10 Questions
What are the two separate risks that contribute to the risk-return profile of debt funds?
Credit risk and interest rate risk
What assumption should be made when comparing schemes on credit risk?
The schemes are taking similar interest rate risks
In the context of equity mutual funds, what does the text suggest about the risk level of concentrated portfolios?
A concentrated portfolio is riskier than a more diversified one
As per the text, what is the relationship between potential returns and interest rate risk as you move from left to right in debt funds categories?
Potential returns and interest rate risk move up together
Which type of funds generally carries higher risk: small cap funds, mid cap funds, or large cap funds?
Small cap funds
What happens to both risk and potential return as one moves from liquid funds to equity funds?
Both risk and potential return increase.
Which mutual fund category tends to have the highest potential returns and investment risks?
Equity funds
What should an investor do to carefully evaluate a mutual fund scheme based on interest rate risk and credit risk?
Carefully evaluate schemes based on both risks.
Why are certain categories not discussed in the mutual fund scheme categorization discussion?
It is difficult to comment without considering total risk.
What is an indicative allocation mentioned in the text meant for understanding?
To guide investors in evaluating total risk.
Study Notes
Debt Funds Risk Profile
- Two separate risks that contribute to debt funds' risk-return profile: interest rate risk and credit risk.
Comparing Schemes on Credit Risk
- Assume that the credit quality of the underlying portfolio is similar when comparing schemes.
Equity Mutual Funds Risk Level
- Concentrated portfolios tend to have higher risk levels.
Debt Funds Categories
- As you move from left to right in debt funds categories, potential returns increase with increasing interest rate risk.
Risk Level of Cap Funds
- Small cap funds generally carry higher risk compared to mid cap and large cap funds.
Risk-Return Profile of Mutual Funds
- As you move from liquid funds to equity funds, both risk and potential return increase.
Mutual Fund Category with Highest Potential Returns
- Equity funds tend to have the highest potential returns and investment risks.
Evaluating Mutual Fund Scheme
- To carefully evaluate a mutual fund scheme, consider both interest rate risk and credit risk.
Categorization Discussion
- Certain categories are not discussed as they are not relevant or common in the mutual fund market.
Indicative Allocation
- The indicative allocation mentioned in the text is meant to help understand the general asset allocation of a mutual fund scheme.
Explore the risk-return profile of different mutual fund scheme categories and learn how to evaluate and select the right schemes. This quiz covers the mutual fund scheme categorization discussed in Chapter 2, focusing on the risk-return characteristics of various types of mutual fund schemes.
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