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. 024What is yield to maturity?Debt schemesIntermediatetechnicalPIMCOFixed Income · Sydney · 2025

   Say this

   The single discount rate that makes the present value of all a bond's future cash flows equal its current market price. It is the internal rate of return you earn if you buy at that price, hold to maturity, collect every coupon, and reinvest each coupon at that same yield.

   Then walk it

   1. It solves price for yield. Price is observable, the cash flows are contractual, so YTM is what falls out — which is why you can compare a five-year and a ten-year bond on one number.
   2. Price and yield move inversely. If yields rise, the fixed coupons are worth less, so the price falls. How much it falls is duration.
   3. The three assumptions people skip: you hold to maturity, the issuer does not default, and every coupon is reinvested at the YTM. The reinvestment assumption is the one that breaks in the real world — a falling rate environment means you reinvest coupons at less than the YTM and realise less than it promised.
   4. In a mutual fund context, the portfolio YTM on a fact sheet is a weighted average of the holdings' yields, gross of the expense ratio. So the number you actually earn is roughly portfolio YTM minus TER, assuming nothing defaults and the manager does not trade.
   5. And a high portfolio YTM is not a good thing by itself. A debt fund quoting 9 percent when the equivalent gilt is at 7 is telling you it holds credit risk or long duration. Read the yield alongside the rating profile and the Macaulay duration or it is meaningless.
   6. For a callable or a puttable bond you would use yield to call or yield to worst instead, because maturity is no longer the binding date.

   Where candidates lose it

   Defining YTM as the coupon rate or as the current yield. Current yield is coupon over price and ignores capital gain to maturity. Also, the reinvestment assumption is the part that separates a memorised definition from an understood one — say it before you are asked.

   Expect next

   • What if the coupons cannot be reinvested at that rate?
   • A debt fund's fact sheet shows a 9 percent YTM. What do you check next?
   • How does YTM differ from current yield and from yield to call?

   Reported by candidates at PIMCO (Fixed Income, Sydney, 2025). Source: Wall Street Oasis.

2. 025How would you price a bond in today's market?Debt schemesIntermediatetechnicalJ.P. MorganGeneralist · Columbus · 2026

   Say this

   Discount every cash flow — the coupons and the principal — at a rate built from the risk-free curve for that maturity plus a credit spread for the issuer. Price is the sum of those present values. In practice you take the government security yield at the same tenor and add the spread the market is paying for that rating.

   Then walk it

   1. Mechanically: price equals the sum of coupon divided by one plus y to the power t, for each period, plus the face value discounted at the final period. A ten-year annual bond has eleven cash flows.
   2. The discount rate is the part that requires judgement. Start with the G-sec yield for the same tenor — in India, the ten-year benchmark. Add a spread: a few basis points for a AAA PSU, substantially more for a AA corporate, and far more for anything below.
   3. Rule of thumb for the intuition: if the coupon exceeds the market yield the bond trades above par, if it is below it trades at a discount, and at par the two are equal. State that and you have shown you understand the mechanism rather than the formula.
   4. Then the adjustments. Accrued interest, so quote clean or dirty price and say which. Embedded options, so use yield to call if it is callable. Liquidity, because an Indian corporate bond that trades twice a month carries a real illiquidity premium over its matrix price.
   5. For a mutual fund this is not a free choice. SEBI requires debt to be valued at the security-level prices published by CRISIL and ICRA, averaged, precisely so two AMCs cannot mark the same bond differently. Your own model is a cross-check, not the NAV.
   6. Sanity check the answer with duration. If the ten-year yield moves 50 basis points and a bond with modified duration of 7 does not move about 3.5 percent, you have made an arithmetic error.

   Where candidates lose it

   Reaching for the formula and skipping how you pick the discount rate. The whole question is the discount rate. In an AMC seat, add the point that regulated valuation overrides your model — that is the answer a fund accounting or risk interviewer is waiting for.

   Expect next

   • Where do you get the credit spread from?
   • Now tell me what happens to the price if rates move 50 basis points.
   • How would you price it if the bond has not traded in a month?

   Reported by candidates at J.P. Morgan (Generalist, Columbus, 2026). Source: Wall Street Oasis.

3. 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?
4. 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?
5. 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?
6. 030Explain the risk-o-meter and how it is computed.Risk, liquidity and disclosureIntermediatetechnicalIndian AMCsRisk and compliance

   Say this

   A six-level risk label on every scheme — low, low to moderate, moderate, moderately high, high and very high — computed from the actual portfolio each month, not from the category. Since January 2021 it must be published within ten days of month end and any change has to be communicated to every unitholder.

