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. 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?
2. 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?
3. 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?
4. 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?
5. 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?
6. 060What is alpha, and how do you know it is skill rather than just beta?Performance measurementHardtechnicalIndian AMCsFund research and ratings

   Say this

   Alpha is the return left over after you account for the risk the manager took. Raw outperformance is not alpha — if a fund beat the Nifty by 4 percent while running a beta of 1.3 in a rising market, the market gave him most of it and the correct alpha is close to zero.

   Then walk it

   1. Formally, Jensen's alpha is the fund return minus the return the capital asset pricing model predicts for its beta. Run the regression, and alpha is the intercept.
   2. The single-factor version is not enough in practice. Once you add size, value, momentum and quality factors, most Indian mid and small cap outperformance turns out to be a size and momentum tilt rather than stock selection.
   3. So the test is: regress the fund's excess returns on the factors it is plausibly exposed to, and see what survives. If nothing survives, the manager is running a factor portfolio at active fees, and you can buy that exposure in a smart beta index fund for a fraction of the cost.
   4. Statistical significance matters and is usually ignored. With five years of monthly data, an alpha of 2 percent a year will typically have a t-statistic well below 2. You cannot reject luck, and you should say so.
   5. Also check whether the alpha is in the right place. Alpha from a handful of large positions is a concentrated bet; alpha spread across the book, repeated in different market conditions, looks more like process.
   6. And the survivorship problem. The funds you are analysing are the ones that survived. Merged and closed schemes are gone from the database, which biases every category average upward — in India that effect got a boost from the 2017 merger wave.

   Where candidates lose it

   Equating alpha with beating the benchmark. That is the core error. Also, be ready to admit the statistical weakness: a candidate who claims a five-year alpha proves skill has revealed they have never run the regression.

   Expect next

   • What does a factor regression on an Indian mid cap fund usually show?
   • How does survivorship bias affect category averages?
   • What t-statistic would convince you?
7. 061Sharpe, Sortino, information ratio, Treynor. Which would you report to a client and which to an investment committee?Performance measurementHardtechnicalIndian AMCsFund research and ratings

   Say this

   Sharpe for a client, because it answers the only question they care about: return per unit of total risk. Information ratio for the committee, because it measures the manager against his benchmark rather than against cash, which is what you are actually paying him for.

   Then walk it

   1. Sharpe: excess return over the risk-free rate divided by standard deviation of returns. Simple, universal, and it treats upside and downside volatility identically — which is its main flaw.
   2. Sortino: the same idea but the denominator only counts downside deviation. Better for asymmetric strategies, so it flatters an arbitrage or a covered-call fund and is the right measure for anything with a skewed return profile.
   3. Information ratio: active return divided by tracking error. This is the manager-skill measure, because it asks how much excess return he generated per unit of deviation from the benchmark. A closet indexer can have a good Sharpe and a terrible information ratio.
   4. Treynor: excess return divided by beta rather than total volatility. Relevant when the fund is one sleeve of a diversified portfolio, so only systematic risk matters. Rarely used in Indian retail reporting.
   5. Practical numbers for calibration: a long-run Sharpe of 0.5 to 0.7 is normal for an Indian equity fund over a full cycle, and an information ratio above 0.5 sustained over five years is genuinely good. Anyone quoting a Sharpe of 2 on an equity fund has measured a bull market.
   6. The shared limitation, which I would state before being asked: all four assume returns are roughly normal and stable, all four are computed on a short sample, and all four can be gamed by choosing the period. They are screening tools, not verdicts.

   Where candidates lose it

   Reciting four formulas with no view on which to use where. The differentiator is knowing that Sharpe measures against cash and information ratio measures against the benchmark, so only the second one tells you whether the active fee was earned.

   Expect next

   • A fund has a high Sharpe and a low information ratio. What is going on?
   • Which would you use for an arbitrage fund?
   • What Sharpe would make you suspicious?
8. 064How is a debt mutual fund taxed now, and what changed in April 2023 and again in July 2024?TaxationHardtechnicalIndian AMCsWealth and advisory

   Say this

   For units of a specified mutual fund bought on or after 1 April 2023, all gains are treated as short-term and taxed at the investor's slab rate, with no indexation and no holding-period benefit. That single change destroyed the tax advantage debt funds had over fixed deposits, and July 2024 then restored a long-term route for older units.

