Mutual Funds

We have asked professionals to share the job interview experience as a Mutual Funds Analyst and here we got some most asked Interview questions.

Q.1 Explain what do you mean by private equity transactions?
A private equity transaction occurs when private equity firms make investments in certain target enterprises. A target firm is one that has the ability to do well in a short period of time.
Q.2 Explain what is equity funding?
Equity funding refers to an insurance coverage paid for by a mutual fund. Individual investors can enjoy the benefits of a classic mutual fund investment because the value of the mutual fund shares pays the insurance policy premiums.
Q.3 Explain what is weighted average rating factor?
The weighted average rating factor is a method of assessing, analysing, and expressing the total risk of a portfolio of investments
Q.4 Explain what is call option?
A call option is a shareholder's right, not a duty, to buy shares at a specific price and on a specific date in the future.
Q.5 Explain what is Option trading?
Option trading is a contract between a seller and a buyer to purchase or sell a single or many lots of underlying assets at a predetermined price on or before the contract's expiration date.
Q.6 Explain how options are different than equities?
Options are derivatives, which means they draw their value from the value of an underlying investment. Institutional investors, professional traders, individual investors, and securities market venues all trade options. Option trades are classified as Put or Call. Option trading can reduce an investor's risk by providing buyers with a known risk. Option buyers cannot lose more than the cost of the option. Options have an expiration date, whereas regular shares can be held indefinitely. Option, like normal equities, lacks actual certificates. Unless the option is exercised, owning an option does not imply ownership of a company's stock or dividends.
Q.7 How software program for private equity is helpful?
A software programme for private equity can store useful data such as Tasks related to fund administration, accounting, and operations are supported. It comes with a document template that can be used in the marketing process. It may also come with built-in templates for reporting information to a regulatory agency. It allows you to keep track of numerous crucial deals and assists you in contract management.
Q.8 Explain what is cash equity?
The total amount of cash or net worth of all the cash that may be acquired from the investments and securities in the portfolio is referred to as cash equity. Cash equity monitoring is a better approach to know if your present investment mix is functioning, and it also helps you decide what to keep and what to sell.
Q.9 Explain what is short sell in equity trading?
Short selling is a practise used in equities trading to profit from a decreasing stock price by borrowing shares of the stock, selling them at market price, and then repurchasing them at a lower price to return them to the original lender. If you type in the phrase "buy low, sell high," you'll get a lot of results.
Q.10 Explain what is capital loss?
Capital loss is the negative difference between the stock's purchase price and its selling price.
Q.11 Explain the term double bottom?
The term "double bottom" refers to a stock that is in a downtrend, hits a support level twice, and then reverses to resume an uptrend.
Q.12 Explain what is MF or Minimum Fill Order?
Minimum Fill Order (MF) is an order attribute that requires a minimum amount of shares to be available in order to trigger the order.
Q.13 Explain what is debt or equity ratio?
The equity ratio, which is utilised to finance many aspects of a company's activities, is used to measure the debt versus the proportion of equity. It is used as a benchmark for assessing a company's financial stability.
Q.14 Explain what is bridge equity?
Bridge equity is a type of financing that allows potential acquirers of firms or assets to commit to a transaction before the requisite capital is raised.
Q.15 What is debenture?
Debentures are unsecured debts that are not backed by physical assets or collateral. It is granted on the basis of the issuer's overall credit worthiness and reputation.
Q.16 What are derivatives?
A derivative is a specialised contract for purchasing or selling the underlying assets at a predetermined price for a specific length of time in the future.
Q.17 What are the different types of Equity market?
  • Public Issue
  • Right Issue
  • Private Placements
  • Preferential Allotment
Q.18 Mention some of the mutual fund scheme?
  • Maturity Period: Open and Closed ended schemes
  • Investment Objective: Growth Scheme, balanced Scheme and Income Scheme
  • Other Schemes: Liquid fund, sector fund and Tax saving fund
Q.19 Explain what is ROE?
Return of Stock (ROE) is a profitability metric that determines how much profit a company earns with each shareholder's equity. The return on investment (ROI) is calculated as follows: ROE (Return on Equity) is the ratio of net income to shareholder equity.
Q.20 Explain what is the difference between equity financing and debt financing?
Equity financing is the process of issuing extra shares of common stock to an investor. Debt finance, on the other hand, involves borrowing money without relinquishing ownership.
Q.21 Explain what is Net Asset Value (NAV)?
The NAV, or Net Asset Worth, of a fund is the value of one unit. It's computed by adding up the current market values of all the fund's holdings, removing liabilities and expenses, and dividing the result by the number of units outstanding.
Q.22 Why convertible securities are more attractive to investors?
If the common equity fails, the convertible provides a right of first refusal. If the stock rises in value, the convertible may benefit from the company's success.
Q.23 What leads assets to turn into a private equity?

