Mutual Fund Mastery interview preparation

Questions

100

Traced to a firm

32

Firms

19

Updated

September 2026

Asked at

All firmsVanguard5BLBlackRock3FTFranklin Templeton3Invesco3PIMCO3Fidelity Investments2J.P. Morgan2Morningstar2Neuberger Berman2SCSchroders2T. Rowe Price2Amundi1BMBNY Mellon1Goldman Sachs1Man Group1Northern Trust1SSState Street1Sycamore Partners1WMWellington Management1

Topic

All topicsFund structure and regulation7NAV and operations6Scheme categorisation4Equity schemes5Debt schemes7Risk, liquidity and disclosure7Index funds and ETFs6Hybrid and solution schemes3Costs, plans and commissions6SIP and investor mechanics5Performance measurement6Taxation5Distribution, compliance and NISM5Portfolio construction and advice5Estimation and numeracy5Markets and industry6Career and fit12

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseFitBrainteaserMarket view

1. 050How do exit loads work, who keeps the money, and are they part of the expense ratio?Costs, plans and commissionsIntermediatetechnicalIndian AMCsFund operations

   Say this

   An exit load is a percentage deducted from the redemption value if you leave within a stated period, typically 1 percent within a year for an equity fund. It goes into the scheme, not to the AMC, and it is not part of the TER. Entry loads have been banned in India since August 2009.

   Then walk it

   1. Mechanics: the load applies to the units being redeemed, on a first-in first-out basis, and GST is charged on it. The SID sets the structure and the AMC cannot vary it for individual investors.
   2. Since 2012 exit load proceeds are credited to the scheme, so remaining unitholders benefit. That changes what it is — not a fee, but a transfer from the departing investor to the ones staying.
   3. The purpose is to make short-term money pay its own dealing costs. When you redeem, the manager sells securities and the fund pays brokerage and impact; the load offsets that so long-term holders are not diluted.
   4. Typical structures: 1 percent within 12 months for equity funds, nothing thereafter. A graded scale of a few basis points for liquid funds redeemed inside seven days, introduced after 2019. Nil on overnight funds. ELSS has none because the lock-in does the job.
   5. It stacks with tax. Redeeming an equity fund at month eleven costs 1 percent load plus 20 percent short-term capital gains. Waiting four weeks removes both, and that is often the single most valuable thing a distributor tells a client all year.
   6. Entry load being banned in 2009 was the more consequential reform. It is why Indian distribution moved to trail and why the direct-versus-regular gap, rather than a front-end charge, is where commission now lives.

   Where candidates lose it

   Saying the AMC keeps the exit load. It goes to the scheme. And do not forget to combine the load with the capital gains position when advising — an interviewer will hand you a client at month eleven and see whether you spot both costs.

   Expect next

   • A client wants to redeem an equity fund at month eleven. What do you advise?
   • Why was entry load banned?
   • Is exit load charged on a switch?
2. 051A client holding 30 lakh in regular plans wants to move to direct plans. Walk me through the consequences.Costs, plans and commissionsIntermediatecase studyDistribution and salesWealth and advisory

   Say this

   It is a redemption and a fresh purchase, so it triggers capital gains tax and possibly exit load, even though the scheme and the portfolio are identical. The right answer is almost never to switch everything at once — it is to stop fresh flows into regular, and move the existing corpus in tax-aware tranches.

   Then walk it

   1. The switch is two transactions. Units in the regular plan are redeemed at NAV, gains are taxable, and the proceeds buy direct plan units at that plan's NAV. There is no tax-free plan conversion in India.
   2. Cost of doing it badly: suppose 30 lakh includes 10 lakh of long-term equity gains. At 12.5 percent above the 1.25 lakh exemption that is about 1.1 lakh of tax paid today. The annual saving from 1 percent lower TER is about 30,000 rupees, so you are roughly three to four years to break even.
   3. So sequence it. First, redirect all new SIPs and lump sums into the direct plan — that is free. Second, switch the units that are already long-term and sitting on small gains. Third, use the annual 1.25 lakh exemption each year to move a tranche tax-free.
   4. Check exit load before each tranche. Anything bought in the last twelve months in an equity fund will pay 1 percent, which usually makes waiting the better choice.
   5. Then the thing nobody mentions: the moment he goes direct, the distributor relationship ends. If that distributor was the reason he stayed invested through 2020, the 1 percent was cheap. Ask what the distributor has actually been doing before advising the switch.
   6. And if he does want advice, point him at a flat-fee registered investment adviser who works in direct plans. The cost becomes visible and separable, which is the honest version of what he is trying to achieve.

