NISM SERIES V A – MUTUAL FUND DISTRIBUTORS

CERTIFICATION EXAM – PRACTICE TEST 3

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 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

PRACTICE TEST 3

Question 1 Which of the following need not be disclosed to the Mutual Fund investor
?
(a) The Annual Report of the Scheme
(b) Portfolio of the Scheme
(c) The Annual Report of AMC
(d) The Names of Fund Managers

Question 2 What is the amount required to buy 500 units at NAV Rs 46 if the entry
load is 1%.
(a) Rs 23000
(b) Rs 23230
(c) Rs 23330
(d) Rs 23385

Correct Answer 1 The Annual Report of AMC

Correct Answer 2 Rs 23230

Answer 500 units X Rs 46 = Rs 23000

Explanation Rs 23000 + 1% = Rs 23230.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 3 ___________________ is the process where all the financial goals of a

person are taken together, and the investment strategies worked out on
that basis.
(a) Tactical Financial Planning
(b) Comprehensive Financial planning
(c) Strategical Financial Planning
(d) Goal Oriented Financial Planning

Question 4 Variance as a measure of risk is relevant for ______________.

(a) Equity Schemes
(b) Debt Schemes
(c) both debt and equity schemes.
(d) FMP's

Correct Answer 3 Comprehensive Financial planning

Correct Answer 4 both debt and equity schemes.

Answer Variance as a measure of risk is relevant for both debt and equity schemes.
Explanation Standard deviation is equal to the square root of variance.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 5 An investor buys a Mutual Fund scheme at NAV Rs 20 in Jan 2012. The
scheme declares a dividend of Rs 2. In May 2012, the investor sells all the
units at NAV Rs 15. What is the capital loss available for exemption ?
(a) Rs 2
(b) Rs 3
(c) No capital loss available for exemption as its a short term loss
(d) None of the above

Question 6 Of the following attributes, which one you cannot consider while
investing in Mutual Funds ?
(a) Guaranteed Return
(b) Professional Management
(c) Low Transaction Cost
(d) Diversification

Correct Answer 5 Rs 3

Answer Buying Price Rs 20

Explanation Less Dividend Received Rs 2
So net buying cost Rs 18
Sold at Rs 15
So net loss (18-15) = Rs 3

Correct Answer 6 Guaranteed Return

 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 7 As per SEBI rules, SAI will contain the information regarding the Fund
and SID will contain information specific to the scheme - True or False ?
(a) TRUE
(b) FALSE

Question 8 ________ is considered as a safe heaven among all asset classes.

(a) Debt
(b) Equity
(c) Gold
(d) Real Estate

Correct Answer 7 TRUE

Correct Answer 8 Gold

Answer Gold is seen as a safe haven asset class. Therefore, whenever there is political
Explanation or economic turmoil, gold prices shoot up.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 9 Investors generally bear higher fund management expenses in

___________.
(a) Diversified Equity Fund
(b) Sectoral Equity Fund
(c) Fund of Funds
(d) ELSS Funds

Question 10 Which of the below investments can be used for tax benefits ?
(a) Fixed Deposits in Nationalised Banks
(b) PPF
(c) Post Office Deposits
(d) Investments in Balanced Funds

Correct Answer 9 Fund of Funds

Answer A Fund of Funds invest in other funds. So it has to bear two costs - its own
Explanation fund management expenses and the fund management expenses of the funds
in which it invests.

Correct Answer 10 PPF

Answer PPF Deposits can be used for Tax Savings under Section 80C of the Income
Explanation Tax Act.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 11 As per SEBI regulations, a Mutual Fund can leverage / borrow money
under which of the foll condition(s) ?
(a) A mutual fund scheme cannot borrow more than 20% of its net assets
(b) The borrowing cannot be for more than 6 months
(c) The borrowing is permitted only to meet the cash flow needs of investor
servicing
(d) All of the above

Question 12 The portfolio composition and operational features of a scheme are

mentioned in the ______________
(a) SAI
(b) SID
(c) Addendum
(d) None of the above

Correct Answer 11 All of the above

Correct Answer 12 SID

 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 13 Which of the below option is true wrt. PPF ?

