"Mutual Fund Sahi Hai" — but what exactly is it? Covers mutual funds' functions and four-tier management structure, evolution from UTI (1963) to today, classification, NFOs, risks and the Riskometer, NAV, expense ratio, load/no-load funds, SIP/SWP/STP strategies, their role in the capital market, and Alternative Investment Funds — with 50 exam-style MCQs with hidden answers.
📅 Updated: September 2026 • 33 min read
📊 At a Glance
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India's First
UTI, established 1963 by an Act of Parliament.
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Regulator
SEBI, under the (Mutual Funds) Regulations, 1996.
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Industry Body
AMFI — runs "Mutual Fund Sahi Hai" investor-awareness campaign.
1 Mutual Funds — Meaning & Functions
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Pooled, Professionally Managed Investing
A Mutual Fund is a pooled investment vehicle that collects money from many investors and invests it in a diversified portfolio of securities — equity, debt, money market instruments — managed by professional fund managers, with returns (or losses) passed to unit-holders proportionately.
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Pooling
Aggregates small individual investments into a large, professionally-managed corpus.
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Professional Management
Expert fund managers make investment decisions on investors' behalf.
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Diversification
Spreads risk across many securities, sectors and asset classes.
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Liquidity
Open-ended funds allow relatively easy entry/exit at NAV.
2 Management Structure of Mutual Funds
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Sponsor
Establishes the mutual fund and contributes its initial capital.
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Trust / Board of Trustees
Holds the fund's assets in trust for unit-holders; oversees the AMC's conduct.
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Asset Management Company (AMC)
Manages the fund's day-to-day investment operations.
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Custodian
Holds the fund's securities/assets in safekeeping.
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Registrar & Transfer Agent (RTA)
Maintains investor records; processes unit allotment/redemption.
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Memory Trick: "Sponsors Trust A Careful Registrar"
Sponsor → Trustees → AMC → Custodian → RTA — the five-link chain behind every mutual fund unit you hold.
3 Evolution of Mutual Funds in India
1963UTI (Unit Trust of India) established by an Act of Parliament — India's first mutual fund, launching the famous US-64 scheme.
1987Public-sector banks and insurers (SBI, Canara Bank, LIC, GIC) permitted to set up mutual funds, ending UTI's monopoly.
1993Private-sector and foreign players permitted entry; first SEBI (Mutual Funds) Regulations introduced.
1996SEBI (Mutual Funds) Regulations, 1996 — the comprehensive framework still governing the industry.
2003The UTI Act is repealed; UTI is bifurcated into UTI Mutual Fund (regular, SEBI-regulated) and SUUTI (holding legacy assets).
4 Classification of Mutual Funds
By Structure
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Open-Ended
Continuous entry/exit at NAV, no fixed maturity.
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Close-Ended
Fixed maturity, fixed unit capital, listed/traded on an exchange.
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Interval Funds
Combine features of both — open for transactions only at specified intervals.
By Asset Class / Objective
Equity Funds: primarily invest in stocks; higher risk/return.
Debt Funds: invest in bonds/money-market instruments; lower risk/return.
Hybrid Funds: mix of equity and debt.
ELSS (Equity Linked Savings Scheme): tax-saving equity funds with a mandatory 3-year lock-in, offering deduction under Section 80C.
Index Funds / ETFs: passively track a market index.
Sectoral/Thematic Funds: focused on a specific sector/theme.
5 Role & Supervision — SEBI Regulation
Mutual funds are regulated under the SEBI (Mutual Funds) Regulations, 1996, covering registration, disclosure, valuation, investment restrictions and investor protection. AMFI (Association of Mutual Funds in India), established in 1995, is the industry's self-regulatory body — setting a code of conduct and running investor-awareness campaigns like "Mutual Fund Sahi Hai."
