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. 004What do the trustees actually do, and how independent are they in practice?Fund structure and regulationHardtechnicalIndian AMCsCompliance and legal

   Say this

   Legally they are the owners of the scheme's assets and the primary supervisors of the AMC. Practically, they are a quarterly oversight board with a small staff who rely almost entirely on what the AMC reports to them, which is the structural weakness of the model.

   Then walk it

   1. The formal duties: approve every new scheme, ensure the AMC invests within the SID mandate, certify compliance to SEBI twice a year, review investor complaints and net worth, and confirm no conflict of interest in transactions with associates.
   2. Composition is the safeguard. At least two-thirds of trustees, or of the trustee company's directors, must be independent of the sponsor. A trustee cannot simultaneously be an AMC director.
   3. They can remove the AMC. That is the nuclear option and it has effectively never been used in India, which tells you something about how the relationship works in practice.
   4. SEBI tightened this after 2020. Trustees now have an explicit duty to independently evaluate fairness of fees, mis-selling, and unusual scheme performance, and must appoint their own audit firm rather than relying only on AMC-supplied reports.
   5. The honest assessment: the sponsor pays for the trustee company, the AMC produces the data, and the information asymmetry is enormous. The Franklin Templeton wind-up ran through a trustee-approved process. If asked whether the model works, say it is a necessary legal separation with weak informational teeth, and that is why SEBI regulates the AMC directly as well.

   Where candidates lose it

   Saying trustees 'manage the fund'. They do the opposite — they supervise the manager. And if you claim the structure makes fraud impossible, an interviewer who has lived through 2020 will push back hard. Acknowledge the information gap.

   Expect next

   • What did SEBI change about trustee responsibilities after the 2020 debt wind-ups?
   • Who audits the trustee?
   • Give me an example of a conflict the trustee is supposed to catch.
2. 007Compare the Indian mutual fund structure with a US 40 Act fund and a European UCITS.Fund structure and regulationHardsuperdayGlobal asset managersGCC and KPO research centres

   Say this

   All three are daily-dealing, diversified, retail-regulated vehicles, but they get there differently. India uses a trust with independent trustees. The US uses a corporation with an independent board that renegotiates the advisory contract every year. UCITS uses a European directive with hard-coded diversification limits and a cross-border passport.

   Then walk it

   1. India: SEBI Mutual Fund Regulations 1996, trust structure, prescriptive scheme categories since 2017, capped expense ratios by AUM slab, and mandatory portfolio disclosure. Very rules-based on what a scheme may hold.
   2. US: Investment Company Act of 1940. The fund is a company with a board, mostly independent directors, and section 15(c) requires that board to approve the advisory fee annually — governance does the work that SEBI's TER slabs do in India.
   3. UCITS: a directive, mostly domiciled in Luxembourg or Ireland, with the 5-10-40 diversification rule, eligible asset restrictions, and a derivative exposure limit measured by commitment or VaR. Once authorised in one member state it can be sold across the EU on a passport.
   4. Disclosure differs in flavour. India mandates a risk-o-meter and fortnightly portfolios. UCITS has a short KID with a numeric risk indicator. The US relies on the prospectus, the SAI and quarterly holdings filings.
   5. The sharpest structural contrast is fee regulation. India caps the TER by regulation. The US caps nothing and lets an independent board and competition do it — which is how Vanguard's at-cost model pushed the industry to single-digit basis points.
   6. Why it matters for an interview at an Indian AMC or a GCC: cross-listed feeder funds, FPI flows and offshore India funds all sit in one of these wrappers, and the tax and disclosure treatment follows the wrapper, not the strategy.

   Where candidates lose it

   Treating this as trivia. The examinable idea is that India regulates the product, the US regulates governance, and Europe regulates portfolio limits and then lets the passport handle distribution. If you can state that in one line you have answered it even if you forget the 5-10-40 detail.

