Test Paper

MUTUAL FUND

CA FINAL AFM
TEST PAPER (Revision May 2025)
MUTUAL FUND
Time Allowed – 2 Hours Maximum Marks – 60

1. The question paper comprises two parts, Part I and Part II.

2. Part I comprises Case Scenario based Multiple Choice Questions

(MCQs)

3. Part II comprises questions which require descriptive type answers.

4. Working note should form part of the answer. Wherever necessary,

suitable assumptions may be made by the candidates and disclosed
by way of note. However, in answers to Questions in Division A,
working notes are not required.

PART I – Case Scenario based MCQs (18 Marks)

Write the most appropriate answer to each of the following multiple

choice questions by choosing one of the four options given. All
questions are compulsory.

1. The Asset Management Company of the mutual fund (MF) has

declared a dividend of 9.98% on the units under the dividend
reinvestment plan for the year ended 31st March 2021. The investors
are issued additional units for the dividend at the rate of closing Net
Asset Value (NAV) for the year as per the conditions of the scheme.

The closing NAV was ₹ 24.95 as on 31st March 2021. An investor Mr.
X who is having 20,800 units at the year-end has made an investment
in the units before the declaration of the dividend at the rate of
opening NAV plus an entry load of ₹ 0.04. The NAV has appreciated by
25% during the year.

Assume the face value of the unit as ₹ 10.00.

Based on above Case Scenario, answer the following questions:

I. The Opening NAV of the Asset Management Company shall be

…………

(a) ₹ 20.24

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(b) ₹ 19.96

(c) ₹ 18.75

(d) ₹ 17.65

II. The Number of the units purchased shall be ………………….

(a) 18,750

(b) 17,500

(c) 20,450

(d) 20,000

III. Original amount of the investment shall be ………………

(a) ₹ 4,00,000

(b) ₹ 6,50,000

(c) ₹ 3,55,000

(d) ₹ 5,65,000

IV. Which of the following statement about Expense ratio is/ are
incorrect:

(i) It is the percentage of income that were spent to run a

mutual fund.

(ii) It includes advisory fees, travel costs, registrar fees ,

custodian fees, etc.

(iii) It includes Brokerage costs for trading of Portfolio.

(iv) High Expense Ratio can seriously undermine the

performance of a mutual fund scheme.

(a) (i), (ii), (iii)

(b) (i), (iii)

(c) only (iii)

(d) only (i)

V. …………………considers and uses downside deviation instead of

total standard deviation in denominator.

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(a) Expense Ratio

(b) Sharpe Ratio

(c) Treynor Ratio

(d) Sortino Ratio

(5 × 2 = 10 Marks)

2. Mr. X on 1.7.2021, during the initial offer of some Mutual Fund

invested in 10,000 units having face value of ₹ 10 for each unit. On
31/03/2022, the dividend paid by the M.F. was 10% and Mr. X found
that his annualized yield was 153.33%. On 31/12/2023, 20%
dividend was given. On 31/03/2024, Mr. X redeemed all his balance
of 11,296.11 units when his annualized yield was 73.52%.

Based on the above information answer the following questions:

I. NAV per unit of the Fund as on 31/03/2022 shall be

approximately………………

(a) ₹ 19.50

(b) ₹ 20.50

(c) ₹ 21.50

(d) ₹ 22.50

II. Total number of units as on 31/03/2022 shall be

approximately………….

(a) 10487.80 units

(b) 12585.65 units

(c) 9465.35 units

(d) 11575.40 units

III. NAV per unit as on 31/03/2023 shall be

approximately………………

(a) ₹ 24.65

(b) ₹ 24.85

(c) ₹ 25.95

(d) ₹ 26.45

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IV. NAV as on 31/03/2024 shall be approximately………………

(a) ₹ 20.50

(b) ₹ 25.95

(c) ₹ 26.75

(d) ₹ 27.20
(4 × 2 = 8 Marks)

PART II – Descriptive Questions (42 Marks)

Question No. 1 is compulsory.

