Chapter 7 — All 160 Questions
Q1MediumNAV - Impact of Dividend
When a mutual fund scheme declares and pays out a dividend, how does it typically affect the scheme's Net Asset Value (NAV)?
AThe NAV remains unchanged.
BThe NAV increases proportionately to the dividend amount.
✓The NAV decreases proportionately to the dividend amount.
DThe NAV may increase or decrease depending on market conditions.
💡 A dividend payout reduces the assets of the fund by the amount paid out. Since NAV is calculated as (Assets - Liabilities) / Units Outstanding, a reduction in assets directly leads to a proportionate decrease in the NAV per unit on the record date of the dividend.
Q2EasyPricing of Units - Entry Load
What is the current status of entry loads charged by mutual funds in India?
AEntry loads are mandatory for all equity schemes.
BEntry loads are optional and can be charged at the discretion of the AMC.
✓Entry loads are prohibited for all mutual fund schemes.
DEntry loads are applicable only for institutional investors.
💡 Effective August 1, 2009, SEBI banned the charging of entry loads by all mutual fund schemes in India. Investors no longer pay any entry load when purchasing mutual fund units.
Q3MediumExit load and repurchase price
An investor redeems units of a mutual fund scheme with an NAV of Rs. 150. If an exit load of 0.50% is applicable, what will be the net amount received per unit by the investor?
ARs. 150.75
✓Rs. 149.25
CRs. 150.00
DRs. 149.50
💡 Exit load is deducted from the NAV at the time of redemption. Net amount received = NAV - (NAV × Exit Load Percentage) = Rs. 150 - (Rs. 150 × 0.005) = Rs. 150 - Rs. 0.75 = Rs. 149.25.
Q4MediumPricing of Units - Transaction Charges
What is the maximum transaction charge that an AMC can levy for a purchase application of ₹10,000 or more from a *new* investor investing through a distributor?
💡 As per SEBI regulations, for investments of ₹10,000 and above, a transaction charge of ₹150 is leviable for a *new* investor (one who is investing in any mutual fund for the first time). For existing investors, the transaction charge is ₹100. This charge is deducted from the subscription amount and paid to the distributor.
Q5MediumTER - Inclusions
Which of the following expenses can be included within the Total Expense Ratio (TER) of a mutual fund scheme as per SEBI regulations, subject to specific limits?
ABrokerage and transaction costs incurred for the purpose of executing trades.
BGoods and Services Tax (GST) on investment management fees.
✓Expenses towards investor education and awareness initiatives.
DExit loads collected by the scheme.
💡 SEBI permits AMCs to charge an additional expense of up to 0.02% of the average weekly net assets for investor education and awareness initiatives, which forms part of the TER. Brokerage and transaction costs are generally paid by the scheme but are not part of TER calculation, GST on fees is outside the TER, and exit loads are credited to the scheme, not an expense within TER.
Q6EasyExit Load calculation
A mutual fund scheme has an exit load structure of 0.75% if units are redeemed within 180 days from the date of allotment. An investor redeems units after 200 days. What will be the applicable exit load?
A0.75% of the redemption value.
B0.375% of the redemption value.
✓0.0% (No exit load).
DAn amount determined by the AMC at the time of redemption based on market conditions.
💡 Exit loads are typically applicable only if units are redeemed within a specified period from the date of purchase. Since the investor redeemed units after 200 days, which is beyond the 180-day exit load period, no exit load will be charged.
Q7EasyExit Load
What is the primary purpose of charging an Exit Load in a mutual fund scheme?
ATo compensate distributors for their services.
✓To deter short-term redemption and encourage long-term investments.
CTo increase the scheme's Net Asset Value (NAV).
DTo cover the fund's operational expenses.
💡 Exit loads are primarily charged to discourage investors from redeeming their units too early, thereby promoting long-term investing and helping the fund manager maintain portfolio stability. The amount collected from exit loads is credited back to the scheme.
Q8HardNAV and Dividends
A mutual fund scheme declares a dividend of ₹2 per unit. Immediately after the declaration but before the actual payout, what is the direct impact on the scheme's Net Asset Value (NAV)?
AThe NAV increases by ₹2 per unit.
✓The NAV decreases by ₹2 per unit.
CThe NAV remains unchanged until the payout date.
DThe NAV fluctuates based on market movements, irrespective of the dividend declaration.
💡 Upon declaration of a dividend, the amount declared becomes a liability for the fund. This reduces the fund's net assets, and consequently, the NAV per unit falls by the dividend amount declared per unit. The actual payout date does not further impact the NAV, as the liability was already accounted for upon declaration.
Q9EasyTotal Expense Ratio (TER) components
Which of the following expenses is NOT typically included in the Total Expense Ratio (TER) of a mutual fund scheme?
AManagement fees
BRegistrar and Transfer Agent (RTA) fees
✓Brokerage and transaction costs for portfolio churn
DAudit fees
💡 Brokerage and transaction costs incurred for portfolio churn are generally charged to the scheme directly and are permitted over and above the TER, up to a certain limit (e.g., 0.12% for equity and 0.05% for debt). TER primarily covers recurring operating expenses like management fees, RTA fees, marketing expenses, and audit fees.
Q10EasyNet Asset Value (NAV) Calculation
What is the primary factor that causes the Net Asset Value (NAV) of a mutual fund scheme to fluctuate daily?
✓Changes in the market value of the scheme's underlying investments.
BChanges in the fund manager's salary.
CChanges in the number of unit holders.
DChanges in the fund's custodian bank.
💡 The NAV of a mutual fund scheme is primarily determined by the market value of its underlying investments (stocks, bonds, money market instruments, etc.). As these investment values change daily due to market movements, the scheme's total assets fluctuate, leading to a daily change in its NAV.
Q11MediumApplicability of Stamp Duty
As per current regulations, stamp duty is levied on which of the following mutual fund transactions?
AAll redemption transactions.
BAll switch-out transactions.
✓All purchase and switch-in transactions.
DOnly on dividend re-investment transactions.
💡 Stamp duty is levied on the issuance of mutual fund units. This means it is applicable to all purchase transactions (including SIPs) and switch-in transactions, as these involve the creation of new units. It is not levied on redemption or switch-out transactions. Dividend re-investment also involves issuance of units, so it falls under purchase/switch-in. (Finance Act, 2020 and subsequent clarifications).
Q12EasyPricing: Exit Load
What is the primary purpose of an 'Exit Load' in a mutual fund scheme?
ATo increase the fund's assets under management (AUM).
✓To deter short-term redemptions and protect long-term investors.
CTo compensate the distributor for their services.
DTo cover the fund's annual operating expenses.
💡 Exit loads are charges levied when an investor redeems units within a specified short period (e.g., 1 year). Their primary purpose is to discourage frequent redemptions, reduce portfolio churning, and thereby protect the interests of long-term investors by maintaining fund stability.
Q13MediumAdditional TER for B-30 cities
What is the maximum additional Total Expense Ratio (TER) that a mutual fund scheme can charge for new inflows from beyond 30 (B-30) cities, subject to certain conditions?
A0.15%
B0.20%
C0.25%
✓0.30%
💡 SEBI permits an additional TER of up to 0.30% (of daily net assets) for new inflows from beyond 30 (B-30) cities. This is an incentive for AMCs to penetrate smaller cities, provided that the new inflows from B-30 cities are at least 30% of gross new inflows or 15% of the average assets under management (AAUM) of the scheme, whichever is higher.
Q14HardSEBI Limits on TER
What is the maximum Total Expense Ratio (TER) allowed for an equity-oriented mutual fund scheme with an Average Assets Under Management (AAUM) exceeding ₹50,000 crores?
A2.25%
B1.75%
✓1.05%
D0.80%
💡 SEBI regulations specify a tiered structure for TER limits. For equity schemes, the maximum TER for AUM exceeding ₹50,000 crores is 1.05%. The TER decreases as the AUM increases.
Q15HardSEBI TER limits for equity schemes
For an equity-oriented mutual fund scheme, what is the maximum permissible Total Expense Ratio (TER) for the portion of Average Assets Under Management (AAUM) exceeding ₹5,000 crores but up to ₹50,000 crores, as per SEBI regulations?
A1.25%
✓1.50%
C1.60%
D1.75%
💡 SEBI prescribes a graded TER structure for mutual funds. For equity-oriented schemes, the slab rates are: First ₹500 Cr (2.25%), Next ₹2,500 Cr (2.00%), Next ₹2,000 Cr (1.75%), Next ₹5,000 Cr (1.60%), Next ₹40,000 Cr (1.50%), On the balance AUM (1.25%). The portion exceeding ₹5,000 Cr (which is the sum of the first three slabs) but up to ₹50,000 Cr falls into the 'Next ₹40,000 Cr' slab, for which the maximum TER is 1.50%.
Q16MediumTotal Expense Ratio (TER) Components
Which of the following expenses is explicitly *excluded* from the Total Expense Ratio (TER) calculation for a mutual fund scheme as per SEBI regulations?
AInvestment management and advisory fees
BRegistrar and transfer agent fees
✓Brokerage and transaction costs related to the purchase/sale of securities
DMarketing and sales promotion expenses
💡 As per SEBI regulations, brokerage and transaction costs (including Securities Transaction Tax - STT) incurred for the purpose of executing trades are permitted to be charged over and above the prescribed TER limits. These costs are not included within the TER calculation itself.
Q17HardApplicability of NAV for purchase transactions
For a purchase application in a non-liquid scheme (other than an Exchange Traded Fund), involving an amount of INR 2,00,000 or more, what NAV will be applicable if the application is received before the cut-off time of 3:00 PM on a business day?
AThe NAV of the same business day, if funds are realized on the same day.
BThe NAV of the next business day, irrespective of fund realization time.
CThe NAV of the business day on which the funds are realized by the mutual fund, irrespective of the application submission time.
✓The NAV of the business day on which the funds are realized by the mutual fund, provided the application was received before the cut-off time on that day.
💡 For purchase applications in non-liquid schemes (other than ETFs) involving INR 2,00,000 or more, the NAV of the business day on which the funds are realized by the mutual fund will be applicable, provided the application is received before the cut-off time on that day. If the application is received after the cut-off time, or if funds are realized on a subsequent business day, the NAV of the subsequent business day on which funds are realized will apply. (SEBI Circular CIR/IMD/DF/21/2012 dated September 13, 2012, and subsequent updates)
Q18HardCut-off timings and NAV applicability
An investor submits an application for an equity-oriented mutual fund scheme on a business day at 2:30 PM with a cheque. The cheque is realized and credited to the scheme's account the next business day at 10:00 AM. Which NAV will be applicable for this investment?
ANAV of the day the application was submitted.
✓NAV of the next business day (when the funds were realized).
CNAV of the day after the funds were realized.
DThe transaction will be rejected due to late submission.
💡 For equity-oriented schemes, if the application is received before the cut-off time (3:00 PM) but the funds are realized on the next business day, the NAV of the next business day (i.e., the day funds are realized) will be applicable. This rule applies regardless of the investment amount if the funds are not realized on the same day as the application.
Q19HardPricing of Units (Swing Pricing/Anti-Dilution Levy)
What is the primary objective of implementing a 'swing pricing' mechanism or 'anti-dilution levy' in a mutual fund scheme?
ATo increase the Total Expense Ratio (TER) of the scheme.
✓To protect existing unitholders from the costs associated with large inflows or outflows.
CTo provide a discount to new investors joining the scheme.
DTo simplify the NAV calculation process for the Asset Management Company.
💡 Swing pricing or anti-dilution levies are mechanisms used by mutual funds to protect existing unitholders from the dilution of their investment value. This dilution can occur due to transaction costs (brokerage, STT, etc.) incurred when large inflows or outflows require the fund manager to buy or sell underlying securities. These costs are effectively borne by the transacting unitholders rather than being spread across all unitholders.
Q20HardNAV Applicability - Cut-off Timings (Liquid Fund Redemption)
An investor submits a redemption request for a liquid mutual fund scheme at 1:45 PM on a Monday. The funds are successfully credited to the AMC's pool account at 2:30 PM on the same Monday. Which day's NAV will be applicable for this redemption?
✓Monday's closing NAV
BTuesday's closing NAV
CPrevious business day's closing NAV (Friday's NAV)
DThe NAV of the day the redemption proceeds are paid out to the investor.