   Expect next

   • What is the 5-10-40 rule?
   • Why can a UCITS be sold across Europe but an Indian scheme cannot?
   • Which structure gives an investor better protection, and why?
3. 011An investor submits a 5 lakh purchase into a liquid fund at 1:20 pm and the money is credited to the scheme account at 3:10 pm the same day. Which NAV does he get, and what has he lost?NAV and operationsHardtechnicalFund operationsCorporate treasury desks

   Say this

   He gets that same day's closing NAV, not the previous day's, because the funds were not available for utilisation before the 1:30 pm cut-off. He has lost one day of accrual — on 5 lakh in a liquid fund at around 6 percent, that is roughly 80 rupees.

   Then walk it

   1. The two tests are independent: application time-stamped before 1:30, and funds available for utilisation before 1:30. He passes the first and fails the second.
   2. Because the money became available after 1:30 but still on the same day, the allotment is made at the closing NAV of the day immediately preceding the next business day — which is today's closing NAV.
   3. Had the credit landed at 4 pm and only been available the next morning, he would instead get the NAV of the day preceding that availability, so the arithmetic changes again. The rule always keys off the day the money is usable by the scheme.
   4. The reason liquid funds are structured this way is that units allotted at the previous day's NAV start earning from today. If you got yesterday's NAV without yesterday's money in the scheme, existing unitholders would be funding your return.
   5. Scale it up before you close. On a 50 crore corporate treasury ticket, one day at 6 percent is about 8 lakh rupees. This is why treasuries fund by RTGS in the morning, not by cheque at lunchtime.
   6. And the operational point: the AMC cannot make an exception. The RTA applies it mechanically off the bank credit time, and any override is an audit finding.

   Where candidates lose it

   Answering from the time stamp alone and giving him the previous day's NAV. The time stamp only makes the application valid; realisation of funds decides the NAV. Also, do not quote a rule you cannot apply — the interviewer will change the credit time to 4 pm and see if your logic survives.

   Expect next

   • Now the money is credited at 4 pm. What changes?
   • What if it were an equity fund instead?
   • How would you advise a treasury client to avoid this entirely?
4. 012How do you value a corporate bond in a scheme portfolio that has not traded for three weeks?NAV and operationsHardsuperdayFund operationsFixed income desks

   Say this

   You do not use your own judgement. SEBI requires every AMC to value debt at the security-level prices supplied by the two mandated valuation agencies, CRISIL and ICRA, using the average of the two. Everything on a scheme's debt book is marked to market now — the old amortisation shortcut is gone.

   Then walk it

   1. The agencies build a matrix from whatever did trade: benchmark government yields, plus a credit spread for that rating and maturity bucket, adjusted for any traded prices in the same issuer.
   2. If there is a trade in the security above a minimum size on that day, the traded price governs. Where there is none, the matrix price applies, which is why two identical bonds of the same issuer and maturity carry the same price across every AMC in the country.
   3. The history matters here. India used to allow amortisation for short residual maturities, first under 60 days then under 30. After 2019 and 2020 SEBI moved the whole debt book to mark to market, so a liquid fund's NAV now moves with rates instead of pretending it cannot.
   4. A default or a downgrade below investment grade triggers a different path: the agencies publish a haircut matrix, the security is written down to the indicated recovery value, and the AMC may create a segregated portfolio.
   5. The AMC can deviate from the agency price only with documented justification, and it must report every deviation to the trustee and disclose it. That audit trail is the control.
   6. The honest limitation: a matrix price is a model, not a market. In a stressed market the printed NAV is achievable only for small redemptions, which is exactly the gap that swing pricing and the 10 percent liquid asset rule were designed to plug.

   Where candidates lose it

   Saying you would mark it at cost or amortise it. That was the pre-2019 world and quoting it dates you badly. The strong answer names the two agencies, says average of the two, and then admits that a matrix price is not an exit price.

   Expect next

   • What happens to the price when the issuer is downgraded to default?
   • Why did SEBI move away from amortisation?
   • How does this interact with swing pricing?
5. 023Walk me through SEBI's debt fund categories and the axis they are organised on.Debt schemesHardtechnicalIndian AMCsFixed income desks

   Say this

   Sixteen categories on two axes: how much interest rate risk, measured by Macaulay duration, and how much credit risk, measured by what the scheme is allowed to hold. Ten of the sixteen are defined purely by duration, and the rest by what they invest in.

