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. 033What did SEBI change about debt fund liquidity after 2020, and what is swing pricing?Risk, liquidity and disclosureHardtechnicalIndian AMCsRisk and compliance

   Say this

   Four big things: a mandatory liquid asset buffer, full mark to market on debt, tighter limits on illiquid and structured paper, and a swing pricing framework. Swing pricing adjusts the NAV downward for redeeming investors during a market dislocation, so the cost of selling assets in a stressed market falls on the people leaving rather than on those who stay.

   Then walk it

   1. Liquid asset buffer: liquid funds must hold at least 20 percent in cash, government securities, treasury bills and repo on government securities. Other open-ended debt schemes, except overnight and gilt funds, must hold at least 10 percent.
   2. Valuation: the whole debt book moved to mark to market, so a liquid fund's NAV can fall. Amortisation, which had let short-dated paper pretend it had no price risk, is gone.
   3. Portfolio limits tightened: caps on unlisted debt, restrictions on structured obligations and credit enhancements, a lower single-sector cap, and graded exit loads on liquid fund redemptions inside seven days.
   4. Swing pricing, effective from March 2022: partial swing is voluntary in normal times, and a mandatory swing kicks in for high-risk open-ended debt schemes during a market dislocation declared by SEBI, with a minimum swing factor. Small redemptions up to two lakh are exempt so retail investors are not penalised.
   5. The economics of swing pricing is worth stating clearly: in a stressed market, selling assets to fund redemptions costs the fund a real spread. Without a swing, that cost is borne by the remaining unitholders, which is an incentive to run first. With it, the redeemer pays their own exit cost.
   6. The candid assessment: the buffers and mark to market were the substantive fixes. Swing pricing has barely been used in India because it requires SEBI to declare a dislocation, which itself would signal panic. Useful in principle, untested in practice — say that, because it shows judgement rather than recall.

   Where candidates lose it

   Listing the rules without explaining the first-mover problem they exist to solve. Every one of these measures is about the same thing: stopping an investor who exits early from imposing costs on those who stay. If you cannot say that sentence, you have memorised circulars.

   Expect next

   • Has swing pricing ever actually been triggered in India?
   • Why are redemptions under two lakh exempt?
   • What counts as a market dislocation?
2. 034How would you assess liquidity risk in a debt fund's portfolio before recommending it?Risk, liquidity and disclosureHardcase studyIndian AMCsRisk and compliance

   Say this

   Pull the monthly portfolio and ask one question of every line: who would buy this from me next Tuesday, and at what price? Then look at the other side of the balance sheet — who owns the units. Liquidity risk is the interaction of an illiquid asset book with a concentrated investor base.

   Then walk it

   1. Asset side, in order: how much is in cash, treasury bills, government securities and repo, against the 10 or 20 percent minimum. How much is unlisted. How much is rated below AA. How much sits in structured obligations or credit-enhanced paper.
   2. Then issuer and group concentration. A 9 percent position in one mid-sized NBFC is a bigger liquidity problem than a 20 percent position in government securities, because the exit is a single phone call to a market that may not answer.
   3. Then maturity profile against the fund's own category. A short duration fund holding three-year unlisted paper has reached for yield by taking illiquidity, and the yield pickup is the tell — if the portfolio YTM is 150 basis points above the equivalent gilt, something in there does not trade.
   4. Liability side: the top-10 investor concentration disclosed in the fact sheet. If a handful of institutions hold half the AUM, a single quarter-end redemption forces the sale, and retail unitholders eat the impact cost.
   5. Then the stress question I would actually run: if 20 percent of AUM redeemed on Monday, what would the manager have to sell, and would the printed NAV survive it? That is the Franklin Templeton question asked in advance.
   6. And check AUM trend. A fund shrinking steadily is concentrating its illiquid tail, because the liquid assets are the first to go out of the door. A shrinking credit fund is a warning, not a bargain.

   Where candidates lose it

   Assessing credit quality and calling it liquidity analysis. AAA paper from a small issuer can be untradeable. The two things candidates miss entirely are the top-10 investor concentration on the liability side and the AUM trend, and both are printed in the monthly fact sheet.

