Financial Markets and Instruments

Transfer agents handle administrative tasks like issuing/redeeming units (A), updating records (B), and preparing transfer documents (C). They do NOT invest funds in securities - that's the AMC's job.

AMCs can provide advisory services (A), invest in government paper (B), and invest in listed securities (D). They CANNOT indulge in activities unrelated to financial services - their mandate is restricted to financial activities.

The board of trustees is appointed by the sponsor of the mutual fund. The sponsor sets up the mutual fund and appoints the initial trustees to oversee investor interests.

SEBI regulations require fund sponsors to hold at least 40% of the Asset Management Company's (AMC) net worth. This ensures the sponsor has significant financial commitment and skin in the game, aligning their interests with those of investors. The 40% threshold is a minimum requirement, not an exact figure like 50%.

The Securities and Exchange Board of India (SEBI) is the primary regulatory authority that establishes the structure and operational framework for mutual funds in India. SEBI (Mutual Funds) Regulations, 1996 lay down comprehensive guidelines covering registration, constitution, custody, and investment restrictions. The Finance Ministry, Fund Sponsors, and AMFI play different roles but do not define the regulatory structure.

Fund sponsors must demonstrate a sound financial track record of 5 years to establish their credibility and capability to support the AMC. This requirement ensures sponsors have proven financial stability and experience before being permitted to sponsor mutual funds. The 5-year period balances the need for experience without being excessively restrictive like 7 years, or too short like 1-3 years.

The SEBI (Mutual Funds) Regulations, 1996 is the comprehensive legal framework specifically governing the working, registration, constitution, and operation of mutual funds in India. While other acts like SEBI Act 1992, Companies Act 1956, and Income Tax Act 1961 may have peripheral applicability, they are not the primary regulations governing mutual fund operations.

Index funds ARE inherently diversified because they invest in all securities constituting a particular index, which typically includes 30-50 different stocks (e.g., Nifty has 50 stocks). Saying index funds are 'not diversified' is factually incorrect. The other statements about index funds - that they invest in index shares, in the same proportion as the index, and aim to minimize tracking error - are all true characteristics. Option D correctly identifies the false statement.

This question asks which statement is NOT true. Options A, B, and D are all true statements about mutual funds - they ARE owned by all investors, they DO provide diversified portfolios, and they DON'T invest in real estate (they invest in securities). Option C claims investor objectives are diverse, which is FALSE - mutual funds are designed for investors with SIMILAR objectives (growth, income, etc.) as stated in the scheme's mandate. Therefore, C correctly identifies the statement that is 'not true'.

A closed-end mutual fund has a fixed tenure or maturity period, unlike open-end funds which are perpetual. The fund launches with a fixed corpus, and investors can only redeem units at maturity. NAV fluctuates based on market values, returns are not guaranteed, and distributor networks can vary.

Basic investment = 100 units × Rs. 20 NAV = Rs. 2000. Entry load of 1.5% is calculated on this amount: 2000 × 0.015 = Rs. 30. Total amount required = Rs. 2000 + Rs. 30 = Rs. 2030.

Gilt funds invest exclusively in government securities (gilt-edged securities), which carry sovereign guarantee and minimal credit risk. They do not invest in corporate instruments, equity, or general short-term securities. This makes them among the safest debt fund categories.

Equity growth funds carry the highest risk because they invest in stocks, which are subject to market volatility and price fluctuations. Gilt funds (government securities) have the lowest risk, debt funds have low risk, and balanced funds have moderate risk due to their equity-debt mix.

NAV (Net Asset Value) fluctuates based on the market value of the underlying securities held by the mutual fund. It does not only increase, can decrease when markets fall, and is not constant. NAV is calculated daily and changes with market movements.

Open-end mutual funds allow continuous purchase and redemption of units at any time based on the prevailing NAV. They don't have a fixed fund size (can issue new units), don't have NAV limits, and follow specific investment mandates rather than being able to invest in any security.