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NISM certification is a must for Financial planners, who need to sell Mutual
Funds.
Exam consists of 100 Questions, each carrying one mark.
Negative mark – 0.25%
Pass – 50%
Duration – 2 hrs
Concept & Role of a Mutual Fund
Mutual Fund
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal.
The income earned through these investments and the capital appreciation
realized is shared by its unit holders in proportion to the number of units
owned by them.
Balanced Schemes
Invests in both Equity and Debt.
Equity Oriented and Debt Oriented Balanced Funds are available.
MIP, Pension Plan, Children's Plan are Debt oriented Balanced Funds.
Active Funds
Fund Manager has an active role in Investment decision
Designed to Outperform the Market
High Running Cost
Types of Debt Schemes
Diversified Debt Funds or Income Funds
Invest to generate regular income, rather than capital appreciation.
Invest in all the type of Debt Securities (both Gov bonds & Pvt Co Debentures)
Gilt Funds
Invests in Gov Sec & T-Bills. No Credit / Default risk as issued by government.
Dated Securities – Gov Securities with Maturity Period greater than a year.
T-Bills or Treasury Bills are G-Sec with less than one year maturity.
M
a
t
r
i
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Charges
Charges
Entry Load
Difference between the Sale Price and NAV is called ENTRY LOAD
W.e.f Aug 2009, ENTRY Load has been banned
Exit Load
Difference between NAV and Repurchase Price.
Called as Contingent Deferred Sales Charge (CDSC)
Varies with Holding period of investors. Longer the holding period lower the CDSC.
Exit loads/ CDSC in excess of 1% have to be credited back to the scheme
Needs to be same for all Unit Holders of a scheme.
Sponsor
Trustees
Asset Management Company
Custodian
R & T Agent
Distributors
Bankers
MF in India is a 3-Tier Structure consisting of Sponsor, Trustee and AMC.
Sponsor
A sponsor will form a trust & appoint a board of trustees with SEBI approval.
Acts as protector of unit holders money. Appoint AMC for managing funds.
An AMC cannot invest in its own schemes, unless the intention to invest is
disclosed in the Offer Document
A custodian has custody of the assets of the fund & is appointed by the
board of trustees
custodian needs to accept & give delivery of securities for the purchase and
sale transactions of the various schemes of the fund – Clearing & Settlement
The SEBI regulations provide that if the sponsor or its associates control 50%
or more of the shares of a custodian, or if 50% or more of the directors of a
custodian represent the interest of the sponsor or its associates, then that
custodian cannot be appointed for the mutual fund operation
It is not compulsory to appoint a RTA. The AMC can choose to handle this
activity in-house (Franklin)
Fund Accountants
performs the role of calculating the NAV by collecting information about the
assets and liabilities of each scheme
The AMC can either handle this activity in-house, or engage a service
provider
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The assets of the mutual fund are held by
AMC
Trustees
Custodian
Registrar
AMC directors are appointed with the permission of Trustees
True
False
Most investor service centres are offices of
Trustees
Registrar
Fund Accountant
Custodian
Fund accounting activity of a scheme is to be compulsorily outsourced
True
False
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The custodian of a mutual fund
Has custody of assets and is appointed by Trustees
need not be an entity independent of the sponsors
does not give or receive deliveries of physical securities
The accounts and all other records of an AMC are filed with
AMFI
Registrar of Companies
Agents Association
UTI
The Board of Trustees of a mutual fund
Act as protector of investors interests
Directly manage the portfolio of securities
Do not have the right to dismiss the AMC
Cannot supervise and direct the working of the AMC
Under the Indian Trust Act the interest of Unit Holders is safeguarded by
A board of trustees
A trustee company
Either A or B
SPONSOR
Schemes except ELSS, need to allot units or refund moneys within 5 business
days of closure of the NFO.
Nominees -up to 3.The investor can also specify the percentage distribution
between the nominees.
The investor can also pledge the units.
