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Series IV · Practice Set 1

NISM Series IV: Interest Rate Derivatives Certification — Practice Set 1 Practice Questions

Original practice set for NISM Series IV: Interest Rate Derivatives Certification. Every question below shows the correct answer and a full explanation, so you can read through this set as a study page or attempt it as a timed mock test.

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Practice questions

All 35 questions in Practice Set 1

Read each question, think through your answer, then expand it to check the correct option and explanation.

Mutual Fund Basics

Q1. The primary role of an RTA (Registrar and Transfer Agent) in a mutual fund is:

  1. A. To manage the fund's investment portfolio
  2. B. To maintain investor records and process mutual fund transactions on behalf of AMCs
  3. C. To regulate mutual funds like SEBI
  4. D. To distribute mutual fund units to investors
Show correct answer & explanation

Correct answer: B. To maintain investor records and process mutual fund transactions on behalf of AMCs

An RTA in the mutual fund context maintains the investor database, processes purchase/redemption/switch transactions, generates account statements, handles investor queries, and manages all back-office operations for AMCs.
Mutual Fund Basics

Q2. CAMS and KFintech are the two major RTAs for mutual funds in India. They handle operations for:

  1. A. Only one AMC each
  2. B. Multiple AMCs — acting as shared service providers
  3. C. SEBI regulatory functions
  4. D. Only direct plans
Show correct answer & explanation

Correct answer: B. Multiple AMCs — acting as shared service providers

CAMS (Computer Age Management Services) and KFintech (formerly Karvy) are the two major RTAs in India, providing back-office services to multiple AMCs. This consolidation creates economies of scale and standardised investor service.
RTA Functions

Q3. A folio number in mutual funds is:

  1. A. The scheme's NAV reference number
  2. B. A unique account identification number assigned by the RTA to an investor
  3. C. The distributor's ARN number
  4. D. The AMC's SEBI registration number
Show correct answer & explanation

Correct answer: B. A unique account identification number assigned by the RTA to an investor

A folio number is a unique account identification number assigned by the RTA to each investor. One investor can have multiple schemes under a single folio, or separate folios for different schemes or joint-holder combinations.
Transaction Processing

Q4. A purchase (subscription) transaction in a mutual fund means:

  1. A. Investor sells units back to the fund
  2. B. Investor buys units of the scheme by submitting application and payment
  3. C. Investor switches between schemes
  4. D. Investor changes nomination
Show correct answer & explanation

Correct answer: B. Investor buys units of the scheme by submitting application and payment

A purchase or subscription transaction occurs when an investor buys units of a mutual fund scheme by submitting a purchase application (physical or online) along with payment. Units are allotted at the applicable NAV.
Transaction Processing

Q5. Redemption in a mutual fund means:

  1. A. Investor buys more units
  2. B. Investor sells units back to the fund at the applicable NAV
  3. C. Investor switches to another scheme
  4. D. Investor changes bank mandate
Show correct answer & explanation

Correct answer: B. Investor sells units back to the fund at the applicable NAV

Redemption is when an investor sells units back to the mutual fund. The investor receives proceeds based on the applicable NAV minus any exit load. Proceeds are credited to the registered bank account.
Transaction Processing

Q6. For an open-ended scheme other than liquid/overnight, the applicable NAV for redemption received before the cut-off time is:

  1. A. Previous day's NAV
  2. B. Same day's closing NAV
  3. C. Next day's NAV
  4. D. Weekly average NAV
Show correct answer & explanation

Correct answer: B. Same day's closing NAV

For open-ended schemes (other than liquid/overnight), a valid redemption request received before the cut-off time (3:00 PM) on a business day is processed at that day's closing NAV.
Transaction Processing

Q7. Cut-off time for liquid funds for determining applicable NAV is:

  1. A. 9:00 AM
  2. B. 1:30 PM
  3. C. 3:00 PM
  4. D. 5:00 PM
Show correct answer & explanation

Correct answer: B. 1:30 PM

For liquid and overnight funds, the cut-off time is 1:30 PM. Valid purchase applications received with funds before 1:30 PM get the previous day's closing NAV. After 1:30 PM, the same day's NAV applies.
Transaction Processing

Q8. A SIP (Systematic Investment Plan) mandate in a mutual fund is set up through:

  1. A. Visiting the AMC office every month
  2. B. One-time NACH (National Automated Clearing House) mandate or online auto-pay enabling automatic periodic investments
  3. C. Cash payment monthly
  4. D. Annual lump sum converted by RTA
Show correct answer & explanation

Correct answer: B. One-time NACH (National Automated Clearing House) mandate or online auto-pay enabling automatic periodic investments

SIP mandates are typically set up via NACH (National Automated Clearing House) — a one-time bank auto-debit mandate that enables automatic periodic deductions from the investor's bank account for recurring investments.
Transaction Processing

Q9. What happens when a SIP instalment fails due to insufficient funds in the investor's bank account?

