Difference Between Cap Funds Quiz

Questions and Answers

What characteristic distinguishes Open Ended Funds from Closed Ended Funds?

They do not have a specified investment objective.

They are marketed only during a specific period.

They accept continuous sale and repurchase requests. (correct)

Unit capital is kept constant.

Which of the following is a benefit associated with investing in Mutual Funds?

Professional management of pooled resources. (correct)

Mandatory long-term commitment for all investors.

Accessibility to unregulated investment opportunities.

Guaranteed returns regardless of market performance.

What defines Interval Funds as compared to other types of Mutual Funds?

Unit capital is subject to daily fluctuations.

They invest exclusively in equity securities.

They can only be purchased at year-end.

They become open ended at specific intervals. (correct)

Which type of Mutual Fund aims primarily for capital appreciation over the long term?

Equity Funds Signup and view all the answers

Which option describes a primary feature of Money Market Funds?

They invest in liquid and secure investment instruments. Signup and view all the answers

What should the percentage of debt instruments in an investment portfolio be based on?

Your age Signup and view all the answers

Which of the following are steps involved in buying a mutual fund?

Evaluating the Fund Signup and view all the answers

What does the abbreviation NAV stand for in mutual funds?

Net Asset Value Signup and view all the answers

What is an expense ratio in the context of mutual funds?

The annual fee as a percentage of fund assets Signup and view all the answers

Which type of fund focuses on buying and selling securities to exploit price differences?

Arbitrage Funds Signup and view all the answers

What is the purpose of investing through a Systematic Investment Plan (SIP)?

To average the investment cost over time Signup and view all the answers

Which term describes the total sum of investors' contributions and the size of the assets managed by an Asset Management Company?

Assets Under Management Signup and view all the answers

What is a Load when referring to mutual funds?

The sales charge upon trading shares Signup and view all the answers

Which type of mutual fund has the highest average returns over the past 5 years?

Small Cap Signup and view all the answers

What is the risk profile of mid cap funds compared to small cap funds?

Medium risk compared to high risk of small cap Signup and view all the answers

Which fund category typically has a strong market presence?

Large Cap Signup and view all the answers

What is a characteristic of passive mutual funds?

They invest in the same securities as an index. Signup and view all the answers

Which type of fund is characterized by high volatility and less liquidity?

Small Cap Signup and view all the answers

Which fund type typically has expenses that are lower than active funds?

Passive Funds Signup and view all the answers

In terms of growth potential, which category has the lowest chances?

Large Cap Signup and view all the answers

What does the average return of mid cap funds in the last 5 years indicate?

Average of 10.28% Signup and view all the answers

Study Notes

What is a Mutual Fund?

A mutual fund pools money from multiple investors to achieve specific investment objectives.
Benefits from the fund accrue to all contributors, creating a mutual benefit system.
The term "mutual" reflects the shared nature of contributions and benefits.

Why Consider Mutual Funds?

Professional Management: Managed by experienced professionals to optimize returns.
Risk Diversification: Investments are spread across various assets to minimize risk.
Affordability: Allows small-scale investors access to diversified investment portfolios.
Convenience: Simplified process for buying, selling, and managing investments.
Return Potential: Offers significant growth opportunities over time.
Flexibility & Liquidity: Easy access to funds and capability to make adjustments in investments.
Tax Advantages: Certain mutual funds provide tax benefits under specific regulations.
Transparency: Regular disclosures on fund performance and fees ensure informed decision-making.

Disadvantages of Mutual Funds

Higher fees relative to individual stock investments.
Generally, lower returns compared to direct investments in high-performing stocks.
Subject to market risks, including loss of principal.

Classification Based on Structure

Open Ended Funds: No fixed maturity; continuously sold and repurchased based on NAV, with fluctuating unit capital.
Closed Ended Funds: Limited duration, offered through NFOs but closed subsequent to initial offering; maintains constant unit capital.
Interval Funds: A blend of closed and open-ended; allows transactions at specified intervals, requiring mandatory listing.

Classification Based on Asset Class

Debt Funds: Invest primarily in short and long-term debt instruments, providing regular income.
Equity Funds: Focus on equity securities for growth and long-term capital appreciation.
Hybrid Funds: Combine equity and debt investments, varying proportionately to balance income and capital growth.
Money Market Funds: Invest in short-term, liquid, and secure instruments like T-bills, with generally low returns.

Difference Between Fund Categories

Large Cap Funds: Invest in top 100 companies, characterized by strong market presence, lower risk, and stable returns.
Mid Cap Funds: Target 101-250 ranked companies, offering moderate volatility and growth potential, with average returns around 10.28%.
Small Cap Funds: Invest in companies ranked 251 and below, high risk but highest growth potential with average returns of 14.74%.

Classification Based on Investment Style

Passive Funds: Replicate market indices with lower costs; do not involve active stock selection.
Active Funds: Seek to outperform market indices through strategic selection, with generally higher expenses due to active management.

Categorization of Mutual Fund Schemes

Provides uniform characteristics to enable easier evaluations of similar schemes across various mutual funds.
,Helps investors make informed decisions based on objectives, risk appetite, and time horizon.

Buying a Mutual Fund

Step 1: Define personal investment goals to align options with objectives.
Step 2: Identify funds that fit individual investment criteria.
Step 3: Evaluate the selected funds based on performance, fees, and risks.
Step 4: Execute the purchase as suited to the investment strategy.
Step 5: Regularly monitor investments and adjust as necessary.

Mutual Funds Terms to Know

AMC (Asset Management Company): Institution managing mutual funds, facilitating investment and regulatory compliance.
Expense Ratio: Annual charge as a percentage of total fund assets, impacting overall returns.
Load: Commission or sales charge incurred when buying or selling mutual fund shares.
AUM (Assets Under Management): Total market value of assets managed by the AMC and invested by clients.
NAV (Net Asset Value): Price per share of a mutual fund, determined by total assets minus liabilities.
SIP (Systematic Investment Plan): Strategy for investing fixed amounts at regular intervals to average investment costs.
SWP (Systematic Withdrawal Plan): Method to withdraw a fixed amount periodically from mutual funds.
Dividend Option: Allows for the distribution of profits as dividends to investors, either in cash or reinvested.

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Description

This quiz focuses on the differences among small cap, mid cap, and large cap funds, including their capitalization ranges and categories. Test your understanding of investment terminology and asset classifications with this informative quiz.