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NISM-Series-V-A: Mutual Fund Distributors Certification Examination
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Workbook for
NISM-Series-V-A: Mutual Fund Distributors
Certification Examination
National Institute of Securities Markets
www.nism.ac.in
NISM-Series-V-A: Mutual Fund Distributors Certification Examination
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This workbook has been developed to assist candidates in preparing for the National
Institute of Securities Markets (NISM) Certification Examination for Mutual Fund
Distributors.
Workbook Version: October 2013
Published by:
National Institute of Securities Markets
© National Institute of Securities Markets, 2013
Plot 82, Sector 17, Vashi
Navi Mumbai – 400 703, India
All rights reserved. Reproduction of this publication in any form without prior permission of
the publishers is strictly prohibited.
NISM-Series-V-A: Mutual Fund Distributors Certification Examination
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Disclaimer
The contents of this publication do not necessarily constitute or imply its endorsement,
recommendation, or favouring by the National Institute of Securities Market (NISM) or the
Securities and Exchange Board of India (SEBI). This publication is meant for general reading
and educational purpose only.
The statements/explanations/concepts are of general nature and may not have taken into
account the particular objective/ move/ aim/ need/ circumstances of individual user/
reader/ organization/ institute. Thus NISM and SEBI do not assume any responsibility for any
wrong move or action taken based on the information available in this publication.
Therefore before acting on or following the steps suggested on any theme or before
following any recommendation given in this publication user/reader should consider/seek
professional advice.
The publication contains information, statements, opinions, statistics and materials that
have been obtained from sources believed to be reliable and the publishers of this title have
made best efforts to avoid any errors. However, publishers of this material offer no
guarantees and warranties of any kind to the readers/users of the information contained in
this publication.
Since the work and research is still going on in all these knowledge streams, NISM and SEBI
do not warrant the totality and absolute accuracy, adequacy or completeness of this
information and material and expressly disclaim any liability for errors or omissions in this
information and material herein. NISM and SEBI do not accept any legal liability what so
ever based on any information contained herein.
While the NISM Certification examination will be largely based on material in this workbook,
NISM does not guarantee that all questions in the examination will be from material
covered herein.
NISM-Series-V-A: Mutual Fund Distributors Certification Examination
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About NISM
In pursuance of the announcement made by the Finance Minister in his Budget Speech in
February 2005, Securities and Exchange Board of India (SEBI) has established the National
Institute of Securities Markets (NISM) in Mumbai.
SEBI, by establishing NISM, has articulated the desire expressed by the Indian government
to promote securities market education and research.
Towards accomplishing the desire of Government of India and vision of SEBI, NISM has
launched an effort to deliver financial and securities education at various levels and across
various segments in India and abroad. To implement its objectives, NISM has established six
distinct schools to cater the educational needs of various constituencies such as investor,
issuers, intermediaries, regulatory staff, policy makers, academia and future professionals of
securities markets.
NISM brings out various publications on securities markets with a view to enhance
knowledge levels of participants in the securities industry.
NISM is mandated to implement certification examinations for professionals employed in
various segments of the Indian securities markets.
NISM-Series-V-A: Mutual Fund Distributors Certification Examination
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Acknowledgement
This workbook has been developed by NISM in consultation with the Examination
Committee for Mutual Fund Distributors Certification Examination consisting of
representatives of Association of Mutual Funds in India (AMFI). NISM gratefully
acknowledges the contribution of all committee members.
About the Author
This workbook has been developed for NISM by Mr. Sundar Sankaran, Director, Finberry
Academy.
NISM-Series-V-A: Mutual Fund Distributors Certification Examination
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About the Certification Examination for Mutual Fund Distributors
The examination seeks to create a common minimum knowledge benchmark for all persons
involved in selling and distributing mutual funds including:
Individual Mutual Fund Distributors
Employees of organizations engaged in sales and distribution of Mutual Funds
Employees of Asset Management Companies specially persons engaged in sales and
distribution of Mutual Funds
The certification aims to enhance the quality of sales, distribution and related support
services in the mutual fund industry.
