Selecting the right investment products for investors: NISM Series V-A notes and practice questions

Q1. Which statement best describes “PPF”?

1. SEBI groups schemes into equity, debt, hybrid, solution oriented and other categories with defined definitions, and each AMC may offer only one scheme per category, with a few exceptions.
2. Mutual funds disclose NAV daily, portfolios monthly and factsheets regularly, so investors can see where their money is invested.
3. A sectoral or thematic fund invests at least 80% in a particular sector or theme, such as banking or technology, and carries concentration risk.
4. The Public Provident Fund is a government-backed savings scheme with a 15-year tenure and tax-free interest, with limited liquidity.

Q2. Which statement best describes “Real estate”?

1. A financial plan is a documented roadmap that links the client's goals, resources, risk profile and time horizon to a set of actions.
2. Real estate offers potential for appreciation and rental income but is illiquid, needs large capital and has high transaction costs.
3. The KIM is a short summary of the SID and SAI given with the application form so investors see the essentials first. SEBI has since moved towards a standard scheme summary document with the same purpose.
4. Mutual fund distribution channels include independent financial advisers, national distributors, banks, and online platforms and direct AMC routes.

Q3. Which statement best describes “Gold”?

1. A distributor must disclose to the investor all commissions received from the AMC for the transaction, in a transparent manner.
2. The KIM is a short summary of the SID and SAI given with the application form so investors see the essentials first. SEBI has since moved towards a standard scheme summary document with the same purpose.
3. Gold is held as a hedge against inflation and uncertainty; it can be owned through physical gold, gold ETFs, sovereign gold bonds or gold funds.
4. Trustees hold the fund's property in trust for unit holders and supervise the AMC. At least two-thirds of the trustees must be independent of the sponsor.

Q4. Which term is described here? The time horizon is the period for which money will be invested before it is needed; longer horizons can support more equity.

1. Tactical asset allocation
2. Upfront commission
3. SWP
4. Time horizon

Q5. Which statement best describes “Risk profiling”?

1. A Systematic Withdrawal Plan redeems a fixed amount of units at regular intervals, giving the investor a regular cash flow.
2. A corporate bond fund invests at least 80% in the highest-rated (AA+ and above) corporate bonds.
3. Risk profiling assesses a client's capacity and willingness to take risk through questions on age, income, dependants, goals and past behaviour, and guides product choice.
4. Debt securities are valued at prices provided by SEBI-approved valuation agencies appointed by AMFI, to ensure uniform valuation across funds.

Q6. Which statement best describes “Inflation”?

1. Exit load is a charge levied when units are redeemed within a stated period. It is credited to the scheme, not kept by the AMC.
2. Inflation is the rise in prices over time, which erodes the purchasing power of money; investments must beat it to grow real wealth.
3. A conflict of interest arises when the distributor's earnings could bias the advice; it must be disclosed and managed in the client's favour.
4. An index fund or ETF replicates a market index, investing at least 95% in the index's securities, with low cost and no stock picking.