Skip to content

NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

Which of the following best describes the risk associated with a liquid or overnight debt fund compared with a long-duration gilt fund?

A liquid or overnight fund has lower interest rate sensitivity because it holds very short-maturity papers with low duration. A long-duration gilt fund's NAV moves much more when yields change. Neither type carries guaranteed returns.

  1. AIts NAV is more sensitive to interest rate changes because of shorter maturity
  2. BIts NAV is less sensitive to interest rate changes because of lower modified durationCorrect
  3. CIt carries no risk of any kind and returns are guaranteed
  4. DIt has higher equity market risk

Explanation

Short-maturity papers have low duration, so price changes from interest rate movements are small. Long-duration gilts have high duration and large NAV swings. No mutual fund scheme guarantees returns, and liquid funds hold no equity.

Did you get it right without looking?

One question tells you little. A timed set on Risk, Return and Performance of Funds shows your real accuracy, how long you take and where you lose marks.

Practise Risk, Return and Performance of FundsFree diagnostic mock

More Risk, Return and Performance of Funds questions