If a mutual fund enters into a transaction for purchase or sale of securities with any of its associates, then the members of the Asset Management Company of the mutual fund have to ________.

Practice question from Nism VA Mock Test 3 — bank. The correct answer is highlighted below with a full explanation.

Options

A

Inform the mutual fund unitholders of the intent to undertake the transaction before it is done
Justify the fairness of the transaction to the Board of Trustees

Correct answer
C

Make certain that the transaction happens at a price that is better than the closing market price
D

Take the approval of the trustees before undertaking the transactions

Why this is the answer

When mutual funds engage in transactions with their associates, they must justify the fairness of these transactions to the Board of Trustees. Transparency is key to avoiding conflicts of interest, ensuring fairness for all unitholders.

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