   Expect next

   • Where would you find the top-10 investor concentration?
   • Is a shrinking debt fund safer or riskier?
   • What yield spread over gilts would make you suspicious?
3. 039What is the difference between tracking error and tracking difference?Index funds and ETFsHardtechnicalIndian AMCsProduct and strategy roles

   Say this

   Tracking difference is the gap in return: fund return minus index return, and it is almost always negative because of costs. Tracking error is the volatility of that gap — the annualised standard deviation of the daily return differences. One tells you how much you lost, the other how consistently you lost it.

   Then walk it

   1. Tracking difference is the number an investor actually feels. If the Nifty 50 returned 12.0 percent and the fund returned 11.6, the tracking difference is minus 40 basis points.
   2. Tracking error says nothing about direction. A fund could beat the index on half the days and lag on the other half, average out flat, and still show high tracking error. It measures replication noise, not cost.
   3. Sources of tracking difference: the expense ratio, cash drag from uninvested inflows, dividends received and reinvested at a different time from the index's assumption, securities transaction tax and brokerage on rebalancing, and any sampling instead of full replication.
   4. Sources of tracking error specifically: timing mismatches on flows, rebalancing on a different day from the index, futures used as a proxy for cash, and in debt index funds the fact that the underlying bonds do not trade daily.
   5. The regulatory hook in India: SEBI caps annualised tracking error for debt index funds and ETFs at 2 percent, and requires passive funds to disclose both tracking error and tracking difference over one, three, five and ten years and since launch. Knowing that both are mandatory disclosures is the India-specific bit.
   6. Which I would use to pick a fund: tracking difference, every time, because it is the net of cost and skill. Then look at tracking error as a check on operational quality — a fund with low difference and high error got lucky rather than good.

   Where candidates lose it

   Using the two terms interchangeably, which is extremely common. Tracking error is a standard deviation and cannot tell you whether you underperformed. If you choose an index fund on tracking error alone you will pick the wrong one, and interviewers on a passive desk ask this precisely to catch that.

   Expect next

   • Which would you use to choose between two index funds?
   • Why does an index fund almost never beat its index?
   • What is SEBI's tracking error limit for debt index funds?
4. 040An index fund charges a 0.10 percent expense ratio but lagged its index by 0.35 percent last year. Where did the other 25 basis points go?Index funds and ETFsHardtechnicalPassive and index teamsIndian AMCs

   Say this

   Costs that sit outside the expense ratio. In order of likely size: cash drag from flows, transaction costs and securities transaction tax on rebalancing, dividend timing, and the fact that the index is a theoretical portfolio with no settlement cycle and no taxes.

   Then walk it

   1. Cash drag first. Money arriving through the day cannot be invested until it is available, and a fund holding even half a percent in cash in a year the index rose 15 percent gives up around 7 basis points.
   2. Rebalancing costs. When the index changes constituents the fund must trade, paying brokerage, securities transaction tax and market impact. Impact is the expensive part, because every index fund is trading the same name on the same day at the same close.
   3. Dividend treatment. A total return index assumes dividends are reinvested instantly on the ex-date. A real fund receives the cash days later and may pay tax on it, so it is out of the market in between.
   4. Then the small ones: creation and redemption frictions, corporate action handling, and any sampling if the fund does not fully replicate.
   5. A useful sanity number: for a large cap Indian index fund, a well-run product lands around 15 to 30 basis points of tracking difference on a 10 basis point TER. If it is more like 60 to 80, the cause is usually persistent cash drag or a small AUM that makes rebalancing expensive per unit.
   6. And the diagnostic question I would ask the AMC: is the gap stable year on year or lumpy? Stable means structural cost, which you can price in. Lumpy means operational quality, and that is the reason to avoid the fund.

   Where candidates lose it

   Answering 'the expense ratio' when the question has already told you the expense ratio. The interviewer wants the costs outside TER. Missing cash drag is the specific failure — it is usually the biggest single component and the one nobody names.

   Expect next

   • How would you reduce cash drag?
   • Why is index rebalancing expensive for everybody at once?
   • What tracking difference would you accept before switching funds?
5. 041Why do Indian ETFs sometimes trade well away from their fair value?Index funds and ETFsHardtechnicalPassive and index teamsIndian AMCs

   Say this

   Because the arbitrage that is supposed to close the gap needs a market maker willing to trade and an underlying basket he can price and buy. When either fails, the ETF price drifts from the indicative NAV and stays there, sometimes for the whole session.