💡 For liquid funds, if a redemption request is received before the cut-off time of 3:00 PM on a business day, the NAV of the same business day (Monday) is applicable, provided the transaction is processed successfully on that day. The request was at 1:45 PM, which is before the 3:00 PM cut-off for redemptions in liquid funds.
Q21HardImpact of subscriptions/redemptions on NAV (conceptual)
A large subscription comes into a mutual fund scheme. If the fund manager cannot immediately invest these funds and they remain as cash, what is the immediate impact on the scheme's NAV, assuming the existing portfolio's value remains constant?
ANAV will increase, as total assets increase.
BNAV will decrease, as new units are issued without immediate productive investment.
✓NAV will remain unchanged, as units outstanding and total assets increase proportionately.
DNAV will fluctuate based on market sentiment.
💡 When new units are issued for a subscription, both the total assets (cash received) and the number of units outstanding increase proportionately. Since NAV = (Assets - Liabilities) / Units Outstanding, if both the numerator (assets) and denominator (units outstanding) increase by the same proportion (as new units are issued at the current NAV), the NAV per unit remains unchanged immediately after the subscription, assuming no change in the value of existing assets.
Q22MediumComponents of NAV - Liabilities
In the context of NAV calculation, how are 'accrued expenses' treated?
AThey are added to the total assets of the scheme.
✓They are deducted from the total assets of the scheme as a liability.
CThey are ignored until the actual payment is made.
DThey are treated as an income component.
💡 Accrued expenses, such as accrued management fees, R&T fees, or audit fees, represent expenses that have been incurred but not yet paid. In NAV calculation, they are treated as liabilities and are deducted from the total assets of the scheme to arrive at the net assets. NAV is calculated on an accrual basis. (NISM V-A Study Material, Chapter 7, Components of NAV)
Q23HardCut-off timings and NAV applicability
An investor submits a purchase application for an equity-oriented mutual fund for ₹1,90,000 at 2:45 PM on a business day, and the funds are realized by the AMC on the *next* business day. Which NAV will be applicable for this transaction?
AThe NAV of the previous business day.
BThe NAV of the same business day when the application was submitted.
✓The NAV of the next business day when the funds were realized.
DThe NAV of the day after the funds were realized.
💡 For purchase applications in equity schemes (including hybrid schemes investing at least 65% in equity) for an amount less than ₹2,00,000, the NAV of the day on which the funds are available for utilization by the AMC (i.e., realized) is applicable, irrespective of the application submission time. Since the funds were realized on the next business day, that day's NAV will apply. (SEBI Circular CIR/IMD/DF/21/2012)
Q24MediumTransaction Charges
A first-time mutual fund investor makes a purchase of ₹8,000 through a distributor. What is the maximum transaction charge that can be deducted from this investment and paid to the distributor?
💡 SEBI regulations state that transaction charges are not applicable for purchases below ₹10,000. For purchases of ₹10,000 and above, a distributor can charge ₹150 for a first-time investor and ₹100 for existing investors.
Q25EasySecurities Transaction Tax (STT)
Securities Transaction Tax (STT) is applicable on which of the following mutual fund transactions?
APurchase of units in an equity-oriented mutual fund scheme.
✓Redemption of units in an equity-oriented mutual fund scheme.
CSwitching units from a debt fund to an equity fund.
DPurchase of units in a debt mutual fund scheme.
💡 Securities Transaction Tax (STT) is currently applicable on the redemption of units in equity-oriented mutual fund schemes. It is not applicable on purchases or switches into equity funds, nor on any transactions in debt mutual funds. (Income Tax Act, 1961, Section 98 and relevant notifications).
Q26EasyNAV Calculation Basics
The Net Asset Value (NAV) of an open-ended mutual fund scheme is calculated by dividing the net assets of the scheme by:
AThe total number of investors in the scheme.
BThe total market capitalization of its underlying investments.
✓The total number of outstanding units of the scheme.
DThe total amount of funds raised from initial public offering.
💡 The fundamental formula for calculating the Net Asset Value (NAV) of a mutual fund is: NAV = (Market Value of Assets - Liabilities) / Total Number of Outstanding Units. It represents the per-unit market value of the scheme's holdings.
Q27EasyDefinition and Calculation of NAV
Which of the following best defines the Net Asset Value (NAV) of a mutual fund scheme?
AThe total market value of the scheme's assets.
✓The market value of the scheme's assets minus its liabilities, divided by the number of outstanding units.
CThe market value of the scheme's assets divided by the number of outstanding units.
DThe total capital invested by unitholders divided by the number of outstanding units.
💡 NAV is calculated as the market value of the scheme's assets minus its liabilities, divided by the number of units outstanding on a particular date. This represents the per-unit value of the scheme's net assets.
Q28HardCut-off Timings and NAV Applicability
An investor submits a purchase application for a non-liquid mutual fund scheme at 2:30 PM on a business day. The funds are realized and credited to the mutual fund's designated bank account at 3:10 PM on the same day. Assuming the investment amount is ₹50,000, which NAV will be applicable for this transaction?
AThe NAV of the same business day.
✓The NAV of the next business day.
CThe NAV of the previous business day.
DThe NAV applicable at the time of application submission.
💡 For non-liquid schemes (other than liquid and overnight funds), if the funds are realized after the cut-off time (which is 3:00 PM for purchases), the NAV of the next business day will be applicable, irrespective of the investment amount. SEBI regulations mandate that for NAV applicability, both the application and funds must be received before the cut-off time.
Q29EasyStamp Duty
What is the stamp duty levied on mutual fund unit purchases in India?
✓0.005% of the transaction value
B0.01% of the transaction value
C0.02% of the transaction value
DNo stamp duty is levied on mutual fund purchases.
💡 As per the Indian Stamp Act, 1899, read with relevant notifications, a stamp duty of 0.005% is levied on the purchase of mutual fund units effective July 1, 2020. This is deducted from the investment amount.
Q30EasyPurpose of Exit Load
What is the primary reason for charging an exit load in a mutual fund scheme?
ATo cover distributor commissions for the original sale
✓To deter short-term redemptions and encourage long-term investing
CTo increase the fund's Assets Under Management (AUM)
DTo generate additional revenue for the Asset Management Company (AMC)
💡 Exit loads are primarily charged to discourage investors from redeeming their units too quickly, especially in equity funds, where frequent redemptions can disrupt portfolio management. It encourages a longer-term investment horizon.
Q31EasyImpact of expenses on NAV
What is the immediate effect on a mutual fund scheme's Net Asset Value (NAV) when the fund accrues its daily management fees?
AThe NAV increases as it's an income for the fund.
✓The NAV decreases as it's an expense for the fund.
CThe NAV remains unchanged until the fees are actually paid out.
DThe NAV fluctuates based only on market performance, not operational expenses.
💡 Management fees are an operational expense for the mutual fund. These fees are accrued daily, meaning they are accounted for as a liability even before actual payment. Accruing expenses reduces the fund's net assets, thereby leading to a decrease in the scheme's NAV.
Q32EasyFactors affecting NAV
What causes the Net Asset Value (NAV) of an equity mutual fund to fluctuate daily?
AChanges in the fund manager's salary.
BFixed annual administrative charges.
✓Changes in the market value of the underlying securities.
DThe entry load charged at the time of purchase.
💡 The NAV of an equity mutual fund is primarily driven by the market value of its underlying portfolio of stocks. As the prices of these stocks change throughout the trading day, the fund's total assets fluctuate, leading to daily changes in its NAV. Other options are either fixed costs spread over time or one-time charges that don't cause daily NAV fluctuations directly.
Q33MediumImpact of TER on NAV
If a mutual fund scheme has an Annualized Total Expense Ratio (TER) of 2.00%, what is the approximate daily impact of this expense ratio on the scheme's NAV?
AThe NAV will be reduced by 2.00% daily.
✓The NAV will be reduced by approximately 0.0055% daily (2.00% / 365 days).
CThe NAV will be reduced by 2.00% at the end of the year.
DThe TER does not directly impact the NAV.
💡 The Total Expense Ratio (TER) is an annualized figure. Its impact on the scheme's assets and, consequently, its NAV is spread out and accounted for on a daily basis. Therefore, an annualized TER of 2.00% translates to a daily reduction in NAV of approximately 2.00% / 365 days ≈ 0.0055%.
Q34MediumSEBI Limits on Total Expense Ratio (TER)
As per SEBI regulations, what is the maximum permissible Total Expense Ratio (TER) for an equity-oriented scheme for the first ₹500 crore of average weekly net assets?
A2.00%
✓2.25%
C2.50%
D1.75%
💡 SEBI regulations specify a graded expense structure for mutual funds. For equity-oriented schemes, the maximum TER for the first ₹500 crore of average weekly net assets is 2.25%. This limit reduces for higher Asset Under Management (AUM) slabs.
Q35EasyFrequency of NAV declaration
For open-ended mutual fund schemes, how often is the Net Asset Value (NAV) required to be calculated and declared?
AWeekly.
BMonthly.
✓Daily, on all business days.
DQuarterly.
💡 As per SEBI regulations, the Net Asset Value (NAV) for open-ended mutual fund schemes must be calculated and declared on every business day. This ensures transparency and reflects the most current value of the fund's assets. (SEBI (Mutual Funds) Regulations, 1996).
Q36MediumNAV Applicability and Cut-off Timings
For an investment in a liquid fund, what is the cut-off time for an application to be eligible for the Net Asset Value (NAV) of the same business day?
A1:00 PM
✓2:00 PM
C3:00 PM
D4:00 PM
💡 As per SEBI regulations, for liquid and overnight funds, the cut-off time for applications (both purchase and redemption) to be eligible for the same business day's NAV is 2:00 PM, provided the funds are realized by the AMC. For other schemes, the cut-off time is generally 3:00 PM.
Q37HardComponents of NAV
How do accrued expenses, such as audit fees or trustee fees, impact the Net Asset Value (NAV) of a mutual fund scheme?
✓They reduce the NAV as they are treated as liabilities.
BThey increase the NAV as they are recorded as assets.
CThey have no impact on NAV until actually paid.
DThey are adjusted only at the end of the financial year and do not affect daily NAV.
💡 Accrued expenses are expenses incurred but not yet paid. They are recorded as liabilities in the fund's books. Since NAV is calculated as (Assets - Liabilities) / Units Outstanding, an increase in liabilities (accrued expenses) will reduce the NAV.
Q38HardSwing Pricing / Anti-dilution levy
What is the primary objective of implementing 'swing pricing' or an 'anti-dilution levy' in mutual fund schemes?
ATo increase the fund's total expense ratio (TER) for higher revenue.
BTo compensate distributors for higher sales volumes.
✓To protect long-term unitholders from the dilution effects of large inflows or outflows.
DTo reduce the tax liability of the fund and its unitholders.
💡 Swing pricing is a mechanism used to protect existing unitholders from the costs associated with large inflows or outflows. When large transactions occur, the fund may incur significant transaction costs (brokerage, impact costs) in buying or selling underlying securities. Swing pricing adjusts the NAV slightly to pass these costs to the transacting investors, preventing dilution of returns for long-term unitholders.
Q39MediumCut-off Timings for Transactions
For liquid and overnight mutual fund schemes, what is the cut-off time for receiving applications to be eligible for the same day's NAV, provided funds are realized and available for utilization on the same day?
✓1:00 PM
B2:00 PM
C3:00 PM
D4:00 PM
💡 As per SEBI regulations, for liquid and overnight schemes, applications received up to 1:00 PM on a business day, and where funds are available for utilization on the same day, are eligible for the same day's NAV. For other schemes (equity, debt, etc.), the cut-off time is typically 3:00 PM.
Q40MediumComponents of Total Expense Ratio (TER)
Which of the following expenses, if incurred by a mutual fund, are generally *not* included within the SEBI prescribed limits for Total Expense Ratio (TER)?
AInvestment Management Fees
BRegistrar & Transfer Agent Fees
✓Brokerage & Transaction Costs (excluding STT)
DMarketing & Distribution Expenses
💡 SEBI regulations specify that certain expenses, such as brokerage and transaction costs incurred for the purpose of executing trades (up to a certain percentage, e.g., 0.12% for cash market trades and 0.05% for derivatives), are allowed to be charged over and above the prescribed TER limits. Securities Transaction Tax (STT) is also charged over and above TER. Other expenses like investment management fees, R&T fees, and marketing expenses are part of the TER and subject to its limits.
Q41HardCut-off Timings for Debt Funds
A debt fund has a portfolio of securities with an average maturity of 180 days. What is the cut-off time for receiving applications for purchase and redemption to be eligible for the same day's NAV?