   Then walk it

   1. The duration ladder: overnight at one day, liquid up to 91 days residual maturity, ultra short with Macaulay duration of three to six months, low duration six to twelve months, money market up to one year maturity, short duration one to three years, medium three to four, medium to long four to seven, long above seven, and dynamic bond with no constraint at all.
   2. The credit-defined ones: corporate bond funds must hold at least 80 percent in AA plus and above, credit risk funds at least 65 percent in AA and below, banking and PSU at least 80 percent in bank and public sector paper, and gilt funds in government securities only.
   3. Two specials: gilt with ten-year constant duration, which holds duration fixed rather than letting it roll down, and floater funds with at least 65 percent in floating rate instruments.
   4. The two axes are the whole mental model. Overnight is low on both. Gilt long duration is zero credit risk and maximum rate risk. A credit risk fund is the opposite. And a credit risk fund with long duration is both, which is why the Potential Risk Class matrix exists.
   5. Note what the names hide: a credit risk fund sounds like it manages credit risk, when it is actually mandated to take it. Banking and PSU sounds safe, and mostly is, but AT1 perpetual bonds sat in that bucket before SEBI restricted them after the Yes Bank write-off.
   6. The practical use is matching: overnight and liquid for cash under three months, money market and low duration up to a year, short duration for one to three years, and nothing longer unless the investor has a view on rates and can hold through a drawdown.

   Where candidates lose it

   Trying to recite all sixteen in order and stumbling. Lead with the two axes, then give the ladder and the credit-defined ones in groups. Also note the difference between residual maturity for liquid funds and Macaulay duration for the others — they are not the same measure, and interviewers on a fixed income desk will check.

   Expect next

   • Why is liquid defined by residual maturity but ultra short by Macaulay duration?
   • Where would you put money you need in eighteen months?
   • What is the riskiest combination SEBI permits?
6. 026What is Macaulay duration, and why does SEBI define debt categories using it?Debt schemesHardtechnicalFixed income desksIndian AMCs

   Say this

   Macaulay duration is the weighted average time to receive a bond's cash flows, weighted by the present value of each cash flow. SEBI uses it because it is a single number that captures how much interest rate risk a portfolio carries, and unlike maturity it accounts for coupons.

   Then walk it

   1. Measured in years. A five-year bond paying coupons has a Macaulay duration well under five, because you get some money back earlier. A five-year zero coupon bond has a duration of exactly five.
   2. Modified duration is Macaulay divided by one plus the yield per period, and that is the one you use for price sensitivity: a modified duration of 3 means a 100 basis point yield move changes the price by roughly 3 percent the other way.
   3. SEBI's reason for using it in category definitions is comparability. Residual maturity can be gamed — a fund could hold a long bond with heavy early cash flows and call itself short. Duration cannot be gamed the same way, because it weights by present value.
   4. So the categories key off it: ultra short is three to six months of Macaulay duration, low duration six to twelve months, short duration one to three years, medium three to four years. A fund breaching its band has a mandate breach the risk team must report, not a style drift.
   5. It also feeds the Potential Risk Class matrix, where the interest rate risk axis is defined as Macaulay duration up to one year, up to three years, or unconstrained.
   6. The limitation: duration is a first-order approximation and only accurate for small, parallel yield moves. For a large move you need convexity, and for a non-parallel move a single duration number tells you very little. Say that — it is why a manager also looks at key rate durations.

   Where candidates lose it

   Confusing Macaulay with modified duration, or quoting duration as 'how long you should hold the bond'. Also, be ready for the follow-up on convexity: if you present duration as exact, the next question exposes you.

   Expect next

   • What is convexity and when does it matter?
   • A fund holds Macaulay duration of 3.2 in a short duration category. What do you do?
   • Which has more duration, a 10-year at 6 percent coupon or a 10-year at 9 percent?
7. 027Explain the Potential Risk Class matrix.Debt schemesHardtechnicalIndian AMCsRisk and compliance

   Say this

   It is a three-by-three grid SEBI imposed on every debt scheme from December 2021, declaring the maximum risk the scheme may take, not the risk it happens to be taking. Rows are credit risk, A to C, columns are interest rate risk, I to III, and a scheme must name one cell in its SID and stay inside it.

