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. 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?
2. 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?
3. 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?
4. 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?

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.