Mutual Fund Scheme Selection

NISM Series V-D | 10 marks | Official workbook pages 288-306

What this chapter is about

Turn investor goals and risk profile into a suitable scheme category, strategy, AMC and option while avoiding return-chasing and concentration traps.

Core concepts

• Start with the investor's goal, horizon, liquidity requirement, cash-flow need, tax position and risk profile before looking at scheme rankings.
• Match scheme risk to the investor using asset class, credit quality, duration, concentration, market capitalisation and the Risk-o-meter.
• Gilt funds remove corporate credit risk but retain interest-rate risk. Liquid and overnight funds reduce duration risk but are not risk-free in every dimension.
• Sector, thematic and focused funds carry more concentration risk than broadly diversified funds.
• Passive funds remove active-manager selection risk but still fall when their underlying market or index falls.
• Evaluate consistency, portfolio, process, cost, risk-adjusted return and fund-house capability rather than selecting on recent returns alone.
• Growth and income-distribution options change the cash-flow and tax experience, not the underlying portfolio's gross investment performance.

Exam focus

• Gilt funds generally have the least credit risk among the sample debt categories.
• Risk-o-meter gives a quick standardised indication of scheme risk.
• Passive funds can lose value when the tracked market falls.
• Multi-cap is generally less concentrated than focused, sector or thematic funds.
• Fixed maturity plans are close-ended debt schemes.

Quick revision - 60 second scan

• Goal, horizon and liquidity.
• Risk profile and Risk-o-meter.
• Category and strategy fit.
• Portfolio quality and concentration.
• Cost, consistency and process.
• Option and tax fit.