6 New Fund Offer (NFO)
A New Fund Offer (NFO) is the initial subscription window when a fund house first launches a new scheme — conceptually similar to a company's IPO — typically offered at a par value of ₹10 per unit. Once the NFO closes, an open-ended fund resumes continuous sale/repurchase at the prevailing NAV.
7 Risks, Riskometer & NAV
Key Risks
Market risk — price movements in equity/debt holdings.
Credit risk — issuer default risk in debt-fund holdings.
Interest rate risk — bond price sensitivity to rate changes.
Liquidity risk and Concentration risk.
Riskometer
Low
Low to Moderate
Moderate
Moderately High
High
Very High
SEBI mandates a Riskometer — a pictorial 6-level risk gauge — prominently displayed for every scheme, helping investors match a fund's risk profile to their own risk appetite.
Net Asset Value (NAV)
NAV= (Total Assets − Liabilities) ÷ Number of Outstanding Units
NAV represents a scheme's per-unit market value, computed and published daily.
8 Expense Ratio & Load/No-Load Funds
Expense Ratio
The Total Expense Ratio (TER) is the annual fee an AMC charges — expressed as a percentage of the fund's average Assets Under Management (AUM) — covering management, administrative and distribution costs. SEBI caps the TER based on scheme type and AUM slab.
Load / No-Load Funds
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Entry Load
A charge levied at the time of investing — abolished by SEBI in 2009 for all schemes.
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Exit Load
A charge levied on redemption, especially if units are redeemed before a specified holding period — discourages short-term churning.
9 Investment Strategies & Role in the Capital Market
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SIP — Systematic Investment Plan
Regular, fixed investments over time, enabling rupee-cost averaging.
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SWP — Systematic Withdrawal Plan
Regular, fixed withdrawals from an existing investment.
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STP — Systematic Transfer Plan
Periodic transfer of funds between schemes (e.g., debt to equity).
Role in the Capital Market
Mutual funds are among India's largest institutional investors, channelling household savings into equity and debt markets, providing liquidity, aiding price discovery, and participating as Qualified Institutional Buyers (QIBs) in IPOs and QIPs (see our Capital Markets & Stock Exchanges guide).
10 Alternative Investment Funds (AIFs)
AIFs are privately-pooled investment vehicles (distinct from mutual funds/collective investment schemes) regulated under the SEBI (Alternative Investment Funds) Regulations, 2012, in three categories:
Category
Examples
Category I
Venture Capital, SME, social venture and infrastructure funds (positive economic spillovers)
Category II
Private Equity, debt funds and others not falling under I/III (no leverage beyond day-to-day operations)
Category III
Hedge funds; complex/leveraged trading strategies
JAIIB tip: Venture Capital Funds (see our Venture Capital guide) are a subset of Category I AIFs — this connects both topics directly.
✓ Key Takeaways
A Mutual Fund pools investor money, professionally managed across diversified securities — UTI (1963) was India's first.
Governed by SEBI (Mutual Funds) Regulations, 1996; AMFI is the industry's self-regulatory body.
An NFO is a scheme's IPO-like launch window, typically at ₹10/unit.
The Riskometer (6 levels, Low to Very High) helps investors match risk appetite to schemes; NAV = (Assets − Liabilities) ÷ Units.
Entry loads were abolished in 2009; exit loads still discourage early redemption.
SIP, SWP, STP are the core disciplined-investing strategies; MFs are major capital-market institutional investors.
AIFs (Category I/II/III) are the privately-pooled cousin of mutual funds, regulated separately since 2012.
📝 Top 50 JAIIB-Style MCQs on Mutual Funds
Test your understanding with these 50 practice MCQs, closely modelled on the JAIIB (IE & IFS) exam pattern. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.
🏦 Meaning & Functions
1 A Mutual Fund is best described as:
A. A single individual's private investment
B. A pooled investment vehicle professionally managed on behalf of many investors
C. A bank savings account
D. A type of insurance policy
E. A government subsidy
Answer: B. A mutual fund is a professionally-managed, pooled investment vehicle.