   Where candidates lose it

   Treating the switch as a free administrative change. It is a taxable redemption. The candidate who quantifies the break-even in years, and who asks what the distributor was providing before removing them, is giving advice rather than reciting a cost comparison.

   Expect next

   • How would you use the annual exemption to phase it?
   • What if the holdings are in ELSS?
   • When would you tell him to stay in regular plans?
3. 053Explain STP and SWP, and when you would use each.SIP and investor mechanicsIntermediatetechnicalDistribution and salesWealth and advisory

   Say this

   A systematic transfer plan moves a fixed amount from one scheme to another at set intervals, usually from a liquid fund into equity to stagger entry. A systematic withdrawal plan redeems a fixed amount to the investor's bank account at set intervals, which is how you build an income stream out of a corpus.

   Then walk it

   1. STP mechanics: each transfer is a redemption in the source scheme and a purchase in the target, so each leg is a taxable event and any exit load in the source applies. Most STPs run from a liquid or arbitrage fund because those have minimal load and low volatility.
   2. Use STP when a client has a lump sum and either a valuation concern or a nervous disposition. Deploying 50 lakh over six months means the money earns liquid fund returns in the meantime rather than sitting in a savings account.
   3. SWP mechanics: a fixed rupee amount is redeemed periodically on a first-in first-out basis. The investor receives cash; the units keep compounding on whatever is left.
   4. Use SWP for retirement income. Draw 4 to 5 percent a year from a balanced portfolio and the corpus usually keeps growing, while the withdrawal is part capital and part gain — so the taxable portion is small.
   5. That tax point is the one to make explicitly. An SWP of 60,000 a month from a corpus with 20 percent embedded gain means only about 12,000 of each withdrawal is gain. Compare that with an interest-paying deposit, where the whole coupon is taxed at slab rates.
   6. The risk to name is sequence of returns. Withdrawing a fixed amount from a falling portfolio sells more units at lower prices and can permanently impair the corpus. That is why the debt or hybrid sleeve exists — you draw from it in a bad year rather than from equity.

   Where candidates lose it

   Describing the mechanics and skipping the tax efficiency of an SWP, which is the single strongest argument for it over a deposit or a dividend option. On STP, remember each transfer is a taxable redemption — candidates routinely forget this and recommend a weekly STP out of an equity fund.

   Expect next

   • Why is an SWP more tax efficient than an IDCW payout?
   • How would you protect an SWP against a bad first year?
   • Which source fund would you run an STP from?
4. 054What is the difference between the growth and the IDCW option, and why is IDCW so widely misunderstood?SIP and investor mechanicsIntermediatetechnicalDistribution and salesIndian AMCs

   Say this

   In a growth option, gains stay in the fund and the NAV rises. In the income distribution cum capital withdrawal option, the AMC pays out part of the NAV and the NAV falls by exactly that amount. IDCW is not a yield and it is not extra money — it is your own capital handed back, which is why SEBI forced the rename in 2021.

   Then walk it

   1. The mechanics make it plain: NAV of 50, a 2 rupee distribution, NAV drops to 48. You hold the same units, so your total wealth is unchanged before tax. Nothing was created.
   2. The old name, dividend option, caused real harm. Investors believed the fund was paying them a dividend out of company profits, and distributors sold high-dividend track records as income. SEBI's 2021 renaming to IDCW was specifically meant to force the words capital withdrawal into the conversation.
   3. Tax made it worse after 2020. IDCW is now taxed at the investor's slab rate and TDS is deducted above a threshold. For someone in the 30 percent bracket that is a terrible way to take money out.
   4. Compare it with an SWP. Redeem the same amount and only the gain portion is taxable, at 12.5 percent for long-term equity. Same cash in hand, dramatically less tax, and the investor controls the amount and the timing.
   5. There is one narrow case for IDCW: a trust, or an investor in the lowest tax bracket, who wants a hands-off cash flow and cannot manage an SWP mandate. That is a small population.
   6. So the default recommendation is growth, and an SWP if cash flow is needed. If an interviewer asks why anyone still holds IDCW, the honest answer is legacy folios and legacy selling, not investment logic.

