In the three-tier structure of an Indian mutual fund, which entity actually manages the schemes and takes the investment decisions?
- A.The sponsor
- B.The trustees
- C.The asset management company
- D.The custodian
Correct answer
Explanation
The correct answer is C, the asset management company. The AMC is appointed by the trustees, is registered with SEBI and runs the schemes from day to day: it employs the fund managers, decides which securities to buy and sell, and is paid a management fee out of the scheme. Option A is wrong because the sponsor is only the promoter who sets up the fund and contributes to the net worth of the AMC. Option B is wrong because the trustees hold the assets in trust for the unit holders and supervise the AMC on their behalf, but do not manage the portfolio themselves. Option D is wrong because the custodian, also registered with SEBI, merely holds the securities of the scheme in safe keeping and settles trades.
Read the full article: Mutual Funds and Investment Products: NAV, Types and SIP
Practice Questions
View allMutual Funds are regulated in India by which of the following institutions?
- A.RBI
- B.SEBI
- C.BSE
- D.NSE
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Mutual funds in India are registered with and regulated by the Securities and Exchange Board of India under the SEBI (Mutual Funds) Regulations, 1996, which lay down the three-tier structure of sponsor, trustees and asset management company, the scheme categories, the cap on the expense ratio and the disclosures a…
Read the full explanation →The net asset value (NAV) of a mutual fund scheme is calculated as:
- A.Total assets of the scheme divided by its total liabilities
- B.Market value of assets minus liabilities, divided by the number of units outstanding
- C.Total income of the scheme divided by the number of investors
- D.Face value of a unit plus the exit load
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The NAV is the per unit book value of a scheme: take the market value of all the securities and cash the scheme holds, subtract its liabilities and accrued expenses, and divide by the number of units outstanding.
Read the full explanation →Which was the first mutual fund organisation in India, set up in 1963 by an Act of Parliament?
- A.SBI Mutual Fund
- B.Unit Trust of India
- C.Life Insurance Corporation of India
- D.Industrial Development Bank of India
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The Unit Trust of India was established in 1963 by an Act of Parliament and launched its first scheme, Unit Scheme 1964 or US-64, in the following year; it held a monopoly of the business until 1987.
Read the full explanation →What is the lock-in period of an Equity Linked Savings Scheme (ELSS)?
- A.One year
- B.Three years
- C.Five years
- D.Fifteen years
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An ELSS is an equity mutual fund scheme that qualifies for the deduction allowed on specified savings, and each instalment is locked in for three years from the date of investment, which is the shortest lock-in among the instruments eligible for that deduction.
Read the full explanation →Which type of mutual fund scheme is bought and sold on a stock exchange at live prices through a broker, like a share?
- A.An exchange traded fund
- B.An open-ended index fund
- C.A liquid fund
- D.An ELSS
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An ETF is listed on a stock exchange and traded through a broker in a demat account at prices that move during market hours, which is what separates it from every other kind of scheme.
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