A1:00 PM
B2:00 PM
✓3:00 PM
D4:00 PM
💡 For debt schemes (other than liquid and overnight funds) where the funds' portfolio has an average maturity greater than 91 days, the cut-off time for same-day NAV applicability for both purchases and redemptions is 3:00 PM. Liquid and Overnight funds have a 1:30 PM cut-off.
Q42MediumDirect vs. Regular Plans TER
What is the primary reason for the difference in Total Expense Ratio (TER) between a Direct Plan and a Regular Plan of the same mutual fund scheme?
ADirect Plans invest in different asset classes with lower expenses.
✓Regular Plans incorporate distributor commissions and marketing expenses.
CDirect Plans have higher fund management fees due to direct investor servicing.
DRegular Plans are subject to higher regulatory fees by SEBI.
💡 The primary difference in TER between a Direct Plan and a Regular Plan of the same scheme is that the Regular Plan includes distributor commissions and associated marketing/distribution expenses, which are absent in Direct Plans. This makes the TER of Direct Plans typically lower than Regular Plans.
Q43MediumImpact of Income/Expenses on NAV
A mutual fund scheme has an AUM of ₹500 Crores and 25 Crore units outstanding. If the scheme incurs an expense of ₹50 lakhs for the day, and there are no other changes in asset values or unit capital, what will be the approximate impact on the scheme's NAV?
ANAV will increase by ₹0.02 per unit.
✓NAV will decrease by ₹0.02 per unit.
CNAV will increase by ₹0.002 per unit.
DNAV will decrease by ₹0.002 per unit.
💡 Initial NAV = ₹500 Crores / 25 Crore units = ₹20.00 per unit. An expense of ₹50 lakhs (₹0.50 Crores) will reduce the AUM. The reduction in AUM per unit is ₹0.50 Crores / 25 Crore units = ₹0.02 per unit. Thus, the NAV will decrease by ₹0.02 per unit.
Q44EasyTotal Expense Ratio (TER) - Direct vs. Regular Plans
Which of the following mutual fund plans typically has a lower Total Expense Ratio (TER) compared to the others?
ARegular Plan
✓Direct Plan
CInstitutional Plan
DDistributor-assisted Plan
💡 Direct Plans do not involve distributor commissions, as investors invest directly with the AMC. This absence of distribution costs results in a lower expense ratio (TER) compared to Regular Plans, which include distributor commissions.
Q45MediumSEBI Limits on Total Expense Ratio (TER)
For equity-oriented schemes, what is the maximum permissible Total Expense Ratio (TER) for the first Rs. 500 crores of average weekly net assets as per SEBI regulations?
A2.00%
✓2.25%
C2.50%
D2.75%
💡 As per SEBI regulations on TER, for equity-oriented schemes, the maximum permissible TER is 2.25% for the first Rs. 500 crores of average weekly net assets. The TER then decreases in a slab-wise manner for higher AUMs.
Q46HardExit Load Calculation
An investor holds 100 units of an equity-oriented mutual fund scheme. The current NAV is ₹80. The scheme has an exit load structure of 1% if units are redeemed within 1 year, and 0% thereafter. If the investor redeems all units after 8 months, what is the total amount the investor will receive?
A₹8,000
✓₹7,920
C₹7,992
D₹8,080
💡 Total value of units = 100 units * ₹80/unit = ₹8,000. Since the redemption is within 1 year (after 8 months), an exit load of 1% applies. Exit load amount = 1% of ₹8,000 = ₹80. Amount received by investor = ₹8,000 - ₹80 = ₹7,920.
Q47HardAdvanced Pricing Concepts
Some mutual fund schemes, particularly in international markets, may implement a mechanism to adjust the NAV to protect existing investors from the dilution effect caused by large inflows or outflows. This mechanism is known as:
AValue Averaging
✓Swing Pricing
CRebalancing
DDollar-Cost Averaging
💡 Swing pricing (or dilution adjustment) is a mechanism where the fund's NAV is adjusted upwards during periods of net subscriptions (inflows) and downwards during periods of net redemptions (outflows). This adjustment aims to pass the transaction costs associated with large trades (buying or selling underlying securities) to the transacting investors, thereby protecting the existing investors from dilution of their NAV.
Q48MediumCut-off Timings for NAV
For an investor to receive the *same day's* NAV for a purchase application in a Liquid Fund, what is the latest time the application and funds must be received and made available for utilization by the Asset Management Company (AMC)?
✓1:30 PM
B3:00 PM
C5:00 PM
D10:00 AM
💡 As per SEBI regulations, for Liquid Funds and Overnight Funds, if the application is received before 1:30 PM on a business day and funds are available for utilization, the same day's NAV is applicable. For applications received after 1:30 PM, the next business day's NAV applies.
Q49EasyTotal Expense Ratio - Components and Exclusions
Which of the following is explicitly excluded from the Total Expense Ratio (TER) calculation of a mutual fund scheme and is charged separately?
AInvestment management and advisory fees
BRegistrar and Transfer Agent (RTA) fees
✓Brokerage and Securities Transaction Tax (STT)
DMarketing and selling expenses (within limits)
💡 Brokerage and Securities Transaction Tax (STT) are expenses that are charged over and above the Total Expense Ratio (TER) limits. All other options are components typically included within TER.
Q50HardCut-off timings and NAV applicability
An investor submits a purchase application for an equity-oriented mutual fund scheme at 4:00 PM on Friday. The next day, Saturday, is a bank holiday, and Monday is a public holiday. The fund house receives clear funds on Tuesday. Which NAV will be applicable for this purchase?
AFriday's NAV.
BMonday's NAV.
✓Tuesday's NAV.
DWednesday's NAV.
💡 For equity-oriented schemes, applications received after the cut-off time (typically 3:00 PM) are processed based on the NAV of the next business day. However, the NAV is applicable only upon realization of funds. In this scenario, the application was received after cut-off on Friday. Since funds were realized on Tuesday (after the holidays), Tuesday's NAV will be applicable for the purchase. (SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2020/175 dated September 23, 2020).
Q51MediumPricing of Units during NFO
During the New Fund Offer (NFO) period, at what price are units of an open-ended mutual fund scheme typically offered to investors?
AAt the prevailing Net Asset Value (NAV).
✓At a fixed price of INR 10 per unit.
CAt a premium to the face value.
DAt a price determined by market demand.
💡 During the NFO period, units of an open-ended mutual fund scheme are typically offered at their face value, which is usually INR 10 per unit. This is before the scheme begins investing and generating a fluctuating NAV based on market performance of its portfolio.
Q52MediumTER - SEBI Limits
According to SEBI regulations, what is the maximum permissible Total Expense Ratio (TER) for a debt-oriented mutual fund scheme with an AUM of ₹500 Crores?
A2.25%
B2.00%
✓1.75%
D1.50%
💡 As per SEBI regulations for debt-oriented schemes, the maximum permissible TER is 1.75% for the first ₹500 Crores of average weekly net assets. For equity schemes, it's 2.25% for the first ₹500 Crores.
Q53HardDefinition of Net Assets for NAV
For the purpose of calculating the Net Asset Value (NAV) of a mutual fund scheme, 'Net Assets' are precisely defined as the aggregate value of the fund's assets minus which of the following?
✓All scheme-related liabilities, excluding unit capital.
BOnly current liabilities payable within 12 months.
CAll liabilities including the value of unit capital.
DOnly fixed liabilities, such as long-term loans.
💡 Net Assets = Market Value of Investments + Other Assets - All Scheme-Related Liabilities (excluding the value of unit capital, which represents the unitholders' equity). The NAV per unit is then Net Assets divided by the number of units outstanding.
Q54EasyCut-off Timings for NAV Applicability
For investments in Liquid and Overnight Funds, if an application is received before the cut-off time of 1:30 PM on a business day and funds are realized on the same day, what NAV will typically be applicable?
AThe NAV of the previous business day.
✓The NAV of the same business day.
CThe NAV of the next business day.
DThe NAV declared two business days later.
💡 As per SEBI regulations, for Liquid and Overnight Funds, if the application is received before 1:30 PM and funds are realized on the same day, the NAV of the same business day is applicable.
Q55EasyNAV Calculation and Components
Which of the following expenses is directly deducted from the scheme's assets before calculating the Net Asset Value (NAV)?
✓Brokerage and transaction costs incurred by the fund for buying/selling securities.
BStamp Duty paid by the investor on purchase of units.
CTransaction charges paid by the investor to the distributor.
DDistributor commission on new purchases.
💡 Expenses incurred by the fund for its operations, such as brokerage and transaction costs for trading securities, investment management fees, registrar and transfer agent fees, audit fees, etc., are charged to the scheme's assets and directly reduce the NAV. Stamp duty and transaction charges are borne by the investor, and distributor commission is part of the TER but not an expense 'before' NAV calculation in the same direct operational sense as brokerage.
Q56EasyEntry and exit loads
As per current SEBI regulations, what is the status of entry loads for mutual fund schemes in India?
APermitted up to 2.25%
BPermitted only for direct plans
✓Banned for all schemes
DPermitted only for debt funds
💡 Effective August 1, 2009, SEBI completely banned the levy of entry loads by mutual fund schemes. This means investors do not pay any upfront charges when purchasing units of a mutual fund, whether through regular or direct plans, or for any fund category.
Q57HardTotal Expense Ratio (TER) - B-30 Inflows
An Asset Management Company (AMC) can charge an additional expense ratio of up to 30 basis points (0.30%) from mutual fund schemes to incentivize distributors for sales in B-30 cities. Which of the following is NOT a condition for charging this additional expense?
AThe inflows from B-30 cities must be from new investors or through additional purchases from existing investors.
BThe additional expense is charged only on inflows from B-30 cities.
CThe inflows from B-30 cities must account for at least 30% of gross new inflows in the scheme or 15% of the average AUM (year-on-year) of the scheme, whichever is higher.
✓The AMC must have a physical branch presence in all B-30 cities from which it receives inflows.
💡 SEBI regulations specify conditions for charging additional TER for B-30 cities, including that inflows must be new, charged only on B-30 inflows, and meet a certain percentage of gross new inflows or average AUM. There is no regulatory requirement for the AMC to have a physical branch presence in B-30 cities to charge this additional expense.
Q58MediumImpact of dividend distribution on NAV
When a mutual fund scheme declares a dividend, at what point does the Net Asset Value (NAV) of the scheme typically fall?
AOn the date of dividend payment to investors
✓On the Record Date for dividend distribution
COn the date of dividend declaration by the AMC
DOn the Ex-Dividend Date (i.e., the day before the Record Date)
💡 The NAV of a mutual fund scheme falls on the Record Date for dividend distribution. This is because on the Record Date, the amount of the dividend becomes a liability for the scheme, reducing its net assets, even if the actual payment occurs later. Investors holding units on the Record Date are entitled to the dividend, and subsequently, the NAV is adjusted downwards by the dividend amount per unit. (NISM V-A Study Material, Chapter 7, NAV and Pricing)
Q59HardValuation principles for illiquid securities
In the case of illiquid securities held by a mutual fund scheme, how should their valuation primarily be determined as per SEBI regulations?
ABased on the last traded price on the exchange, irrespective of liquidity.
BAt cost price or fair value, whichever is lower.
✓By the AMC's valuation committee based on fair valuation principles.
DBy an independent external valuer at market price, without AMC intervention.
💡 SEBI (Mutual Funds) Regulations, 1996, Fourth Schedule, mandates that illiquid securities should be valued in good faith on fair valuation principles by the Asset Management Company's (AMC) valuation committee. This ensures that the NAV accurately reflects the true value of underlying assets, even if they are not frequently traded.
Q60MediumCut-off Timings for NAV
An investor submits an application to purchase units of an equity-oriented mutual fund scheme at 2:45 PM on a business day. Assuming all necessary documents and funds are received by the AMC before the cut-off, which NAV will be applicable for this transaction?
AThe NAV of the previous business day.
✓The NAV of the same business day.
CThe NAV of the next business day.
DThe investor can choose between the NAV of the same or next business day.
💡 For equity-oriented schemes, if an application for purchase is received before the cut-off time (which is 3:00 PM on a business day) along with the funds, the NAV of the same business day is applicable. For liquid and overnight funds, the cut-off is 1:30 PM.
Q61HardSegregated Portfolio (Side Pocketing)
When a segregated portfolio (side pocket) is created within a mutual fund scheme due to stressed assets, how does it immediately impact the NAV of the *main* scheme?
