FNFreeNISMMockTest
Series V-A · Practice Set 1

NISM Series V-A: Mutual Fund Distributors Certification — Practice Set 1 Practice Questions

Original practice set for NISM Series V-A: Mutual Fund Distributors 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.

Attempt this set as a timed mock

Prefer an exam-like experience? Start this set as a shuffled, timed mock test with instant scoring, negative marking, and a full review screen.

Start timed mock test Back to Series V-A exam page

Advertisement

Advertisement space

Practice questions

All 50 questions in Practice Set 1

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

Basics of Mutual Funds

Q1. Which regulatory body governs mutual funds in India?

  1. A. RBI
  2. B. SEBI
  3. C. IRDA
  4. D. AMFI
Show correct answer & explanation

Correct answer: B. SEBI

SEBI (Securities and Exchange Board of India) regulates mutual funds in India under the SEBI (Mutual Funds) Regulations, 1996.
Basics of Mutual Funds

Q2. What does NAV stand for in mutual funds?

  1. A. Net Annual Value
  2. B. Net Asset Value
  3. C. Nominal Asset Volume
  4. D. Net Accrual Value
Show correct answer & explanation

Correct answer: B. Net Asset Value

NAV stands for Net Asset Value. It is calculated as (Total Assets - Total Liabilities) / Number of Units Outstanding. It represents the per-unit market value of a mutual fund scheme.
Basics of Mutual Funds

Q3. Who manages the day-to-day operations of a mutual fund?

  1. A. Sponsor
  2. B. Trustee
  3. C. Asset Management Company (AMC)
  4. D. Custodian
Show correct answer & explanation

Correct answer: C. Asset Management Company (AMC)

The Asset Management Company (AMC) manages the day-to-day operations of a mutual fund, including making investment decisions, fund administration, and managing the portfolio.
Basics of Mutual Funds

Q4. The role of a custodian in a mutual fund is to:

  1. A. Manage investments
  2. B. Safekeep securities and assets
  3. C. Distribute units to investors
  4. D. Audit fund accounts
Show correct answer & explanation

Correct answer: B. Safekeep securities and assets

The custodian is responsible for safekeeping all securities and other assets of the mutual fund. They hold the securities in custody and settle trades on behalf of the fund.
Basics of Mutual Funds

Q5. AUM in the context of mutual funds refers to:

  1. A. Annual Utilisation of Money
  2. B. Assets Under Management
  3. C. Aggregate Unit Measurement
  4. D. Actual Unit Multiplier
Show correct answer & explanation

Correct answer: B. Assets Under Management

AUM stands for Assets Under Management. It represents the total market value of all assets that a mutual fund scheme manages on behalf of its investors.
Regulatory Framework

Q6. AMFI stands for:

  1. A. Association of Mutual Funds in India
  2. B. Agency for Mutual Fund Investments
  3. C. Authority for Mutual Fund Industry
  4. D. All Mutual Fund Institutions
Show correct answer & explanation

Correct answer: A. Association of Mutual Funds in India

AMFI stands for Association of Mutual Funds in India. It is an industry body of all SEBI-registered Asset Management Companies in India. ARN numbers for distributors are issued by AMFI.
Regulatory Framework

Q7. Under SEBI regulations, a mutual fund must be constituted as a:

  1. A. Private Limited Company
  2. B. Public Trust
  3. C. Partnership Firm
  4. D. Cooperative Society
Show correct answer & explanation

Correct answer: B. Public Trust

Under SEBI (Mutual Funds) Regulations 1996, a mutual fund must be constituted as a Public Trust under the Indian Trusts Act, 1882, and registered with SEBI.
Regulatory Framework

Q8. Entry load in mutual funds was abolished by SEBI from:

  1. A. January 2006
  2. B. August 2009
  3. C. April 2012
  4. D. January 2013
Show correct answer & explanation

Correct answer: B. August 2009

SEBI abolished entry load on all mutual fund investments with effect from August 1, 2009, to promote transparency and reduce the cost of investing in mutual funds for investors.
Regulatory Framework

Q9. A mutual fund distributor must obtain which number from AMFI to sell mutual funds?

