Test: Mutual Funds & Pension Funds - UGC NET MCQ

• Assertion (A) is true. The primary goal of the PFRDA is indeed to promote retirement income security.
• Reason (R) is also true. The establishment of the PFRDA was specifically aimed at ensuring transparency and compliance in pension fund operations.
• The Reason (R) is the correct explanation of Assertion (A) because the regulatory framework established by the PFRDA directly supports its objective of promoting retirement income security.

Statement 1 is correct because the EPS indeed provides various types of pensions, including superannuation pensions and family pensions in the event of a member's death.

Statement 2 is incorrect because employees who have less than 10 years of service are eligible to withdraw the full amount in their EPS account, indicating that the condition is not solely tied to the completion of 10 years of service. Thus, the correct answer is Option A: 1 Only.

• Assertion Evaluation: The assertion is true as open-ended mutual funds indeed allow investors to buy or sell units at any time, providing greater liquidity and flexibility.
• Reason Evaluation: The reason is also true; however, while close-ended funds may trade on stock exchanges, this does not offer the same level of liquidity as the continuous buying and selling available in open-ended funds.
• Explanation of Relationship: Although both statements are true, the reason does not correctly explain the assertion, as the liquidity features of open-ended funds are inherently different from the trading limitations of close-ended funds.

• The Assertion is true because mutual funds do indeed provide diversification, which helps in spreading risk across various assets.
• The Reason is false because while diversification can reduce risk, it does not guarantee a return on investment. There are always risks associated with market fluctuations.
• Since the Assertion is true and the Reason is false, Option C is the correct choice.

One of the key benefits of investing in mutual funds is the simplified investment management they provide. Investors can easily manage their investments online, without the need to compare various securities or make complex decisions. This convenience allows individuals to focus on their overall financial goals rather than getting bogged down in the details of individual securities.

Statement 1 is correct because the NPS allows employees to contribute up to 10% of their salary, and employers often match or exceed this amount. Statement 2 is incorrect as the Employees' Provident Fund (EPF) is available to both government and private sector employees, not exclusively to private sector employees. Therefore, the correct option is A, indicating that only Statement 1 is correct.

• The Assertion is correct because the HDFC Equity Fund does focus on stocks, which are indeed subject to market volatility.
• The Reason is also correct as equity-focused funds typically carry higher risks and potential returns compared to those investing in debt securities.
• Moreover, the Reason accurately explains why the Assertion is true, as the volatility of equities directly relates to their risk-return profile.

Fund managers play a crucial role in mutual funds by making investment decisions on behalf of the investors. They analyze market conditions, assess various securities, and choose investments that align with the fund's objectives. This professional management is essential for achieving the fund's goals, whether it be capital appreciation or generating regular income. Unlike direct loans or guarantees, fund managers are responsible for navigating the complexities of the financial markets to optimize returns for investors.

The main purpose of mutual funds is to pool money from multiple investors, allowing them to invest in a diversified portfolio of securities such as stocks and bonds. This collective investment approach enables individual investors to access a professionally managed portfolio that they might not be able to create on their own. Unlike loans or guarantees, mutual funds carry investment risks but offer the potential for capital growth and income through diversification.

The primary benefit of mutual funds for investors is that they offer a diversified portfolio of securities. This diversification helps to spread risk across various assets, reducing the impact of any single investment's poor performance on the overall portfolio. This makes mutual funds a popular choice for investors looking for a balanced approach to investing without needing to manage each security individually. Interestingly, diversification not only protects capital but can also enhance returns over time as it allows investors to participate in various market segments.