed with proper context, future projections are not.
Q190EasyEligibility criteria for AMC
What is the minimum net worth requirement for a company to act as an Asset Management Company (AMC) in India, as per SEBI regulations?
✓Rs. 50 crore
BRs. 25 crore
CRs. 100 crore
DRs. 5 crore
💡 As per SEBI (Mutual Funds) Regulations, 1996, Regulation 21(f), the AMC must have a minimum net worth of not less than Rs. 50 crore at all times.
Q191EasyAdvertisement Code
Which of the following types of advertisements is specifically prohibited under the SEBI (Mutual Funds) Regulations, 1996?
AAdvertisements promoting a specific fund manager's expertise.
BAdvertisements comparing the fund's past performance with its peers.
✓Advertisements guaranteeing returns or promising assured future performance.
DAdvertisements using celebrity endorsements without disclaimers.
💡 SEBI (Mutual Funds) Regulations, 1996, and the SEBI Advertisement Code for Mutual Funds strictly prohibit advertisements that guarantee returns or promise assured future performance. Mutual fund investments are subject to market risks, and such promises can mislead investors.
Q192EasyRole and responsibilities of Trustee
As per SEBI (Mutual Funds) Regulations, 1996, which entity has the primary responsibility to ensure that the mutual fund schemes are wound up or merged in the interest of the unit holders?
AThe Sponsor
BThe Asset Management Company (AMC)
✓The Trustee
DThe Registrar and Transfer Agent (RTA)
💡 Regulation 18(1)(g) of SEBI (Mutual Funds) Regulations, 1996, states that the Trustees shall ensure that the schemes are wound up or merged in the interest of the unit holders.
Q193MediumInvestment in Derivatives
Which of the following statements is TRUE regarding a mutual fund's investment in derivative instruments as per SEBI regulations?
AMutual funds are prohibited from investing in derivatives for any purpose.
BInvestment in derivatives is allowed strictly for hedging purposes only, not for generating returns.
✓Mutual funds can invest in derivatives for hedging, portfolio balancing, and for generating returns, subject to specific limits and conditions.
DThere are no specific limits on derivative exposure for mutual funds, as long as it's disclosed.
💡 SEBI (Mutual Funds) Regulations allow mutual funds to invest in derivatives for various purposes including hedging, portfolio balancing, and generating returns. However, such investments are subject to specific limits on gross exposure, counterparty exposure, and underlying assets, as well as disclosure requirements.
Q194EasyRegulatory Bodies
Which regulatory body is primarily responsible for framing regulations and overseeing the operations of mutual funds in India?
AReserve Bank of India (RBI)
BMinistry of Finance (MoF)
✓Securities and Exchange Board of India (SEBI)
DAssociation of Mutual Funds in India (AMFI)
💡 The Securities and Exchange Board of India (SEBI) is the apex regulator for the securities market in India, including mutual funds. It frames and enforces the SEBI (Mutual Funds) Regulations, 1996, which govern the establishment and operation of mutual funds.
Q195MediumRole of Trustees and Custodian
Who is primarily responsible for appointing the Custodian for a mutual fund scheme, as per SEBI (Mutual Funds) Regulations, 1996?
AThe Asset Management Company (AMC)
✓The Board of Trustees
CThe Sponsor
DSEBI
💡 As per SEBI (Mutual Funds) Regulations, 1996, the Board of Trustees is responsible for appointing the Custodian, with the prior approval of SEBI, to hold the scheme's assets in trust.
Q196MediumSEBI (Mutual Funds) Regulations - Investment Restrictions
As per SEBI (Mutual Funds) Regulations, 1996, what is the maximum investment a mutual fund scheme can make in the equity shares of a single company?
A5% of its net assets
✓10% of its net assets
C15% of its net assets
D20% of its net assets
💡 SEBI (Mutual Funds) Regulations, 1996, stipulate that a mutual fund scheme shall not invest more than 10% of its net assets in the equity shares or equity-related instruments of any single company. This is a prudential norm to ensure diversification and limit concentration risk.
Q197MediumKYC Norms - CKYC
What is the primary objective of the Central KYC (CKYC) Registry?
ATo consolidate all financial transactions of an individual for tax purposes.
✓To provide a single, centralized repository for KYC records of customers across the financial sector.
CTo track suspicious transactions for anti-money laundering purposes.
DTo manage the investment portfolios of retail investors.
💡 The primary objective of the Central KYC (CKYC) Registry, managed by CERSAI, is to provide a single, centralized repository for KYC records of customers across the entire financial sector. This eliminates the need for customers to undergo KYC multiple times when dealing with different financial intermediaries.
Q198EasyAMFI Code of Conduct
As per the AMFI Code of Conduct for Mutual Fund Distributors, which of the following practices related to remuneration is strictly prohibited?
AAccepting trail commission for existing assets
BDisclosing commission rates to investors upon request
✓Sharing a portion of commission with the investor as a rebate
DReceiving upfront commission for new investments
💡 The AMFI Code of Conduct and SEBI regulations strictly prohibit distributors from sharing commissions with investors, commonly known as 'rebating', as it can lead to mis-selling and unethical practices. Trail commissions and disclosure of commissions are generally permitted under specific conditions. Upfront commissions are also allowed but regulated.
Q199EasyInvestor Grievance Redressal - SCORES
The SEBI Complaints Redress System (SCORES) is an online platform for investors to lodge complaints against various market intermediaries. What is the typical timeframe within which SEBI expects these complaints to be resolved by the respective entities?
A7 working days
B15 calendar days
✓30 calendar days
D60 calendar days
💡 SEBI expects complaints lodged on the SCORES platform to be resolved by the concerned market intermediary within 30 calendar days. If not resolved, the complaint can be escalated to SEBI.
Q200HardTrustee Board Composition
What proportion of the board of trustees of a mutual fund must be independent trustees as per SEBI (Mutual Funds) Regulations, 1996?
ANot less than one-third
BNot less than half
✓Not less than two-thirds
DAll trustees must be independent
💡 Regulation 16(b) of SEBI (Mutual Funds) Regulations, 1996, mandates that not less than two-thirds of the trustees of a mutual fund must be independent trustees. This provision is crucial for ensuring independent oversight and protecting unit holders' interests.
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