   Then walk it

   1. Before April 2023: a debt fund held over three years got long-term treatment at 20 percent with indexation, which in a 6 percent inflation environment often meant an effective rate in single digits. That was the whole reason institutions and high earners used debt funds instead of deposits.
   2. The Finance Act 2023 introduced the specified mutual fund category — broadly, schemes not holding more than a set proportion in domestic equity — and made all gains on units acquired from 1 April 2023 taxable at slab rates as short-term, whatever the holding period.
   3. July 2024 added a second layer. For units bought before 1 April 2023, holding beyond twenty-four months now gets 12.5 percent without indexation. Indexation is gone across the board, so grandfathered units get a lower rate but lose the inflation adjustment.
   4. The definition of a specified mutual fund was then refined to key off holding more than 65 percent in debt and money market instruments, which pulled some funds — international feeders, certain gold and multi-asset products — out of the punitive bucket and gave them a 24-month long-term route at 12.5 percent.
   5. Consequences you can see in the flow data: a surge into arbitrage funds and equity savings funds, which get equity taxation for a similar risk profile, and renewed interest in target maturity products held to maturity where the pre-tax yield still competes.
   6. How I would answer it honestly in an interview: state the three dates, say indexation is gone, and add that the definition has moved twice in three years so you always check the current position before advising. Confident recall of a superseded rule is worse than saying that.

   Where candidates lose it

   Still quoting indexation benefits on debt funds. Indexation is gone and quoting it is the single clearest sign a candidate learned this from pre-2023 material. The second trap is confidently reciting a definition that has since changed — flag that the rules have moved twice.

   Expect next

   • Why did arbitrage fund AUM grow after this change?
   • Does a fixed deposit now beat a debt fund on tax?
   • What is a specified mutual fund?
9. 065How are hybrid, gold and international funds taxed, and what is the 65 percent test doing?TaxationHardtechnicalIndian AMCsWealth and advisory

   Say this

   Everything turns on portfolio composition, not on the scheme's name. At least 65 percent in domestic equity gets equity taxation. More than 65 percent in debt and money market instruments gets the punitive specified mutual fund treatment. Anything in between falls into a third bucket with a 24-month long-term period at 12.5 percent.

   Then walk it

   1. Bucket one, equity taxation: aggressive hybrid at 65 to 80 percent equity, arbitrage funds, equity savings funds. Twelve-month long-term period, 12.5 percent above the exemption, 20 percent short-term.
   2. Bucket two, specified mutual funds: conservative hybrids and plain debt schemes with more than 65 percent in debt and money market. Slab rate as short-term gains, no holding-period relief on units bought from April 2023.
   3. Bucket three, the middle: gold funds and gold ETFs, international funds and feeders, and multi-asset funds that hold, say, 50 percent equity, 30 percent debt and 20 percent gold. These are neither equity-oriented nor specified, so they get a 24-month long-term holding taxed at 12.5 percent, and slab rate before that.
   4. Physical gold and gold ETFs are treated differently from a gold fund of funds, and sovereign gold bonds were different again, which is why 'how is gold taxed' is never one answer. Ask which wrapper first.
   5. The design lesson is that AMCs now build products to land in a particular tax bucket. A multi-asset fund is often engineered to hold exactly enough domestic equity to cross 65 percent, and a balanced advantage fund hedges to keep gross equity above the line while net equity is far lower.
   6. So when comparing two funds that look similar, check the actual equity proportion in the last disclosed portfolio. Two multi-asset funds can sit in different tax buckets, and on a 20 lakh gain that difference is worth lakhs.

   Where candidates lose it

   Answering by scheme name. A multi-asset fund is not one tax treatment, it is three possible ones depending on composition. The strong answer starts with 'it depends on the portfolio, not the label' and then gives the three buckets.

   Expect next

   • How is a gold ETF taxed against a gold fund of funds?
   • Why do AMCs engineer portfolios around 65 percent?
   • How would you check which bucket a multi-asset fund is in?

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.