Multiple choice

Which of the following statements is an adequate description of reality?

  1. When compared to gilt funds, securities in debt funds have higher risk of default

  2. Growth and risk are associated with equity funds

  3. Debt funds have higher NAV fluctuation when compared to money market funds

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

All three statements accurately describe the risk-return characteristics of different mutual fund categories. Gilt funds invest in government securities and carry virtually no default risk, unlike debt funds that may hold corporate bonds. Equity funds offer higher growth potential but with significantly higher volatility - risk and growth are positively correlated. Money market funds invest in ultra-short-term instruments making them very stable, whereas debt funds with longer duration securities show more NAV fluctuation.

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