  1. A. PAN
  2. B. ARN (AMFI Registration Number)
  3. C. SEBI Registration Number
  4. D. GST Number
Show correct answer & explanation

Correct answer: B. ARN (AMFI Registration Number)

A mutual fund distributor must obtain an ARN (AMFI Registration Number) from AMFI after passing the NISM Series V-A certification exam. This is mandatory to sell mutual funds.
Regulatory Framework

Q10. What is the minimum net worth required for an AMC to be registered with SEBI?

  1. A. Rs. 5 crore
  2. B. Rs. 10 crore
  3. C. Rs. 50 crore
  4. D. Rs. 100 crore
Show correct answer & explanation

Correct answer: B. Rs. 10 crore

An Asset Management Company (AMC) must maintain a minimum net worth of Rs. 10 crore at all times as per SEBI (Mutual Funds) Regulations.
Types of Mutual Funds

Q11. A fund that can issue and redeem units at any time is called a:

  1. A. Closed-ended fund
  2. B. Open-ended fund
  3. C. Interval fund
  4. D. Exchange Traded Fund
Show correct answer & explanation

Correct answer: B. Open-ended fund

An open-ended fund continuously issues and redeems units at the prevailing NAV. Investors can enter and exit at any point of time without any restrictions.
Types of Mutual Funds

Q12. ELSS stands for:

  1. A. Equity Linked Savings Scheme
  2. B. Exchange Listed Securities Scheme
  3. C. Equity Listed Savings Scheme
  4. D. Effective Linked Savings Strategy
Show correct answer & explanation

Correct answer: A. Equity Linked Savings Scheme

ELSS stands for Equity Linked Savings Scheme. These are tax-saving equity mutual funds with a mandatory lock-in period of 3 years offering tax deduction under Section 80C of the Income Tax Act.
Types of Mutual Funds

Q13. What is the lock-in period for ELSS funds?

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

Correct answer: C. 3 years

ELSS funds have a mandatory lock-in period of 3 years — the shortest among all tax-saving instruments under Section 80C of the Income Tax Act. Units cannot be redeemed before 3 years.
Types of Mutual Funds

Q14. A liquid fund typically invests in instruments with a maturity of up to:

  1. A. 30 days
  2. B. 60 days
  3. C. 91 days
  4. D. 180 days
Show correct answer & explanation

Correct answer: C. 91 days

Liquid funds invest in debt and money market instruments with a maturity of up to 91 days. They are suitable for investors looking to park surplus funds for the short term.
Types of Mutual Funds

Q15. Which type of mutual fund invests primarily in government securities?

  1. A. Equity Fund
  2. B. Debt Fund
  3. C. Gilt Fund
  4. D. Balanced Fund
Show correct answer & explanation

Correct answer: C. Gilt Fund

Gilt funds invest primarily in government securities (G-Secs) issued by the central or state government. They carry no credit risk as they are backed by the government, but carry interest rate risk.
Types of Mutual Funds

Q16. An index fund aims to:

  1. A. Beat the benchmark index
  2. B. Replicate the benchmark index exactly
  3. C. Invest only in government bonds
  4. D. Provide guaranteed returns
Show correct answer & explanation

Correct answer: B. Replicate the benchmark index exactly

An index fund passively tracks and replicates the composition and performance of a market index (like Nifty 50 or Sensex). It buys stocks in the same proportion as the index, keeping costs low.
Types of Mutual Funds

Q17. Overnight funds invest in securities with maturity of:

  1. A. Up to 7 days
  2. B. Up to 14 days
  3. C. Exactly 1 business day
  4. D. Up to 30 days
Show correct answer & explanation

Correct answer: C. Exactly 1 business day

Overnight funds invest in overnight securities with maturity of exactly 1 business day. They carry the lowest interest rate risk among all debt fund categories and are ideal for very short-term parking of funds.
Types of Mutual Funds