AThe NAV of the main scheme increases as the risky assets are removed.
✓The NAV of the main scheme decreases, as the value of segregated assets is removed from its calculation.
CThe NAV of the main scheme remains unchanged, as a new NAV is calculated only for the segregated portfolio.
DThe NAV of the main scheme becomes zero until the segregated assets are resolved.
💡 Upon the creation of a segregated portfolio, the value of the stressed assets is removed from the main scheme's portfolio. Consequently, the NAV of the main scheme decreases immediately to reflect the exclusion of these assets. Investors then hold units in both the main scheme and the segregated portfolio, each with its own NAV.
Q62EasyNAV Disclosure
What is the minimum frequency for Mutual Fund AMCs to disclose the Net Asset Value (NAV) for all their schemes?
AWeekly.
BMonthly.
✓Daily, for all business days.
DQuarterly.
💡 As per SEBI regulations, Mutual Fund AMCs are required to declare the Net Asset Value (NAV) of their schemes on a daily basis for all business days. This ensures transparency and provides investors with up-to-date information on their investments.
Q63HardSwing Pricing
Which of the following best describes the primary purpose of 'Swing Pricing' in mutual funds?
ATo allow fund managers to 'swing' between different asset classes based on market conditions.
BTo ensure that the NAV of the fund remains stable despite market volatility.
✓To protect existing long-term investors from the dilution effect caused by large inflows or outflows.
DTo provide investors with a variable pricing mechanism linked to the fund's performance.
💡 Swing pricing is a mechanism used by mutual funds to protect existing long-term investors from the dilution effect caused by transactional costs associated with large inflows or outflows. When large subscriptions or redemptions occur, the fund manager has to buy or sell underlying securities, incurring brokerage, STT, and other transaction costs. These costs are borne by the entire fund, diluting the NAV for all investors. Swing pricing adjusts the NAV slightly to pass these transaction costs to the incoming or outgoing investors, thereby protecting the existing investors. (NISM V-A Study Material, Chapter 7, Swing Pricing)
Q64HardNAV applicability and cut-off timings
An investor submits an application for purchase of units in an equity-oriented mutual fund scheme on Friday at 4:00 PM. The next Monday is a public holiday. Assuming the application is valid and funds are realized on Friday itself, which NAV will be applicable for this transaction?
AFriday's NAV.
BMonday's NAV.
✓Tuesday's NAV.
DThe NAV of the next business day on which the application was submitted.
💡 For equity-oriented schemes, the cut-off time for same-day NAV applicability is 3:00 PM. If an application is received after 3:00 PM, it will be processed using the NAV of the next business day. Since the application was submitted at 4:00 PM on Friday, it will get the NAV of the next business day. As Monday is a public holiday, the next business day will be Tuesday. Therefore, Tuesday's NAV will be applicable. (SEBI Circular SEBI/IMD/CIR No. 4/ 168237/09 dated February 2009 and subsequent amendments on cut-off timings).
Q65MediumExit load calculation
An investor redeems 500 units of a mutual fund scheme at an NAV of ₹50 per unit. The scheme has an exit load of 1% if redeemed within 1 year. The investor redeems after 8 months. What is the net amount received by the investor?
A₹25,000
✓₹24,750
C₹24,500
D₹25,250
💡 The total redemption value before exit load is 500 units * ₹50/unit = ₹25,000. Since the redemption occurs within 1 year (8 months), the 1% exit load is applicable. Exit load = 1% of ₹25,000 = ₹250. The net amount received by the investor = ₹25,000 - ₹250 = ₹24,750.
Q66MediumAdditional Expenses in TER
What is the maximum additional expense that an AMC can charge to a scheme for distribution expenses in cities beyond the top 30 cities (B30 cities)?
✓Up to 0.30% of daily net assets
BUp to 0.50% of daily net assets
CUp to 0.20% of daily net assets
DUp to 0.75% of daily net assets
💡 SEBI permits AMCs to charge an additional expense of up to 0.30% (30 basis points) of the daily net assets, if new inflows from retail investors from beyond top 30 cities (B30 cities) are at least (i) 30% of gross new inflows in the scheme or (ii) 15% of the average assets under management (year to date) of the scheme, whichever is higher. (SEBI Circular CIR/IMD/DF/21/2012 and subsequent amendments)
Q67MediumPricing of Units - Stamp Duty
When an investor makes a purchase in a mutual fund scheme, how does the applicable Stamp Duty affect the unit allocation?
✓It is deducted from the investment amount, reducing the units allotted.
BIt is added to the investment amount, increasing the units allotted.
CIt is borne by the AMC and does not affect the investor's unit allocation.
DIt is adjusted against the exit load at the time of redemption.
💡 As per SEBI circular dated June 30, 2020, stamp duty is levied on mutual fund transactions. For purchases, the stamp duty is debited from the investment amount, meaning the actual amount available for unit allotment is reduced by the stamp duty amount, thereby reducing the number of units allotted.
Q68MediumNAV Calculation - Impact of Dividends
When a mutual fund scheme declares and pays out a dividend, how does it typically affect the scheme's Net Asset Value (NAV)?
ANAV increases, as the fund's profitability is reflected.
✓NAV decreases proportionately to the dividend paid out.
CNAV remains unchanged, as dividends are paid from realized gains.
DNAV increases as the number of units in circulation decreases.
💡 A dividend payout represents a distribution of a portion of the fund's distributable surplus to its unitholders. When the dividend is paid, the assets of the fund are reduced by the amount distributed, which directly causes the NAV per unit to decrease by the dividend amount per unit.
Q69MediumAdditional expenses and TER limits
What is the maximum additional expense that can be charged by a mutual fund scheme over and above the prescribed TER limits, specifically towards GST on investment management fees?
✓0.05% of daily net assets
B0.10% of daily net assets
C0.20% of daily net assets
D0.30% of daily net assets
💡 SEBI permits AMCs to charge an additional TER of up to 0.05% of the average daily net assets for expenses incurred towards GST on investment management fees, over and above the standard TER limits.
Q70MediumNAV Disclosure Timelines
SEBI regulations stipulate that the Net Asset Value (NAV) for equity-oriented schemes must be declared by what time?
A10:00 AM on the next business day.
✓11:00 PM on the same business day.
C5:00 PM on the same business day.
D9:00 AM on the next business day.
💡 As per SEBI regulations, the NAV for all schemes, except Liquid and Overnight funds, must be declared by 11:00 PM on the same business day. For Liquid and Overnight funds, the NAV must be declared by 10:00 AM on the next business day.
Q71MediumCut-off Timings for NAV Applicability
For applications received for non-liquid mutual fund schemes, where the funds are realised by the Asset Management Company (AMC) on the same day, what is the cut-off time for applicability of the same day's Net Asset Value (NAV)?
A1:00 PM
B2:00 PM
✓3:00 PM
D5:00 PM
💡 As per SEBI regulations, for non-liquid schemes (e.g., equity, debt, hybrid funds), applications received up to 3:00 PM on a business day will be allotted units at the NAV of the same day, provided the funds are realised by the AMC on the same day. Applications received after 3:00 PM or with funds realised on a subsequent day will receive the next business day's NAV.
Q72HardPricing of Units - Swing Pricing
Some mutual funds may implement a mechanism known as 'swing pricing' or 'dilution adjustment' for their NAV calculation. What is the primary purpose of this mechanism?
ATo provide a guaranteed return to investors by smoothing out market volatility.
✓To adjust the NAV to protect long-term investors from costs incurred due to large inflows or outflows.
CTo allow the AMC to charge higher management fees during periods of high market liquidity.
DTo automatically rebalance the fund's portfolio based on predefined asset allocation rules.
💡 Swing pricing (or dilution adjustment) is a mechanism used to adjust the NAV of a fund to mitigate the impact of transaction costs arising from large subscriptions or redemptions. It ensures that the costs associated with buying or selling underlying securities to accommodate large inflows or outflows are borne by the transacting investors, thereby protecting the existing long-term unitholders from dilution of their holdings' value.
Q73HardNAV Applicability and Cut-off Timings
An investor submits a valid purchase application for an equity-oriented mutual fund scheme with a cheque on Monday at 4:00 PM. The cheque is realised and funds are available for utilisation by the AMC on Wednesday. Assuming no holidays, which NAV will be applicable for this transaction?
AMonday's closing NAV
BTuesday's closing NAV
✓Wednesday's closing NAV
DThe NAV of the day funds are invested by the AMC, which could be Thursday
💡 For equity-oriented schemes, the NAV applicable is based on the date on which the funds are available for utilisation by the AMC. Since the application was received after the cut-off time (3:00 PM) on Monday, it would be processed using the NAV of the next business day (Tuesday). However, as the funds were available for utilisation only on Wednesday, the NAV of Wednesday will be applicable for the transaction.
Q74HardPricing - Transaction Charges
An investor makes a fresh purchase of ₹15,000 in a mutual fund scheme through a distributor. If this is the investor's first-time investment in mutual funds, what is the maximum transaction charge that the distributor can levy from the investor?
💡 As per AMFI guidelines, for investments of ₹10,000 and above, a transaction charge of ₹150 is deducted from the investment amount for a first-time investor in mutual funds. For existing investors, this charge is ₹100. No transaction charge is applicable for investments below ₹10,000.
Q75MediumImpact of Expenses on NAV
When a mutual fund scheme incurs an expense, such as audit fees or legal charges, how does this typically impact the scheme's Net Asset Value (NAV)?
AIt increases the NAV as it's a cost of doing business.
✓It decreases the NAV as it reduces the net assets of the scheme.
CIt has no direct impact on NAV, as expenses are covered by entry/exit loads.
DIt increases the NAV if the expense leads to better fund management.
💡 NAV is calculated as (Market Value of Assets - Liabilities) / Number of Units Outstanding. Any expense incurred by the fund is a liability that reduces the net assets, thereby decreasing the NAV.
Q76EasyNAV Disclosure
How frequently are mutual funds mandated to disclose their Net Asset Value (NAV) for all schemes?
AWeekly
BMonthly
✓Daily (on all business days)
DQuarterly
💡 As per SEBI regulations, Asset Management Companies (AMCs) are required to compute and disclose the Net Asset Value (NAV) for all their schemes on every business day. This ensures transparency and provides investors with up-to-date pricing information.
Q77EasyNAV - Cut-off Timings
For an investor making a purchase or redemption request in a non-liquid mutual fund scheme (other than Liquid or Overnight funds) on a business day, what is the cut-off time for the applicability of the same day's NAV?
A1:00 PM
B2:00 PM
✓3:00 PM
D5:00 PM
💡 As per SEBI regulations, for mutual fund schemes other than Liquid and Overnight funds, the cut-off time for applicability of the same day's NAV for both purchase and redemption transactions is 3:00 PM on a business day.
Q78HardTotal Expense Ratio (TER) and GST
A mutual fund scheme's daily net assets are ₹500 Crores. Its TER limit is 2.00%. If the AMC charges a management fee that, along with other expenses, hits the 2.00% TER limit, and GST at 18% is applicable on the management fee component. How is this GST treated concerning the TER limit?
AGST is absorbed within the 2.00% TER limit.
✓GST is charged over and above the 2.00% TER limit.
CGST is only charged if the scheme is profitable in the current financial year.
DGST is partially absorbed within TER and partially charged over and above the limit.
💡 As per SEBI regulations, Goods and Services Tax (GST) on investment management fees is allowed to be charged to the scheme *over and above* the prescribed TER limits. This ensures that the fund house does not have to absorb the GST within the TER, which would otherwise reduce the funds available for investment management services. (SEBI Circular CIR/IMD/DF/15/2013 dated August 22, 2013).
Q79EasyNAV - Components of Liabilities
Which of the following is typically NOT considered a liability when calculating the Net Asset Value (NAV) of a mutual fund scheme?
AOutstanding expenses payable
BProvisions for potential losses
CAccrued management fees
✓Unrealized gains on investments
💡 Unrealized gains on investments are part of the scheme's assets, not its liabilities. Liabilities include all outstanding payables, accrued expenses, and provisions.
Q80MediumComponents of Total Expense Ratio (TER)
Among the following, which expense is not typically borne by the mutual fund scheme as part of its Total Expense Ratio (TER), but is directly borne by the investor?
