Financial Markets and Instruments

Private mutual funds prefer established distribution companies because they offer wider reach, better infrastructure, trained personnel, and compliance systems compared to individual agents or small distributors.

For open-end funds, SEBI regulations require the repurchase price to not be lower than 93% of the NAV. This provides a minimum guarantee for investors redeeming their units.

SEBI regulations require mutual funds to disclose the sponsor's financial results for the last three financial years in the offer document. This provides investors with a meaningful track record of the sponsor's financial stability and performance. One or two years would be insufficient to establish a reliable pattern.

An offer document describes the investment procedure for that specific scheme only - plans, minimum investment amounts, eligibility criteria, etc. It would not list or describe other competing mutual funds, as that would be irrelevant to the document's purpose and could confuse investors.

A mutual fund scheme's dividend and distribution policy must be clearly disclosed in the offer document at the time of its initial launch. This ensures transparency for investors from the outset. The policy cannot be changed arbitrarily by the fund manager or AMC and must be consistent as disclosed.

Valuation norms for non-traded securities (which don't have readily available market prices) must be disclosed in the offer document at the time of the scheme's launch. This informs investors about how illiquid or hard-to-value securities will be valued, which is crucial for transparency. Disclosure happens at launch, not annually or quarterly.

Offer documents and key information memoranda include sections describing the tax treatment and tax elements applicable to investors. However, this is informational only - it does not constitute personalized tax advice. Investors should consult tax professionals for advice specific to their situation.

NRIs (Non-Resident Indians) are permitted to invest in Indian mutual funds through specific routes like NRE/NRO accounts, subject to FEMA guidelines. The statement that NRIs cannot invest is false, making it the correct answer to a 'which is not true' question.

Mutual fund agents and intermediaries must be registered with AMFI (Association of Mutual Funds in India) and pass the AMFI certification exam. This ensures minimum knowledge standards and regulatory compliance. Option A is grammatically incomplete, options C and D describe prohibited practices.

Mutual fund agents are compensated through commissions (upfront and/or trail) rather than salaries, annual fees, or in-kind payments. Commissions are typically calculated as a percentage of the investment amount or assets under management.

Key Information Memorandum (KIM) contains essential scheme information and must be provided along with the application form. While offer documents exist, KIM is the mandatory attachment. Investment rebate is an outcome, not a document to attach.

SEBI regulations prohibit mutual fund distributors from passing back commissions to investors as this creates unfair inducement and distorts investment decisions. Distributors can sell multiple mutual funds and other financial products, and can have other employment.

SEBI mandates caps on distribution expenses (typically 1-2% of net assets). Any expenses exceeding these regulatory limits must be borne by the AMC, not charged to the scheme/unit holders. This protects investors from excessive costs.

Individual retail investors typically have lower financial literacy compared to institutional investors like NBFCs, insurance companies, or FIIs. Individuals require more advice and education about mutual fund features, risks, and suitability.