Get AHSEC Class 12 Finance Chapter: 16 MUTUAL FUND Important Questions Answers 2025.
In this Post we have provided HS 2nd Year Finance Chapter: 16 MUTUAL FUND Important Notes with Marked/highlighted previous year questions asked in AHSEC Examination.
AHSEC Class 12 Finance Notes
Chapter: 16 MUTUAL FUND
MUTUAL FUND
Very Short Answer Questions:
1. What is mutual fund ?
Ans: A mutual fund is a pooled investment where many individual savers, lacking investment expertise, contribute money. It is managed by fiancial experts and funds are used to invest in stocks and bands. Financial institutions, private and public firms act as fund managers and investors’ contributions are divided into units.
2. Write the full form of SIP.
Ans: Systematic Investment Plan.
3. Write the first Mutual Fund institution of India?
Ans: Unit Trust of India (UTI).
4. In which year the UTI was established?
Ans: 1964.
5. Write the full form of NAV.
Ans: Net Asset Value.
6. What is growth-oriented mutual fund?
Ans:- : A fund where income generated isn’t distributed but reinvested to increase investment size for potential growth.
7. Explain stock mutual fund.
Ans: Stock Mutual Fund Invests in various companies’ stocks, offering potential for higher returns but with higher risks.
8. What is MMMF?
Ans: MMMF (Money Market Mutual Fund): A fund that invests in short-term money market instruments like treasury bills, commercial papers, etc.
9. Explain how NAV is calculated?
Ans: Net Asset Value (NAV) is calculated by subtracting liabilities from the total value of assets and dividing by the number of outstanding units.
10. What are the Units of mutual fund?
Ans: Units represent the portions into which the mutual fund’s capital is divided. Investors own units proportional to their investment.
11. Who can act as fund managers in mutual funds?
Ans: Financial institutions, private companies and public companies can take the role of fund managers in mutual funds.
12. What are units in a mutual fund?
Ans: The fund created from investors’ contributions is divided into equal portions known as units.
13. How is the price of each unit determined?
Ans: The price of each unit is influenced by the value of the underlying investments. The initial offer price for each unit is usually Rs. 10 or 100.
14. What does NAV stand for in the context of mutual funds?
Ans: NAV stands for Net Asset Value. It’s calculated by subtracting a scheme’s liabilities from its total value and then dividing by the outstanding number of units.
15. What investment flexibility does a mutual fund offer?
Ans: Mutual funds offer investment flexibility through options like Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP) and Systematic Transfer Plan (STP).
16. What is a Systematic Investment Plan (SIP)?
Ans: SIP is an investment option in mutual funds where investors contribute a fixed amount at regular
17. Explain Systematic Withdrawal Plan (SWP). intervals.
Ans: SWP allows investors to withdraw a predetermined amount regularly from their mutual fund investments.
18. What is a Systematic Transfer Plan (STP)?
Ans: STP enables investors to transfer a fixed amount from one mutual fund scheme to another at regular intervals.
19. Who are the parties involed in mutual fund?
Ans: The parties involved in a mutual fund are:
(a) Sponsor: The entity that establishes the mutual fund and gets it registered with the regulatory authority.
(b) Trustee: A legally appointed entity responsible for safeguarding the interests of the investors and ensuring compliance with regulations.
(c) Custodian: An independent entity that holds and safeguards the fund’s securities and assets. investments and operations.
(d) Asset Management Company (AMC): The company responsible for managing the mutual fund’s
(e) Beneficial Owner (Investors): The individuals who invest in the mutual fund and thus own units of the fund.
20. Discuss in detail the various classification of Mutual Funds.
Or
Explain various types of Mutual fund on the basis of Operation or Execution.
Or
Explain various types of Mutual fund on the basis of Yield and Investment Pattern.
Ans: CLASSIFICATION OF MUTUAL FUND
(1) On the basis of Execution or Operation:
i. Closed-ended Funds: In this type, the total money of the fund is set and its time is fixed. Investors can get their invested money back only after the fixed time. Once the fund is closed, new investors can’t join or current ones can’t leave. But if someone already invested wants to sell before time, they can do it on a stock exchange where the fund is listed.
ii. Open-ended Funds: In this scheme, the size of the fund and tenure of investment are not fixed. Anyone can invest anytime and take their money out when needed. Investors can buy or sell units directly from the company that manages the fund (called AMC).
iii. Interval Funds: These funds are a combined the features of open ended and closed ended schemes. Investors can buy and sell at specific times, usually at the Net Asset Value(NAV). The rest of the time, they can’t. These transactions happen on the stock exchange.
