Chapter 2

Mr. K is an investor and wants to invest in instruments which provide professional management of invested amounts and provide exposure to various asset classes and invest in securities that help him to achieve investment objectives.

Mr. M invests every month in an equity mutual fund scheme which invests in stocks of different companies. MR M wants to know who is the owner of these stocks ?

Mr. B wants to reduce the overall risk of the portfolio through diversification of investments in various asset class, so in which of the following vehicles should he invest?

Mr. H wants to know what is the minimum amount of investment required to be made in mutual fund scheme

Mr. J wants to know how the price of a mutual fund unit is determined:

(Total Value of the Fund – Any liabilities or transaction costs)/Total number of outstanding mutual fund units, this method of pricing mutual fund unit is known as:

Calculate the NAV of mutual fund units
Value of the securities $ 112.50million
Transaction cost $ 1.25 million
No of outstanding units 5 million

Mr. T placed $ 1575 into a fund having a front end load of 1.5% and NAV of $ 12.5 per unit will have the following number of units in the account on the day of purchase of:

According to U.S. requirements —- is a legal document that provides all relevant information and disclosures about a security, including mutual fund shares, being offered for sale to the public.

Prospectus provide information about which of the following:

What do you mean by market capitalization:

What are the sources of earning by investing in bond funds:

—- measures the price sensitivity of a bond to changes in current interest rates.

Mr. H wants to know the impact of higher duration on bond price volatility and level of risk?

Identify the approach followed here:
Mr. C invests a fixed amount of dollars in the same investment every month, he is able to buy more shares when the price of your investment has gone down and fewer shares when the price has risen.

Dollar cost averaging works best with — investments.

Mr. H investment advisor gives him a statement that “dollar cost averaging guarantees a profit for an investor, but cannot protect against a loss.” Is it true or false

Identify the approach followed here:
Mr. G, an investor purchases a set number of shares per period rather than a set monetary amount per period

Mr. K an investor seeks to increase the market value of an investment by $500 each month. Depending on the performance of the investment, he will be buying or selling shares in a given period, which approach he is following?

— issues a fixed number of shares that can be bought and sold on a stock exchange or in an over-the-counter market.

Mr. G an investor is willing to invest in a close ended mutual fund scheme of a fund house but he wants to know how the price of units are determined ?

Mr. S has 2000 units of a close ended fund and now wants to redeem the fund at its current NAV, through where should he execute the transaction?

Mr. F wants to invest in a fund which is designed in such a way that it tracks an index and replicates its returns and can be easily traded like stocks throughout the course of a trading day.

Mr. D invested in a ETF which tracks S&P 500 index, but after some period he realised that there is a difference between return he got and index return, what is the cause of such difference?

—– are senior unsecured debt securities, issued by large banking institutions, track the performance of a specific index and the issuing bank promises to credit the investor with the same rate of return as the index.

Mr. M is willing to invest in ETN’s but wants to know the basis of selecting ETN’s, which of the following should be considered:

Mr. P gives his client an opinion that ETN’s are listed on an exchange and can be bought and sold throughout the trading day.

Mr. T told his client( qualified investor) about ETN’s that he can have the election to redeem notes of at least a specified minimum denomination or value with the issuer on a daily or weekly basis at a predetermined price, what feature of ETN’s is he talking about?

ETN’s are —- securities and are not limited on exchange volumes.

— are registered investment companies that create the trust with its own funds, using an investment professional to select the holdings, and then sell the shares to the investing public in one offering, their holdings do not change. For this reason, they are sometimes also referred to as fixed trusts or defined portfolios.

A UIT will have a termination date (a date when the UIT will terminate and dissolve) that is established when the UIT is created

— are available to high net worth clients, these are individual (or joint) accounts that are managed by a professional investment manager (typically on a fee-based platform), directly for the account owner.

Mr. T is a high net worth investor and wants to manage his portfolio by a professional manager through separately managed accounts, but he wants to know who is the owner of the securities in managed accounts?

Mr. E a high net worth investor has taken a Separately managed account approach but can he specify individual securities or types of asset classes he do or do not want in their portfolios.

—- shows the amount of return that was generated per unit of risk (standard deviation), allowing for a risk-adjusted return comparison to be made.

— measures how much return a fund generated relative to how much return it was expected to generate for the level of risk taken.

High short and long term returns by fund are the sufficient basis for selection of funds.
Consistency of return is not important.

Sometimes, when a fund is not performing well, the parent company will merge it into another, better-performing fund. When this happens (shareholder approval is required to merge funds), the name and returns record of the poorly performing fund are simply erased, as if they never existed to begin with. This is known as—-

Greater diversification would eliminate risk completely and allow the investor to have money in several markets and asset classes