  1. A. The SIP is cancelled immediately
  2. B. That instalment is missed; the SIP continues for remaining instalments subject to the AMC's bounce policy
  3. C. The investor is blacklisted
  4. D. Previous units are redeemed to cover the instalment
Show correct answer & explanation

Correct answer: B. That instalment is missed; the SIP continues for remaining instalments subject to the AMC's bounce policy

If a SIP instalment fails (bank bounce), that particular instalment is missed. The SIP typically continues for remaining instalments. AMCs may allow up to 2-3 consecutive bounces before pausing the SIP, as per their policy.
Investor Services

Q10. An Account Statement in mutual funds shows:

  1. A. Only the current NAV
  2. B. All transactions, unit balances, and current market value of the investor's holdings
  3. C. Only the dividend history
  4. D. Only the SIP schedule
Show correct answer & explanation

Correct answer: B. All transactions, unit balances, and current market value of the investor's holdings

An Account Statement (also called Statement of Account or SOA) shows all transactions (purchases, redemptions, switches, dividends), unit balances per scheme, current NAV, and current market value of the investor's holdings.
Investor Services

Q11. Consolidated Account Statement (CAS) is issued by:

  1. A. Each AMC separately
  2. B. CAMS or KFintech on behalf of depositories (NSDL/CDSL) — covers all mutual fund holdings across all AMCs and demat accounts
  3. C. SEBI monthly
  4. D. AMFI quarterly
Show correct answer & explanation

Correct answer: B. CAMS or KFintech on behalf of depositories (NSDL/CDSL) — covers all mutual fund holdings across all AMCs and demat accounts

The Consolidated Account Statement (CAS) is issued by CAMS or KFintech and covers all mutual fund holdings across all AMCs. It also includes demat holdings. It is sent monthly if there is a transaction or annually if there is no activity.
Investor Services

Q12. An investor wants to change their registered bank account in a mutual fund. They should:

  1. A. Open a new folio
  2. B. Submit a bank account change request to the RTA/AMC with supporting documents and a cancelled cheque of the new account
  3. C. Call the customer care only
  4. D. Change it only during the next SIP date
Show correct answer & explanation

Correct answer: B. Submit a bank account change request to the RTA/AMC with supporting documents and a cancelled cheque of the new account

To change the registered bank account, the investor must submit a written bank account change request to the RTA/AMC along with supporting KYC documents and a cancelled cheque of the new bank account. A cooling period may apply for security.
Investor Services

Q13. The process of adding a joint holder to an existing mutual fund folio:

  1. A. Is not possible once folio is opened
  2. B. Requires creating a new folio — joint holders cannot be added to existing folios
  3. C. Can be done by submitting a request to the RTA
  4. D. Requires SEBI approval
Show correct answer & explanation

Correct answer: C. Can be done by submitting a request to the RTA

Adding joint holders to an existing folio is generally not possible after the folio is created. Typically, a new folio must be created with the desired joint-holder combination. Investors should set up joint holdings at the time of initial investment.
RTA Functions

Q14. NACH (National Automated Clearing House) is used in mutual funds for:

  1. A. Physical cheque clearing
  2. B. Electronic credit of redemption/dividend proceeds and electronic debit for SIP payments
  3. C. Sending physical account statements
  4. D. Filing SEBI reports
Show correct answer & explanation

Correct answer: B. Electronic credit of redemption/dividend proceeds and electronic debit for SIP payments

NACH is used for: (1) Electronic credit of redemption proceeds and dividends directly to investor's bank account (NACH Credit), and (2) Automatic debit from investor's bank account for SIP payments (NACH Debit mandate).
Regulatory Compliance

Q15. FATCA/CRS compliance in mutual funds requires:

  1. A. Only NRI investors to declare tax residency
  2. B. All investors to declare their tax residency status — Indian or foreign — for tax information exchange purposes
  3. C. Only HNI investors above Rs. 50 lakh to declare
  4. D. Only institutional investors to comply
Show correct answer & explanation

