NISM Series XXI-A · Unit 6 of 12 · about 5% of the paper
Collective investment vehicles: NISM Series XXI-A notes and practice questions
Mutual funds, ETFs and AIFs compared with PMS.
What to know in Unit 6
- Mutual funds and ETFs.
- AIFs.
- PMS versus mutual funds.
Key terms, examples and exam traps
Mutual fund
A mutual fund pools money from many investors into a scheme managed by an AMC, with investors owning units.
Example. Investors hold units in a pooled scheme.
Exam trap. This statement is false: A mutual fund holds each investor's securities separately.
ETF
An ETF is a fund traded on exchanges, typically tracking an index at low cost.
Example. An investor buys units of a fund like a share.
Exam trap. This statement is false: An ETF is bought only from the AMC at NAV.
Alternative investment fund
An AIF is a privately pooled vehicle for sophisticated investors with a minimum of ₹1 crore.
Example. An investor commits ₹1 crore to a private equity fund.
Exam trap. This statement is false: An AIF accepts small retail investments.
PMS versus mutual fund
In PMS, securities are held in the client's own account and each trade is tax-relevant for the client; in mutual funds, investors hold pooled units.
Example. A PMS client's demat shows the underlying shares.
Exam trap. This statement is false: In PMS, assets are pooled with other clients' money.
NAV
NAV is the per-unit value of a scheme, equal to net assets divided by units outstanding.
Example. A scheme's value per unit is ₹40.
Exam trap. This statement is false: NAV is used to value a PMS client's individual holdings.
Expense versus fee
Mutual funds charge an expense ratio inside NAV, while PMS charges management and performance fees separately to the client.
Example. A PMS client is billed management fee and performance fee.
Exam trap. This statement is false: PMS has no fees.
Transparency
PMS clients see their own holdings and transactions, while mutual fund investors see a pooled portfolio.
Example. A PMS client checks each stock in her own portfolio.
Exam trap. This statement is false: PMS clients cannot see holdings.
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? PMS clients see their own holdings and transactions, while mutual fund investors see a pooled portfolio.
- SEBI
- Exit load
- Taxation at client level
- Transparency
Q2. Which statement best describes “PMS versus mutual fund”?
- Equity trades settle on T+1 through a clearing corporation, which guarantees settlement.
- Portfolio managers must not trade on unpublished price-sensitive information, and violations are prosecuted.
- In non-discretionary PMS the manager advises and executes only after the client's prior approval for each decision.
- In PMS, securities are held in the client's own account and each trade is tax-relevant for the client; in mutual funds, investors hold pooled units.
Q3. Which statement best describes “Expense versus fee”?
- A client's risk profile combines willingness and ability to bear loss and guides the portfolio mix.
- Mutual funds charge an expense ratio inside NAV, while PMS charges management and performance fees separately to the client.
- The top-down approach starts with economy and sector views and then selects stocks within favoured sectors.
- Capital losses can be set off against capital gains and carried forward as per the tax law.
Q4. Which statement best describes “Alternative investment fund”?
- Quality investing favours companies with high returns on capital, stable earnings and strong governance.
- An AIF is a privately pooled vehicle for sophisticated investors with a minimum of ₹1 crore.
- Diversification spreads investments across securities and asset classes to reduce specific risk.
- Higher expected return generally requires acceptance of higher risk; investors are paid for bearing risk.
Q5. Which term is described here? A mutual fund pools money from many investors into a scheme managed by an AMC, with investors owning units.
- Fixed fee
- Market capitalisation
- Insider trading
- Mutual fund
Q6. Which statement about “Alternative investment fund” is correct?
- An AIF accepts small retail investments.
- Concentration risk applies only to bonds.
- An AIF is a privately pooled vehicle for sophisticated investors with a minimum of ₹1 crore.
- Passive managers pick stocks they expect to beat the market.
Frequently asked questions
How much of NISM Series XXI-A comes from Unit 6?
Unit 6 (Collective investment vehicles) usually carries about 5% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series XXI-A Unit 6?
Mutual funds and ETFs. AIFs. PMS versus mutual funds.
Are these NISM Series XXI-A practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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