Q18. A Fund of Funds (FoF) invests in:

  1. A. Stocks of other companies
  2. B. Other mutual fund schemes
  3. C. Government bonds only
  4. D. Real estate assets
Show correct answer & explanation

Correct answer: B. Other mutual fund schemes

A Fund of Funds (FoF) is a mutual fund that invests in units of other mutual fund schemes rather than directly in stocks, bonds, or other securities. It provides diversification across multiple funds.
Types of Mutual Funds

Q19. Aggressive Hybrid Funds must invest what percentage in equity?

  1. A. 20% to 40%
  2. B. 40% to 60%
  3. C. 65% to 80%
  4. D. 80% to 100%
Show correct answer & explanation

Correct answer: C. 65% to 80%

As per SEBI categorisation, Aggressive Hybrid Funds must invest 65% to 80% of their portfolio in equity and equity-related instruments, with the remaining 20% to 35% in debt instruments.
Types of Mutual Funds

Q20. Arbitrage funds are taxed like which category?

  1. A. Debt funds
  2. B. Equity funds
  3. C. Hybrid funds
  4. D. Liquid funds
Show correct answer & explanation

Correct answer: B. Equity funds

Arbitrage funds are taxed like equity funds because they maintain at least 65% of their portfolio in equity and equity-related instruments through simultaneous buy-sell positions in different markets.
Fund Performance

Q21. CAGR stands for:

  1. A. Compound Annual Growth Rate
  2. B. Cumulative Annual Gain Rate
  3. C. Calculated Annual Growth Ratio
  4. D. Compound Asset Growth Rate
Show correct answer & explanation

Correct answer: A. Compound Annual Growth Rate

CAGR stands for Compound Annual Growth Rate. It represents the mean annual growth rate of an investment over a specified period assuming profits are reinvested at the end of each period.
Fund Performance

Q22. The Sharpe Ratio in mutual funds measures:

  1. A. Absolute returns
  2. B. Risk-adjusted return
  3. C. Volatility only
  4. D. Expense ratio impact
Show correct answer & explanation

Correct answer: B. Risk-adjusted return

The Sharpe Ratio measures risk-adjusted return. It is calculated as (Portfolio Return - Risk-Free Return) / Standard Deviation. A higher Sharpe Ratio indicates better risk-adjusted performance.
Fund Performance

Q23. Beta in a mutual fund context measures:

  1. A. Absolute returns
  2. B. Volatility relative to the benchmark
  3. C. Fund manager's experience
  4. D. Expense ratio variation
Show correct answer & explanation

Correct answer: B. Volatility relative to the benchmark

Beta measures the sensitivity of a fund's returns relative to its benchmark. A beta of 1 means the fund moves in line with benchmark. Beta >1 means more volatile than benchmark, Beta <1 means less volatile.
Fund Performance

Q24. Alpha in mutual fund context represents:

  1. A. Market risk only
  2. B. Excess return generated over benchmark
  3. C. Volatility measure
  4. D. Correlation coefficient
Show correct answer & explanation

Correct answer: B. Excess return generated over benchmark

Alpha represents the excess return generated by a fund manager over and above the benchmark return after adjusting for risk. Positive alpha indicates outperformance, negative alpha indicates underperformance.
Fund Performance

Q25. Standard deviation in a mutual fund context measures:

  1. A. Returns above benchmark
  2. B. Volatility or risk of the fund
  3. C. Fund manager's tenure
  4. D. Expense ratio trend
Show correct answer & explanation

Correct answer: B. Volatility or risk of the fund

Standard deviation measures the degree of variation of a fund's returns from its average return. A higher standard deviation indicates higher volatility and risk. It helps compare funds of the same category.
Fund Performance

Q26. Total Expense Ratio (TER) of a mutual fund is:

