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. 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?
2. 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.

3. 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.

4. 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?
5. 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?
6. 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?

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.