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. 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?
4. 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?
5. 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?
6. 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?
7. 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?
8. 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?
9. 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?
10. 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?

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.