NISM V-A Mock Test - 30 Recent Mutual Fund Distributor Exam Questions Explained

NISM Series V-A, the Mutual Fund Distributors exam, has changed over the last few cycles. The paper now has far more conceptual true/false questions, and candidates who memorised question dumps are getting stuck in the 40s. This post works through 30 recently asked questions, grouped by topic, with the reasoning behind each answer.

At a glance: 100 questions, 2 hours, 50% pass mark, 0.25 negative marking per wrong answer. Many candidates finish in about 75 minutes, so use the spare time to read each question two or three times.

If you’re still deciding whether V-A is the right exam for you, start with our complete guide to the NISM V-A exam.

Watch out for the word “NOT”

Many V-A questions hinge on one word: not. “Which advice is not advisable?” and “Which information will the offer document not give?” are classic traps. Candidates often mark the correct practice when the question asks for the incorrect one.

Exam tip: Underline (mentally) every NOT, EXCEPT, FALSE and ALWAYS before you look at the options.

Investor profiling and financial planning

1. When should an investor limit equity exposure through index funds? In the retirement phase. As retirement approaches, capital protection matters more than growth.
2. A person wins a big lottery. Which option is NOT advisable? Investing the full amount in equities. Suitable advice includes parking money in liquid funds, using an STP to move gradually into equity, and revisiting the financial plan.
3. Who should invest more in liquid funds: a small business owner or a senior manager at an MNC? The small business owner. Their cash needs are unpredictable. The salaried manager gets a steady monthly inflow.
4. As an investor’s capital base rises, risk appetite tends to: Increase. Wealthier investors can absorb short-term losses.
5. Mr Anand has ₹5 lakh but may need it in the short term. Where should he NOT invest? Index fund. It is still an equity product. Liquid, money market and overnight funds suit short horizons.
6. Time horizon and risk: The longer the horizon to the goal, the higher the ability to take risk.
7. Indian investors are usually highly organised in financial planning. True or false? False. Financial literacy in India remains low.
8. Comprehensive financial planning needs more time commitment than goal-based planning. True or false? True. It covers income, expenses, risk, dependants and every goal together, not just one target.
9. Tactical asset allocation suits only sophisticated investors with large investable surpluses. True or false? True. It means shifting allocation based on market views.
10. Core and satellite allocation depends on the investor’s risk profile. True or false? True.

Scheme types and risk

Rising interest rates and short-maturity bond funds: the statement “short-maturity funds are more likely to outperform when rates rise” is true. The reason is that bond prices fall when rates rise, and longer-duration funds fall the most. Short-maturity funds lose less, so they outperform in relative terms.

Key fact: Rising rates hurt bond prices. Short duration means less damage. Don’t fall for the idea that rising rates help all bond investors.

Active funds give higher returns because investors pay higher expenses. True or false? False. A higher TER does not guarantee outperformance. Many actively managed funds fail to beat their benchmark.

NAV, pricing and fund structure

• Mechanism that ensures cut-off timings are followed: Time stamping.
• NAV changes daily because of: changes in the market value of the portfolio, not the number of investors.
• Which factor does NOT affect NAV calculation? Change in the number of investors. Expense accruals, income accruals and changes in investment value all affect it.
• Mutual funds cannot distribute income out of: unrealised appreciation. A gain becomes distributable only when the security is actually sold.
• A closed-ended fund will have: fixed unit capital.
• At what price can a closed-ended fund be sold on the exchange? Above, below or equal to NAV. Exchange prices depend on demand and supply.
• ₹3 crore cheque into a gilt scheme at 11:30 am, applicable NAV? Since February 2021, for all non-liquid schemes, the NAV is the one for the day funds are realised and available for use, provided this happens before the cut-off time. The old ₹2 lakh threshold no longer applies.
• NFO price ₹10, current NAV ₹8. What if transactions happened at the NFO price? New investors would lose and existing investors would gain. A new investor paying ₹10 for units worth ₹8 transfers value to existing unitholders. This is exactly why units must be sold at NAV-based prices.
• US dollar appreciates against the rupee in a fund holding US stocks: the NAV in rupees appreciates.
• IDCW reinvestment grows faster than the growth option. True or false? False for all categories. You get more units, but at a lower NAV after each payout.

Offer documents and regulation

• Main purpose of an offer document: to give investors detailed information about the scheme.
• Information the offer document will NOT give: the names of the stocks the scheme will invest in. It gives the risk factors, objective and asset allocation, but not specific holdings.
• Document fund managers use to share their views on the economy: the fund fact sheet.
• SEBI approves scheme documents within how many days? Trick question. SEBI does not approve them. It only issues observations.
• KIM and SID are the two broad scheme documents. True or false? False. The two are the SID and SAI. The KIM is a summary.
• Scheme auditor is the same as the AMC auditor. True or false? False. They must be different.
• SRO for the mutual fund industry: None of the above. SEBI is the regulator, and AMFI is an industry association, not an SRO.
• Who must develop debt fund benchmark indices? Research and rating agencies such as CRISIL.
• Key personnel’s personal securities trades are disclosed to the compliance officer: at least on a half-yearly basis.
• First step in creating a new scheme: approval of the trustees and AMC board, and drafting of the SID. Filing with SEBI, advertising and the NFO come after.

Distribution and investor services

• Can investors buy directly through AMC websites? Yes. These purchases go into the Direct Plan. Purchases through a distributor go into the Regular Plan.
• Distributors are mainly paid through: commissions.
• Not a fair selling practice: encouraging churning of investments to earn repeated commissions.
• Investors who need board approval before investing: institutional investors.
• When must FATCA details be given? When the investor’s place of birth is outside India.
• Wrong ARN on the form: the application is treated as a Regular Plan, subject to the error being corrected within 30 days. If it isn’t corrected, it moves to the Direct Plan.
• Can investors redeem from a segregated portfolio? No. The segregated units are listed on the exchange, so investors exit by selling them there.

”Which statements are false?” questions

Expect several questions that test two statements at once:

1. A multi-country fund must use a US equity index as its benchmark.
2. Gold prices are the ideal benchmark for a gold ETF.

Only statement 1 is false. A multi-country fund needs a benchmark that reflects its actual geographic mix. You have to be sure of both facts to pick the right option, so partial knowledge gets punished.

For 25 more fully explained questions, see our NISM V-A mock test with latest exam questions. For a week-by-week plan, read how to pass NISM V-A on your first try.

Practise with the NISM Exam Prep app

Conceptual true/false questions reward understanding, not memorisation. Our NISM Exam Prep app has 13,000+ practice questions across all 31 NISM exams, including full-length 100-question V-A mocks with 0.25 negative marking and an explanation for every answer. Start with the free V-A quiz. Use the finance calculators to practise NAV, SIP and returns questions, and keep the quick reference guides handy for scheme categories, document types and SEBI rules.