Selecting the Right Investment Products for Investors (extra reading: not in the Sept 2026 workbook) for NISM certification
Mutual funds are one tool among many. A good distributor compares them honestly with deposits, small savings, bonds, insurance, pension products, gold, real estate, direct equity, PMS and AIFs, and recommends what fits the investor, not what pays the most.
Mutual FundsSeries V-A60 MCQs5 lessons14 flashcards4 memory tricks
What you'll learn
- Comparing products: a common checklist
Compare any two investment products on the same seven features. - Deposits, small savings and bonds
Place deposits, small savings schemes and bonds in a client's plan. - Insurance and pension products
Explain where insurance and pension products fit and how they differ from mutual funds. - Gold, real estate and market-linked alternatives
Compare ways to own gold and property and the higher-ticket market products. - Matching products to investors
Recommend a mix of products for a profile, explaining why mutual funds fit or don't.
Concepts explained
Comparing investment products
Compare products on return, risk, liquidity, lock-in, tax, costs, minimum and regulator before recommending one.
What it means
- SEBI: MFs, PMS, AIFs, REITs; RBI: deposits; IRDAI: insurance; PFRDA: NPS; Government: small savings.
- No product is best on every feature.
- FD: fixed, taxed yearly at slab
- Debt fund: market-linked, daily liquidity, taxed at slab on redemption (post-2023 units)
Answer: Choose by need for certainty vs flexibility
Term insurance vs endowment
Term insurance gives the largest cover for the premium; endowment plans mix insurance and savings, giving less cover and low returns.
What it means
- Protection first, investment second.
- ULIPs are IRDAI-regulated with a 5-year lock-in.
Ways to own gold
Gold can be held as jewellery, coins, gold ETFs, gold FoFs or Sovereign Gold Bonds; financial forms avoid storage and purity issues.
What it means
- Gold ETF: demat; long-term after 12 months.
- Gold FoF: no demat; long-term after 24 months.
- SGB: 2.5% interest; maturity gains tax-free; new issues paused since 2024 (to verify).
PMS, AIF and SIF
PMS (min ₹50 lakh) holds securities in the client's name; AIFs (min ₹1 crore) pool money for specialised strategies; SIFs (min ₹10 lakh, to verify) sit between MFs and PMS.
What it means
- All are SEBI-regulated.
- PMS gains are taxed trade by trade.
- Higher minimums and fees than mutual funds.
Memory tricks
SEBI: securities and MFs; RBI: banks; IRDAI: insurance; PFRDA: NPS; Government: post office small savings.
PMS minimum ₹50 lakh; AIF minimum ₹1 crore (most categories).
Buy term and health insurance before investing for goals.
Gold: jewellery, coins/bars, ETF, FoF, SGB.
Try 3 NISM-style questions
Q1. Compared with a single corporate bond, a debt mutual fund offers
- A guaranteed coupon every year, like the bond itself, with no default risk
- No interest rate risk, since it holds many bonds
- Tax-free gains
- Diversification across issuers and daily liquidity, but no fixed return
Show answer
Answer: (4) Diversification across issuers and daily liquidity, but no fixed return
Funds diversify and provide liquidity.
Q2. Direct equity investing suits investors who
- Want no involvement at all in choosing or tracking investments
- Need a guaranteed monthly income
- Have the time, knowledge and discipline to research and monitor companies
- Need money next week
Show answer
Answer: (3) Have the time, knowledge and discipline to research and monitor companies
Direct stock picking needs skill and time.
Q3. A high-net-worth investor wants a customised portfolio held in his own name. The suitable product is
- Liquid fund
- PPF
- Post office MIS
- PMS
Show answer
Answer: (4) PMS
PMS offers customisation and individual ownership.
Practise all 60 questions Free · explanations for every option · see where you go wrong