Attempt any two questions out of the remaining three questions.

Question – 01

(a) A portfolio Manager (PM) has three mutual funds in his portfolio.
Following are the details of these three mutual fuds:

Particulars Growth Balanced Regular Market

Fund Fund Fund
Average Return (%) 7.5 6.3 5.4 ---
Variance --- --- --- 50.41
Sharpe Ratio -0.15 -0.36 -0.48 ---
Treynor’s Ratio -2 -3 -4.80 ---

The yield on 182 days Treasury bill is 9 per cent annum.

You are required to calculate

(i) Variance of the Funds.

(ii) Coefficient of Determination of the Funds

(8 Marks)

(b) A Mutual fund made an issue of 20,00,000 units of 10 each at the

beginning of the year. No entry load was charged. It made the
following investments:

Particulars Amount (₹)

1,00,000 Equity shares of ₹ 100 each @ ₹ 160 1,60,00,000
8% Government Securities 16,00,000
11% Debentures (Unlisted) 10,00,000

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10% Debentures (listed) 10,00,000

Total 1,96,00,000

During the year, dividends of 24,00,000 ware received on equity

shares. Interest on all securities was received for a full year as on the
valuation date. Equity shares have a value of ₹ 180 per share as on
valuation date and unlisted debentures are to be valued at 85% of
invested value. Initial expenses were ₹ 3 lacs, which are fully charged
to the scheme in the first year. Up to the end of the year, operational
expenses incurred were ₹ 4 lacs, remains payable next year. Just
before the year end, 60,000 units were redeemed when the NAV per
unit as on valuation date which is at the end of the year.
(6 Marks)

Question – 02

(a) Mr. D had invested in three mutual funds (MF) as per the following
details:

Particulars MF ‘A’ MF ‘B’ MF ‘C’

Amount of Investment 2,00,000 5,00,000 4,00,000
NAV at the time of purchase 10.00 25.00 20.00
Dividend Yield up to 31.03.2022 3% 5% 4%
NAV as on 31.03.2022 10.50 22.80 20.80
Annualized Yield as on 31.03.2022 9.733% -11.185% 15%

Assume 1 Year = 365 Days.

Mr. D has misplaced the documents of his investments.

You are required to help Mr. D to find out the following:

(i) Number of units allotted in each scheme,

(ii) Value of his investments as on 31.03.2022,

(iii) Holding period of his investments in number of days as on

31.03.2022

(iv) Dates of original investments

(v) Total Return on investments,

(vi) Assuming past performance of all three schemes will continue

for next one year, what action the investor should take? What

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will be the expected return for the next one year after the above
action?

(vii) Will your answer as above point no. (vi) changes if the Mutual
fund charges exit load of 5% if the investment is redeemed
within one year? If so, advise the investor what and when the
action to be taken to optimize the returns.
(8 Marks)

(b) Four investors, A, B, P and T have invested equal amounts of money

in different combinations of funds as per their risk aptitude. A has
fully invested in Money Multiplier Funds, B has invested 50% in
Money Multiplier and 50% in Balanced Growth Funds, P has invested
80% in Balanced Growth Funds and 20% in Safe Money Funds and T
has fully invested in a fund that exactly replicates the market
portfolio. The following information is given:

Fund Type Return for Beta

the year (%) Factor
Money Multiplier (100% Equity) 24.00 1.8
Balanced Growth Funds (50% Equity and 17.5 1.3
50% Debt)
Safe Money (20% Equity and 80% Debt) 13.00 0.75

The market return is 16% and the risk-free rate is 8%.

Rank the investors’ rewards using Treynor’s measure.

