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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

A distributor is advising a client who wants to park money for about 20 days before using it for a property down-payment. Which category of mutual fund scheme is generally most suitable for such a very short horizon?

A liquid fund is most suitable because it invests in instruments maturing within 91 days, giving low volatility and good liquidity for a short parking period. Equity and long duration debt funds can swing in value over a few weeks, which is unsafe for near-term needs.

  1. ASectoral equity fund
  2. BLiquid fundCorrect
  3. CLong duration debt fund
  4. DSmall cap fund

Explanation

Liquid funds invest in money market and debt instruments with residual maturity up to 91 days, so interest rate and credit risk are low and volatility is minimal. Equity categories and long duration debt funds can fall sharply over a 20-day period, which makes them unsuitable for money needed soon.

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