2 A key function of mutual funds for small investors is:
A. Diversification and professional management, otherwise hard to access individually
B. Guaranteed fixed returns with zero risk
C. Elimination of all market risk
D. Mandatory government backing
E. Free insurance coverage
Answer: A. Diversification/professional management is a core MF benefit.
🏗️ Management Structure
3 The entity that establishes a mutual fund and contributes its initial capital is the:
A. Custodian
B. Sponsor
C. RTA
D. Trustee only
E. AMFI
Answer: B. The Sponsor establishes and initially capitalises the fund.
4 The entity responsible for day-to-day investment management of a mutual fund scheme is the:
A. Custodian
B. Asset Management Company (AMC)
C. RTA
D. Sponsor only
E. SEBI directly
Answer: B. The AMC manages day-to-day investments.
5 The entity that holds a mutual fund's securities in safekeeping is the:
A. Custodian
B. AMC
C. Sponsor
D. AMFI
E. SEBI
Answer: A. The Custodian safeguards the fund's securities.
6 The Trust/Board of Trustees in a mutual fund structure primarily:
A. Holds the fund's assets in trust for unit-holders and oversees the AMC
B. Manages day-to-day trading
C. Prints currency
D. Regulates insurance companies
E. Processes investor redemption forms directly
Answer: A. Trustees hold assets in trust and oversee the AMC.
🕰️ Evolution in India
7 India's first mutual fund was:
A. SBI Mutual Fund
B. UTI (Unit Trust of India)
C. ICICI Prudential
D. HDFC Mutual Fund
E. Reliance Mutual Fund
Answer: B. UTI was India's first mutual fund.
8 UTI was established in:
A. 1956
B. 1963
C. 1987
D. 1996
E. 2003
Answer: B. UTI was established in 1963.
9 UTI's monopoly ended in 1987 when public-sector banks/insurers were allowed to set up mutual funds, including:
A. SBI, Canara Bank, LIC, GIC
B. Only foreign banks
C. Only private companies
D. No new entrants were permitted
E. Only NBFCs
Answer: A. SBI, Canara Bank, LIC, GIC entered mutual funds in 1987.
10 The comprehensive SEBI regulatory framework for mutual funds was introduced in:
A. 1963
B. 1987
C. 1993
D. 1996
E. 2012
Answer: D. SEBI (Mutual Funds) Regulations, 1996 is the comprehensive framework.
11 Following the UTI Act's repeal in 2003, UTI was bifurcated into UTI Mutual Fund and:
A. SUUTI (holding legacy assets)
B. SEBI directly
C. AMFI
D. RBI
E. NABARD
Answer: A. SUUTI holds UTI's legacy assets post-bifurcation.
🔀 Classification
12 An Open-Ended fund allows investors to:
A. Enter/exit continuously at NAV, with no fixed maturity
B. Enter only once, at a fixed maturity date
C. Never redeem units under any circumstance
D. Trade only on a commodity exchange
E. Buy units only in cash, never electronically
Answer: A. Open-ended funds allow continuous entry/exit at NAV.
13 A Close-Ended fund is characterised by:
A. Continuous, unlimited new unit issuance
B. Fixed maturity and fixed unit capital, typically listed on an exchange
C. No maturity date whatsoever
D. Daily new NFOs
E. Guaranteed government backing
Answer: B. Close-ended funds have fixed maturity/unit capital.
14 ELSS funds are notable for offering:
A. No tax benefit whatsoever
B. A tax deduction under Section 80C, with a 3-year lock-in
C. A 20-year lock-in
D. Only debt exposure
E. Guaranteed fixed returns
Answer: B. ELSS offers 80C tax benefits with a 3-year lock-in.
📜 Supervision
15 Mutual funds in India are regulated by:
A. RBI
B. SEBI
C. IRDAI
D. PFRDA
E. NABARD
Answer: B. SEBI regulates mutual funds.