(6 Marks)

Question – 03

(a) M/S. Promising, an AMC, on 01.04.2018 has floated two schemes viz.
Dividend Reinvestment Plan and Bonus Plan. Mr. X, an investor has
invested in both the schemes. Mr. X, while submitting the tax papers,
returned a capital loss on both the plan. Tax officials, suspicious on
the claim of Mr. X, decided to launch an investigation and were able to
collect the following details (except the issue price):

Date Dividend Bonus NAV (₹)

(%) Ratio Dividend Bonus Plan
Reinvestment
Plan
01.04.2018 ? ?
31.12.2019 1:5 58 70

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31.03.2020 12 60 72
31.03.2021 10 68 75
31.12.2022 1:3 70 60
31.03.2022 15 75 66
31.03.2023 80 71

Additional Details Dividend Bonus Plan

Reinvestment Plan
Investment (₹) ₹ 10,80,000 ₹ 10,00,000
Average Profit (₹) ₹ 1,21,824
Average Yield (%) 8.40%

Assume face value of unit as ₹ 10.

You are required to assist the tax officials to calculate the issue price
of both the schemes as on 01.04.2018.
(8 Marks)

(b) M/s. Strong an AMC has floated a dividend bonus plan on 1st April,
2016 at a certain net asset value (NAV). The fund has a robust growth
and has declared a bonus of 1:5 (1 bonus unit for 5 right units held)
on 30th September, 2017 and a second bonus of 1:4 (1 bonus unit for
4 right units held) on 30th September 2019. The fund, as on 31st
March 2021, has generated an average yield of 17.5%.

Mr. Optimistic has made an investment of ₹16 lakhs in the plan before
the declaration of the first bonus and remain invested thereafter.

The following information is also available :

Date 01.04.2016 30.09.2017 30.09.2019 31.03.2021

NAV (₹) ? 85 92 100

CALCULATE the opening NAV, which is required by Mr. Optimistic to

calculate the capital appreciation.
(6 Marks)

Question – 04

(a) A mutual fund raised ₹ 150 lakhs on April 1, 2018 by issue of 15 lakh
units at ₹ 10 per unit. The fund invested in several capital market
instruments to build a portfolio of ₹ 140 lakhs, Initial expenses
amounted to ₹ 8 lakhs. During the month of April, the fund sold

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certain instruments costing ₹ 44.75 lakhs for ₹ 47 lakhs and used the
proceeds to purchase certain other securities for ₹ 41.6 Iakhs. The
fund management expenses for the month amounted to ₹ 6 lakhs of
which ₹ 50,000 was in arrears. The fund earned dividends amounting
to ₹ 1.5 lakhs and it distributed 80% of the realized earnings. The
market value of the portfolio on 30th April, 2018 was ₹ 147.85 Iakhs.

An investor subscribed to 1000 units on April 1 and disposed it off at

closing NAV on 30th April. Determine his annual rate of earnings.

(6 Marks)

(b) XYZ Plan, a hedge fund currently has assets of ₹ 40 crore. Mr. A, the
manager of fund charges fee of 0.10% of portfolio asset. In addition to
it he charges an incentive fee of 2%. The incentive will be linked to
gross return each year in excess of the portfolio maximum value since
theinception of fund. The maximum value the fund achieved so far
since inception of fund about one and half year ago was ₹ 42 crores.

Evaluate:

(i) Benchmark Return to make Mr. A eligible for incentive fee.

(ii) The fee payable to Mr. A if return on the fund this year turns
out to be :

(1) 29% (2) 4.5%

(4 Marks)

(c) A Mutual Fund having 300 units has shown its NAV of ₹ 8.75 and ₹
9.45 at the beginning and at the end of the year respectively. The
Mutual Fund has given two options:

(i) Pay ₹ 0.75 per unit as dividend and ₹ 0.60 per unit as a capital
gain, or

(ii) These distributions are to be reinvested at an average NAV of ₹

8.65 per unit.

What difference it would make in terms of return available and which

option is preferable?

(4 Marks)

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