   Then walk it

   1. The normal state is a tight spread: the AMC publishes iNAV every fifteen seconds for an equity ETF, market makers quote around it, and authorised participants create or redeem when the gap is worth more than their costs.
   2. Cause one is thin volumes. Many Indian ETFs outside the Nifty and Sensex products trade a few lakh rupees a day. With no natural flow, the market maker's quote is the only price, and his spread widens to cover his risk.
   3. Cause two is the underlying being shut or illiquid. An international ETF tracking US equities trades in Indian hours while the US market is closed, so the price is a forecast, not an arbitrage — which is why Indian Nasdaq ETFs have traded at large premiums, made worse when overseas investment limits stopped fresh creation entirely.
   4. Cause three is a regulatory cap on creation. When the industry's overseas investment headroom was exhausted, AMCs had to suspend subscriptions, the arbitrage loop broke and premiums of 5 to 20 percent persisted. Buyers then paid for units worth substantially less.
   5. Cause four is corporate actions and gold. On a day the bullion market is disrupted, a gold ETF's basket cannot be priced or delivered, and the loop stalls again.
   6. So the practical advice: check the iNAV before you trade, use limit orders never market orders, avoid the first and last fifteen minutes, and for anything other than the largest ETFs prefer the index fund. That advice is what an interviewer wants to hear — it shows you know the theory and still respect the order book.

   Where candidates lose it

   Asserting that arbitrage keeps ETF prices at fair value, full stop. That is the textbook claim and the Indian international ETF premium episode is the standing counterexample. Naming a case where the mechanism broke is what distinguishes a real answer.

   Expect next

   • What happens to the premium when the AMC reopens subscriptions?
   • How would you execute a 20 crore ETF order?
   • Why is iNAV published every fifteen seconds?
6. 042How does a fund of funds or a feeder fund differ from investing directly, on cost and on tax?Index funds and ETFsHardtechnicalIndian AMCsProduct and strategy roles

   Say this

   You pay two layers of expenses and you often get worse tax treatment. A fund of funds charges its own TER on top of the underlying schemes' costs, and because it holds units rather than Indian equity directly it usually fails the 65 percent equity test that gives equity taxation.

   Then walk it

   1. Cost: SEBI caps the fund of funds TER, and the overall cost including the underlying schemes is capped too, but the total is still materially above holding the underlying directly. A feeder into an offshore fund can end up 100 to 150 basis points all-in.
   2. Tax is the bigger issue in India. A scheme qualifies for equity taxation only if it holds at least 65 percent in domestic company equity. A FoF holds mutual fund units, so historically it did not qualify, and international feeders never do.
   3. That put international feeders and gold funds through a rough period after April 2023, when the specified mutual fund rules taxed them at slab rates with no long-term benefit. The law has since restored a 24-month long-term holding taxed at 12.5 percent for funds that are not predominantly debt, so read the current definition before you advise anyone.
   4. What you get in exchange is access and operational simplicity. A feeder is how an Indian investor buys a US or global strategy through a normal folio, with rupee investment, no LRS paperwork and no foreign brokerage account.
   5. There is also a currency layer that people forget. A rupee investor in a US feeder earns the underlying return plus or minus the rupee-dollar move, which has historically added a few percent a year and can just as easily subtract.
   6. So my rule: use a feeder when there is no domestic alternative and the access is the point. Never use a domestic FoF to buy schemes you could buy directly, because you are paying a second fee for a rebalancing decision you could make yourself.

   Where candidates lose it

   Discussing only the double expense ratio. In India the tax treatment is the decisive factor, and it has changed twice in three years. Saying 'check the current definition of a specified mutual fund' is a better answer than confidently quoting a rule that may already be superseded.

   Expect next

   • Why does a fund of funds not get equity taxation?
   • What is the LRS alternative and when is it better?
   • How do overseas investment limits affect these funds?
7. 044What is an arbitrage fund, where does the return come from, and when does it dry up?Hybrid and solution schemesHardtechnicalIndian AMCsCorporate treasury desks

   Say this

   It buys a stock in the cash market and simultaneously sells the same stock's futures, locking in the spread between the two. The return is the cost of carry, not a market view — which means it behaves like a short-term debt fund but is taxed as equity, and that tax arbitrage is the real product.