Redemption proceeds with in 10 days or AMC to pay penalty of 15% PA.
Investor rights – Dispatch of Statement of Account
In the case of NFO - within 5 business days of allotment of Units.
Post-NFO investment – within 10 working days of the investment
In the case of SIP / STP / SWP
• Initial transaction – within 10 working days
• Ongoing – Within 10 working days of the end of every quarter
• On specific request , SOA dispatched to him within 5 working days
SOA to dormant investors (no transaction during the previous 6 months can be
sent along with the Portfolio Statement / Annual Return.
If mandated by the investor, soft copy to be mailed to investor every month.
NAV has to be published daily, in at least 2 newspapers
NAV is to be updated in the website of AMFI and the mutual fund
In the case of Fund of Funds, by 10 am the following day
In the case of other schemes, by 9 pm the same day
In case of Closed End Schemes NAV calculated every Wednesday
Investor rights
Investor can ask for a Unit Certificate. It is different from a SOA
SOA shows the opening balance, transactions during the period and closing
balance
A Unit Certificate only mentions the number of Units held by the investor.
SOA is like a bank pass book, while the Unit Certificate is like a Balance
Confirmation Certificate issued by the bank.
On request, the AMC is bound to issue the Unit Certificate within 30 days
of receipt of request.
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SEBI regulates
Mutual Funds
Depositories
Registrar & Transfer Agents
All the above
Statement of Account is to be sent to investors within ___ days of NFO
closure
3
5
7
15
Within ___ days of dividend declaration, warrants will have to be sent to
investors
30
10
15
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Unit Holder can hold his unit in DEMAT form
True
False
If a unit-holder does not agree to the merger of his fund with another, he
has no exit option
True
False.
NFOs other than ELSS can remain open for a maximum of 15 days.
Draft SID is available for viewing in SEBI website for 21 working days.
Final SID is hosted on AMFI site 2 days before the issue opens.
Single SAI is relevant for all the schemes offered by a Mutual Fund
SAI is part of SID. SID should be read in conjunction with the SAI and
not in Isolation
Contents of SID
Summary information – Cover Page
Name of the Mutual Fund
Name of Scheme
Type of the scheme (Equity / Debt, Open / Closed etc)
Price of the Units
Opening, closing and earliest closing date for the offer.
Disclaimer clause by SEBI
Name of guarantor in case of assured return scheme.
As with any investments in securities, the Net asset Value (NAV) of the
units of the schemes can go up as well as down depending on the factors
and forces affecting securities markets.
All
legal requirements connected with launching of the scheme have been
complied with.
Disclosures made in the OD are TRUE, FAIR & ADEQUATE to enable the
investors to make a well informed decision regarding investment.
The intermediaries named in the OD are registered with SEBI and their
registration till date is valid.
SEBI does not prescribe any limit of commission payable to distributors by the
fund house.
2 types of commissions
Upfront commission for mobilization of funds paid by Investors directly
Trail commission to encourage the retention of the investors.
Trail commission is paid Quarterly on Average Net Assets.
Trail Commission increases when the market value of investment increases.
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NFOs other than ELSS can be open for a maximum of
7 days
10 days
15 days
30 days
Legally, SAI is part of the SID
TRUE
FALSE
Offer documents of mutual fund schemes are approved by SEBI
TRUE
FALSE
Application form is attached to
SID
SAI
KIM
KIM has to be updated every 6 months
True
False
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The front page of an offer document need not cover
opening, closing and earliest closing date of the offer.
Disclaimer clause
Legal and regulator compliance
Price of units
Higher the interest, dividend & capital gains earned by the scheme, higher would be NAV.
Higher the appreciation in the investment portfolio, higher would be the NAV.
The process of valuing each security in the investment portfolio of the scheme at its
market value is called ‘mark to market’
SEBI guidelines stipulate that dividends can be paid out of distributable reserves.
All the profits earned (based on accrual of income & expenses as detailed above) are
treated as available for distribution.
