Mutual Funds for NISM certification
Mutual funds are how most Indians first own shares and bonds. This chapter explains how a fund is organised, how its NAV is worked out, the kinds of schemes, and how investors buy, sell and move money between them.
Operations & MarketsSeries XII61 MCQs4 lessons20 flashcards4 memory tricks
What you'll learn
- How a mutual fund works
Describe the structure of a mutual fund and how NAV is calculated. - Kinds of schemes
Classify schemes by structure, option and SEBI category. - Investing: documents, NFOs and systematic plans
Explain the investing process and SIP, SWP, STP and switches. - Benefits, costs, regulation and SIFs
Weigh benefits and costs, and recall key investor protections.
Key formulas
| NAV per unit | (Market value of investments + accrued income + other assets − liabilities and expenses) ÷ number of units |
|---|---|
| Price on redemption | NAV − exit load |
Concepts explained
Net asset value (NAV)
NAV is the per-unit value of a scheme's net assets, calculated every business day.
What it means
- Add market value of investments, accrued income and other assets.
- Subtract liabilities and expenses.
- Divide by units outstanding.
- Transactions at NAV keep things fair for existing holders.
- Assets ₹62,000, units 5,000
- 62,000 ÷ 5,000
Answer: NAV = ₹12.40
Related terms
- Exit load: deducted from NAV on early redemption
- TER: deducted daily before NAV
Mutual fund structure
A mutual fund is a trust: the sponsor sets it up, trustees protect investors, the AMC manages the money, and the custodian holds the securities.
What it means
- Trustees meet at least six times a year.
- Major AMC decisions need trustee approval.
- Investors' money is held in scheme accounts, not the AMC's own account.
- Sponsor creates the trust
- Trustees appoint and supervise the AMC
- AMC's fund managers invest
- Custodian holds the shares and bonds
Answer: Separation of roles protects investors
Related terms
- Constituents: service providers such as custodians and RTAs, appointed with trustee approval
SIP, SWP and STP
Systematic plans automate regular investing, withdrawing or transferring.
What it means
- SIP: fixed amount in, regularly.
- SWP: fixed amount out, regularly.
- STP: SWP from one scheme + SIP into another in the same fund house.
- ₹5,000 a month at NAVs ₹10, ₹12.50, ₹8
- Units 500 + 400 + 625 = 1,525
- Average cost ₹15,000 ÷ 1,525 ≈ ₹9.84
Answer: Average cost below average NAV
Related terms
- Switch: one-time move between schemes, taxed as a redemption
Market cap and scheme categories
SEBI defines market-cap bands and minimum allocations for each scheme category.
What it means
- Large cap: top 100; mid cap: 101–250; small cap: 251 onwards.
- Large cap fund: min 80% in large caps.
- Multi cap: min 25% each in large, mid and small.
- Index funds and ETFs: min 95% in index securities.
- A company ranked 180th by full market cap
- Falls between 101 and 250
Answer: It is a mid cap
Related terms
- Full market capitalisation: price × all shares outstanding
Memory tricks
Large, mid and small cap definitions.
Three systematic plans.
SAI covers the fund house, SID one scheme, KIM the key points.
Delay interest borne by the AMC.
Try 3 NISM-style questions
Q1. An NFO (other than ELSS) can remain open for a maximum of
- 15 days
- 3 days
- 30 days
- 90 days
Show answer
Answer: (1) 15 days
Maximum NFO period is 15 days, except ELSS.
Q2. After the NFO, investors in a closed-ended scheme can exit by
- Selling units on the stock exchange where they are listed
- Redeeming with the fund on any day
- Switching to a bank deposit
- Asking SEBI to buy the units
Show answer
Answer: (1) Selling units on the stock exchange where they are listed
Closed-ended units are listed for exit.
Q3. Trustees of a mutual fund must meet at least
- Once a year
- Six times a year
- Once every five years
- Every day
Show answer
Answer: (2) Six times a year
The workbook states at least six meetings a year.
Practise all 61 questions Free · explanations for every option · see where you go wrong