Revision and Practice Test Kit
For AMFI Mutual Fund (Advisors) Certification Examination
Prudential ICICI Asset Management Company Ltd.
Revision and practice test kit
Chapters 1 & 2
Introduction & Mutual Fund Products
Approximate Weightage: 6 questions, 7 marks
• A mutual fund is a pool of money collected from investors and is invested according
to stated investment objectives.
• Mutual fund investors are like shareholders and they own the fund.
• Mutual fund investors are not lenders or deposit holders in a mutual fund.
• Everybody else associated with a mutual fund is a service provider, who earns a fee.
• The money in the mutual fund belongs to the investors and nobody else.
• Mutual funds invest in marketable securities according to the investment objective.
• The value of the investments can go up or down, changing the value of the investors’
• The net asset value (NAV) of a mutual fund fluctuates with market price movements.
• The market value of the investors’ funds is also called as net assets.
Investors hold a proportionate share of the fund in the mutual fund. New investors
come in and old investors can exit at prices related to net asset value per unit.
• Advantages of mutual funds to investors are:
o Portfolio diversification
o Professional management
o Reduction in risk
o Reduction in transaction cost
o Convenience and flexibility
• Disadvantages of mutual funds to investors are:
o No control over costs
o No tailor made portfolios
o Problems of managing a large portfolio of funds
• UTI was the only mutual fund during the period 1963-1988.
• UTI was the only fund for a long period and enjoyed monopoly status.
• UTI is governed by the UTI Act, 1963.
In 1987 banks, financial institutions and insurance companies in the public sector
were permitted to set up mutual funds.