16 AMFI, the mutual fund industry's self-regulatory body, was established in:
A. 1963
B. 1987
C. 1995
D. 1996
E. 2012
Answer: C. AMFI was established in 1995.
17 AMFI's well-known investor awareness campaign is:
A. "Insurance for All by 2047"
B. "Mutual Fund Sahi Hai"
C. "Digital India"
D. "Startup India"
E. "Jan Dhan Yojana"
Answer: B. "Mutual Fund Sahi Hai" is AMFI's campaign.
🚀 NFO
18 An NFO is conceptually similar to a company's:
A. IPO
B. Annual General Meeting
C. Bankruptcy filing
D. Reinsurance treaty
E. Currency swap
Answer: A. An NFO is a scheme's IPO-like launch.
19 An NFO is typically offered at a par value of:
A. ₹1 per unit
B. ₹10 per unit
C. ₹100 per unit
D. ₹1,000 per unit
E. ₹5 lakh per unit
Answer: B. NFOs are typically priced at ₹10/unit.
⚠️ Risks, Riskometer & NAV
20 The Riskometer is a SEBI-mandated tool that:
A. Pictorially displays a scheme's risk level on a 6-point scale
B. Guarantees a fixed return
C. Sets the repo rate
D. Regulates insurance premiums
E. Replaces the need for NAV disclosure
Answer: A. The Riskometer shows a scheme's risk level pictorially.
21 The Riskometer scale runs from "Low" to:
A. "Very High"
B. "Zero Risk"
C. "Guaranteed"
D. "AAA"
E. "D"
Answer: A. The Riskometer runs from Low to Very High.
22 NAV is calculated as:
A. Total Assets × Number of Units
B. (Total Assets − Liabilities) ÷ Number of Outstanding Units
C. Total Liabilities ÷ Total Assets
D. A fixed number set at NFO forever
E. The fund's total expense ratio
Answer: B. NAV = (Assets − Liabilities) ÷ Units.
23 NAV is typically calculated and published:
A. Once every 10 years
B. Daily
C. Only at NFO launch, never again
D. Only when the fund closes
E. Hourly, with no daily publication
Answer: B. NAV is published daily.
24 Credit risk in a debt mutual fund refers to the risk of:
A. The underlying bond issuer defaulting
B. Stock market crashes only
C. Currency exchange rate movements only
D. The fund manager retiring
E. Insurance claim delays
Answer: A. Credit risk is issuer default risk on debt holdings.
💰 Expense Ratio & Loads
25 The Total Expense Ratio (TER) is expressed as a percentage of:
A. The fund's average Assets Under Management
B. The investor's total salary
C. The NFO price only
D. The government's fiscal deficit
E. The fund manager's personal wealth
Answer: A. TER is a % of average AUM.
26 SEBI abolished Entry Loads on mutual fund schemes in:
A. 1996
B. 2003
C. 2009
D. 2012
E. 2021
Answer: C. Entry loads were abolished by SEBI in 2009.
27 An Exit Load is primarily meant to:
A. Reward long-term investors and discourage short-term churning
B. Guarantee a fixed profit on every redemption
C. Increase entry costs for new investors
D. Replace the NAV calculation
E. Fund the government's fiscal deficit
Answer: A. Exit loads discourage premature redemption/churning.
📅 Investment Strategies
28 SIP stands for:
A. Systematic Investment Plan
B. Single Insurance Payment
C. Selective Interest Programme
D. Standard Issue Procedure
E. Sector Investment Portfolio
Answer: A. SIP = Systematic Investment Plan.
29 SIP investing helps achieve:
A. Rupee-cost averaging through regular, fixed investments
B. A guaranteed fixed return regardless of market conditions
C. Elimination of all investment risk
D. A one-time lump-sum investment only
E. Mandatory insurance coverage
Answer: A. SIP enables rupee-cost averaging.