   Where candidates lose it

   Calling IDCW a dividend, or implying the fund is paying out its earnings. It is paying out your NAV. Also know the tax position post-2020 — IDCW at slab rate with TDS — because that is what makes the growth-plus-SWP recommendation obvious rather than a matter of taste.

   Expect next

   • Why did SEBI change the name in 2021?
   • For whom does IDCW still make sense?
   • How is IDCW taxed, and is TDS deducted?
5. 055What happens operationally behind an SIP mandate, and what do the industry's SIP stoppage numbers tell you?SIP and investor mechanicsIntermediatetechnicalRegistrars and transfer agentsDistribution and sales

   Say this

   An SIP is a standing instruction: the investor registers a NACH or e-mandate with a bank limit, the RTA triggers a debit on the chosen date, and units are allotted once the money is available under the normal cut-off rules. The stoppage ratio — SIPs closed against SIPs registered — is the industry's best honest measure of whether flows are durable.

   Then walk it

   1. Registration: the investor signs a NACH mandate or authenticates an e-mandate with an upper limit. The limit matters, because a step-up SIP above the registered ceiling fails silently.
   2. Execution: the RTA presents the debit a day or two ahead of the SIP date, and units are allotted on the date the funds are available for utilisation. If the debit bounces the instalment is missed, not deferred, and a few consecutive failures cancel the SIP.
   3. A bounce may carry a bank penalty, and repeated failures used to invite cheque-dishonour consequences. The operational fix is to align the SIP date with the salary date, which sounds trivial and prevents most failures.
   4. The stoppage ratio is the number to watch. When it runs above about 80 percent, more SIPs are being closed than opened, which happens after a drawdown or when a wave of 36-month tenures matures. Headline gross SIP inflow hides this completely.
   5. Why it matters commercially: the industry sells SIP flows as structurally sticky, and they are stickier than lump sums, but they are not permanent. A large share of SIPs registered in a bull market do not survive three years.
   6. For an AMC or a distributor the actionable read is retention, not acquisition. Extending the average SIP life by a year is worth more than adding registrations, and it is cheaper. That framing is what a sales or product interviewer wants to hear.

   Where candidates lose it

   Treating an SIP as a product rather than a payment instruction. It is a mandate, and most failures are banking failures. Second, quoting monthly gross SIP inflows as evidence of investor commitment without mentioning the stoppage ratio — an AMC interviewer will read that as marketing rather than analysis.

   Expect next

   • What happens if the bank debit fails twice?
   • What does the stoppage ratio look like after a market fall?
   • How would you improve SIP persistence?
6. 057Explain the difference between absolute return, CAGR and XIRR, and when you would use each.Performance measurementIntermediatetechnicalIndian AMCsDistribution and sales

   Say this

   Absolute return is the total percentage gain with no reference to time, used only for periods under a year. CAGR annualises a single investment between two dates. XIRR is the internal rate of return on a series of cash flows at different dates, which is the only correct measure for an SIP.

   Then walk it

   1. Absolute: 10 lakh becomes 12 lakh, that is 20 percent. Fine for six months, misleading for five years, and quoting a five-year absolute return of 90 percent is exactly how a fact sheet flatters a mediocre fund.
   2. CAGR: the constant annual rate that takes the start value to the end value. One inflow, one outflow, one answer. Useful and comparable, and it is what SEBI mandates for period returns beyond a year.
   3. XIRR: solves for the discount rate that makes the net present value of all cash flows zero. Each SIP instalment has its own holding period, so a five-year SIP has sixty different holding periods and no single CAGR can describe it.
   4. The intuition for why the two diverge: in an SIP, most of the money has been invested for far less than the full period. A five-year SIP has an average money-weighted holding period of about two and a half years, so a 14 percent XIRR on the SIP and a 14 percent CAGR on the fund are very different achievements.
   5. In practice: a client's own return is always XIRR, because he added and withdrew money. The fund's return is always CAGR on NAV. When a client says his return is lower than the fact sheet, this is almost always why.
   6. The limitation worth naming: XIRR is money-weighted, so it reflects the investor's timing as well as the manager's skill. To judge the manager you want the time-weighted number, which is the NAV CAGR. Use XIRR to measure the investor, CAGR to measure the fund.