Valuation gains are ignored. But valuation losses need to be adjusted against the profits.
That portion of sale price on new units, which is attributable to valuation gains, is not
available as a distributable reserve
Each scheme has separate Balance Sheet and profit and loss account.
Key Accounting & Reporting Requirements
Accounts of the schemes need to be maintained distinct from the accounts of the AMC.
NAV rounded off to 4 decimals – Liquid Schemes, Index Funds & Debt Schemes
The day on which valuation is done is known as Valuation day. The last quoted price of
the Security is taken from Stock Exchange where it is Principally Traded.
Debt sec not traded on the valuation date are valued on the basis of the Yield matrix.
Yield matrix estimates the yield for different debt securities based on the credit rating of
the security and its maturity profile
If an Illiquid Sec accounts for more than 5% of Net Assets, then it has to be valued by
Independent Valuer.
TAXATION
STT – Securities Transaction Tax - tax on the value of transactions in equity
shares, derivatives and equity mutual fund units
STT is not payable on transactions in debt or debt-oriented mutual fund units
Dividends declared shall be mentioned in rupees per unit & the prevailing
NAV
Returns for the Past 1,3, 5 years & since inception in CAGR should be
disclosed. The returns of the Benchmark shall also be disclosed for the
corresponding period.
For funds less than 1 year, absolute returns must be shown & not
annualized.
Earnings per Share (EPS): Net profit after tax ÷ No. of equity shares outstanding
Tells investors how much profit the company earned for each equity share
Beta of 1– Fund moves with the market i.e.Passive Fund or Index Fund
Beta of less than 1 –less risky than the market i.e conservative Fund.
Beta of More than 1 – more risky than the market i.e Aggressive Fund.
Beta not relevant to Debt Funds.
Risk Measures
Standard deviation measure of risk
measures fluctuation in periodic returns of a scheme in relation to its own average
return.
relevant for both debt and equity schemes.
Portfolio turnover rate - Measures how many times the fund manager churns
his holdings. A 100% means a complete change in portfolio during the period
under consideration
High indicates High Transaction Cost.
Relevant for Equity/Balanced funds particularly for those which derive
income from active trading.
Not relevant for Value, Growth funds.
Risk Adjusted Performance Measures
Risk and Returns have co-relation. Risk adjusted Return is measured by using
Sharpe Ratio or Treynor Ratio
Risk Premium - Difference between the Fund’s Average return and Risk free
return on Government Securities or Treasury Bills over a given period
Treynor ratio uses Market risk to rank funds while Sharp ratio uses total risk.
Basic characteristics of bonds or debt security
Par value – principal value Face value of the bond.
Coupon – annual rate of interest paid on the par value of the bond.
The difference between the yield on Gilt and the yield on a non-Government
Debt security is called its yield spread
Risk Measurement of Debt Funds
Debt Funds exposed to Risk of loss through Default (Non Performing Assets)
and Interest Rate risk
Higher the Modified Duration, Higher the Interest rate sensitivity of a Bond
PAN Card is compulsory for all mutual fund investments except MICRO SIP
Liquid Funds Sale Received NAV of the day previous to the day on which Funds
anytime are available for utilization
Liquid Fund – Funds Sale Received after 12 Today NAV
are available on
Same day
Liquid Funds Repurchase Received till 3 Same Day NAV
Received after 3 Next Day NAV
Non Liquid Schemes Sale Received NAV of the day on which funds are available for
>= 1 Crore anytime utilization
Non Liquid Schemes < Sale Received till 3 Same day NAV
1 Crore
Received After 3 Next Day NAV
Non Liquid Schemes Sale Received NAV of the day on which funds are available for
with Outstation anytime utilization
DD/Cheque
Non Liquid Schemes Repurchase Received till 3 Same Day NAV
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Foreign nationals are freely permitted to invest in Indian mutual funds
TRUE
FALSE
PAN Card is compulsory for all MF investments above Rs 50,000 including SIPs
TRUE
FALSE
Investments in mutual fund can be made using
Cheque / DD
Remittance
ASBA
Any of the above
Cut-off timing guidelines are not applicable for NFOs & International Funds
TRUE
FALSE
STP is a combination of SIP and SWP
True
False
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Which is the most appropriate position under MF Regulation
Buyer Beware
Buyer is always right
Seller is always right
Seller is guilty unless proved right
Practice of taking larger positions based on margin payments is called
leveraging
True
False
Turnover rates would be most relevant to analyze the performance of
Equity Funds
Debt Funds
Value Funds
A high turnover rate for a fund indicates
high transaction costs
greater efficiency
high returns to the investor
a rising market
The MF Regulations prescribe
The Minimum Commission to the distributor
The Maximum Commission to the distributor
Both of the above
Neither of the Above
An NRI holds units in a MF. What should he do if he takes up a foreign
citizenship?