30 SWP stands for:
A. Systematic Withdrawal Plan
B. Stock Weighting Programme
C. Standard Wealth Protocol
D. Sectoral Warrant Plan
E. Secured Wealth Portfolio
Answer: A. SWP = Systematic Withdrawal Plan.
31 STP allows an investor to:
A. Periodically transfer funds between schemes (e.g., debt to equity)
B. Withdraw the entire investment in one instalment only
C. Avoid paying any expense ratio
D. Bypass SEBI regulation entirely
E. Eliminate NAV calculation
Answer: A. STP transfers funds periodically between schemes.
🏛️ Role in the Capital Market
32 Mutual funds are among India's largest:
A. Retail-only participants with no institutional role
B. Institutional investors, channelling household savings into markets
C. Insurance regulators
D. Currency printers
E. Reinsurers
Answer: B. MFs are major institutional investors channelling savings.
33 In an IPO or QIP, mutual funds typically participate as:
A. Qualified Institutional Buyers (QIBs)
B. Retail individual investors only
C. Debenture Trustees
D. Registrars
E. Underwriters exclusively
Answer: A. Mutual funds are classified as QIBs.
🗂️ Alternative Investment Funds
34 AIFs are regulated under:
A. SEBI (Mutual Funds) Regulations, 1996
B. SEBI (Alternative Investment Funds) Regulations, 2012
C. RBI Act, 1934
D. Insurance Act, 1938
E. FEMA, 1999
Answer: B. The 2012 AIF Regulations govern AIFs.
35 Venture Capital Funds fall under which AIF category?
A. Category I
B. Category II
C. Category III
D. Category IV
E. No category; VC funds are not AIFs
Answer: A. VC Funds are Category I AIFs.
36 Hedge funds employing complex/leveraged strategies fall under:
A. Category I AIFs
B. Category III AIFs
C. Mutual funds only
D. NBFC-MFIs
E. Insurance companies
Answer: B. Hedge funds fall under Category III AIFs.
🧩 Mixed / Comprehensive
37 Which of the following best distinguishes a Mutual Fund from an AIF?
A. Mutual funds are publicly offered, retail-accessible pooled vehicles; AIFs are privately pooled, often for sophisticated/institutional investors
B. They are identical in every respect
C. AIFs are always cheaper for retail investors
D. Mutual funds require a minimum ₹1 crore investment always
E. AIFs are regulated by IRDAI, not SEBI
Answer: A. Mutual funds are retail-accessible; AIFs are privately pooled.
38 An investor wanting steady, disciplined monthly investing regardless of market timing would use:
A. SIP
B. SWP
C. An NFO only, once
D. A close-ended fund's fixed maturity date
E. Only an Exit Load
Answer: A. SIP is designed for regular, disciplined investing.
39 A retiree wanting regular monthly income from an existing lump-sum investment would use:
A. SWP
B. SIP
C. An NFO
D. A Riskometer
E. An Entry Load
Answer: A. SWP provides regular withdrawals from an existing investment.
40 Which of the following best explains why SEBI mandates a Riskometer for every scheme?
A. To help investors match a fund's risk profile to their own risk appetite before investing
B. To guarantee a fixed return
C. To eliminate the need for any fund manager
D. To replace NAV disclosure entirely
E. To set the fund's expense ratio
Answer: A. The Riskometer helps investors assess suitability.
41 Which of the following would most likely carry the "Very High" Riskometer rating?
A. A sectoral/thematic equity fund concentrated in a volatile sector
B. An overnight liquid fund
C. A very short-duration debt fund
D. A government-securities-only fund
E. A fixed deposit
Answer: A. Concentrated sectoral equity funds typically carry the highest risk rating.
42 Which of the following statements about NFO pricing and later NAV is generally accurate?
A. After the NFO, the scheme's price moves with its NAV, which can rise or fall based on portfolio performance
B. The price remains fixed at ₹10 forever, regardless of performance
C. NAV is irrelevant after an NFO closes
D. NFO price and NAV are unrelated concepts
E. NAV is recalculated only once a decade
Answer: A. Post-NFO, the scheme trades at its daily-calculated NAV.