Correct answer: B. All investors to declare their tax residency status — Indian or foreign — for tax information exchange purposes

FATCA (US law) and CRS (OECD's Common Reporting Standard) require all mutual fund investors to declare their tax residency status. AMCs/RTAs must identify foreign account holders and report them to respective tax authorities.
RTA Functions

Q16. Transmission of mutual fund units (in case of death of unit holder) requires:

  1. A. Police FIR only
  2. B. Death certificate, KYC of claimant, transmission request form, and other documents as required by the AMC
  3. C. Only a legal notice
  4. D. Court order in all cases
Show correct answer & explanation

Correct answer: B. Death certificate, KYC of claimant, transmission request form, and other documents as required by the AMC

For transmission of units after a unit holder's death, the claimant must submit: death certificate, transmission request form, KYC documents, and other documents required by the AMC (like legal heir certificate or succession certificate for large amounts).
Transaction Processing

Q17. Switch transaction in a mutual fund involves:

  1. A. Changing the distributor
  2. B. Redeeming units from one scheme and investing proceeds in another scheme of the same AMC
  3. C. Transferring units between two different AMCs directly
  4. D. Pledging units for a loan
Show correct answer & explanation

Correct answer: B. Redeeming units from one scheme and investing proceeds in another scheme of the same AMC

A switch involves redeeming units from the source scheme and investing the proceeds in the destination scheme of the same AMC. It is processed as two simultaneous transactions — redemption and purchase — and has tax implications.
Transaction Processing

Q18. STP (Systematic Transfer Plan) in a mutual fund is used to:

  1. A. Transfer money between two different banks
  2. B. Automatically transfer fixed amount from one mutual fund scheme to another at regular intervals
  3. C. Invest in international funds periodically
  4. D. Switch from equity to fixed deposits
Show correct answer & explanation

Correct answer: B. Automatically transfer fixed amount from one mutual fund scheme to another at regular intervals

A Systematic Transfer Plan (STP) automatically transfers a fixed amount from one mutual fund scheme (typically debt) to another (typically equity) at regular intervals. It helps gradually deploy lump-sum investments into equity, averaging the cost.
Investor Services

Q19. Nomination in mutual funds allows:

  1. A. Nominee to operate the folio during the investor's lifetime
  2. B. Nominee to claim units upon investor's death, simplifying transmission
  3. C. Transfer of all profits to nominee
  4. D. Multiple nominees to share expenses
Show correct answer & explanation

Correct answer: B. Nominee to claim units upon investor's death, simplifying transmission

Nomination allows unit holders to designate up to 3 nominees who can claim the mutual fund units upon the investor's death. It simplifies the transmission process compared to going through legal heir documentation.
Regulatory Compliance

Q20. KYC in mutual funds once completed with a SEBI-registered KRA is:

  1. A. Valid for only 1 year
  2. B. Valid for only that specific AMC
  3. C. Valid across all SEBI-registered mutual funds and intermediaries indefinitely (unless investor details change)
  4. D. Valid for equity funds only
Show correct answer & explanation

Correct answer: C. Valid across all SEBI-registered mutual funds and intermediaries indefinitely (unless investor details change)

KYC completed with a SEBI-registered KYC Registration Agency (KRA) is valid across all SEBI-registered entities. Investors need not redo KYC for each AMC — they can invest with any AMC once KYC is done.
RTA Functions

Q21. BENPOS in the mutual fund RTA context refers to:

  1. A. Beneficial Position — list of demat unit holders from NSDL/CDSL used for dividend/IDCW processing
  2. B. Bank Position Statement
  3. C. Bond Equivalent Portfolio Statement
  4. D. Backend Payment Operating System
Show correct answer & explanation

Correct answer: A. Beneficial Position — list of demat unit holders from NSDL/CDSL used for dividend/IDCW processing

BENPOS (Beneficial Position) is a file provided by depositories to RTAs containing details of all unit holders who hold mutual fund units in demat form. It is used for processing IDCW distributions and other corporate actions.
Transaction Processing

Q22. Online mutual fund transactions can be done through:

  1. A. Only physical application forms
  2. B. AMC websites, mobile apps, CAMS/KFintech portals, and third-party platforms like MF Utility and SEBI-registered platforms
  3. C. Only through designated bank branches
  4. D. Only through NSE and BSE platforms
Show correct answer & explanation

