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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Comparison of Products Across Categories

When an investment adviser compares a bank fixed deposit with a debt mutual fund for a client who may need money at short notice, which feature of the fixed deposit most directly limits its liquidity relative to the fund?

The fixed deposit's liquidity is limited mainly because premature withdrawal usually attracts a penalty and the deposit has to be broken. A debt mutual fund can be redeemed at NAV, often with no or small exit load, so it is generally more liquid.

  1. APremature withdrawal typically attracts a penalty and may need the deposit to be brokenCorrect
  2. BInterest is always paid only at maturity
  3. CThe deposit cannot be opened for less than one year
  4. DThe principal is exposed to market-linked losses

Explanation

Bank FDs can usually be closed early, but banks levy a penalty on the interest rate. Debt mutual funds can be redeemed at NAV, with an exit load only in some schemes. The other options are incorrect: FDs are available from short tenures, interest can be paid periodically, and FD principal is not market-linked.

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