  1. A. Annual charges as a percentage of AUM
  2. B. Charges on redemption of units
  3. C. Entry load on new investment
  4. D. Charges for switching between funds
Show correct answer & explanation

Correct answer: A. Annual charges as a percentage of AUM

Total Expense Ratio (TER) represents the total annual cost of running a fund expressed as a percentage of the fund's average daily net assets. It includes management fees, admin costs, and other expenses.
Offer Document

Q27. The document containing complete details about a mutual fund scheme is called:

  1. A. Fund Fact Sheet
  2. B. Scheme Information Document (SID)
  3. C. Annual Report
  4. D. Key Information Memorandum
Show correct answer & explanation

Correct answer: B. Scheme Information Document (SID)

The Scheme Information Document (SID) contains complete details about a mutual fund scheme including investment objective, asset allocation, risk factors, fees, and all other terms and conditions.
Offer Document

Q28. KIM in mutual funds stands for:

  1. A. Key Investment Method
  2. B. Key Information Memorandum
  3. C. Know Your Investment Manager
  4. D. Key Interest Measure
Show correct answer & explanation

Correct answer: B. Key Information Memorandum

KIM stands for Key Information Memorandum. It is a summarised document containing the most important information about a mutual fund scheme and must be provided to all investors at the time of investment.
Offer Document

Q29. Statement of Additional Information (SAI) contains:

  1. A. Scheme-specific information
  2. B. Statutory information common to all schemes
  3. C. Market commentary
  4. D. Fund manager biography only
Show correct answer & explanation

Correct answer: B. Statutory information common to all schemes

The SAI contains statutory information that is common to all schemes offered by a mutual fund. It supplements the SID and must be read along with the SID to understand a scheme completely.
Financial Planning

Q30. SIP stands for:

  1. A. Systematic Investment Plan
  2. B. Selective Investment Portfolio
  3. C. Scheduled Investment Program
  4. D. Standard Investment Policy
Show correct answer & explanation

Correct answer: A. Systematic Investment Plan

SIP stands for Systematic Investment Plan. It allows investors to invest a fixed amount at regular intervals (monthly/quarterly) in a mutual fund scheme, helping build wealth through disciplined investing.
Financial Planning

Q31. Rupee Cost Averaging in SIP means:

  1. A. More units bought when prices are high
  2. B. More units bought when prices are low
  3. C. Equal units bought always
  4. D. Fewer units bought always
Show correct answer & explanation

Correct answer: B. More units bought when prices are low

Rupee Cost Averaging means through regular SIP investments, more units are automatically purchased when NAV is low and fewer units when NAV is high, reducing the average cost per unit over time.
Financial Planning

Q32. SWP in mutual funds stands for:

  1. A. Systematic Wealth Plan
  2. B. Systematic Withdrawal Plan
  3. C. Scheduled Withdrawal Program
  4. D. Standard Wealth Portfolio
Show correct answer & explanation

Correct answer: B. Systematic Withdrawal Plan

SWP stands for Systematic Withdrawal Plan. It allows investors to withdraw a fixed amount from their mutual fund investment at regular intervals. It is useful for generating regular income post-retirement.
Financial Planning

Q33. STP in mutual funds stands for:

  1. A. Systematic Transfer Plan
  2. B. Safe Transfer Protocol
  3. C. Systematic Trading Plan
  4. D. Standard Transfer Process
Show correct answer & explanation

Correct answer: A. Systematic Transfer Plan

STP stands for Systematic Transfer Plan. It allows investors to automatically transfer a fixed amount from one mutual fund scheme to another at regular intervals, typically from debt to equity or vice versa.
Financial Planning

Q34. Asset Allocation is the process of:

  1. A. Selecting only equity funds
  2. B. Dividing investments among different asset classes
  3. C. Choosing only debt instruments
  4. D. Investing in a single fund
Show correct answer & explanation

Correct answer: B. Dividing investments among different asset classes

Asset Allocation is the process of dividing an investment portfolio among different asset categories such as equity, debt, gold, and real estate based on individual goals, risk tolerance, and investment horizon.
Financial Planning

Q35. Which of the following is NOT a feature of SIP investment?