AInvestment Management and Advisory Fees
BRegistrar and Transfer Agent Fees
✓Securities Transaction Tax (STT)
DCustodian Fees
💡 Securities Transaction Tax (STT) is levied on the sale and purchase of equity-oriented securities and is directly borne by the investor, not routed through the scheme's TER. All other options (Investment Management and Advisory Fees, R&T Fees, Custodian Fees) are components of TER.
Q81HardPricing of Units - Swing Pricing / Dilution Adjustment
What is 'swing pricing' or 'dilution adjustment' in the context of mutual funds?
AA mechanism to adjust the NAV based on daily market volatility.
BA method to compensate distributors for their services based on fund performance.
✓An adjustment to the NAV to protect long-term investors from transaction costs incurred due to large inflows/outflows.
DA discount offered on units to investors during a New Fund Offer (NFO).
💡 Swing pricing (or dilution adjustment) is a mechanism used by some mutual funds, particularly in international markets, to adjust the NAV per unit to pass on the transaction costs incurred by the fund due to large inflows or outflows directly to the transacting investors. This protects the existing long-term investors from the dilution of their holdings' value caused by such trading activity.
Q82EasyTER Components (Exclusions)
Which of the following costs is *not* typically included in the Total Expense Ratio (TER) of a mutual fund scheme but is still borne by the scheme?
AInvestment Management and Advisory Fees.
BRegistrar and Transfer Agent Fees.
✓Brokerage and Transaction Costs related to portfolio churning.
DCustodian Fees.
💡 Brokerage and transaction costs incurred for the purpose of executing trades in the scheme's portfolio are borne by the scheme but are generally *excluded* from the calculation of the Total Expense Ratio (TER). Other listed items like management fees, RTA fees, and custodian fees are part of TER.
Q83HardDividend reinvestment and NAV
An investor opts for dividend reinvestment in a growth option scheme. On the record date, the scheme declares a dividend of ₹2 per unit. If the NAV before dividend declaration was ₹50 and the investor held 100 units, what will be the approximate number of units held by the investor *immediately after* the dividend reinvestment, assuming the ex-dividend NAV is ₹48?
A100 units (no change).
✓104.16 units.
C104 units.
D102 units.
💡 Total dividend payable to the investor = Number of units * Dividend per unit = 100 units * ₹2/unit = ₹200. In a dividend reinvestment option, this dividend amount is used to purchase additional units at the ex-dividend NAV. Additional units purchased = Total dividend / Ex-dividend NAV = ₹200 / ₹48 = 4.1666... units. Total units after reinvestment = Original units + Additional units = 100 + 4.1666... = 104.16 units (approximately).
Q84MediumImpact of Dividends on NAV
When a mutual fund scheme declares and pays a dividend to its unitholders, what is the immediate effect on the scheme's Net Asset Value (NAV)?
AThe NAV increases by the amount of the dividend per unit.
✓The NAV decreases by the amount of the dividend per unit.
CThe NAV remains unchanged, as dividends come from accumulated profits.
DThe NAV increases by the amount of the dividend minus applicable taxes.
💡 When a dividend is declared and paid, the fund distributes a portion of its assets (cash) to its unitholders. Since NAV is calculated as (Assets - Liabilities) / Units Outstanding, a distribution of cash reduces the fund's total assets. Consequently, the NAV of the scheme decreases by the dividend amount per unit on the record date of the dividend.
Q85MediumImpact of events on NAV
A mutual fund scheme declares a dividend. How does this typically impact the scheme's Net Asset Value (NAV) on the record date?
ANAV increases by the dividend amount.
✓NAV decreases by the dividend amount.
CNAV remains unchanged as it's a distribution from existing assets.
DNAV increases if the dividend is reinvested.
💡 When a dividend is declared and distributed, it is paid out from the scheme's existing assets. Therefore, on the record date, the Net Asset Value (NAV) of the scheme typically falls by the dividend amount per unit, as the total assets of the fund decrease by the amount paid out to unitholders.
Q86EasyComponents of Total Expense Ratio (TER)
Which of the following expenses is typically INCLUDED in the calculation of a mutual fund's Total Expense Ratio (TER)?
ABrokerage and transaction costs for buying/selling securities.
✓Cost of investor education and awareness initiatives.
CSecurities Transaction Tax (STT).
DExit loads charged to investors on redemption.
💡 The Total Expense Ratio (TER) primarily includes operating expenses of the scheme such as investment management and advisory fees, registrar and transfer agent fees, selling and marketing expenses (including investor education initiatives), custodian fees, audit fees, etc. Brokerage and transaction costs (like STT) are generally borne by the scheme but are typically excluded from the TER limits. Exit loads are charged to the investor at the time of redemption and are not an expense of the fund included in TER.
Q87MediumComponents of TER
Which of the following expenses is generally *not* included within the Total Expense Ratio (TER) of a mutual fund scheme but is borne by the scheme?
AInvestment Management and Advisory Fees
BRegistrar and Transfer Agent Fees
✓Brokerage and Transaction Costs
DCustodian Fees
💡 As per SEBI regulations, brokerage and transaction costs incurred for the purpose of executing trades are charged over and above the TER, subject to certain limits. Other options like investment management fees, RTA fees, and custodian fees are typically part of the TER.
Q88EasyNAV Declaration Frequency
For open-ended mutual fund schemes, how often is the Net Asset Value (NAV) generally required to be declared?
AMonthly
BQuarterly
✓Daily (on all business days)
DAnnually
💡 Open-ended mutual fund schemes are required to declare their NAV on every business day. This ensures transparency and allows investors to track the performance of their investments regularly.
Q89MediumStamp Duty on Mutual Fund Units
As per current regulations, what is the applicable stamp duty on mutual fund units purchased by investors?
✓0.005% on the transaction value for all mutual fund purchases.
B0.005% on the transaction value, applicable only to equity-oriented funds.
C0.005% on the transaction value, applicable to all mutual fund purchases (excluding SIP/STP/SWP).
DStamp duty has been abolished for mutual fund transactions.
💡 A uniform stamp duty of 0.005% of the transaction value is applicable on all mutual fund purchases (including SIP, STP, SWP investments), effective July 1, 2020. This is charged at the time of allotment of units.
Q90HardAdvanced Pricing Mechanisms (Swing Pricing)
Some global mutual funds employ a mechanism known as 'swing pricing' or 'anti-dilution levy'. What is the primary objective of such a mechanism?
ATo penalize investors who invest through distributors.
✓To ensure that large inflows or outflows do not adversely impact the NAV of remaining unitholders.
CTo increase the fund's Assets Under Management (AUM) by attracting new investors.
DTo provide a discount on NAV for early investors in a scheme.
💡 Swing pricing or anti-dilution levy is designed to protect existing unitholders from the costs associated with large inflows or outflows. When large transactions occur, the fund incurs transaction costs (e.g., brokerage, STT) to buy or sell underlying securities. Swing pricing adjusts the NAV slightly to pass these costs to the transacting investors, preventing dilution of returns for other unitholders. While not widely implemented in India, the concept is relevant for understanding advanced pricing mechanisms.
Q91HardTER limits for equity schemes based on AUM slabs
As per SEBI regulations, what is the maximum permissible Total Expense Ratio (TER) for an equity-oriented mutual fund scheme for the first Rs. 500 crores of its average weekly net assets?
A1.75%
B2.00%
✓2.25%
D2.50%
💡 For equity-oriented schemes, SEBI regulations specify a tiered TER structure. The maximum permissible TER is 2.25% for the first Rs. 500 crores of average weekly net assets, with lower percentages for higher AUM slabs.
Q92MediumEx-dividend NAV
A mutual fund scheme declares a dividend of Rs. 3.00 per unit. If its NAV before the ex-dividend date was Rs. 200, what would be the expected NAV on the ex-dividend date, assuming no other changes?
ARs. 203.00
BRs. 200.00
✓Rs. 197.00
DRs. 198.50
💡 When a dividend is declared and paid out, the assets of the fund are reduced by the dividend amount. Consequently, the NAV of the scheme falls by the dividend amount on the ex-dividend date. Expected NAV = Previous NAV - Dividend per unit = Rs. 200 - Rs. 3.00 = Rs. 197.00.
Q93MediumTransaction Charges
An existing mutual fund investor makes a fresh purchase of units for ₹12,000 through a distributor. What is the maximum transaction charge that the distributor can deduct from the investment amount?
A₹150
✓₹100
C₹50
DNo transaction charge is applicable for this amount.
💡 For existing investors, a transaction charge of ₹100 is applicable for each purchase application of ₹10,000 and above. For new investors (first time in any mutual fund), it's ₹150. Since the investment is ₹12,000, it meets the minimum threshold for applying a transaction charge.
Q94HardSEBI Limits on Total Expense Ratio (TER)
As per SEBI regulations, what is the maximum permissible Total Expense Ratio (TER) for an equity-oriented mutual fund scheme for the first INR 500 crore of average weekly net assets?
A2.00%
✓2.25%
C2.50%
D2.75%
💡 As per SEBI regulations, the maximum TER for equity-oriented schemes is 2.25% for the first INR 500 crore of average weekly net assets. This limit decreases for higher slabs of Assets Under Management (AUM). For debt and other schemes, the limit for the first INR 500 crore is 2.00%.
Q95EasyCalculation of NAV
The Net Asset Value (NAV) of a mutual fund scheme is calculated by deducting which of the following from the total assets?
ATotal income earned during the period
✓Total liabilities of the scheme
CTotal expenses incurred for marketing and distribution
DTotal units outstanding at the end of the day
💡 The NAV is calculated as (Market Value of Investments + Other Assets - Liabilities) / Number of Units Outstanding. Therefore, total liabilities are deducted from the total assets before dividing by the number of units outstanding to arrive at the per-unit value.
Q96MediumPricing of Units - Stamp Duty
As per current regulations in India, what is the rate of stamp duty levied on the purchase of non-liquid mutual fund units?
A0.0005% of the transaction value
✓0.005% of the transaction value
C0.01% of the transaction value
D0.05% of the transaction value
💡 As per the Indian Stamp Act, stamp duty is levied at 0.005% of the transaction value on the purchase of mutual fund units (other than liquid/overnight funds). For liquid/overnight funds, the rate is 0.00005%.
Q97EasyComponents of TER
Which of the following is typically NOT considered a component of the Total Expense Ratio (TER) of a mutual fund scheme?
AInvestment management and advisory fees
BRegistrar and transfer agent fees
CBrokerage and transaction costs related to fund portfolio management (within limits)
✓Securities Transaction Tax (STT) paid by the fund
💡 While investment management fees, R&T fees, and brokerage/transaction costs (within SEBI specified limits) are components of TER, statutory levies like Securities Transaction Tax (STT) and Stamp Duty are typically borne by the fund directly and are not included in the TER calculation as defined by SEBI. They are separate transaction costs.
Q98MediumComponents of Total Expense Ratio (TER)
Which of the following expenses is typically *not* included in the Total Expense Ratio (TER) of a mutual fund scheme as per SEBI regulations?
AInvestment Management Fees
BRegistrar and Transfer Agent (RTA) Fees
✓Brokerage and transaction costs incurred for buying/selling securities
DCustodian Fees
💡 As per SEBI regulations, brokerage and transaction costs incurred for the purpose of executing trades in the scheme's portfolio are generally excluded from the TER calculation. These costs are charged separately over and above the TER, subject to certain limits (e.g., 0.12% for equity and 0.05% for debt and other schemes). Other options like investment management fees, RTA fees, and custodian fees are standard components of the TER.
Q99EasyImpact of Expenses on NAV
If a mutual fund scheme incurs an expense, such as an audit fee, how does it affect the scheme's Net Asset Value (NAV) per unit?
AIt increases the NAV.
✓It decreases the NAV.
CIt has no immediate impact on the NAV.
DIt impacts the NAV only if it's an investment-related expense.
💡 Expenses reduce the total assets of the fund. Since NAV is calculated as (Total Assets - Total Liabilities) / Units Outstanding, a reduction in assets due to expenses will decrease the NAV per unit.
Q100MediumTotal Expense Ratio (TER) - Additional Expenses
According to SEBI regulations, which of the following is explicitly allowed to be charged *over and above* the prescribed Total Expense Ratio (TER) limits for a mutual fund scheme?
AFund management fees.
BCustodian fees.
✓Brokerage and transaction costs incurred for the purpose of executing trades.
DRegistrar and transfer agent fees.