Redeems
Continues
Transfers units to his mother, who resides in INDIA
None of the above
Risk factors may not be mentioned in
Product Launch Advertisement
Tombstone Advertisement
Performance Advertisement
All of the above
Which of the distribution channels is preferred by Pvt. Mutual Fund ?
Individual Distributor
Small Distribution Companies
Established Distribution Companies
Internet
Financial Planning
Types of Financial Planning
Important Points
Gold futures contracts – For Leveraging
Deposit Insurance Scheme – Upto Rs 1 lakh per depositor in a bank across
branches including Principal and Interest will be paid by the insurer.
Interest earned in a bank deposit is taxable each year
No income tax is payable on year to year accretions in a DEBT Scheme
GOLD ETF and GOLD Bonds are Exempted from Wealth Tax where as
Physical Gold is NOT EXEMPTED
Accumulation Stage Investing for long term Growth options & long term
(Phases of Life Cycle Stage: identified financial goals products. High risk appetite
Young Unmarried to Pre-
Retirement.)
Transition Stage Near Term needs for Short & Medium term investments.
funds as pre- specified Lower risk appetite
needs draw closer
Reaping Stage/ Distribution Stage – Higher liquidity Liquid / Money Market Mutual
Equivalent to Retirement Phase of requirements / Goal has Funds Lower risk appetite.
Life Cycle Stage reached.
Inter- Generational transfer transfer of wealth to the Low liquidity needs. Ability to take
next generation, in the risk & invest for long term.
event of death
Sudden Wealth Surge (Lottery, Medium to long term Wealth Preservation. Initially
Sale of Shares/Business, invested in Liquid Funds then FP
Inheritance, Contest etc.) charts a plan.
Asset allocations
Asset Allocation refers to the distribution of the investor’s wealth between
different asset classes (gold, property, equity, debt etc.)
Tactical Asset allocation is taking calls on the likely behavior of the market.
Tactical asset allocation is for seasoned investors with large investible surpluses
Young married single income family with two school going kids
35% diversified equity schemes; 15% in gold ETF,
30% diversified debt fund, 10% each in Sector and liquid schemes
Single income family with grown up children who are yet to settle
35% diversified equity schemes;
15% each in gold ETF, gilt fund & diversified debt fund
20% liquid schemes
Model Portfolios for Client’s
Maintain records of all activities and transactions for at least three years, &
those records shall be subject to review by the Trustees
A “Significant Unit holder” means any entity holding 5% or more of the total
corpus of any scheme
MF Distributors are banned from Passing back the commissions to the investors.
MF Distributors are not entitled for Brokerage for their own investments.
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Today’s costs can be translated into future requirement of funds using
A=P X (1 + i)n
A=P / (1 + i)n
P=A n X (1 + i)
P=A n X (1 + i)
According to the Certified Financial Planner – Board of Standards (USA),
the first stage in financial planning is
Analyse and Evaluate Client’s Financial Status
Establish and Define the Client-Planner Relationship
Gather Client Data, Define Client Goals
Develop and Present Financial Planning Recommendations and / or Options
Investor can get into long term investment commitments in
Distribution Phase
Transition Phase
Inter-generational Phase
Accumulation Phase
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To satisfy a young investor’s need for growth, a greater proportion of
investment should be advised in
Gilt Funds.