  1. A. Rupee cost averaging
  2. B. Power of compounding
  3. C. Guaranteed returns
  4. D. Flexibility in investment amount
Show correct answer & explanation

Correct answer: C. Guaranteed returns

SIP does not provide guaranteed returns. Mutual fund returns depend on market performance. SIP features include rupee cost averaging, compounding benefits, and investment flexibility, but not guaranteed returns.
Taxation

Q36. Long-term capital gains (LTCG) on equity mutual funds held for more than 1 year are taxed at:

  1. A. Exempt from tax
  2. B. 10% without indexation above Rs. 1 lakh
  3. C. 15% without indexation
  4. D. 20% with indexation
Show correct answer & explanation

Correct answer: B. 10% without indexation above Rs. 1 lakh

LTCG on equity mutual funds held for more than 12 months are taxed at 10% (without indexation) on gains exceeding Rs. 1 lakh per financial year under Section 112A of the Income Tax Act.
Taxation

Q37. Short-term capital gains (STCG) on equity mutual funds (held less than 1 year) are taxed at:

  1. A. 10%
  2. B. 15%
  3. C. 20%
  4. D. As per income tax slab rate
Show correct answer & explanation

Correct answer: B. 15%

STCG on equity mutual funds held for less than 12 months are taxed at 15% (plus applicable surcharge and cess) irrespective of the investor's income tax slab rate.
Taxation

Q38. Dividend received from mutual funds in the hands of investors is taxable as:

  1. A. Fully exempt from tax
  2. B. Taxed at flat 10%
  3. C. Added to income and taxed as per slab rate
  4. D. Taxed at flat 15%
Show correct answer & explanation

Correct answer: C. Added to income and taxed as per slab rate

Since April 1, 2020, dividends from mutual funds are added to the investor's total income and taxed as per their applicable income tax slab rate. TDS at 10% is deducted if dividend exceeds Rs. 5,000 per year.
Taxation

Q39. Gains from debt mutual funds (post April 2023) are taxed as:

  1. A. 20% with indexation
  2. B. 10% without indexation
  3. C. As per income tax slab rate regardless of holding period
  4. D. Exempt if held for 3 years
Show correct answer & explanation

Correct answer: C. As per income tax slab rate regardless of holding period

Post April 1, 2023, gains from debt mutual funds are taxed as per the investor's income tax slab irrespective of the holding period. The earlier LTCG benefit of 20% with indexation has been removed.
Investor Services

Q40. KYC stands for in the context of mutual fund investments:

  1. A. Know Your Customer
  2. B. Know Your Capital
  3. C. Keep Your Credentials
  4. D. Know Your Category
Show correct answer & explanation

Correct answer: A. Know Your Customer

KYC stands for Know Your Customer. It is a mandatory process for verifying the identity and address of investors before they can invest in mutual funds. KYC once done is valid across all SEBI-registered intermediaries.
Investor Services

Q41. The time limit for processing a redemption request in an open-ended scheme is:

  1. A. 1 business day
  2. B. 3 business days
  3. C. 5 business days
  4. D. 7 business days
Show correct answer & explanation

Correct answer: B. 3 business days

For open-ended schemes (except liquid and overnight funds), redemption proceeds must be dispatched within 3 business days from the date of valid redemption request. For liquid funds it is 1 business day (T+1).
Investor Services

Q42. FATCA in mutual fund context refers to:

  1. A. Foreign Account Tax Compliance Act
  2. B. Financial Asset Transfer Compliance Act
  3. C. Foreign Asset Tax Collection Authority
  4. D. Financial Account Terms and Conditions Act
Show correct answer & explanation

Correct answer: A. Foreign Account Tax Compliance Act

FATCA stands for Foreign Account Tax Compliance Act — a US federal law requiring financial institutions worldwide to report information about accounts held by US persons. Mutual fund investors must declare FATCA status.
Investor Services