(a) There is no upper limit of investments in PPF
(b) PPF interest is Tax free
(c) One can withdraw money after one of starting a PPF Account
(d) Minors cannot open PPF Account

Question 14 In case of joint holding under the 'either or survivor' option, only the
first holder has to be KYC compliant - True or False ?
(a) TRUE
(b) FALSE

Correct Answer 13 PPF interest is Tax free

Correct Answer 14 FALSE

Answer Any new investor, Joint holders, Power of Attorney holders, Donors and
Explanation Guardian (in case of minors) have to comply with the KYC formalities.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 15 An investor is interested in high liquidity. Which fund will he NOT

choose ?
(a) Diversified Equity Fund
(b) ELSS Fund
(c) Debt Fund
(d) Open ended funds

Question 16 The interest received from a Bank Fixed Deposit is fully taxable - True or
False ?
(a) TRUE
(b) FALSE

Correct Answer 15 ELSS Fund

Answer Equity Linked Saving Schemes - ELSS ie Tax Saving Schemes have a lockin
Explanation period of 3 years. So they will not be preferred by an investor seeking high
liquidity.

Correct Answer 16 TRUE

Answer Bank FD interest is fully taxable.

Explanation However if the investor does not fall in the tax bracket then its not taxed.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 17 An interval fund is __________.

(a) It is largely open ended and becomes close ended at pre-specified intervals
(b) It is largely close ended and becomes open ended at pre-specified intervals
(c) None of the above

Question 18 The difference between the NAV and the repurchase price is known as?
(a) Entry load
(b) Exit load
(c) Load
(d) None of the above

Correct Answer 17 It is largely close ended and becomes open ended at pre-specified intervals

Answer Interval funds combine features of both open-ended and close ended schemes.
Explanation They are largely close-ended, but become open ended at pre-specified
intervals.
The benefit for investors is that, unlike in a purely close-ended scheme, they
are not completely dependent on the stock exchange to be able to buy or sell
units of the interval fund.

Correct Answer 18 Exit load

 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 19 The reduced NAV value after dividend payout is called ________.
(a) Cum dividend NAV
(b) Ex dividend NAV
(c) Dividend payout
(d) Dividend NAV

Question 20 The dividend the investor receives from an equity oriented scheme is tax-
free for the investor - True or False ?
(a) TRUE
(b) FALSE

Correct Answer 19 Ex dividend NAV

Correct Answer 20 TRUE

 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 21 Technical analysts study the price- volume charts of a company because
_____.
(a) Is based on investor sentiment
(b) It predicts future share price
(c) To decide support levels, resistance levels, breakouts
(d) All of the above

Question 22 STP is a combination of SIP and SWP - True or False ?

(a) TRUE
(b) FALSE

Correct Answer 21 To decide support levels, resistance levels, breakouts

Correct Answer 22 TRUE

Answer In a STP ( Systematic Transfer Plan ), the amount that is withdrawn from a
Explanation scheme is re-invested in some other scheme of the same mutual fund.
Thus, it operates as a SWP ( Systematic Withdrawal Plan ) from the first
scheme, and a SIP ( Systematic Investment Plan ) into the second scheme.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 23 Open-ended schemes generally offer exit option to investors through a

stock exchange.
(a) TRUE
(b) FALSE

Question 24 The most appropriate measure of returns for a scheme in existence for
several years is ______.
(a) CAGR
(b) Annualised Return
(c) Dividend Return
(d) Simple Return

Correct Answer 23 FALSE

Correct Answer 24 CAGR

Answer CAGR - Compounded Annual Growth Rate.

Explanation
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 25 _____________ invest on the basis of a specified index, whose

performance it seeks to track.
(a) Arbitrage Funds
(b) Active Funds
(c) Passive Funds
(d) ELSS Funds

Question 26 In mutual funds, the assets are held by ______.

(a) Fund Manager of that scheme
(b) Registrar and Transfer Agents
(c) Custodian
(d) Trustees

Correct Answer 25 Passive Funds

Correct Answer 26 Custodian

Answer The custodian has custody of the assets of the fund.

Explanation Also as a part of this role, the custodian needs to accept and give delivery of
securities of the various schemes of the fund.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 27 According to the Certified Financial Planner “ Board of Standards

(USA), the first stage in financial planning is _____________.
(a) Gather Client Data, Define Client Goals
(b) Develop and Present Financial Planning Recommendations and / or Options
(c) Analyse and Evaluate Client’s Financial Status
(d) Establish and Define the Client-Planner Relationship

Question 28 Investments in mutual fund units attract Wealth Tax - True or False ?

(a) TRUE
(b) FALSE

Correct Answer 27 Establish and Define the Client-Planner Relationship

Answer The steps in creating a comprehensive financial plan, as proposed by the

Explanation Certified Financial Planner – Board of Standards (USA) are as follows:
• Establish and Define the Client-Planner Relationship
• Gather Client Data, Define Client Goals
• Analyse and Evaluate Client’s Financial Status
• Develop and Present Financial Planning Recommendations and / or Options
• Implement the Financial Planning Recommendations
• Monitor the Financial Planning Recommendations

Correct Answer 28 FALSE

Answer There is no wealth tax in India.