   Then walk it

   1. Interest rate risk axis: Class I is Macaulay duration up to one year, Class II up to three years, Class III unconstrained.
   2. Credit risk axis: computed from a credit risk value, a weighted score of the portfolio's holdings where government securities and cash score highest and lower-rated paper scores low. Class A is the safest band, B intermediate, C the most permissive.
   3. So A-I is the lowest risk cell — short duration, high quality — and C-III is the highest, permitting both long duration and weak credit. Most liquid and overnight funds sit at A-I; a credit risk fund would sit at B-III or C-III.
   4. The point of it is that category names were misleading. Two short duration funds could hold completely different credit quality while sharing a label. The PRC cell tells you the outer boundary of what the manager is allowed to do, before he does it.
   5. It is a binding commitment. Moving to a riskier cell is a change in a fundamental attribute, which requires notice to unitholders and a no-load exit window. That constraint is the teeth.
   6. The honest limitation: the cell is a ceiling, not a description. A fund sitting at C-III may currently hold nothing but AAA paper. So use the PRC to rule schemes out and the monthly portfolio to see what is actually held. It is a permission slip, not a risk report — which is exactly why the risk-o-meter, which is computed on the actual portfolio, exists alongside it.

   Where candidates lose it

   Describing the PRC as the scheme's current risk level. It is the maximum permitted risk. The pair of facts that wins this question is: PRC is a ceiling set in the SID, the risk-o-meter is the monthly actual. Mixing them up is the single most common error on this topic.

   Expect next

   • How is credit risk value computed?
   • What must an AMC do to move a scheme to a riskier cell?
   • How does the PRC differ from the risk-o-meter?
8. 029What is the difference between an accrual strategy and a duration strategy, and where does a target maturity fund fit?Debt schemesHardtechnicalFixed income desksIndian AMCs

   Say this

   An accrual strategy earns the coupon and holds to maturity, taking credit risk to get a higher yield. A duration strategy makes money from rates falling, taking interest rate risk. A target maturity fund is a third thing — it holds a defined maturity date and rolls down, so the return an investor gets converges on the entry yield.

   Then walk it

   1. Accrual: buy paper, clip coupons, minimise trading. The return is predictable as long as nobody defaults, so all the risk is concentrated in credit selection. Credit risk funds and corporate bond funds run this way.
   2. Duration: position the portfolio long when you expect rates to fall and short when you expect them to rise. A gilt fund or a dynamic bond fund lives here. Returns are lumpy — a good year can be 12 percent and a bad one negative.
   3. Target maturity funds and their ETF equivalents, like the Bharat Bond series, hold a basket of government, PSU or state development loan paper maturing around a stated year. Duration falls automatically as the date approaches.
   4. The attraction is visibility. If you buy at a 7.3 percent yield and hold to the maturity date, your return approximates 7.3 percent minus a very small TER, regardless of what rates do in between — the same shape as a fixed deposit but with open-ended liquidity and mutual fund taxation.
   5. The caveats to say out loud: it only works if you hold to the target date, because mid-way you are exposed to mark to market. And these funds hold high-quality paper only, so the yield advantage over a gilt is modest.
   6. How I would use them in practice: target maturity for a known liability three to seven years out, short duration accrual for the one-to-three-year bucket, and a duration call only for an investor who understands he can lose money for two years while being right.

   Where candidates lose it

   Treating the three as interchangeable 'debt fund strategies'. They fail in different ways — accrual fails through default, duration fails through a rate spike, target maturity fails only if you sell early. Naming the distinct failure mode of each is the answer.

   Expect next

   • What happens to a target maturity fund's investor if he exits after two years?
   • Which strategy would you run today, and why?
   • How does a roll-down differ from a constant maturity gilt fund?
9. 031Tell me what happened at Franklin Templeton India in April 2020 and what the industry learned from it.Risk, liquidity and disclosureHardsuperdayIndian AMCsRisk and compliance

   Say this

   On 23 April 2020 Franklin Templeton wound up six open-ended debt schemes holding roughly 26,000 crore, froze redemptions overnight and told investors they would get their money back as the underlying bonds matured or could be sold. It was a liquidity failure, not primarily a credit failure, and it is the single most important case in Indian mutual funds.