💡 SEBI permits mutual funds to charge brokerage and transaction costs incurred for the purpose of executing trades over and above the prescribed TER limits, subject to certain disclosures and limits (e.g., 0.12% for equity and 0.05% for other than equity for cash market transactions, and 0.05% for derivatives). All other options (fund management fees, custodian fees, R&T fees) are part of the TER. (SEBI Circular CIR/IMD/DF/21/2012 dated September 13, 2012, and subsequent amendments).
Q101HardSwing Pricing/Anti-dilution Levy
What is the primary objective of implementing 'Swing Pricing' or an 'Anti-Dilution Levy' in mutual funds?
ATo increase the total expense ratio of the scheme.
BTo generate additional revenue for the Asset Management Company (AMC).
✓To protect long-term investors from the impact of significant inflows or outflows by short-term investors.
DTo simplify the NAV calculation process for the fund accountant.
💡 Swing pricing or an anti-dilution levy is implemented to protect existing long-term investors from the dilution effect caused by the transaction costs incurred when the fund buys or sells underlying securities to accommodate large inflows or outflows by short-term investors. It adjusts the NAV slightly to pass these costs to the transacting investors.
Q102MediumTotal Expense Ratio (TER) and Additional Expenses
As per SEBI regulations, what is the maximum permissible additional expense that can be charged *over and above* the specified Total Expense Ratio (TER) limits for brokerage and transaction costs for schemes investing at least 65% in equity?
A0.05% of daily net assets.
B0.10% of daily net assets.
✓0.12% of daily net assets.
D0.30% of daily net assets.
💡 SEBI allows mutual funds to charge additional expenses for brokerage and transaction costs over and above the prescribed TER limits. For schemes investing at least 65% in equity, this additional expense is capped at 0.12% of daily net assets. For other schemes, it is capped at 0.05%. (SEBI Circular CIR/IMD/DF/21/2012 dated September 13, 2012, and subsequent amendments).
Q103EasyNAV Calculation - Components
Which of the following is NOT typically considered a liability when calculating the Net Asset Value (NAV) of a mutual fund scheme?
AAccrued management fees payable to the AMC.
BOutstanding dividend payable to unit holders.
CExpenses incurred but not yet paid (e.g., custodian fees).
✓Unrealized appreciation on investments.
💡 Unrealized appreciation on investments is an asset, not a liability. It increases the scheme's assets and thus its NAV. Accrued management fees, outstanding dividends, and expenses incurred but not yet paid are all liabilities that reduce the NAV.
Q104EasyComponents of Total Expense Ratio (TER)
Which of the following is typically NOT included as a direct component within the Total Expense Ratio (TER) of a mutual fund scheme under SEBI regulations?
AInvestment Management and Advisory Fees
BRegistrar and Transfer Agent Fees
CMarketing and Distribution Expenses
✓Securities Transaction Tax (STT)
💡 SEBI regulations specify that expenses like brokerage, STT, and stamp duty are charged over and above the TER limits, as they are statutory levies or transaction-specific costs. Investment management fees, R&T fees, and marketing expenses are direct components of TER.
Q105HardTreatment of Exit Load
If an exit load is charged to an investor upon redemption of mutual fund units, and this load is credited back to the scheme, how does it primarily impact the scheme?
AIt increases the scheme's Total Expense Ratio (TER).
BIt reduces the Net Asset Value (NAV) for remaining investors.
✓It increases the assets of the scheme, thus benefiting remaining investors.
DIt is treated as income for the Asset Management Company (AMC).
💡 As per SEBI regulations, exit loads, if any, must be credited back to the scheme after deducting GST. When credited back to the scheme, it increases the total assets of the scheme, which in turn leads to a marginal increase in the Net Asset Value (NAV) for the remaining investors. It does not increase the TER, reduce NAV, or become income for the AMC.
Q106EasyNAV Calculation Frequency
For open-ended equity schemes, what is the minimum frequency at which the Net Asset Value (NAV) must be calculated and declared?
AWeekly
✓Daily
CFortnightly
DMonthly
💡 SEBI regulations mandate that NAV for all open-ended schemes, except for Liquid and Overnight funds (which declare NAV for all business days), must be calculated and declared on every business day.
Q107MediumSegregated Portfolios (Side Pocketing)
Which of the following statements regarding 'segregated portfolios' (side-pocketing) is correct?
ASegregated portfolios are created to allow fund managers to invest in illiquid assets for higher returns.
✓Upon creation of a segregated portfolio, the existing investors are allotted an equivalent number of units in the segregated portfolio.
CThe NAV of the main portfolio remains unchanged after the creation of a segregated portfolio.
DSegregated portfolios are typically created for all types of illiquid assets, irrespective of their impact on the fund.
💡 When a segregated portfolio is created, existing investors in the main portfolio at the time of segregation are allotted an equivalent number of units in the segregated portfolio. This ensures that investors who bore the risk of the stressed asset continue to do so, and future investors are not affected. The NAV of the main portfolio is adjusted downwards to reflect the segregation, and a separate NAV is calculated for the segregated portfolio. Segregated portfolios are typically created for specific stressed/illiquid assets that pose a risk to the fund, not for all illiquid assets. (SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018, and subsequent amendments)
Q108MediumComponents of NAV (Assets and Liabilities)
Which of the following would NOT typically be included as a direct asset component when calculating the Net Asset Value (NAV) of a mutual fund scheme?
AMarket value of investments in shares and bonds.
BCash and bank balances held by the fund.
CAccrued income (e.g., interest receivable on bonds).
✓Future expected capital gains tax liability on unrealized gains.
💡 NAV is calculated as (Market Value of Assets - Liabilities) / Units Outstanding. Market value of investments, cash balances, and accrued income are all components of the fund's assets. Future expected capital gains tax liability on unrealized gains is a potential future liability, not a current asset. NAV is typically calculated on a pre-tax basis regarding unrealized gains.
Q109HardCut-off Timings and NAV Applicability
An investor submits a purchase application for a non-liquid equity-oriented mutual fund scheme worth ₹55,000 at 2:45 PM on a business day. The funds are realized by the AMC at 3:15 PM on the same day. Which day's NAV will be applicable for this transaction?
AThe NAV of the previous business day.
BThe NAV of the same business day.
✓The NAV of the next business day.
DThe NAV of the day the application was submitted, only if the amount was below ₹50,000.
💡 For purchase applications in non-liquid schemes (other than liquid funds and overnight funds) where the application amount is ₹2 Lakhs or more, or for any amount if the funds are not realized before the cut-off time (3:00 PM for equity/debt funds), the NAV of the day on which the funds are available for utilization by the AMC is applicable. In this case, while the application was received before 3 PM, the funds were realized after 3:00 PM. Therefore, the NAV of the next business day will be applicable. (SEBI Master Circular for Mutual Funds, Section B.1.1.2.2.1).
Q110MediumTotal Expense Ratio (TER) Limits
As per SEBI regulations, what is the maximum Total Expense Ratio (TER) allowed for the portion of an equity-oriented mutual fund scheme's Average Assets Under Management (AAUM) that falls between INR 500 crores and INR 750 crores?
A2.25%
✓2.00%
C1.75%
D1.50%
💡 For equity-oriented mutual fund schemes, SEBI prescribes a tiered structure for TER limits. For the first INR 500 crores of AAUM, the limit is 2.25%. For the next INR 250 crores (i.e., AAUM between INR 500 crores and INR 750 crores), the limit is 2.00%.
Q111EasyComponents of Total Expense Ratio (TER)
Which of the following expenses is generally NOT included in the Total Expense Ratio (TER) of a mutual fund scheme?
AInvestment Management Fees
BRegistrar and Transfer Agent Fees
✓Brokerage and transaction costs related to the purchase/sale of securities by the fund
DAudit Fees
💡 Brokerage and transaction costs incurred for the purchase and sale of securities in the scheme's portfolio are generally excluded from the TER. These costs are directly adjusted against the sale proceeds or added to the cost of acquisition of securities. The TER primarily includes recurring expenses like investment management fees, R&T fees, marketing and distribution expenses, custodian fees, and audit fees, subject to regulatory caps. (SEBI (MF) Regulations, 1996, Third Schedule, Regulation 52 (6A))
Q112EasyPricing of Units - Exit Load
What is the primary purpose of an 'exit load' charged by a mutual fund scheme?
ATo compensate distributors for their services.
✓To deter short-term redemption and protect long-term investors.
CTo increase the scheme's Assets Under Management (AUM).
DTo cover administrative costs of the AMC.
💡 Exit loads are primarily designed to discourage short-term trading or premature redemptions by investors. By doing so, they aim to protect long-term investors from the dilution effect on the NAV caused by frequent large redemptions and the associated transaction costs incurred by the fund.
Q113EasyNAV Calculation - Assets and Liabilities
Which of the following is typically NOT considered a direct asset while calculating a mutual fund scheme's Net Asset Value (NAV)?
AMarket value of equity investments
BAccrued dividend income
✓Deferred expenses
DCash and bank balances
💡 NAV calculation primarily considers current market value of investments, cash, and accrued income as assets, and deducts current liabilities and provisions. Deferred expenses are amortized over time and are not typically listed as a direct asset like investments or cash for the immediate NAV calculation.
Q114HardNAV - Calculation Details
A mutual fund scheme has total assets of ₹500 Crores and total liabilities of ₹20 Crores. Additionally, the scheme has accrued income on investments of ₹5 Crores that is yet to be received. If there are 10 Crores units outstanding, what is the Net Asset Value (NAV) per unit?
A₹47.50
B₹48.00
✓₹48.50
D₹49.00
💡 NAV is calculated as (Total Assets - Total Liabilities) / Units Outstanding. Here, the 'total assets' initially stated are ₹500 Crores. The 'additionally accrued income' of ₹5 Crores is an asset that needs to be added. So, effective Total Assets = ₹500 Crores + ₹5 Crores = ₹505 Crores. Net Assets = ₹505 Crores - ₹20 Crores = ₹485 Crores. NAV per unit = ₹485 Crores / 10 Crores units = ₹48.50.
Q115EasyCut-off Timings (Liquid Funds)
For Liquid and Overnight Funds, what is the cut-off time for receiving funds to be eligible for the *same day's* Net Asset Value (NAV)?
A3:00 PM on the same business day.
✓1:30 PM on the same business day.
C10:00 AM on the next business day.
D5:00 PM on the previous business day.
💡 As per SEBI regulations, for Liquid and Overnight Funds, applications where funds are realized and available for utilization by the AMC before 1:30 PM on a business day are eligible for the same day's NAV. For other schemes, the cut-off is generally 3:00 PM.
Q116MediumExpenses over and above TER
Which of the following expenses can be charged to a mutual fund scheme *over and above* the specified maximum Total Expense Ratio (TER) limits, as per SEBI regulations?
AFund management fees.
BRegistrar and Transfer Agent (RTA) fees.
CExpenses for investor awareness programs, up to 0.02% of AUM.
✓Brokerage and transaction costs for executing trades, within a specified limit.
💡 SEBI permits certain expenses to be charged over and above the TER limits. These include brokerage and transaction costs incurred for the execution of trades (subject to limits of 0.12% for equity and 0.05% for debt), GST on investment management fees, and additional TER for B30 cities. Investor awareness expenses up to 0.02% of AUM are also allowed over and above TER, but option 'd' is a more direct and common example of 'over and above' expense related to trading. Fund management and RTA fees are core components of TER. (SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018).
Q117MediumCut-off timings and NAV applicability for liquid funds
For purchase applications in liquid funds involving an amount less than ₹2 lakh, what is the cut-off time for applicability of the same day's Net Asset Value (NAV)?
A1:00 PM
✓2:00 PM
C3:00 PM
D4:00 PM
💡 As per SEBI regulations, for investments in liquid and overnight funds, if the application amount is less than ₹2 lakh, the cut-off time for receiving the same day's NAV is 2:00 PM. For amounts ₹2 lakh and above, the cut-off time is 1:00 PM, subject to funds being credited to the scheme's account.
Q118HardApplicable NAV and Cut-off Timings
An investor submits a purchase application for an equity-oriented mutual fund scheme worth ₹1,50,000 at 1:30 PM on a Tuesday. The funds are realized by the AMC's designated bank account at 3:30 PM on Wednesday. Assuming both days are business days and the cut-off time for non-liquid funds is 3:00 PM, which NAV will be applicable for this transaction?
ATuesday's closing NAV.
BWednesday's closing NAV.
✓Thursday's closing NAV.
DThe NAV of the next business day after realization of funds.