(2) On the basis of Yield and Investment Pattern:
(i) Growth-Oriented Fund: In this kind of mutual fund, the money earned from investments isn’t given out to the investors as income. Instead, it’s used to increase the value of their original investment. So, the more the investments make money, the bigger the investors’ initial investment becomes.
(ii) Income-Oriented Fund: This type aims to share the income generated by investments among the investors. It’s like distributing a part of the profits as dividends to the people who put money in the fund. This kind of fund is good for those who want regular income and are okay with some risk, like retired folks.
(iii) Balanced Mutual Fund: This one invests in both company stocks (which can go up or down) and safe things like debentures and preference shares (which pay a fixed amount). This way, investors get both a chance for growth and a sure return.
(iv) Stock Fund: These funds put money in different companies’ stocks, from stable ones to new ones. Good for people who can handle risks for higher returns. They’ve become very popular lately.
(v) Leverage Fund: This fund mixes borrowed and own money to invest in risky stocks that might bring big profits. After paying back borrowed money’s interest, the remaining profit is divided among investors for higher returns.
(vi) Tax Relief Fund: Also called equity-linked savings schemes, these closed-end funds invest in shares that let investors get tax benefits. But investors must keep their money for a specific time, unable to sell it immediately.
(vii) Bonds Fund: These funds invest in safer bonds that pay steady income. Some bonds are sold at a discount. It’s good for people who want a fixed return and safety.
(viii) Money Market Mutual Fund (MMMF): Invests in safe short-term things like treasury bills, following rules set by the Reserve Bank of India.
(ix) Real Estate Funds: These funds invest in real estate projects. They work like closed-end funds and come in different types based on real estate deals.
21. What are the benefits of investing in Mutual Funds? [AHSEC 2024]
Ans: Benefits of Investing in Mutual Funds
(i) Liquidity: Mutual funds offer easy ways to sell your investment. Open-end funds can be sold back to the Fund company, while closed-end funds can be sold on the stock exchange where they’re listed.
(ii) Risk Diversification: Mutual funds spread investments across many companies and types, reducing risk because not all stocks drop in value together.
(iii) Returns: Skilled professionals manage mutual funds, aiming for good returns by picking carefully chosen investments.
(iv) Expert Management: Experienced professionals manage mutual funds, knowing how to choose the right investments.
(v) Convenience: Investing in mutual funds is easy and doesn’t involve much paperwork. It avoids problems like late payments, incorrect deliveries and hassles with brokers.
(vi) Cost Efficiency: Large-scale investments in mutual funds reduce costs like brokerage, paperwork and other charges, making it less expensive for investors.
(vi) Protection: All mutual funds are registered and regulated by SEBI to safeguard investors’ interests.
(vill) Tax Benefits: Many mutual funds offer tax exemptions to investors under the Income Tax Act.
22. Write a short note on Mutual Funds in India:
Ans: The idea of mutual funds in India started when former Prime Minister Pandit Jawaharlal Nehru felt the need for organized investment. The Unit Trust of India Act in 1963 marked the beginning, leading to the establishment of the Unit Trust of India (UTI) in 1964. This financial institution introduced an open-end scheme with units valued at Rs. 10 each.
Following this, commercial banks and insurance companies entered the mutual fund business as the government allowed them. Institutions like State Bank of India (1987), Canara Bank (1987), Life Insurance Corporation (1989) and others joined. Public sector units held the industry monopoly until 1991. The introduction of liberalization and privatization in 1991 opened the door for private players. Kothari was the first private mutual fund in 1993, followed by Morgan Stanley, Jardine Fleming, George Soros, Capital International and more entering the mutual fund business.
23. Differentiate between Open-edned funds and Closed-ended funds.
Ans:-
| Characteristic | Open-Ended Funds | Closed-Ended Funds |
| Fund Structure | Continuously open for investments and redemptions | Limited time frame for raising capital and fixed maturity date |
| Liquidity | High liquidity; investors can buy/sell units at any time | Lower liquidity; units can typically be traded on secondary markets but with restrictions |
| Pricing | Priced based on Net Asset Value (NAV) and calculated daily | Priced based on supply and demand in secondary markets, often at a premium or discount to NAV |
| Fund Size | Flexible; can grow or shrink based on investor activity | Fixed; the fund size remains constant until maturity |
| Management Fees | Typically lower management fees due to continuous operations | Management fees may be higher due to the defined life of the fund |
| Redemption Restrictions | No restrictions on investor redemptions | Limited or no redemptions until the fund matures |
| Market Presence | More common and widely available to investors | Less common and may require brokerage assistance for trading |
| Investor Base | Suitable for both retail and institutional investors | Often attracts more institutional investors and high-net-worth individuals |
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