   Where candidates lose it

   Using CAGR on an SIP, which overstates or understates the investor's return depending on the market path, and is simply the wrong tool. The insight that wins the question is money-weighted versus time-weighted: XIRR judges the investor, CAGR judges the manager.

   Expect next

   • A client's XIRR is 9 percent and the fund's five-year CAGR is 14. Explain it to him.
   • How would you compute XIRR in a spreadsheet?
   • Which number belongs in a fact sheet?
7. 062What is portfolio turnover, and why did SEBI insist funds be benchmarked against total return indices?Performance measurementIntermediatetechnicalIndian AMCsFund research and ratings

   Say this

   Turnover is the value of securities traded in a year as a percentage of average net assets — a 100 percent turnover means the manager effectively replaced the whole portfolio once. The total return index rule, effective from February 2018, forced funds to compare themselves against an index including dividends, which removed a free 1 to 1.5 percent a year of fake outperformance.

   Then walk it

   1. What turnover tells you: holding period. Turnover of 200 percent means an average holding period of about six months, which is inconsistent with a manager who claims to buy businesses for the long term.
   2. It also costs money. Every trade pays brokerage, securities transaction tax and market impact, and none of that shows up in the TER — it just reduces NAV. High turnover in a small cap fund is expensive because impact cost is the dominant term.
   3. But high turnover is not automatically bad. It is bad when it is inconsistent with the stated process, or when it is not accompanied by outperformance. A momentum or an arbitrage strategy is supposed to have high turnover.
   4. Read it with flows. A fund receiving heavy SIP money shows turnover from deployment rather than from trading decisions, which is why you compare a fund's turnover to its own history rather than across categories.
   5. On the benchmark rule: before 2018 funds compared themselves to a price index that excluded dividends. Since Indian dividend yields run around 1 to 1.5 percent, every fund got that head start for free. SEBI's total return index mandate removed it, and large cap active outperformance visibly deteriorated overnight.
   6. The honest read of that episode is worth saying: a measurement change, not a change in skill, is what made Indian large cap active management look bad. That is a good reminder that benchmark choice is not a detail.

   Where candidates lose it

   Treating high turnover as automatically bad, or not knowing the TRI rule. The TRI change is one of the most consequential Indian regulatory events for performance comparison, and a candidate who can explain why active large cap numbers worsened after February 2018 has demonstrated real familiarity.

   Expect next

   • How would you distinguish turnover from deployment of inflows?
   • What happened to active outperformance after the TRI rule?
   • What turnover would you expect from a momentum fund?
8. 066Is a switch between two schemes of the same AMC a taxable event? And what are STT, stamp duty and TDS on mutual funds?TaxationIntermediatetechnicalIndian AMCsDistribution and sales

   Say this

   Yes, a switch is a redemption plus a purchase, fully taxable, and exit load applies on the redemption leg. That is true even between two plans of the same scheme, so a regular-to-direct switch triggers capital gains too. The transaction taxes are small but real: stamp duty on the way in, STT on the way out of equity schemes.

   Then walk it

   1. Switch and STP both work the same way — one redemption, one purchase, on the same day. There is no roll-over relief in Indian mutual fund taxation. A weekly STP is fifty-two taxable redemptions a year.
   2. Stamp duty: 0.005 percent on every purchase and switch-in of units, in force since July 2020. On a 10 lakh purchase that is 50 rupees, so it matters only for very high-frequency treasury flows.
   3. Securities transaction tax: 0.001 percent on redemption of equity-oriented scheme units. Debt schemes are outside STT.
   4. TDS: on IDCW payouts to resident investors, 10 percent above a threshold that was raised to 10,000 rupees a year. On capital gains for residents there is no TDS — the investor pays through advance tax and the return.
   5. For non-residents the position is different and this is a favourite follow-up: TDS is deducted at source on both IDCW and capital gains for NRIs, at rates depending on the type of gain, and treaty relief has to be claimed with a tax residency certificate.
   6. The advisory point that falls out of all this: never rebalance casually. Every reallocation between schemes is a tax event, which is precisely why a single dynamic asset allocation fund can be efficient for a client who would otherwise be switching twice a year.

   Where candidates lose it

   Saying a switch inside the same AMC, or between direct and regular plans of the same scheme, is tax-neutral. It is not, and this error produces angry clients and complaints. Also know that STT applies only to equity-oriented schemes.