💡 For purchases in schemes other than liquid and overnight funds, if the application is received before the cut-off time (3:00 PM) but the funds are realized after the cut-off time or on a subsequent business day, the NAV of the business day on which the funds become available for utilization by the AMC will be applicable. Since funds were realized at 3:30 PM on Wednesday (after Wednesday's cut-off), they would be available for utilization on Thursday. Hence, Thursday's closing NAV will be applicable. (SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2020/175 dated September 23, 2020).
Q119HardTER for Fund of Funds (FoF)
What is the maximum permissible Total Expense Ratio (TER) for an equity-oriented Fund of Funds (FoF) scheme, *including* the expenses of the underlying schemes it invests in?
A2.00%
✓2.25%
C0.75%
D2.50%
💡 As per SEBI (Mutual Funds) Regulations, for equity-oriented Fund of Funds (FoF) schemes, the total expense ratio (including the TER of the underlying schemes) shall not exceed 2.25%. For other FoFs, this limit is 2.00%. Additionally, the TER for the FoF scheme itself (excluding the expenses of the underlying schemes) shall not exceed 0.75%.
Q120MediumTotal Expense Ratio (TER) and Additional Expenses
Beyond the standard TER limits, what additional percentage of average annual net assets can a mutual fund scheme charge for expenses incurred towards investor services and distribution in B-30 cities?
A0.10%
B0.20%
✓0.30%
D0.50%
💡 SEBI allows an additional 30 basis points (0.30%) of the average annual net assets for expenses towards investor services and distribution in B-30 cities, provided the inflows from such cities are at least 30% of gross new inflows in the scheme or 15% of the average AUM (whichever is higher).
Q121MediumAdditional TER for B30 Cities
What is the additional expense ratio that AMCs are permitted to charge for inflows from beyond 30 (B30) cities, subject to certain conditions?
AUp to 0.10% of daily net assets
BUp to 0.20% of daily net assets
✓Up to 0.30% of daily net assets
DUp to 0.40% of daily net assets
💡 SEBI allows AMCs to charge an additional expense ratio of up to 0.30% of daily net assets for new inflows from beyond 30 (B30) cities. This is subject to the condition that at least 30% of the new inflows come from B30 cities or 15% of the AUM is from B30 cities.
Q122EasyNAV Calculation Frequency
How often is the Net Asset Value (NAV) of an open-ended mutual fund scheme mandatorily computed and declared by an Asset Management Company (AMC)?
AWeekly
BMonthly
✓Daily (on every business day)
DQuarterly
💡 SEBI (Mutual Funds) Regulations, 1996, mandate that the NAV of open-ended schemes must be computed and declared on every business day.
Q123EasyNAV Calculation Basics
The daily Net Asset Value (NAV) of a mutual fund scheme is calculated by dividing the net assets of the scheme by the:
✓Total number of outstanding units
BTotal number of investors
CTotal corpus of the fund
DTotal market value of investments
💡 The Net Asset Value (NAV) per unit is calculated as (Total Assets - Total Liabilities) / Total number of outstanding units. It represents the per-unit value of the fund's portfolio.
Q124MediumTotal Expense Ratio - Slab Rates
A mutual fund scheme has an average weekly Net Asset Value (AUM) of Rs. 1,500 Crores. What is the maximum permissible Total Expense Ratio (TER) for the portion of AUM between Rs. 750 Crores and Rs. 2,000 Crores, as per SEBI regulations?
A2.00%
✓1.75%
C1.60%
D1.50%
💡 As per SEBI regulations for TER slabs: for the first Rs. 500 Crores, it's 2.25%; for the next Rs. 250 Crores (i.e., AUM from Rs. 500-750 Crores), it's 2.00%; and for the next Rs. 1,250 Crores (i.e., AUM from Rs. 750-2,000 Crores), the maximum permissible TER is 1.75%.
Q125EasyComponents of NAV
Which of the following items is generally not included as an asset when calculating the Net Asset Value (NAV) of a mutual fund scheme?
AValue of portfolio investments at current market price
BAccrued income (e.g., dividends receivable, interest receivable)
CCash and bank balances held by the scheme
✓Future management fee income yet to be earned
💡 NAV calculation considers current assets (like portfolio investments, cash, and accrued income) and current liabilities. Future income that is not yet accrued or earned is not considered a current asset for NAV calculation.
Q126MediumTotal Expense Ratio (TER) limits
What is the maximum permissible Total Expense Ratio (TER) for an equity-oriented mutual fund scheme with an Average Assets Under Management (AUM) of ₹100 crores?
✓2.25%
B2.50%
C2.00%
D1.75%
💡 As per SEBI regulations, for equity-oriented schemes, the maximum TER is 2.25% for the first ₹500 crore of Average AUM. For higher AUM slabs, the permissible TER decreases. Thus, for an AUM of ₹100 crores, the limit is 2.25%.
Q127EasyImpact of Dividends on NAV
If a mutual fund scheme declares a dividend, what is the immediate impact on its Net Asset Value (NAV) per unit?
ANAV increases by the dividend amount
✓NAV decreases by the dividend amount
CNAV remains unchanged
DNAV increases by dividend amount minus tax
💡 When a mutual fund scheme declares a dividend, the dividend amount is paid out from the fund's assets. This reduces the total assets of the fund, and consequently, the NAV per unit drops by the exact amount of the dividend declared (ex-dividend NAV).
Q128MediumTotal Expense Ratio (TER) Limits
For an equity-oriented mutual fund scheme with an Average Assets Under Management (AAUM) of ₹1,000 Crores, what is the maximum Total Expense Ratio (TER) permissible for the first ₹500 Crores of its AAUM?
✓2.25%
B2.00%
C1.75%
D1.50%
💡 As per SEBI regulations, for equity-oriented schemes, the maximum TER is tiered based on AAUM. For the first ₹500 Crores of AAUM, the maximum TER is 2.25%. Subsequent slabs have lower permissible TERs. (SEBI Master Circular for Mutual Funds, Section A.1.2.1.1.1).
Q129EasyComponents of NAV - Assets
Which of the following is considered an asset while calculating the Net Asset Value (NAV) of a mutual fund scheme?
AAccrued expenses
BDividend payable
✓Investments at market value
DUnits allotted but not yet paid for
💡 Investments held by the scheme, valued at their current market value, are the primary component of the scheme's assets. Accrued expenses and dividend payable are liabilities, while units allotted but not yet paid for would typically not be considered an asset until the funds are realized. The NAV is calculated as (Market value of investments + Other assets - Liabilities) / Number of outstanding units. (NISM V-A Study Material, Chapter 7, Components of NAV)
Q130MediumTotal Expense Ratio (TER) components and limits
Which of the following costs incurred by a mutual fund scheme can be charged *over and above* the Total Expense Ratio (TER) limits prescribed by SEBI, subject to specified limits?
AInvestment Management Fees
BRegistrar and Transfer Agent (RTA) fees
✓Brokerage and transaction costs
DCustodian fees
💡 As per SEBI regulations, brokerage and transaction costs incurred for the purpose of executing trades are permitted to be charged over and above the TER limits. However, these are subject to specific limits: up to 0.12% for equity and 0.05% for debt and other than equity oriented schemes. All other listed expenses are components of the TER.
Q131EasyNet Asset Value (NAV) definition
Which of the following best describes the Net Asset Value (NAV) of a mutual fund unit?
AThe market value of all assets held by the fund.
✓The total value of assets less total liabilities, divided by the number of units outstanding.
CThe price at which units are sold to investors, including all loads.
DThe sum of all income generated by the fund divided by the number of units.
💡 The Net Asset Value (NAV) represents the per-unit market value of a mutual fund's assets. It is calculated by taking the total market value of the fund's investments, adding other assets (like cash), subtracting liabilities (like expenses payable), and then dividing the result by the total number of units outstanding.
Q132MediumTotal Expense Ratio (TER) components
Which of the following expenses is generally *not* included within the Total Expense Ratio (TER) of a mutual fund as per SEBI regulations?
AInvestment Management and Advisory Fees
BRegistrar and Transfer Agent (RTA) Fees
✓Brokerage and transaction costs for executing trades
DAnnual Trustee Fees
💡 As per SEBI (Mutual Funds) Regulations, brokerage and transaction costs incurred for the purpose of executing trades are generally paid over and above the Total Expense Ratio (TER), subject to certain limits. Other components like investment management fees, RTA fees, and trustee fees are typically part of the TER.
Q133HardTotal Expense Ratio (TER) Components - GST
How is Goods and Services Tax (GST) on investment management fees treated in the calculation of Total Expense Ratio (TER) for a mutual fund scheme?
AIt is included within the prescribed TER limits.
✓It is charged over and above the prescribed TER limits.
CIt is entirely borne by the Asset Management Company (AMC).
DIt is entirely borne by the distributor.
💡 As per SEBI guidelines, GST on investment management fees is not included within the prescribed Total Expense Ratio (TER) limits. Instead, it is charged to the scheme over and above the TER, meaning it is an additional cost borne by the investors of the scheme.
Q134EasyTotal Expense Ratio (TER) Limits
As per SEBI regulations, what is the maximum permissible Total Expense Ratio (TER) for an equity-oriented mutual fund scheme with an Average Asset Under Management (AAUM) of INR 100 Crores?
A2.00%
✓2.25%
C2.50%
D1.75%
💡 As per SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 16, 2018, for equity schemes, the maximum TER for the first INR 500 Crores of AAUM is 2.25%.
Q135EasyNAV calculation
If a mutual fund scheme has total assets of ₹1,000 crores, total liabilities of ₹50 crores, and 100 crore units outstanding, what is its Net Asset Value (NAV) per unit?
✓₹9.50
B₹10.00
C₹10.50
D₹11.00
💡 The Net Asset Value (NAV) per unit is calculated as (Total Assets - Total Liabilities) / Total Number of Units Outstanding. In this case, (₹1,000 crores - ₹50 crores) / 100 crore units = ₹950 crores / 100 crore units = ₹9.50 per unit.
Q136EasyEntry and Exit Loads
As per current SEBI regulations, what is the maximum entry load that a mutual fund scheme can charge from an investor?
A0.50% of the investment amount.
B1.00% of the investment amount.
C2.25% of the investment amount.
✓Zero percent (No entry load).
💡 SEBI abolished entry loads in mutual fund schemes with effect from August 1, 2009. Therefore, no mutual fund can charge an entry load from investors. (SEBI Circular CIR/IMD/DF/13/2009 dated August 1, 2009).
Q137EasyStamp Duty
What is the primary purpose of charging stamp duty on mutual fund transactions, particularly on purchase transactions?
ATo cover the administrative costs of the Asset Management Company (AMC).
✓To generate revenue for the state government where the transaction originates.
CTo act as a regulatory fee for SEBI's oversight of the mutual fund industry.
DTo fund investor awareness and education initiatives.
💡 Stamp duty is levied by state governments on mutual fund transactions (specifically on purchase transactions) to generate revenue for the respective state. It is borne by the investor and is deducted from the investment amount before units are allotted, impacting the number of units received.
Q138HardNAV Calculation - Impact of Liabilities
A mutual fund scheme experiences an unexpected increase in its accrued audit fees and other administrative expenses for the quarter. Assuming all other factors remain constant, how would this affect the scheme's Net Asset Value (NAV) per unit?
ANAV would increase, as expenses are deductible from income.
✓NAV would decrease, as accrued expenses are liabilities.
CNAV would remain unchanged, as expenses are factored into TER.
DNAV would fluctuate unpredictably, depending on market conditions.
💡 Accrued expenses are liabilities that the fund owes. An increase in liabilities, with assets remaining constant, directly reduces the net assets of the scheme. Since NAV is calculated as (Net Assets / Units Outstanding), a decrease in net assets will lead to a decrease in the NAV per unit. While TER accounts for expected expenses, an unexpected increase in accrued expenses beyond typical provisions would directly impact NAV.
Q139EasyNAV Declaration Frequency
For open-ended mutual fund schemes, how frequently is the Net Asset Value (NAV) typically calculated and declared?
AWeekly
BMonthly
✓Daily (on all business days)
DQuarterly
💡 Open-ended schemes are required to calculate and declare their NAV on every business day. This ensures that investors can transact at a fair price reflecting the current market value of the underlying assets.
Q140HardStamp duty on mutual fund units
As per the current regulations, what is the rate of stamp duty levied on mutual fund unit allotment for non-liquid schemes?
✓0.005% of the transaction value.