Explanation
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 29 Brokers of recognised Stock exchanges can distribute mutual funds

without the requirement of passing the certifying test - True or False ?
(a) TRUE
(b) FALSE

Question 30 If an investor wants to invest a sum of below Rs 50000 in cash in a

Mutual Fund then PAN card is not required - True or False ?
(a) TRUE
(b) FALSE

Correct Answer 29 FALSE

Answer All distributors of Mutual Funds have to clear the test.

Explanation

Correct Answer 30 TRUE

Answer Small investors investing in cash, upto Rs. 50,000 per mutual fund per
Explanation financial year do not need to provide PAN Card.
This is subject to compliance with Prevention of Money Laundering Act,
2002 and SEBI Circulars on Anti Money Laundering (AML)
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 31 From the point of saving Wealth Tax, one should invest in Gold ETF
rather than physical gold - True or False ?
(a) TRUE
(b) FALSE

Question 32 For calculating Capital Gains, investment in mutual funds for less then 1
year is considered as _______
(a) Long Term
(b) Medium Term
(c) Short Term
(d) Ultra Short Term

Correct Answer 31 FALSE

Answer There is no wealth tax in India, so it does not make any difference.
Explanation

Correct Answer 32 Short Term

 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 33 While choosing an Option in a Mutual Fund scheme, taxation and

liquidity needs are a major factor in deciding which option ( Growth or
Dividend Payout) to go for - True or False ?
(a) FALSE
(b) TRUE

Question 34 Lower the expenses of a Mutual Fund, lower would be the NAV - True or
False ?
(a) TRUE
(b) FALSE

Correct Answer 33 TRUE

Correct Answer 34 FALSE

Answer NAV is basically the value of Portfolio less the MF expenses. So Lower the
Explanation expenses, higher would be the NAV.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 35 In the National Pension System, Tier I (Pension account), is

withdrawable - True or False ?
(a) TRUE
(b) FALSE

Question 36 Investment in physical gold or real estate may attract wealth tax in case
of direct investors, but investments in Gold ETF and real estate mutual
funds are exempt from wealth tax - True or False ?
(a) TRUE
(b) FALSE

Correct Answer 35 TRUE

Answer In the National Pension System,Tier I account which is a pension account but
Explanation with limited withdrawal facility.

Tier II (Savings account) is withdrawable to meet financial contingencies.

Also an active Tier I account is a pre-requisite for opening a Tier II account.

Correct Answer 36 TRUE

Answer Investments in mutual fund units are exempt from Wealth Tax.
Explanation This is irrespective of where the fund invests.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 37 As SEBI has banned ________, the Sale Price of a MF unit is the same as
NAV.
(a) Entry Load
(b) Exit Load
(c) Commission Refund
(d) SIP Transaction Charges

Question 38 In which of the below funds is the investor unsure of his taxation liability
?
(a) Sectoral Fund
(b) ELSS Fund
(c) Gilt Fund
(d) Flexible Asset Allocation Fund

Correct Answer 37 Entry Load

Answer For eg - If the NAV of a MF unit is Rs 50 and entry load was 1% then the unit
Explanation was sold to the investors at Rs 50 + 1 % ie. Rs 50.50.
Now with the ban on entry loads the Sale price is equal to NAV ( Rs 50 in
above example)

Correct Answer 38 Flexible Asset Allocation Fund

Answer The fund manager of a Flexible Asset Allocation scheme can switch a large
Explanation part of their portfolio between debt and equity, depending on their view on the
respective markets.
So the investors do not know whether they are investing in a debt scheme or
an equity scheme and so are unsure of the taxation.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

Question 39 Securities Transaction Tax is not applicable on transactions in debt-

oriented mutual funds - True or False ?
(a) TRUE
(b) FALSE

Question 40 Mr. Mahesh gives his investment application form to the distributor at 10
am. The distributor then goes to the Mutual Fund office and submits this
application at 1 pm. What is the cut off time for this investment ?
(a) 1:00 PM
(b) 10:00 AM

Correct Answer 39 TRUE

Answer STT is not applicable on transactions in debt or debt-oriented mutual fund

Explanation (including liquid fund) units.

Correct Answer 40 1:00 PM

Answer The cut off time is when the investment is submitted to the PoA - Point of
Explanation Acceptance is relevant – not the time when the investor submits the
transaction request to the distributor.
 NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3

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NISM SERIES V A – MUTUAL FUND DISTRIBUTORS
CERTIFICATION EXAM – PRACTICE TEST 3