   Then walk it

   1. The mechanism: if a stock is 100 in cash and the one-month future is 100.60, buying cash and selling the future locks 60 basis points regardless of where the stock goes, realised when the two converge at expiry.
   2. It is fully hedged, so equity market direction is irrelevant. At least 65 percent of the book must be in these hedged equity positions, which is what makes it an equity-oriented scheme for tax.
   3. The tax point is the whole commercial case. A corporate or a high-bracket individual parking money for three to six months pays 12.5 percent on long-term equity gains, or 20 percent short-term, against slab rates on a debt fund after the 2023 change. That gap is why arbitrage fund AUM exploded.
   4. Returns track the cost of carry, which tracks short-term rates and market activity. Historically 4 to 7 percent, so think of it as a liquid fund equivalent with better tax rather than as an equity product.
   5. When it dries up: when futures premiums compress. That happens when rates fall, when market participation and leverage are low, and — importantly — when too much arbitrage money chases the same spread. A category that doubles in AUM competes away its own return.
   6. The risks people ignore: the spread can go negative in a sharp fall so rollover costs money, there is execution and roll risk each expiry, and the fund still has an unhedged residual and a debt sleeve. It is low risk, not no risk, and the exit load window is typically 15 to 30 days.

   Where candidates lose it

   Calling it a low-risk equity fund. It is a rates product wearing an equity tax wrapper. The second trap is not knowing why the category grew: the April 2023 debt fund tax change pushed treasury money into it. If you cannot connect the product to that tax event you are missing the commercial story.

   Expect next

   • What happens to the spread in a sharp market fall?
   • Why did arbitrage fund AUM grow so fast after 2023?
   • Would you recommend it over a liquid fund for a six-month horizon?
8. 047Walk me through SEBI's TER slabs and why they are structured that way.Costs, plans and commissionsHardtechnicalIndian AMCsProduct and strategy roles

   Say this

   The cap falls as the scheme's assets grow. For open-ended equity schemes it starts at 2.25 percent on the first 500 crore and steps down through the slabs to about 1.05 percent once assets exceed 50,000 crore. Debt schemes get a cap 25 basis points lower at each slab, and index funds and ETFs are capped at 1 percent.

   Then walk it

   1. Equity slabs, in shape: 2.25 percent on the first 500 crore, 2.00 on the next 250, 1.75 on the next 1,250, then 1.60, then 1.50, then a taper of 5 basis points for every additional 5,000 crore, with a floor around 1.05 percent above 50,000 crore.
   2. The logic is scale economies. Running a 40,000 crore fund does not cost twenty times what a 2,000 crore fund costs, so SEBI forces the saving to be passed to unitholders instead of kept as margin.
   3. It is a marginal-slab cap, applied on assets in each band, not a single rate on the whole AUM. Candidates get this wrong constantly. A 2,000 crore equity fund's blended cap works out well below 2.25 percent.
   4. Passive is capped separately and far lower, at 1 percent for index funds and ETFs, and competition has driven actual charges to 2 to 20 basis points. Fund of funds have their own caps.
   5. There is also a permitted additional charge for inflows sourced from beyond the top 30 cities, subject to conditions, designed to pay for distribution reach into smaller towns. It has been repeatedly tightened because it was gamed by routing city money through upcountry ARNs.
   6. The honest assessment of the whole regime: it has compressed headline costs, but it also means an AMC's economics improve with size, which is why the industry consolidates and why the largest fund houses fight so hard for scale. Regulation set the price; competition in passive is what is now actually moving it.

   Where candidates lose it

   Quoting 2.25 percent as if it applies to the whole AUM. It is a marginal slab structure. If you cannot remember every number, say the shape — starts around 2.25, steps down with size, floor around 1.05, passive capped at 1 — and you will sound better than someone who recites four numbers wrongly.

