Chapter 2

25 Questions

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Chapter 2

CHAPTER 2: FUND STRUCTURE AND CONSTITUENTSTest ObjectiveIn this test, you will be asked the salient features of the legal structure of mutual funds in India and the role of key constituents that make up the overall mutual fund eco-system. The test shall consist of 25 questions. There are more questions in the bank and you shall benefit if you attempt the test more than once.


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Questions and Answers
  • 1. 
    SEBI (Mutual Fund) Regulations, 1996 defines “mutual fund” as
    • A. 

      A fund established in the form of a society to raise moneys through the sale of units to the public or a section of the public under one or more schemes for investing in securities

    • B. 

      A fund established in the form of a trust to raise moneys through borrowing from the public or a section of the public under one or more schemes for investing in securities

    • C. 

      A fund established in the form of a trust to raise moneys through the sale of units to the public or a section of the public under one or more schemes for investing in securities

    • D. 

      A company formed under the Companies Act, 1956

  • 2. 
    As per the definition of mutual funds by SEBI, mutual funds can invest in securities including money market instruments or gold or gold related instruments or
    • A. 

      Hedge funds

    • B. 

      Venture funds

    • C. 

      Commodities

    • D. 

      Real estate assets.

  • 3. 
    Which of the following is NOT a key feature of a mutual fund?
    • A. 

      It is established as a trust

    • B. 

      It raises moneys through sale of units to the public or a section of the public

    • C. 

      The schemes invest in securities

    • D. 

      The units are sold to various companies under one or more schemes who in turn sell it to investors

  • 4. 
    Who has stipulated the legal structure under which mutual funds in India need to be constituted?
    • A. 

      RBI

    • B. 

      AMFI

    • C. 

      Constitution of India

    • D. 

      SEBI

  • 5. 
    Who creates a mutual fund?
    • A. 

      One or more media companies

    • B. 

      One or more trustees

    • C. 

      One or more AMC

    • D. 

      One or more Sponsors

  • 6. 
    Which of the following are beneficiaries of mutual funds?
    • A. 

      Companies who provide services to AMC, like Registrar and transfer agents, custodian etc.

    • B. 

      Lenders of AMC

    • C. 

      Trustees

    • D. 

      Investors who invest in various schemes of the mutual fund.

  • 7. 
    The operations of the mutual fund trust are governed by which of the following documents?
    • A. 

      Articles of association of the AMC

    • B. 

      The agreement between trust and custodian

    • C. 

      The letter of appointment of AMC

    • D. 

      A Trust Deed

  • 8. 
    Which of the following has the role of protecting the interest of the investors of mutual fund schemes ?
    • A. 

      The AMC

    • B. 

      The sponsors

    • C. 

      SEBI

    • D. 

      The Trustees

  • 9. 
    Which of the following is correct?
    • A. 

      Only individuals may be appointed as trustees.

    • B. 

      Only a company may be appointed as trustee.

    • C. 

      AMC shall perform the functions of trustees.

    • D. 

      Either individuals may be appointed as trustees or a Trustee company may be appointed.

  • 10. 
    The day to day management of the schemes is handled by which of the following?
    • A. 

      A board of trustees.

    • B. 

      A trustee company

    • C. 

      The sponsor.

    • D. 

      Asset Management Company (AMC)

  • 11. 
    Who appoints the Asset Management Company?
    • A. 

      SEBI

    • B. 

      Custodian

    • C. 

      RBI

    • D. 

      The sponsor or the Trustees.

  • 12. 
    The responsibilities of the AMC related to the mutual fund operations are given in which document?
    • A. 

      The articles of association of the AMC

    • B. 

      Custodian services agreement

    • C. 

      The rent control act

    • D. 

      The investment management agreement

  • 13. 
    Which of the following has the custody of the various assets (securities, gold, gold related instruments, real estate assets) of the mutual fund schemes?
    • A. 

      The AMC

    • B. 

      The Registrar and Transfer agents

    • C. 

      The board of trustees

    • D. 

      The custodian

  • 14. 
    Who maintains the records of investors and the details of their unit-holding?
    • A. 

      The trustees

    • B. 

      The AMC itself

    • C. 

      The AMC itself, or it can appoint a Custodian

    • D. 

      The AMC itself, or it can appoint a Registrar & Transfer Agent

  • 15. 
    Who applied to SEBI for registration of a mutual fund?
    • A. 

      The AMC

    • B. 

      The trustees

    • C. 

      The investors of mutual funds

    • D. 

      The sponsor/s.

  • 16. 
    Who is the primary investor in the capital of the AMC?
    • A. 

      The mutual fund investors

    • B. 

      The trustees

    • C. 

      The Directors of the AMC

    • D. 

      The sponsor

  • 17. 
    Which of the following is not an eligibility criteria to quality as the sponsor of mutual funds in India?
    • A. 

      Sponsor should be carrying on business in financial services for 5 years.

    • B. 

      Sponsor should have positive net worth (share capital plus reserves minus accumulated losses) for each of those 5 years

    • C. 

      Latest net worth should be more than the amount that the sponsor contributes to the capital of the AMC

    • D. 

      The sponsor should have earned profits, after providing for depreciation and interest, in all the previous five years.

  • 18. 
    Which of the following best describes anyone who has more than 40% share holding in the AMC?
    • A. 

      A major investor

    • B. 

      A strategic investor

    • C. 

      A trustee

    • D. 

      A sponsor

  • 19. 
    Which of the following conditions are not specified by SEBI regulations regarding appointment of a trustee of a mutual fund?
    • A. 

      Every trustee has to be a person of ability, integrity and standing

    • B. 

      A person who is guilty of moral turpitude cannot be appointed trustee

    • C. 

      A person convicted of any economic offence or violation of any securities laws cannot be appointed as trustee

    • D. 

      A person accused of a crime against women and children cannot be appointed as trustee

  • 20. 
    Which of the following is prohibited for the AMC of a mutual fund?
    • A. 

      Undertaking any form of advisory services or financial consulting

    • B. 

      Acting without the consent of the trustees

    • C. 

      Invest in the schemes of the mutual funds

    • D. 

      Indulge in an activity not related to financial services

  • 21. 
    The board of trustees which manages a mutual fund is appointed by
    • A. 

      The Finance Ministry

    • B. 

      The RBI

    • C. 

      SEBI

    • D. 

      The sponsor of that mutual fund

  • 22. 
    Which of the following is true about the custodian of a mutual fund?
    • A. 

      Custodian need not be an entity independent of the sponsors

    • B. 

      Custodian is not required to be registered with SEBI

    • C. 

      Custodian does not give or receive deliveries of physical securities

    • D. 

      Custodian Is appointed for safekeeping of securities

  • 23. 
    Registrar and ransfer Agents of a mutual fund are not responsible for which of the following?
    • A. 

      Issuing and redeeming units of the mutual fund

    • B. 

      Updating investor records

    • C. 

      Preparing transfer documents

    • D. 

      Investing the funds in securities markets

  • 24. 
    The sponsor of a mutual fund is required to
    • A. 

      Invest at least a million USD in the schemes

    • B. 

      Have a 100% share holding in the capital of the AMC

    • C. 

      Have a minimum 40% share holding in the capital of the AMC

    • D. 

      Have a minimum 40% share holding in the capital of the AMC

  • 25. 
    The fund sponsors should have a sound financial track record of how many years?
    • A. 

      7

    • B. 

      12

    • C. 

      3

    • D. 

      5