Correct answer: B. AMC websites, mobile apps, CAMS/KFintech portals, and third-party platforms like MF Utility and SEBI-registered platforms

Mutual fund transactions can be done online through the AMC's website or app, RTA portals (CAMS, KFintech), MF Utility (MFU), SEBI-registered aggregators (Zerodha, Groww, etc.), and BSE/NSE mutual fund platforms.
Investor Services

Q23. Capital Gains Statement from a mutual fund RTA shows:

  1. A. Only dividend received
  2. B. All redemption transactions with purchase NAV, redemption NAV, and computed capital gain/loss for tax purposes
  3. C. Only current portfolio value
  4. D. Only future maturity dates of debt schemes
Show correct answer & explanation

Correct answer: B. All redemption transactions with purchase NAV, redemption NAV, and computed capital gain/loss for tax purposes

A Capital Gains Statement (available from CAMS/KFintech) shows all redemption transactions in a financial year with the purchase NAV, redemption NAV, holding period, and calculated capital gain or loss — useful for income tax filing.
Regulatory Compliance

Q24. AML (Anti-Money Laundering) compliance in mutual funds requires RTAs and AMCs to:

  1. A. Report all transactions above Rs. 1 crore to police
  2. B. Verify investor identity (KYC), maintain transaction records, and report suspicious transactions to FIU-IND
  3. C. Restrict investments from NRIs
  4. D. Only accept cash payments below Rs. 50,000
Show correct answer & explanation

Correct answer: B. Verify investor identity (KYC), maintain transaction records, and report suspicious transactions to FIU-IND

AML compliance requires: verifying investor identity through KYC, maintaining records of all transactions for at least 5 years, monitoring for suspicious patterns, and reporting suspicious transactions to FIU-IND (Financial Intelligence Unit India).
RTA Functions

Q25. What is a Common Account Number (CAN) in the MF Utility (MFU) platform?

  1. A. The AMC's account number
  2. B. A unique identifier assigned by MF Utility that allows transacting across multiple AMCs through a single number
  3. C. The investor's PAN number
  4. D. The distributor's code
Show correct answer & explanation

Correct answer: B. A unique identifier assigned by MF Utility that allows transacting across multiple AMCs through a single number

Common Account Number (CAN) is a unique identifier assigned by MF Utility (MFU) platform that enables investors to transact across multiple AMCs through a single account number, simplifying multi-AMC investing.
Transaction Processing

Q26. Dividend payout (IDCW – Payout) in a mutual fund means:

  1. A. Dividend is reinvested back into the scheme as more units
  2. B. The dividend amount is directly credited to the investor's bank account
  3. C. NAV increases by the dividend amount
  4. D. Units are doubled on dividend declaration
Show correct answer & explanation

Correct answer: B. The dividend amount is directly credited to the investor's bank account

Under the IDCW Payout option, the distributed amount is directly credited to the investor's registered bank account via NACH/ECS. The NAV of the scheme falls by the distribution amount on the ex-date.
Regulatory Compliance

Q27. RTAs are required to maintain investor records for a minimum period of:

  1. A. 1 year
  2. B. 3 years
  3. C. 5 years
  4. D. 10 years
Show correct answer & explanation

Correct answer: C. 5 years

As per SEBI regulations and AML requirements, RTAs must maintain all investor records and transaction documents for a minimum period of 5 years. This includes KYC documents, transaction records, and correspondence.
Investor Services

Q28. Change of address request in a mutual fund folio requires:

  1. A. No documentation if submitted online
  2. B. Submission of KYC update form with proof of new address to the RTA/AMC
  3. C. SEBI approval for each change
  4. D. Only a self-declaration letter
Show correct answer & explanation

Correct answer: B. Submission of KYC update form with proof of new address to the RTA/AMC

To change address, the investor must submit a KYC update form along with valid proof of new address to the RTA/AMC or KRA. The update is reflected across all folios once the KRA processes it.
RTA Functions

Q29. Allotment of units in a mutual fund purchase happens at:

  1. A. The NAV at time of payment only
  2. B. The applicable NAV as per SEBI's cut-off time rules for the respective scheme category
  3. C. Always at Rs. 10 per unit
  4. D. The NAV chosen by the investor
Show correct answer & explanation

Correct answer: B. The applicable NAV as per SEBI's cut-off time rules for the respective scheme category

Units are allotted at the applicable NAV determined by SEBI's cut-off time rules. For equity/debt funds (non-liquid), the cut-off is 3 PM. The NAV applied depends on when the valid application and funds are received.
Technology