   Then walk it

   1. For debt schemes it averages three scores: credit risk from the ratings of the holdings, interest rate risk from Macaulay duration, and liquidity risk from listing status, rating and structure. The average maps to one of the six levels.
   2. For equity schemes the three inputs are market capitalisation, volatility and impact cost as the liquidity measure. For derivatives and commodities there are separate prescribed treatments.
   3. The key design choice is that it is portfolio-based and monthly. The pre-2021 version was a category label that never moved. Now, if a manager buys weaker credit, the meter moves and every unitholder must be told.
   4. That disclosure requirement is what gives it teeth. A change in the risk-o-meter is a visible, dated event, and it creates real commercial pressure on a manager who quietly drifts up the risk curve.
   5. In practice almost every equity fund lands on very high, because the scale compresses at the top. So it is useful for comparing debt schemes and nearly useless for choosing between two equity funds.
   6. The other limitation: it is backward-looking by one month and says nothing about concentration or about how much the fund could lose. Use it as a screen and as a mis-selling defence, and use the portfolio and the stress test data for the real work.

   Where candidates lose it

   Saying the risk-o-meter is based on the scheme category. That was the old system and SEBI replaced it precisely because it was static. The second trap is overselling it — acknowledge that it barely differentiates equity funds.

   Expect next

   • How does it differ from the Potential Risk Class matrix?
   • What must the AMC do when a scheme's risk-o-meter changes?
   • Why does almost every equity fund show very high risk?
7. 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?
8. 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?
9. 036What do the stress test disclosures for mid and small cap funds tell you?Risk, liquidity and disclosureIntermediatetechnicalIndian AMCsRisk and compliance

   Say this

   They tell you how many days the fund would need to liquidate 25 percent and 50 percent of its portfolio pro rata in normal market conditions. AMFI made this a monthly disclosure from March 2024, after SEBI got worried about froth and flows in small caps.

   Then walk it

   1. The calculation excludes the least liquid 20 percent of the portfolio and uses recent traded volumes, then asks how many trading days it would take to sell a quarter and a half of the rest without dominating the market.
   2. The results were eye-opening. Some large small cap funds showed more than 20 trading days to liquidate half the portfolio, and a month is not a reassuring number for an open-ended daily-dealing fund.
   3. The disclosure comes with four other numbers worth as much: portfolio valuation on a price-to-earnings basis against the benchmark, volatility, the share of large caps and cash held as a liquidity cushion, and the top-10 investor concentration.
   4. What to do with it is comparative. Two small cap funds of similar size with liquidation times of 8 days and 28 days are running very different risks for the same headline category and a similar expense ratio.
   5. It also explains manager behaviour you would otherwise find odd: small cap funds soft-closing lump sum inflows, or capping SIP amounts. That is a manager who has read his own stress test and decided the next 5,000 crore cannot be deployed responsibly.
   6. The limitation to state: it assumes normal volumes. In a real drawdown the volumes that make the calculation work are precisely what disappears, so treat the published number as a best case and roughly double it in your head.

   Where candidates lose it

   Not knowing this exists. It is the most India-specific risk disclosure in the industry and a favourite question at AMCs in 2025 and 2026. The second trap is quoting the number as though it holds in a crisis — it is computed on normal-market volumes.

   Expect next

   • Why did SEBI ask for this in March 2024 specifically?
   • What does it mean when a small cap fund stops accepting lump sums?
   • Would you trust the number in a falling market?
10. 037What's the difference between an ETF and a mutual fund?Index funds and ETFsCorephone / first roundVanguardGeneralist · Malvern · 2026PIMCOCompliance · Los Angeles · 2024

    Say this

    An ETF is a mutual fund whose units trade on an exchange. You buy it from another investor at a market price during market hours; with a regular open-ended fund you transact with the AMC at end-of-day NAV. That one structural difference drives everything else — cost, tax, minimum size and how liquidity actually works.

    Then walk it

    1. Dealing: ETF units trade intraday at whatever the market pays, which can be above or below the underlying value. A mutual fund transacts at one NAV struck after the close, the same price for everybody that day.
    2. You need a demat account and a broker for an ETF. That is a real barrier in India and the main reason index funds, not ETFs, dominate retail passive money here while the reverse is true in the US.
    3. Creation and redemption happens only in large blocks with authorised participants, so the AMC never has to sell portfolio securities to fund a retail exit. In an open-ended fund, a redemption wave forces the manager to sell.
    4. Cost: ETFs are usually cheaper because there is no registrar servicing individual folios, but the investor pays brokerage, the bid-ask spread and any premium or discount to fair value. The headline TER understates the true cost of owning a thinly traded ETF.
    5. In the US, the in-kind redemption mechanism also gives ETFs a real capital gains advantage. In India that advantage does not exist, because the fund itself is a pass-through either way — worth saying, as it separates someone who understands the structures from someone repeating a US article.
    6. Which I would recommend depends entirely on the investor: an SIP investor should use an index fund, and an institution putting 50 crore to work in one day should use the ETF.

    Where candidates lose it

    Saying an ETF is passive and a mutual fund is active. That is a common conflation and it is wrong — the difference is the trading wrapper, not the strategy. There are active ETFs and passive index mutual funds. Lead with the exchange-traded structure.

    Expect next

    • Why do Indian retail investors use index funds rather than ETFs?
    • Explain the creation and redemption mechanism.
    • When would an ETF trade at a discount to its fair value?

    Reported by candidates at Vanguard (Generalist, Malvern, 2026); PIMCO (Compliance, Los Angeles, 2024). Source: Wall Street Oasis.

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.