The 30 NISM V-A questions that actually matter.

The investment policy outlines the specific asset allocation, investment style, and limits (such as the 25% cap on derivatives investments). The investment objective is broader and focuses on the general goals of the scheme.

Stock picking focuses on selecting individual stocks based on their fundamentals. This is a bottom-up approach, where the analysis starts with the company itself (its performance, management, etc.) before considering industry or macroeconomic factors.

A Certificate of Deposit (CD) issued by a bank typically has a maturity period of 7 days to 1 year. These are fixed-income instruments and are governed by the Reserve Bank of India.

A closed-end fund has a fixed unit capital because the number of units issued remains constant after the NFO (New Fund Offer). Unlike open-ended funds, which allow constant entry and exit of investors, closed-end funds’ unit capital remains stable. The trading of units happens on the stock exchange, not directly with the fund.

A trail commission is a percentage of the net assets attributable to the units sold by the distributor. This commission is paid to the distributor as long as the investor’s money remains invested in the scheme.

Conservative investors prefer lower risk and are willing to accept lower returns in order to protect their principal investment.

Institutional investors (e.g., corporate investors, banks, etc.) require a board resolution to authorize investments in mutual funds or other securities, as opposed to individuals or minors who don't need such formal documentation.

When market interest rates rise, the value of existing bonds with lower coupons decreases. In this case, since the coupon is lower than the current market rate, the bond's price will fall.

The P/E ratio formula is: \[ \text{Market Price} = \text{P/E} \times \text{EPS} \]

A credible benchmark should align with the investment objective, investment strategy, and asset allocation pattern of the mutual fund scheme. It should reflect the specific characteristics and goals of the scheme.

Only individual investors can make nominations. Trusts and registered companies cannot have nominees, and minors are not allowed to make a nomination.

An SIP registered for a minor will be valid only until the minor attains majority (i.e., turns 18). After that, the folio needs to be converted, and standing instructions such as SIP may be suspended until the minor is legally an adult.

All holders in a joint account must sign the mutual fund application form, regardless of the mode of holding.

Growth investing involves selecting stocks of companies that are expected to grow at an above-average rate compared to other companies in the market. The pharma companies with new manufacturing capacities are likely to experience growth, which aligns with this style.

According to SEBI regulations, a mutual fund scheme can invest no more than 10% of its assets in the equity instruments of any single company, ensuring diversification and reducing risk.

A Conservative Hybrid Fund has a lower equity component (typically around 25%) compared to other hybrid funds. In contrast, an Aggressive Hybrid Fund has a higher equity allocation, typically around 75%. Since a Conservative Hybrid Fund has the lowest equity exposure, it would have the least weightage in terms of equity index.

The Key Information Memorandum (KIM) is a concise version of the Scheme Information Document (SID) and Statement of Additional Information (SAI), providing a summary of the scheme to help investors make informed decisions.

SEBI mandates that AMCs must implement a due diligence process to regulate distributors who have a presence in more than 20 locations. Other criteria also apply but are different from this one.

SEBI mandates that every mutual fund scheme should have a minimum of 20 investors to ensure diversification and avoid risks of concentration in the hands of a few.

Money market funds invest in short-term debt instruments, which are less sensitive to changes in interest rates. Therefore, they have the lowest interest rate risk compared to other funds like bond funds, which invest in longer-term securities.

An addendum is issued whenever there is a change in fundamental attributes or other aspects of the Scheme Information Document (SID). The addendum is displayed on the AMC website immediately after issuance.

Under the Finance Act of 2023, the growth option of debt funds is now taxed as short-term capital gains (STCG), regardless of the holding period. Thus, there is no benefit of indexation or tax exemption for long-term capital gains.

Equities (stocks) are ideal for investors with a long-term horizon and high-risk tolerance, as they tend to offer higher capital appreciation over time, despite their volatility in the short term.

The risk sequence from highest to lowest is: Flexible Allocation (higher risk as the asset allocation changes based on market conditions)

To assess the performance of a mutual fund scheme, it should be compared to a benchmark index that represents the scheme’s category (e.g., equity, debt, etc.). This helps investors evaluate the relative performance of the fund.

SEBI rules prohibit the payment of commissions or rebates to investors. Distributors are not allowed to offer commissions or gifts to investors to influence their investment decisions.

Mutual funds do not offer any guarantee of returns or capital protection, as they are subject to market risks.

According to SEBI's fair valuation principles, the valuation should reflect the realizable value of the securities, ensuring transparency and fairness in pricing.

Disclosure of the valuation policy and procedures approved by the Board of the asset management company shall be made in the Statement of Additional Information.

Sector funds invest in a specific sector, which leads to concentration risk. If that particular sector underperforms, the entire fund is likely to experience poor returns due to its concentrated exposure. Diversification helps reduce this risk.