Income Funds.
Equity Growth funds.
Liquid funds.
A high proportion of investment in income funds is required by
Accumulating investors.
Affluent investors.
Investors in the inter-generational transfer phase.
Investors in the distribution phase.
For older investors who want to transfer their wealth
No financial planning is required.
The right investment strategy depends upon who the beneficiaries are.
The right investment strategy depends upon the state of the stock market.
All the funds can be invested in aggressive equity funds.
Investors who acquire sudden wealth.
can speculate with all the acquired money in the stock markets.
Should not use any of the new wealth to invest in equity.
Should take the effect of taxes into account
Need not pay any taxes on the newly acquired wealth at it is not a part of
their regular income.
Financial Planning is
Investing funds to receive the highest rate of return possible
Resorting to tax planning to keep taxes as low as possible
Planning for retirement with the maximum income possible
Process of solving financial problems and reaching financial goals
The strategy advisable for an investor to maximise investment return in
the long run is
Buy and hold on to investments for a long time
Liquidate poorly performing investments from time to time
Liquidate good performing investments from time to time
Switch from poor performers to good performers
Your client has won Rs 1 Crore in Lottery. What would your suggestion be ?
Invest the entire amount without any delay in "Old Economy stocks" - since
they are back in favor
Invest the entire amount immediately in an Equity Index Fund since the index
is at historic low
Invest in very safe liquid investment options and take the time needed to work
out a financial plan
Invest immediately in IT stocks, since their valuations are low
A criticism of Rupee Cost Averaging
Over a period of time average per share price will become more than guessing
the highs and lows
It does not tell you when to buy, sell or switch from one scheme to another
Rupee cost averaging has no serious shortcomings
Which of the following has highest level of liquidity
Stocks
MF
Gold
Real Estate
SIP is best example of
Rupee Cost Averaging
Value Averaging
Buy and Hold
Direct investments in stock markets can be a better option over investing
through mutual funds if
The investor wants better returns than those offered by Mutual Funds
The investor has large capital, knowledge and resources for research
the investor has identified a bullish phase in the stock market
the investor wants to invest for the long term
Which of the following should not be viewed primarily as an investment?
Life Insurance
MF Investments
Debentures
Stocks
What type of portfolio asset mix would you recommend to your 55 year
old client who plans to retire at the age of 58? choose a portfolio that is
closest match to the investors needs
40% in equity schemes 60% in debt
40% in equity 60% in balanced
20% in equity 20% in liquid 60% in debt
100% in monthly income schemes
For which of the funds would you consider average maturity as an
important factor in selecting the right one for the investor?
debt fund
balanced fund
a money market or liquid fund
both 1 and 2 above
Distribution phase of Wealth Cycle is a parallel of Retirement phase of
Life Cycle
TRUE
FALSE
Risk appetite of investors is assessed through
Risk Appetizers
Asset Allocators
Risk Profilers
Financial Plan
The objective of asset allocation is risk management
True
False
Model portfolios are a waste of time for financial planners
True
False
How much equity would you suggest for a young well settled unmarried
individual
100%
80%
60%
Mutual Funds in India are required by SEBI to
prohibit their employees from personal trading in secondary markets
to establish a code of conduct and allow employees to do personal trading that
conforms to SEBI Guidelines
allow all employees to trade freely in secondary market without any
restrictions
allow employees to carry on personal trading as long as they abide by SEBI
guidelines.
MODULE : AMFI
MODULE ID : AM 01
TRAINER NAME : SRINIVASAN .T
MOBILE : 98 94 94 9988
aim_cus@yahoo.co.in
Akshaya Investments, Madurai