NISM Series V-D · Unit 1 of 12 · about 8% of the paper
Investment landscape, mutual fund concept and structure: NISM Series V-D notes and practice questions
Asset classes, risk and return, how a mutual fund pools money and the sponsor-trustee-AMC structure.
What to know in Unit 1
- Risk and return.
- Role of a mutual fund.
- Sponsor, trust, AMC, custodian.
Key terms, examples and exam traps
Risk and return
Higher expected return generally needs higher risk, and investors are compensated for bearing risk that cannot be diversified away.
Example. A client who wants high returns is told to expect bigger falls too.
Exam trap. This statement is false: A high return can be earned with no added risk.
Inflation and real return
Real return is the return after adjusting for inflation, so it shows the rise in purchasing power.
Example. An 8% return with 6% inflation gives roughly 2% real return.
Exam trap. This statement is false: Nominal return already shows purchasing power.
Mutual fund
A mutual fund pools money from many investors and invests it in securities according to a stated objective, managed by professionals.
Example. Thousands of investors share one diversified portfolio.
Exam trap. This statement is false: A mutual fund guarantees a fixed return to investors.
Unit holders and units
Investors own units of a scheme in proportion to their money invested, and share its gains, losses and expenses.
Example. An investor holding 1% of a scheme's units owns 1% of its portfolio.
Exam trap. This statement is false: Unit holders own a specific share held by the fund.
Three-tier structure
A mutual fund has a sponsor, a trust with trustees and an asset management company, with a custodian holding the securities.
Example. The trustees oversee the AMC which manages the schemes.
Exam trap. This statement is false: The AMC owns the fund assets in its own name.
Role of trustees
Trustees are responsible for protecting unit holders' interests and for overseeing the AMC's compliance.
Example. Trustees review the AMC's reports every quarter.
Exam trap. This statement is false: Trustees pick the stocks for each scheme.
Role of custodian
A custodian holds the scheme's securities in safe custody and settles transactions, separate from the AMC.
Example. Securities of a scheme are kept with an independent custodian.
Exam trap. This statement is false: The AMC holds securities in its own accounts.
Advantages of mutual funds
Funds give diversification, professional management, liquidity, affordability and transparency in one product.
Example. An investor with small savings holds dozens of stocks through one fund.
Exam trap. This statement is false: Funds remove all investment risk.
Open-ended and closed-ended
Open-ended schemes accept entries and exits at NAV on any business day, while closed-ended schemes have a fixed maturity and are listed.
Example. An investor redeems an open-ended scheme at that day's NAV.
Exam trap. This statement is false: Closed-ended schemes can be redeemed from the AMC any day.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? A mutual fund has a sponsor, a trust with trustees and an asset management company, with a custodian holding the securities.
- Three-tier structure
- Bull call spread
- Systematic investment plan
- Arbitrage use
Q2. Which statement best describes “Role of custodian”?
- If market movement reduces an investor's holding below ₹10 lakh, the investor can only redeem the entire remaining amount rather than part.
- Bond prices and yields move in opposite directions, so a rise in yields lowers bond prices.
- A custodian holds the scheme's securities in safe custody and settles transactions, separate from the AMC.
- The minimum investment in SIFs is ₹10 lakh per investor, aggregated across all the SIF strategies of the same AMC at the PAN level.
Q3. Which term is described here? A custodian holds the scheme's securities in safe custody and settles transactions, separate from the AMC.
- Cost of carry
- Margin call
- Role of custodian
- Interest rate options
Q4. Which term is described here? A mutual fund pools money from many investors and invests it in securities according to a stated objective, managed by professionals.
- Mutual fund
- Riskometer
- Intrinsic and time value
- Role of trustees
Q5. Which statement best describes “Unit holders and units”?
- Mis-selling is selling a product that does not suit the client or by giving misleading information, and it can lead to penalties.
- Investors own units of a scheme in proportion to their money invested, and share its gains, losses and expenses.
- This strategy invests in at least two sectors, with no more than 75% in a single sector and up to 25% unhedged short exposure.
- Cumulative gross exposure across cash and derivatives must not exceed 100% of net assets.
Q6. Which term is described here? Funds give diversification, professional management, liquidity, affordability and transparency in one product.
- Intrinsic and time value
- Standard deviation
- Systematic investment plan
- Advantages of mutual funds
Frequently asked questions
How much of NISM Series V-D comes from Unit 1?
Unit 1 (Investment landscape, mutual fund concept and structure) usually carries about 8% of the questions. The whole exam has 150 questions and the pass mark is 60%.
What should I study in NISM Series V-D Unit 1?
Risk and return. Role of a mutual fund. Sponsor, trust, AMC, custodian.
Are these NISM Series V-D practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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