   Expect next

   • Is TDS deducted on an NRI's redemption?
   • How does that change how you rebalance a portfolio?
   • Does stamp duty apply to an SIP instalment?
9. 067Explain tax harvesting in equity funds, and how you would do it for a client this financial year.TaxationIntermediatecase studyWealth and advisoryDistribution and sales

   Say this

   Harvesting means deliberately realising long-term equity gains up to the 1.25 lakh annual exemption and reinvesting immediately, so you reset your cost base for free. Done every year, it permanently removes a slice of future tax from the portfolio.

   Then walk it

   1. The mechanics: identify units held more than twelve months, redeem enough that the realised long-term gain is just under 1.25 lakh, then buy the same scheme back the next day. The exemption is used, no tax is paid, and the new units carry a higher cost of acquisition.
   2. Worked example: a client sits on 4 lakh of unrealised long-term gain. Harvest 1.25 lakh a year for three years and the eventual taxable gain shrinks by 3.75 lakh, saving about 47,000 rupees at 12.5 percent. That is a real return on an afternoon's work.
   3. Constraints to check before you do it. Exit load on any units under twelve months old, though by definition harvested units are older. The holding-period clock resets on the repurchased units, so do not harvest money you might need within the next year.
   4. There is no wash-sale rule in India for gains harvesting, so buying back immediately is fine. For loss harvesting the position is less settled and repeated same-day round trips in the same scheme invite scrutiny, so leave a gap and document the rationale.
   5. Loss harvesting is the other half: realise losses to set against gains, remembering short-term losses can offset both short and long-term gains while long-term losses offset only long-term. Losses carry forward eight years if the return is filed on time.
   6. The operational caution: use the exemption across the whole portfolio, not per scheme, and count listed shares and other equity assets too. And do it in January or February, not on 31 March, because an NAV date and a T plus settlement can push the transaction into the next financial year.

   Where candidates lose it

   Harvesting more than the exemption and creating a tax bill for no reason, or forgetting that the exemption is per person per year across every equity asset. The other real-world failure is leaving it to the last week of March and missing the financial year.

   Expect next

   • What is the difference between harvesting gains and harvesting losses?
   • Does a wash-sale rule apply in India?
   • When in the year would you do it and why?
10. 068Why are new fund offers usually mis-sold?Distribution, compliance and NISMIntermediatetechnicalDistribution and salesIndian AMCs

    Say this

    Because the two arguments used to sell an NFO are both false — that a 10 rupee NAV is cheap, and that getting in at the start gives you an advantage. An NFO has no track record, so you are buying a mandate and a brochure, when an existing scheme in the same category gives you five years of evidence at the same price.

    Then walk it

    1. The NAV fallacy first, because it is the commonest. A 10 rupee NAV is not cheaper than a 400 rupee NAV. The NAV is a unit of account; what matters is what the portfolio owns and at what valuation. A fund at 10 that buys the same stocks at the same prices gives the identical return.
    2. No track record is the substantive objection. You cannot see rolling returns, drawdown behaviour, portfolio construction or how the manager behaved in a crash. You are underwriting a promise.
    3. The incentive structure explains the volume. NFOs are the industry's marketing event, they get a concentrated distribution push, and historically they paid better. Even under the trail-only regime, an NFO is the one moment an AMC can mobilise the whole distribution network at once.
    4. And look at when they launch. NFO activity peaks after a category has already performed, especially in thematic and sectoral funds where the one-scheme-per-AMC rule does not apply. The launch calendar is a sentiment indicator, which is a nice thing to say to an interviewer because it is both true and uncomfortable.
    5. The legitimate exceptions: a genuinely new exposure with no existing equivalent — a new index, a new asset class, a first-of-its-kind passive product — or a closed-end structure with a defined maturity. There, the absence of a track record is unavoidable rather than a red flag.
    6. So my line to a client: if you can name an existing scheme with a five-year record doing the same thing, buy that one. If you cannot, then the NFO might be worth a look.

    Where candidates lose it

    Not being able to dismantle the 10-rupee-NAV argument cleanly. It is the single most common mis-selling line in Indian retail distribution and an interviewer at an AMC will expect you to demolish it in one sentence. Also acknowledge the legitimate exceptions, or you sound dogmatic.

    Expect next

    • So is a 10 rupee NAV ever relevant?
    • When would you actually recommend an NFO?
    • What does the NFO calendar tell you about the market?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.