   Then walk it

   1. The schemes — Low Duration, Ultra Short Bond, Short Term Income, Credit Risk, Dynamic Accrual and Income Opportunities — had reached for yield in lower-rated, often unlisted and structured paper, in a market where such bonds barely trade at the best of times.
   2. Then Covid hit. Redemptions accelerated, the secondary market for sub-AAA corporate paper effectively stopped, and the funds had already borrowed to meet earlier redemptions. With nothing left to sell at any reasonable price, the AMC chose to wind up rather than keep selling the best assets and leave the remaining investors with the worst.
   3. The regulatory sequel: SEBI found violations of the regulations, barred the AMC from launching new debt schemes for two years and ordered repayment of over 500 crore of investment management fees with interest. The Supreme Court required unitholder consent for the wind-up, and SBI Mutual Fund was appointed to monetise the portfolios.
   4. Investors did get their money back — in aggregate more than the 23 April NAV — but over roughly two and a half years, in instalments, with no ability to plan around it. That gap between eventual recovery and immediate access is the definition of liquidity risk.
   5. What changed as a result: minimum liquid asset buffers of 10 percent for open-ended debt schemes and 20 percent for liquid funds, full mark to market on the debt book, the swing pricing framework, tighter caps on unlisted and structured paper, and the Potential Risk Class matrix.
   6. The lesson I would give an interviewer in one line: in debt funds the yield you can see is small and the liquidity you cannot see is the whole risk. A 60 basis point yield pickup never compensates for a portfolio you cannot exit.

   Where candidates lose it

   Calling it a default or a fraud. Most of the paper eventually paid. The failure was the mismatch between daily redemption promises and a portfolio of bonds nobody would bid for. Getting that distinction wrong on a fixed income or risk interview is fatal, because the whole post-2020 rulebook follows from it.

   Expect next

   • Could it happen again under the current rules?
   • What is the liquid asset requirement now?
   • How would you have spotted the risk in those portfolios beforehand?
10. 032What is side pocketing, and when is an AMC allowed to do it?Risk, liquidity and disclosureHardtechnicalIndian AMCsRisk and compliance

    Say this

    Side pocketing means carving the distressed security out of the main portfolio into a segregated portfolio, so the good assets stay liquid and the bad asset's recovery is shared only by the investors who were there when it went bad. SEBI permits it on a credit event, with trustee approval, and only if the scheme's SID enabled it in advance.

    Then walk it

    1. The trigger is a credit event: a downgrade to below investment grade, a further downgrade of already sub-investment-grade paper, or an actual default on interest or principal. SEBI later extended it to credit events on unrated debt.
    2. Mechanically, every existing unitholder gets units in the segregated portfolio in the same proportion as their main-scheme holding, on the day of the event. The main scheme's NAV drops by the written-down value of the bad asset.
    3. The segregated portfolio is closed. No subscriptions, no redemptions, no exit load. Recovery, whenever it comes, is paid out to those unitholders. It must be listed so there is at least a theoretical exit.
    4. No management fee may be charged on the segregated portfolio, only actual legal and recovery costs. That removes the perverse incentive to sit on a bad asset for years.
    5. The problem it solves is first-mover advantage. Without it, informed investors redeem at a stale NAV before the write-down and the loss falls entirely on whoever is slow — usually retail. Side pocketing freezes the loss at the date of the event and distributes it fairly.
    6. The limitation: it only works for a discrete credit event on an identifiable security. It does nothing for a portfolio-wide liquidity freeze, which is exactly what happened at Franklin Templeton. Side pocketing is the answer to a bad bond, not to a bad portfolio.

    Where candidates lose it

    Describing it as a way for the AMC to hide a loss. It is the opposite — it forces the loss to be taken on a fixed date and shared by the right set of investors. The more important nuance is that it must be enabled in the SID before the event, so an AMC cannot invent it mid-crisis.

    Expect next

    • Who bears the loss if side pocketing is not used?
    • Can the AMC charge a fee on the segregated portfolio?
    • Why did it not solve the Franklin Templeton problem?

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.