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. 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?
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. 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?

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.