Q30. BSE StAR MF and NSE NMF II platforms allow:

  1. A. Only institutional investors to transact in mutual funds
  2. B. Distributors and investors to transact in mutual funds through stock exchange infrastructure
  3. C. Only direct plan investments
  4. D. Only ETF trading
Show correct answer & explanation

Correct answer: B. Distributors and investors to transact in mutual funds through stock exchange infrastructure

BSE StAR MF (BSE's Mutual Fund platform) and NSE NMF II (NSE's National Mutual Fund platform) allow distributors and investors to buy, sell, and switch mutual funds through the stock exchange infrastructure, using the same trading account.
Investor Services

Q31. A unit holder can check their mutual fund holdings and transactions through:

  1. A. Only physical account statements by post
  2. B. Online portals of CAMS (camsonline.com) and KFintech, AMC websites, and MF Central
  3. C. Only through the distributor
  4. D. Only at AMC branches
Show correct answer & explanation

Correct answer: B. Online portals of CAMS (camsonline.com) and KFintech, AMC websites, and MF Central

Investors can access their holdings and transactions online through CAMS (camsonline.com), KFintech portal, individual AMC websites, and MF Central (a joint initiative by CAMS and KFintech for a single consolidated view).
Regulatory Compliance

Q32. PAN is mandatory for mutual fund investments exceeding:

  1. A. Rs. 10,000
  2. B. Rs. 25,000
  3. C. Rs. 50,000 (though practically required for all KYC-compliant investments)
  4. D. Rs. 1 lakh
Show correct answer & explanation

Correct answer: C. Rs. 50,000 (though practically required for all KYC-compliant investments)

PAN is mandatory for all KYC-compliant mutual fund investments. Practically, since KYC requires PAN, all mutual fund investors must provide PAN. Even for micro-SIPs (Rs. 100-500), PAN-based KYC is required in most cases.
RTA Functions

Q33. SWP (Systematic Withdrawal Plan) in a mutual fund is processed by the RTA by:

  1. A. Purchasing new units each month
  2. B. Automatically redeeming a fixed number of units or fixed value at regular intervals and crediting proceeds to the investor's bank
  3. C. Transferring to another fund automatically
  4. D. Converting to fixed deposit proceeds
Show correct answer & explanation

Correct answer: B. Automatically redeeming a fixed number of units or fixed value at regular intervals and crediting proceeds to the investor's bank

Under an SWP, the RTA automatically redeems a fixed number of units or a fixed amount from the investor's holdings at regular intervals (monthly/quarterly) and credits the proceeds to the registered bank account.
Transaction Processing

Q34. Lien marking on mutual fund units is done when:

  1. A. Units are gifted to a relative
  2. B. Units are pledged as collateral for a loan — marked by the lender with the RTA's help
  3. C. Units are switched between schemes
  4. D. Investor applies for SWP
Show correct answer & explanation

Correct answer: B. Units are pledged as collateral for a loan — marked by the lender with the RTA's help

When mutual fund units are pledged as collateral for a loan (e.g., loan against mutual funds), the lender requests the RTA to mark a lien on those units. Lien-marked units cannot be redeemed without lien release from the lender.
Investor Services

Q35. MF Central portal is:

  1. A. A government portal for filing mutual fund taxes
  2. B. A joint initiative of CAMS and KFintech providing investors a single-window view of all mutual fund holdings across all RTAs and AMCs
  3. C. An AMFI portal for distributors only
  4. D. A SEBI portal for fund managers
Show correct answer & explanation

Correct answer: B. A joint initiative of CAMS and KFintech providing investors a single-window view of all mutual fund holdings across all RTAs and AMCs

MF Central (mfcentral.com) is a joint initiative by CAMS and KFintech that provides investors a single consolidated view of all mutual fund holdings across all RTAs and AMCs, as well as the ability to service and transact.

How to use this set

Work through the questions in order without expanding the answers first, exactly as you would in the real Series IV exam. Once you have picked an option, expand the answer to confirm whether you were right and read the explanation, even for questions you answered correctly, since the reasoning behind each option is where most of the learning happens.

If you get a question wrong, note the topic tag above the question and revisit that topic in the Series IV exam page before your next attempt. When you are ready for exam-condition practice, use the timed mock test above; it shuffles these questions, applies the negative marking rule, and gives you a scored review at the end.