Following reasons leads to turn assets to private equity

  • Raising Capital
  • Increasing Regulation of Public Markets
  • Effect of Public Markets
  • Financing the Private Equity firms
Q.24 Explain what is secondary markets? What is the difference between the secondary and primary market?
The secondary market is where securities are traded. It is made up of both equity and debt markets. The fundamental distinction is that in the primary market, an investor can purchase securities directly from the company through an initial public offering (IPO), but in the secondary market, an investor purchases securities from other investors who are prepared to sell them. In the secondary market, you can buy equity shares, bonds, preference shares, and other securities.
Q.25 What are Preference Shares?
Preference shares allow an investor to claim an interest in the issuing firm on the condition that if the company liquefies or decides to pay a dividend, preference shares holders will be paid first after their debt is cleared.
Q.26 Explain what are the types of derivatives?

Derivatives are classified into three types

  • Future or forward contract
  • Options
  • Swaps
Q.27 What does S in STT refers to?
It refers to Securities
Q.28 Who manages the deliveries and receipt of units of a mutual fund?
Custodian manages the deliveries and receipt of units of a mutual fund.
Q.29 Which document is to be submitted to SEBI for approval, whenever the fund intends to launch a new scheme?
Draft Offer Document is to be submitted to SEBI for approval, whenever the fund intends to launch a new scheme.
Q.30 What is the duration within which the investor should receive the divided after declaration?
30 days is the duration within which the investor should receive the divided after declaration.
Q.31 Which section of the of the Income Tax Act enlists TDS on interest on securities?
Section 194 of the of the Income Tax Act enlists TDS on interest on securities.
Q.32 What is a Value investing?
Value investing focuses on identifying under-priced stocks. Value investors look out for stocks selling at low prices, but which have the potential to give attractive returns in future.
Q.33 How are mutual funds classified?
Mutual Funds can be classified as - Portfolio classification Functional classification Geographical classification
Q.34 How are mutual funds classified functionally?
Mutual funds are classified functionally in the following way - Open-ended scheme Close-ended scheme
Q.35 What are different plans that mutual funds offer?

