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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 compared with an open-ended debt fund?

The fixed deposit's liquidity is limited mainly because premature withdrawal normally attracts a penalty that lowers the interest earned. An open-ended debt fund can be redeemed at NAV on business days, subject only to any exit load, so it is generally more flexible for short-notice needs.

  1. APremature withdrawal usually attracts a penalty on the interest rateCorrect
  2. BInterest is always paid only at maturity
  3. CDeposits above Rs 5 lakh cannot be broken
  4. DThe deposit cannot be held by senior citizens

Explanation

Bank fixed deposits can generally be broken before maturity, but the bank typically levies a penalty by reducing the interest rate. An open-ended debt fund allows redemption at NAV on any business day, subject to any exit load. The other options state restrictions that do not generally apply to fixed deposits.

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