NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection
A distributor is selecting a scheme for a client who needs to park surplus funds for about 10 days with minimal risk of capital loss. Which is the most appropriate category?
A liquid fund is the most appropriate because it invests in very short-term money market and debt instruments of up to 91 days maturity, giving low risk and high liquidity for a 10-day horizon, unlike equity or longer-duration bond funds.
- ASmall cap fund
- BLiquid fundCorrect
- CDynamic bond fund
- DSectoral equity fund
Explanation
Liquid funds invest in money market and debt instruments with maturity up to 91 days and have low interest rate and credit risk, suiting very short horizons. Small cap, sectoral and dynamic bond funds carry significant volatility over such a short period.
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