Q43. The Mutual Fund utility (MFU) is a platform for:

  1. A. AMC internal operations only
  2. B. Investors to transact across multiple AMCs through a single platform
  3. C. SEBI to monitor AMCs
  4. D. Fund managers to trade
Show correct answer & explanation

Correct answer: B. Investors to transact across multiple AMCs through a single platform

MF Utility (MFU) is a shared services platform that allows investors and distributors to transact across multiple AMCs through a single common account number (CAN), simplifying the investment process.
Regulatory Framework

Q44. The cut-off time for same-day NAV for liquid funds is:

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

Correct answer: B. 1:30 PM

For liquid and overnight funds, if a valid application along with funds is received before 1:30 PM on a business day, the applicable NAV is of the previous business day. For applications received after 1:30 PM, same day's NAV applies.
Regulatory Framework

Q45. The sponsor of a mutual fund must have a sound financial track record of at least:

  1. A. 3 years
  2. B. 5 years
  3. C. 7 years
  4. D. 10 years
Show correct answer & explanation

Correct answer: B. 5 years

As per SEBI regulations, the sponsor of a mutual fund must have a sound financial track record of at least 5 years and a positive net worth in all the immediately preceding 5 years.
Types of Mutual Funds

Q46. A Balanced Advantage Fund (BAF) dynamically manages allocation between:

  1. A. Equity and Gold
  2. B. Debt and Gold
  3. C. Equity and Debt
  4. D. Foreign and Domestic assets
Show correct answer & explanation

Correct answer: C. Equity and Debt

A Balanced Advantage Fund (BAF), also called Dynamic Asset Allocation Fund, dynamically manages its allocation between equity and debt based on market valuations using predetermined models.
Fund Performance

Q47. Treynor Ratio measures:

  1. A. Return per unit of total risk
  2. B. Return per unit of systematic risk (beta)
  3. C. Return per unit of expense
  4. D. Return per unit of market risk
Show correct answer & explanation

Correct answer: B. Return per unit of systematic risk (beta)

The Treynor Ratio measures return per unit of systematic (market) risk, using beta as the risk measure. It is calculated as (Portfolio Return - Risk-Free Rate) / Beta. Higher Treynor Ratio is better.
Financial Planning

Q48. The concept of Time Value of Money states that:

  1. A. Money today is worth less than same money in future
  2. B. Money today is worth more than same money in future
  3. C. Money's value never changes
  4. D. Future money is always worth more
Show correct answer & explanation

Correct answer: B. Money today is worth more than same money in future

Time Value of Money (TVM) states that a rupee today is worth more than a rupee in the future because money today can be invested to earn returns. This is the foundational principle of financial planning.
Investor Services

Q49. Nomination facility in mutual funds allows:

  1. A. Only one nominee per folio
  2. B. Up to 3 nominees per folio
  3. C. Unlimited nominees
  4. D. No nominees allowed
Show correct answer & explanation

Correct answer: B. Up to 3 nominees per folio

Mutual fund investors can nominate up to 3 nominees per folio with specific percentage shares for each nominee. Nomination ensures smooth transfer of units to nominees in case of death of the unitholder.
Regulatory Framework

Q50. Which of the following statements about SEBI's mutual fund categorisation (2017) is correct?

  1. A. AMCs can have unlimited schemes per category
  2. B. Each AMC can have only one scheme per category
  3. C. AMCs cannot launch new schemes without SEBI approval
  4. D. No restriction on number of schemes
Show correct answer & explanation

Correct answer: B. Each AMC can have only one scheme per category

SEBI's October 2017 circular on categorisation of mutual fund schemes mandates that each AMC can have only one scheme per defined category (e.g., only one large cap fund, one mid cap fund). This prevents duplication and confusion.

How to use this set

Work through the questions in order without expanding the answers first, exactly as you would in the real Series V-A 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 V-A 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.