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B Com Exam  >  B Com Tests  >  Test: Investment in Mutual Funds - B Com MCQ

Test: Investment in Mutual Funds - B Com MCQ


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10 Questions MCQ Test - Test: Investment in Mutual Funds

Test: Investment in Mutual Funds for B Com 2024 is part of B Com preparation. The Test: Investment in Mutual Funds questions and answers have been prepared according to the B Com exam syllabus.The Test: Investment in Mutual Funds MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Investment in Mutual Funds below.
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Test: Investment in Mutual Funds - Question 1
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What is a mutual fund?

Detailed Solution for Test: Investment in Mutual Funds - Question 1
A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The money collected from investors is then invested in various securities such as shares, debentures, and other instruments. The income earned from these investments is distributed among the unit holders in proportion to the number of units owned by them. Mutual funds offer an opportunity for investors to invest in a diversified portfolio managed by professionals at a relatively low cost.
Test: Investment in Mutual Funds - Question 2
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When did the concept of mutual funds originate?

Detailed Solution for Test: Investment in Mutual Funds - Question 2
The concept of pooled investing, which led to the formation of mutual funds, dates back to the late 1700s in Europe. A Dutch merchant and broker invited subscriptions from investors to form a trust that provided an opportunity for small investors to diversify their investments. This concept later spread to England and eventually reached the United States in the late 1800s and early 1900s.
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Test: Investment in Mutual Funds - Question 3
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What is the role of an asset management company (AMC) in a mutual fund?

Detailed Solution for Test: Investment in Mutual Funds - Question 3
An asset management company (AMC) plays a crucial role in the operation of a mutual fund. The AMC is responsible for managing the investments of the fund and making decisions on buying and selling securities. They also safeguard the portfolio securities by placing them with a custodian, who acts as a trustee for the fund. Additionally, the AMC oversees the administrative functions of the fund and ensures compliance with regulations and investor protection.
Test: Investment in Mutual Funds - Question 4
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Which was the first mutual fund established in India?
Detailed Solution for Test: Investment in Mutual Funds - Question 4
The mutual fund industry in India began in 1963 with the establishment of Unit Trust of India (UTI). UTI was formed at the initiative of the Reserve Bank of India (RBI) and the Government of India with the objective of attracting small investors and introducing them to market investments. UTI launched its first scheme, Unit Scheme 1964, and later introduced various other schemes to cater to different classes of investors.
Test: Investment in Mutual Funds - Question 5
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What is the advantage of investing in mutual funds?
Detailed Solution for Test: Investment in Mutual Funds - Question 5
Investing in mutual funds offers several advantages. Firstly, it allows for diversification of investments across a wide range of securities, reducing risk exposure. Secondly, mutual funds are managed by professional fund managers who make investment decisions based on market research and analysis. Lastly, mutual funds have lower investment thresholds compared to other investment options, making it accessible to investors with varying budgets.
Test: Investment in Mutual Funds - Question 6
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What is the purpose of calculating net asset value (NAV) for a mutual fund?
Detailed Solution for Test: Investment in Mutual Funds - Question 6
Net asset value (NAV) is calculated to determine the value of one share of a mutual fund. It is calculated by dividing the market value of all securities held by the fund, minus liabilities, by the total number of shares outstanding. NAV helps investors understand the value of their investment and allows for comparison with market benchmarks. It is an important measure of the fund's performance and is typically calculated on a daily basis.
Test: Investment in Mutual Funds - Question 7
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What does a lock-in period mean in the context of mutual funds?
Detailed Solution for Test: Investment in Mutual Funds - Question 7
A lock-in period in the context of mutual funds refers to the period during which the fund units cannot be bought or sold. This means that investors cannot redeem or sell their units until the lock-in period expires. Lock-in periods are commonly seen in certain types of mutual funds, such as Equity Linked Savings Schemes (ELSS), which have a lock-in period of a few years. This restriction is imposed to encourage long-term investment and prevent short-term trading.
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What is the advantage of systematic investing in mutual funds?
Detailed Solution for Test: Investment in Mutual Funds - Question 8
Systematic investing in mutual funds offers several advantages. Firstly, it allows investors to invest a fixed sum of money on a regular basis, regardless of market conditions. This reduces the risk of market timing, where investors try to predict the best time to enter or exit the market. Secondly, systematic investing promotes disciplined investing, as investors develop a habit of investing regularly. This helps in achieving long-term financial goals and avoids impulsive investment decisions.
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Which regulatory body regulates mutual funds in India?
Detailed Solution for Test: Investment in Mutual Funds - Question 9
Mutual funds in India are required to be registered with the Securities and Exchange Board of India (SEBI), which is the regulatory body that oversees the securities markets in the country. SEBI regulates mutual funds to ensure investor protection and operational transparency. It sets the guidelines and regulations that mutual funds must adhere to in order to collect funds from the public.
Test: Investment in Mutual Funds - Question 10
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What does the reinvestment of capital gains or dividends in mutual funds allow investors to benefit from?
Detailed Solution for Test: Investment in Mutual Funds - Question 10
When investors choose to reinvest their capital gains or dividends in mutual funds, they benefit from the power of compounding. Compounding refers to the ability of an investment to generate earnings, which are then reinvested to generate further earnings. By reinvesting capital gains or dividends, investors allow their investment to grow over time, as the reinvested gains accumulate and contribute to the overall investment corpus. This can lead to significant growth in the long run and help achieve financial goals. Entire question statement along with directions where provided to be shown under heading "
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