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

A distributor is recommending an equity scheme to a client who wants to track the market at the lowest possible cost, with no attempt to beat the index. Which scheme type best fits this preference?

An index fund or ETF tracking a broad market index fits best, because it passively replicates the index at a low expense ratio, matching the client's wish for market returns at minimum cost rather than outperformance through active management.

  1. AActively managed thematic fund
  2. BIndex fund or ETF tracking a broad market indexCorrect
  3. CFund of funds investing in sector funds
  4. DDynamic bond fund

Explanation

Index funds and ETFs passively replicate an index, so they have low expense ratios and low tracking-based fund manager risk. Active thematic funds try to outperform and cost more, and a dynamic bond fund is a debt product.

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