B0.0005% of the transaction value.
C0.01% of the transaction value.
DIt is not applicable to mutual fund units.
💡 Effective July 1, 2020, stamp duty is levied on the issuance/allotment of mutual fund units. For non-liquid schemes, the rate is 0.005% of the transaction value. For liquid schemes, the rate is 0.00005%. This stamp duty is borne by the investor by a proportional reduction in the number of units allotted.
Q141EasyLoad Structure and its Impact
What is the primary purpose of an 'Exit Load' charged by a mutual fund scheme?
ATo increase the fund's Assets Under Management (AUM).
✓To discourage short-term redemptions.
CTo cover the fund manager's salary.
DTo pay distributors' commissions.
💡 An Exit Load is a fee charged by a mutual fund when an investor redeems units before a specified period (e.g., 1 year). Its primary purpose is to discourage short-term redemptions and encourage investors to stay invested for the long term. This helps the fund manager maintain portfolio stability and reduces liquidity pressures from frequent inflows and outflows.
Q142MediumSEBI Limits on TER (B-30 Inflows)
As per SEBI regulations, what is the maximum additional expense ratio that a mutual fund can charge for new inflows from retail investors from B-30 (Beyond 30) cities?
A0.15% of daily net assets
B0.20% of daily net assets
C0.25% of daily net assets
✓0.30% of daily net assets
💡 SEBI permits mutual funds to charge an additional expense ratio of up to 0.30% of daily net assets for new inflows from retail investors from B-30 cities, provided certain conditions regarding the proportion of inflows from such cities are met. This is to incentivize penetration into smaller towns.
Q143EasyComponents of Total Expense Ratio (TER)
Which of the following is typically included in the Total Expense Ratio (TER) of a mutual fund scheme?
AStamp duty on unit issuance.
BGoods and Services Tax (GST) on investment management fees.
✓Investment management and advisory fees.
DBrokerage and transaction costs for trading securities.
💡 The Total Expense Ratio (TER) includes all expenses charged to the scheme, such as investment management and advisory fees, registrar and transfer agent fees, audit fees, marketing and sales expenses, and custodian fees. Stamp duty, GST on investment management fees, and brokerage/transaction costs are generally allowed to be charged over and above the TER limits.
Q144MediumComponents of TER
Which of the following expenses is generally *not* included within the SEBI-mandated Total Expense Ratio (TER) limits for mutual funds and can be charged separately?
AInvestment Management and Advisory Fees
BCustodian Fees
✓Brokerage and Transaction Costs (excluding STT)
DRegistrar and Transfer Agent Fees
💡 SEBI regulations permit mutual funds to charge brokerage and transaction costs incurred for the purpose of executing trades *over and above* the prescribed TER limits, subject to certain caps (e.g., 0.12% for cash market transactions and 0.05% for derivative transactions). Securities Transaction Tax (STT) is also charged separately. Other expenses listed are generally part of the TER.
Q145HardCut-off Timings for NAV Applicability (Non-Liquid Funds)
An investor submits an application for purchase in an equity scheme (other than Liquid/Overnight) on Monday at 4:00 PM. The funds are realized and credited to the scheme's account on Tuesday at 11:00 AM. Assuming both Monday and Tuesday are business days, which NAV will be applicable for this transaction?
AThe NAV of Monday.
✓The NAV of Tuesday.
CThe NAV of Wednesday.
DThe NAV declared two business days after Tuesday.
💡 For non-liquid funds, if the application is received after the cut-off time (3:00 PM) on Day 1, it is treated as received on the next business day (Day 2). Since the funds are realized on Day 2 (Tuesday) before the cut-off time (3:00 PM), the NAV of Day 2 (Tuesday) will be applicable.
Q146EasyTransaction Charges
What is the maximum transaction charge that an AMC can levy for a first-time mutual fund investor investing Rs. 10,000 or more in a scheme?
ARs. 100
✓Rs. 150
CRs. 250
DRs. 300
💡 As per SEBI regulations, a transaction charge of Rs. 150 is levied for first-time mutual fund investors investing Rs. 10,000 and above. For existing investors, it is Rs. 100.
Q147EasyNAV Calculation
Which of the following, when incurred by a mutual fund scheme, would directly lead to a reduction in its Net Asset Value (NAV)?
AIncrease in accrued income from investments.
BReceipt of dividend from underlying portfolio securities.
✓Payment of management fees to the Asset Management Company (AMC).
DAppreciation in the market value of portfolio securities.
💡 Management fees are an expense incurred by the mutual fund scheme. Expenses reduce the net assets of the fund, thereby directly leading to a reduction in the scheme's Net Asset Value (NAV). Accrued income, receipt of dividends, and appreciation in asset values generally increase NAV.
Q148MediumExit Load Calculation
An investor redeems 1,000 units from a mutual fund scheme at an NAV of Rs. 25.00. The scheme has an exit load of 0.5% if units are redeemed within 180 days. If the investor redeems after 100 days, what is the net amount received by the investor?
✓Rs. 24,875
BRs. 25,000
CRs. 24,950
DRs. 25,125
💡 The total value of units redeemed is 1,000 units * Rs. 25.00/unit = Rs. 25,000. Since the redemption is within 180 days, an exit load of 0.5% is applicable. Exit load = 0.5% of Rs. 25,000 = Rs. 125. The net amount received by the investor is Rs. 25,000 - Rs. 125 = Rs. 24,875.
Q149EasyCut-off timings and NAV applicability
For purchase applications in non-liquid schemes (other than liquid/overnight funds) submitted before the cut-off time on a business day, which NAV is applicable?
APrevious day's closing NAV
✓Same day's closing NAV
CNext day's closing NAV
DAverage NAV of the week
💡 As per SEBI regulations, for purchases in non-liquid schemes (other than liquid/overnight funds) where the application is received before 3:00 PM on a business day and funds are available for utilization, the NAV of the same business day is applicable.
Q150EasyTransaction charges
For an investment of ₹8,000 in a mutual fund scheme, what is the transaction charge applicable for a new investor investing through a distributor?
💡 As per SEBI regulations, transaction charges are applicable only for purchases of ₹10,000 and above. For investments below ₹10,000, no transaction charges are levied. For new investors investing ₹10,000 or more, the charge is ₹150.
Q151EasyPricing - Exit Load
What is the primary purpose of an exit load charged by a mutual fund scheme?
ATo compensate distributors for their services.
✓To deter investors from short-term redemptions.
CTo increase the scheme's overall expense ratio.
DTo fund the scheme's marketing and promotional activities.
💡 Exit loads are primarily designed to discourage investors from redeeming their units too soon after investment, thereby helping to maintain the stability of the scheme's corpus and reduce churn. The proceeds from exit loads are credited back to the scheme.
Q152MediumDirect vs. Regular Plans and TER
Which of the following statements accurately describes the Total Expense Ratio (TER) for Direct Plans compared to Regular Plans of the same mutual fund scheme?
ADirect Plans typically have a higher TER than Regular Plans.
BDirect Plans and Regular Plans always have the same TER.
✓Direct Plans typically have a lower TER than Regular Plans.
DThe TER difference depends on the fund manager's discretion.
💡 Direct Plans have a lower Total Expense Ratio (TER) compared to Regular Plans because they do not include distributor commissions. The distributor commission component is part of the TER in Regular Plans, which is absent in Direct Plans, making them cheaper for investors who invest directly with the AMC. (SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated October 22, 2018).
Q153EasyImpact of Dividends on NAV
If a mutual fund scheme declares a dividend, what is its immediate impact on the scheme's Net Asset Value (NAV) for the dividend option?
AThe NAV increases proportionately.
✓The NAV decreases proportionately.
CThe NAV remains unchanged.
DThe NAV becomes zero.
💡 When a mutual fund scheme declares a dividend, the amount distributed as dividend is paid out from the scheme's distributable surplus. This reduces the assets of the scheme, leading to a proportionate decrease in its Net Asset Value (NAV) on the ex-dividend date. The total value (NAV + Dividend) remains constant, but the NAV itself drops.
Q154MediumNAV Applicability - Cut-off Timings (Equity Schemes)
An investor submits an application for purchase in an equity-oriented mutual fund scheme at 2:45 PM on a Tuesday. The funds are realized by the AMC's designated bank account at 9:00 AM on Wednesday. Which day's NAV will be applicable for this transaction?
ATuesday's closing NAV
✓Wednesday's closing NAV
CThursday's closing NAV
DThe NAV of the day the application was submitted, if funds are realized within 3 business days.
💡 For equity-oriented schemes, if the application is received before the cut-off time (3:00 PM for purchases) but the funds are realized on a subsequent business day, the NAV of the day on which the funds are realized will be applicable. In this case, funds are realized on Wednesday, so Wednesday's NAV applies.
Q155MediumTER and B30 city incentives
As per SEBI regulations, what is the maximum additional expense that an AMC can charge to a scheme for inflows from beyond top 30 (B30) cities?
✓An additional 0.30% of daily net assets.
BAn additional 0.20% of daily net assets.
CAn additional 0.10% of daily net assets.
DNo additional expense is allowed for B30 cities.
💡 To incentivize mutual fund penetration in smaller cities, SEBI allows AMCs to charge an additional expense of up to 30 basis points (0.30%) of daily net assets for new inflows from beyond top 30 (B30) cities, provided certain conditions regarding the source of inflows are met. (SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137)
Q156EasyPricing of Units - Exit Load
What is the primary purpose of an Exit Load in a mutual fund scheme?
ATo compensate distributors for their services.
✓To deter short-term investors and protect long-term unitholders.
CTo fund the AMC's operational expenses.
DTo cover the cost of printing scheme information documents.
💡 Exit loads are primarily levied to discourage short-term redemptions from the fund. This helps in maintaining portfolio stability and protecting the interests of long-term investors by reducing the impact of frequent entries and exits on the fund's portfolio management and associated transaction costs.
Q157MediumTotal Expense Ratio (TER) limits
As per SEBI regulations, what is the maximum permissible Total Expense Ratio (TER) for the first ₹500 crore of daily net assets for an equity-oriented mutual fund scheme?
A2.00%
✓2.25%
C2.50%
D1.75%
💡 SEBI regulations specify a tiered structure for TER. For equity-oriented schemes, the maximum TER for the first ₹500 crore of daily net assets is 2.25%. This limit decreases for higher AUM slabs. (SEBI Circular CIR/IMD/DF/21/2012 dated September 13, 2012, and subsequent amendments).
Q158EasyDefinition of NAV
The Net Asset Value (NAV) of a mutual fund unit represents:
AThe market price at which units are traded on an exchange.
✓The fair value of the assets of the scheme less its liabilities, divided by the number of outstanding units.
CThe initial offer price of the scheme.
DThe sum of all expenses incurred by the scheme.
💡 The NAV is calculated by taking the total market value of the scheme's investments and other assets, subtracting all liabilities (including accrued expenses), and then dividing the result by the total number of outstanding units of the scheme. It represents the per-unit value of the scheme's portfolio.
Q159MediumNAV Calculation (Dividend Impact)
A mutual fund scheme declares a dividend. How does this dividend declaration typically affect the scheme's Net Asset Value (NAV) on the record date?
AThe NAV increases by the amount of the dividend declared.
✓The NAV decreases by the amount of the dividend declared.
CThe NAV remains unchanged, as dividends are paid from accumulated profits.
DThe NAV fluctuates based on market conditions, irrespective of the dividend.
💡 When a mutual fund scheme declares a dividend, the amount of the dividend is paid out of the scheme's distributable surplus. On the record date, the NAV of the scheme is reduced by the dividend amount per unit, reflecting the payout to investors. This is similar to how a stock's price drops by the dividend amount on its ex-dividend date.
Q160EasyFactors affecting NAV
Which of the following events would directly lead to a decrease in a mutual fund's Net Asset Value (NAV) per unit, assuming all other factors remain constant?
AAppreciation in the value of underlying securities
BReceipt of dividend income from portfolio holdings
✓Increase in the scheme's total liabilities
DIssuance of new units at a premium
💡 The NAV is calculated as (Total Assets - Total Liabilities) / Total Number of Units Outstanding. An increase in the scheme's total liabilities (e.g., accrued expenses) would reduce the net assets, thereby decreasing the NAV per unit. Appreciation in securities value and dividend income would increase assets and thus NAV. Issuance of new units at a premium would typically increase assets proportionally to units, maintaining or slightly increasing NAV, not decreasing it.
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