Some of the important investment plans include -

1. Income Plan

2. Dividend Reinvestment Plan

3. Systematic Investment Plan (SIP)

4. Systematic Withdrawal Plan

5. Retirement Pension Plan

6. Insurance Plan

Q.36 What is a Cheque-writing Facility?
Cheque-writing Facility is a service that enables investors to write cheques against their mutual fund account balances. Such that the cheques usually must meet a certain minimum amount and the service is restricted to money-market funds.
Q.37 What is Growth Investing?
A common investment strategy in which fund managers seek out firms that have the potential to achieve above-average returns. Stocks are typically owned for price appreciation rather than dividend income. If a stock has the appropriate potential, growth investors (or management) are willing to pay a premium for it. Growth investing is a different type of investment than value investing. A growth manager's investing plan might include buying an overvalued software stock, for example.
Q.38 What is Value Investing?
Value investors (or managers) seek out undervalued stocks, as opposed to growth investors. Value investors hunt for stocks that are currently selling for a low price but have the potential to provide attractive returns in the future.
Q.39 What is Hedging?
A broad phrase that refers to a variety of risk-reduction measures. By shifting a larger portion of the portfolio into cash, a fund manager can partially hedge against a market collapse. The management could also sell stock-index futures contracts as an alternative. If the market falls, the gains on the shorted futures will more than make up for the portfolio's loss of value.
Q.40 What is Passive Investing?
Index fund managers follow this investment strategy by simply benchmarking their portfolio to a common stock market index such as the BSE-30 or the SP CNX-50. The fund management only invests in stocks that are exactly the same proportion as those in the index. It is dubbed passive investment because there is no attempt to outperform the benchmark index, but rather to merely reproduce it. The index fund will never, and will not aim to, outperform the benchmark index.
Q.41 What is the Portfolio Turnover of a Fund Supposed to mean?
The quantity of buying and selling activity in a mutual fund. The lesser of securities sold or purchased during a year divided by the average of monthly net assets is known as turnover. For example, a 100% turnover rate means that posts are kept on average for around a year.
Q.42 How are Mutual Funds Classified?
Mutual Funds can be classified into the following 3 broad categories: Portfolio classification Functional classification Geographical classification
Q.43 How are Mutual Funds Classified Functionally?
Functional classification of mutual funds is done on the following basis: Open ended scheme After an initial lock-in period, investors in this plan are free to join or exit from the fund at any time. From time to time, such funds will announce sale and repurchase prices. Investors can resale units in an open-ended plan to the issuing mutual fund at the unit's net asset value (NAV). Because open-ended schemes are allowed to buy and sell their own units, this is the case. Take, for example, the Alliance Capital 1995 Fund. Close-ended scheme Closed-ended schemes, unlike open-ended schemes, do not release units for periodic buyback redemption. Its units can only be redeemed at the end of the plan or through secondary market transactions. The term of the scheme is specified at the outset in such schemes. They've set a specific target amount for the money and won't be able to sell any more after the initial sale. UTI Mastergain 1986, for example.
Q.44 Explain Domestic funds.
Domestic fund houses create funds that pool nationals' savings within the country. These schemes could fall into any of the portfolio classification and functional classification categories. GIC MF, UTI LIC MF, SBI MF, Canbank MF, Bank of Baroda MF, Bank of India MF, Morgan Stanley, Templeton, Alliance are some of the Indian mutual funds that have started schemes.
Q.45 What are Offshore Funds?
After receiving RBI approval, offshore funds can invest in foreign company stocks. The goal of launching offshore funds is to attract foreign capital for investment in the issuing company's home nation. These funds help with cross-border fund movement, which is a quick way to receive foreign currency. Offshore funds, in terms of investment, allow international investors and global portfolio investments access to domestic capital markets.
Q.46 What is a 401(k) Plan?
A popular contribution programme in the United States, with many firms participating. Participants in these tax-sheltered schemes frequently have the option of investing in mutual funds as one or more of their investment options. In India, this proposal (or even a version) has yet to be implemented.
Q.47 Who is a Custodian?
The custodian, which is a separate entity, has actual possession of all securities purchased by the mutual fund and is responsible for their handling and protection. The Stock Holding Corporation of India Ltd (SCHIL), for example, is the custodian for the majority of India's fund houses.
Q.48 What is an Asset Management Company (amc)?
A highly regulated organisation that combines money from a large number of people into a portfolio with certain goals in mind. As a result, it is known as an Asset Management Company. Typically, an AMC manages a number of funds, both open-end and closed-end, in a variety of categories, including growth, income, and balanced. An AMC is a company that manages mutual funds. Alliance Capital Asset Management Company Ltd, for example, is affiliated with Alliance Capital Mutual Fund.
Q.49 What is Load?
When a mutual fund sells units, it is assessed a fee. It can be front-end load (i.e., the fee is collected when an investor buys the units) or back-end load (i.e., the charge is paid when an investor sells the units) (i.e, the charge collected when the investor sells back the units). Some systems, known as No Load Schemes, do not charge any load.
Q.50 What is an Ex-dividend Date?
A fee is charged when a mutual fund sells units. It might be front-end load (fee is collected when an investor buys units) or back-end load (fee is paid when an investor sells units) (i.e, the charge collected when the investor sells back the units). No Load Schemes are systems that do not charge any load.
Q.51 How does one calculate the expense ratio for a Fund?
The expenditure ratio for a fund is calculated by dividing the fund's yearly expenses (at the end of the financial year), which include the management fee and administrative charges, by the number of units outstanding on that day.
Q.52 How relevant is the expense Ratio?
As the definition suggests, a reduced expense ratio highlights a fund's efficiency. This is a metric that investors can use to compare the efficiency (or lack thereof) of different funds.
Q.53 What is Cheque-writing Facility?
Investors can use this service to make checks against their mutual fund account balances. Cheques must normally be for a particular amount, and the service is only available to money-market funds.
Q.54 What is a contingent deferred sales charge (or Cdsc)?
A back-end load is a fee charged to an investor if he leaves a mutual fund before a certain time period has passed (say 6 months). The longer an investor invests in a fund, the lower the fees become.
Q.55 What is a Daily Dividend Fund?
A fund (money market or bond) that calculates and pays out or reinvests dividends on a daily basis.
Q.56 What are derivatives?
Financial instruments that are based on a single underlying asset or index, such as a stock, bond, commodity, or stock price benchmark. The price of derivative securities rises and falls in lockstep with the price of the original security. Derivatives are frequently leveraged, which makes them more volatile. They can be used to speculate as well as to mitigate or regulate a potentially harmful risk. Standardised derivatives include options and futures. Others are tailored to satisfy specific requirements.
Q.57 What is an Initial Public Offering (ipo)?
The first time a company's shares or a fund house's mutual fund are sold to investors.
Q.58 What is an Asset Management Fee?
The fee charged by an asset management firm (AMC) to manage a portfolio. The annual fee is computed as a proportion of the net assets under management.
Q.59 Explain what is “Over the Counter Market”?
The over-the-counter market is a decentralised market with no physical location where market traders or participants deal with one another by telephone, e-mail, and proprietary electronic trading systems.
Q.60 Mention what are levels of traders?
  • Senior Trader
  • Intermediate Trader
  • Junior Trader
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