   Expect next

   • What is the blended cap for a 3,000 crore equity fund?
   • What is the additional TER for inflows from smaller cities?
   • Why are passive funds capped separately?
9. 056A 62-year-old retiree has 1.2 crore and needs 60,000 a month. Design the mutual fund portfolio.SIP and investor mechanicsHardcase studyWealth and advisoryDistribution and sales

   Say this

   Sixty thousand a month is 7.2 lakh a year on 1.2 crore, a 6 percent withdrawal rate. That is too high to be safe for a 25-year retirement, so the first thing I do is say that out loud. Then I would build three buckets and run the SWP from the shortest one.

   Then walk it

   1. Start with the arithmetic, not the product. A 6 percent withdrawal growing with inflation from a portfolio expected to return 9 to 10 percent nominal has a meaningful chance of running out before age 85. Either the corpus grows, the withdrawal falls to about 4.5 percent, or there is another income source.
   2. Bucket one, two to three years of spending, around 20 lakh, in a liquid and short duration mix. This is what the SWP actually draws from, so no month's income depends on the equity market.
   3. Bucket two, roughly 40 lakh, in short duration and target maturity debt or a conservative hybrid. This refills bucket one and covers years three to eight.
   4. Bucket three, roughly 60 lakh, in equity — a large cap index fund plus one flexi cap. This is the inflation defence, and it must not be touched for a decade. Fifty percent equity at 62 sounds aggressive to a client and is the only thing that stops the corpus dying at 80.
   5. Then the operational design: SWP of 60,000 on a fixed date from the debt bucket, annual rebalancing to refill, and an explicit rule that in a year the market is down more than 20 percent you refill from debt only. That rule is what defends against sequence-of-returns risk.
   6. Tax and the honest caveat: SWP is efficient because only the gain portion is taxed, and drawing from the debt bucket keeps equity gains long-term. But I would tell him plainly that 60,000 indexed for 25 years is not comfortably fundable from 1.2 crore, and the conversation to have is about the number, not the fund selection.

   Where candidates lose it

   Jumping straight to fund names. The examinable skill is checking whether the withdrawal rate is survivable and saying so. The second failure is putting a retiree entirely in debt, which feels safe and guarantees the corpus loses to inflation over 25 years.

   Expect next

   • What withdrawal rate would you be comfortable with?
   • Why not just use an annuity or the Senior Citizens Savings Scheme?
   • How do you handle a 30 percent equity drawdown in year two?
10. 058Why do point-to-point returns mislead, and what are rolling returns?Performance measurementHardtechnicalIndian AMCsProduct and strategy roles

    Say this

    A point-to-point return depends entirely on the two dates you picked, and fund marketing picks them. Rolling returns compute the return over a fixed window starting on every single day in the history, so you get a distribution of outcomes instead of one lucky path.

    Then walk it

    1. The problem in one example: a five-year return measured from March 2020 starts at the Covid bottom. Almost any Indian equity fund looks extraordinary. Move the start date back three months and the same fund looks ordinary.
    2. Rolling returns fix the start-date bias. For three-year rolling returns over ten years you get roughly 1,800 overlapping three-year observations, each annualised.
    3. What you then look at is the distribution: the median, which is a fairer central estimate than any single window; the worst observation, which tells you the pain a real investor could have experienced; and the proportion of windows that beat the benchmark or cleared, say, 12 percent.
    4. That consistency measure is the useful output. A fund that beat its index in 70 percent of three-year windows is a different proposition from one that beat it in 40 percent but happens to lead the one-year table today.
    5. Rolling returns also expose manager change. If the strong windows all start before a manager left, the distribution will show it while a point-to-point number will not.
    6. Two honest limitations: overlapping windows are highly autocorrelated, so 1,800 observations are nowhere near 1,800 independent data points, and rolling returns still say nothing about whether the strategy will work in the next regime. They fix selection bias, not the fundamental problem of a short Indian track record.

    Where candidates lose it

    Describing rolling returns as an averaging technique and stopping. The point is the distribution — median, worst case and hit rate — and the reason is start-date bias. And do not oversell them: overlapping windows are statistically dependent, and saying so is what a research interviewer is waiting for.

    Expect next

    • How many independent observations do you really have?
    • What would you look at other than the median?
    • How do you handle a fund manager change in the history?

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.