43 Which of the following would a debt-fund investor be MOST exposed to, compared to an equity-fund investor?
A. Interest rate risk and issuer credit risk
B. Zero risk of any kind
C. Only currency risk
D. Only insurance risk
E. Only reinsurance risk
Answer: A. Debt funds are especially exposed to interest rate and credit risk.
44 Which of the following best explains the rationale for capping the Total Expense Ratio (TER)?
A. To protect investors from excessive fund-management costs eroding their returns
B. To guarantee a fixed profit for every AMC
C. To eliminate the need for any fund management
D. To increase costs for retail investors deliberately
E. TER caps have no investor-protection rationale
Answer: A. TER caps protect investor returns from excessive costs.
45 Which of the following is TRUE about the relationship between a fund's asset class and its typical position on the Riskometer?
A. Equity funds generally sit higher on the risk scale than short-duration debt/liquid funds
B. All fund types carry identical risk regardless of asset class
C. Debt funds are always riskier than equity funds
D. Riskometer ratings are unrelated to asset class
E. Liquid funds always carry "Very High" risk
Answer: A. Equity funds typically rank higher risk than short-duration debt/liquid funds.
46 Which of the following best describes the historical shift from UTI's dominance to today's multi-player mutual fund industry?
A. Progressive liberalisation (1987 public-sector entry, 1993 private/foreign entry) opened the market beyond UTI's original monopoly
B. UTI remains the sole mutual fund in India today
C. No other entity has ever been permitted to run a mutual fund
D. SEBI banned all mutual funds in 1996
E. Private players were the very first entrants, before UTI
Answer: A. Progressive liberalisation opened up the sector beyond UTI.
47 Which of the following would be the LEAST appropriate use case for an Interval Fund?
A. An investor needing daily liquidity with no restrictions
B. An investor comfortable transacting only at specified periodic intervals
C. A fund house wanting a structure between open- and close-ended designs
D. A scheme with defined transaction windows
E. A hybrid liquidity structure
Answer: A. An investor needing unrestricted daily liquidity is poorly suited to Interval Funds.
48 Which of the following correctly identifies the regulator overseeing the overall Indian mutual fund + AIF ecosystem?
A. SEBI
B. RBI
C. IRDAI
D. PFRDA
E. NABARD
Answer: A. SEBI regulates both mutual funds and AIFs.
49 Which of the following would most plausibly justify a fund house choosing a close-ended structure for a specific thematic scheme?
A. Locking in capital for the scheme's intended holding period, avoiding disruptive redemption pressure mid-strategy
B. Close-ended funds guarantee higher returns always
C. Close-ended funds are risk-free
D. Close-ended structures eliminate the need for NAV
E. There is no rationale for choosing a close-ended structure ever
Answer: A. Locked-in capital avoids disruptive early redemptions for strategy-specific schemes.
50 Overall, which statement best summarises the mutual fund and AIF ecosystem covered in this guide?
A. A SEBI-regulated (1996 MF Regulations, 2012 AIF Regulations), professionally-managed pooled-investment industry — from UTI's 1963 origins to today's diverse open/close-ended schemes, NFOs, risk disclosures, disciplined strategies (SIP/SWP/STP) and private AIF cousins — channelling household savings into the capital market
B. An unregulated industry with no investor protections
C. A system limited exclusively to government bonds
D. An industry with no historical evolution
E. A sector with no connection to capital markets
Answer: A. This correctly captures the full mutual fund/AIF ecosystem.
Disclaimer: This article is prepared for educational and exam-preparation purposes only, summarising mutual fund/AIF structures as of September 2026. Candidates should cross-check the latest official IIBF syllabus and SEBI's current regulations before the exam. Mutual fund investments are subject to market risk; this content is not investment advice.