NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection
A distributor is advising a client whose investment horizon is only 3 months and who wants to park surplus cash with minimal interest rate risk and high liquidity. Which category of scheme is most suitable?
A liquid fund is most suitable because it invests in instruments maturing within 91 days, giving low interest rate risk, high liquidity and relative stability of returns, which fits a very short three-month parking need better than equity or long duration funds.
- ALiquid fundCorrect
- BSectoral equity fund
- CLong duration debt fund
- DSmall cap fund
Explanation
Liquid funds invest in money market and debt instruments with residual maturity up to 91 days, so interest rate risk is minimal and liquidity is high. Equity and long duration funds carry volatility that is unsuitable for a 3-month horizon.
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