Examination Objectives
On successful completion of the examination, the candidate should:
Know the basics of mutual funds, their role and structure, different kinds of mutual fund
schemes and their features.
Understand how mutual funds are distributed in the market-place, how schemes are to
be evaluated, and how suitable products and services can be recommended to investors
and prospective investors in the market.
Get oriented to the legalities, accounting, valuation and taxation aspects underlying
mutual funds and their distribution.
Get acquainted with financial planning as an approach to investing in mutual funds, and
an aid for advisors to develop long term relationships with their clients.
Assessment Structure
The examination consists of 100 questions of 1 mark each and should be completed in 2
hours. The passing score for the examination is 50%. There shall be no negative marking.
How to register and take the examination
To find out more and register for the examination please visit www.nism.ac.in
NISM-Series-V-A: Mutual Fund Distributors Certification Examination
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CONTENTS
CHAPTER 1: CONCEPT AND ROLE OF A MUTUAL FUND .................................................... 11
1.1 Introduction.............................................................................................................. 11
1.2 Types of Funds .......................................................................................................... 17
1.3 Key Developments over the Years ........................................................................... 25
CHAPTER 2: FUND STRUCTURE AND CONSTITUENTS ....................................................... 31
2.1 Legal Structure of Mutual Funds in India ................................................................. 31
2.2 Key Constituents of a Mutual Fund .......................................................................... 33
2.3 Other Service Providers ............................................................................................ 36
CHAPTER 3: LEGAL AND REGULATORY ENVIRONMENT .................................................... 41
3.1 Role of Regulators in India ....................................................................................... 41
3.2 Investment Restrictions for Schemes ...................................................................... 45
3.3 Investors’ Rights & Obligations ................................................................................ 47
3.4 Can a Mutual Fund Scheme go bust? ....................................................................... 52
3.5 Appendix 1: AMFI Code of Ethics ............................................................................. 53
3.6 Appendix 2: AMFI’s Code of Conduct for Intermediaries of Mutual Funds ............. 59
CHAPTER 4: OFFER DOCUMENT ...................................................................................... 67
4.1 Offer Document – NFO, SID, SAI .............................................................................. 67
4.2 Key Information Memorandum ............................................................................... 73
4.3 Appendix 3: Format of Scheme Information Document (SID) ................................. 75
4.4 Appendix 4: Key Information Memorandum ........................................................... 96
CHAPTER 5: FUND DISTRIBUTION AND CHANNEL MANAGEMENT PRACTICES ................ 103
5.1 Distribution Channels ............................................................................................. 103
5.2 Channel Management Practices ............................................................................ 109
CHAPTER 6: ACCOUNTING, VALUATION AND TAXATION ............................................... 121
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6.1 Accounting and Expenses ....................................................................................... 121
6.2 Valuation ................................................................................................................ 131
6.3 Taxation .................................................................................................................. 131
CHAPTER 7: INVESTOR SERVICES ................................................................................... 141
7.1 Mutual Fund Investors ........................................................................................... 141
7.2 KYC Requirements for Mutual Fund Investors ....................................................... 143
7.3 PAN Requirements for Micro-SIPs ......................................................................... 145
7.4 Additional Documentation Requirements applicable for Institutional Investors .. 146
7.5 Demat Account ....................................................................................................... 146
7.6 Transactions with Mutual Funds ............................................................................ 147
7.7 Transactions through the Stock Exchange ............................................................. 154
7.8 Investment Plans and Services ............................................................................... 154
7.9 Appendix 5: KYC Form for Individuals .................................................................... 161
7.10 Appendix 6: KYC Form for Non-individuals ............................................................ 162
7.11 Appendix 7: KYC Change Form for Individuals ....................................................... 163
CHAPTER 8: RETURN, RISK & PERFORMANCE OF FUNDS ................................................ 167
8.1 Drivers of Returns in a Scheme .............................................................................. 167
8.2 Measures of Returns .............................................................................................. 173
8.3 Drivers of Risk in a Scheme .................................................................................... 178
8.4 Measures of Risk .................................................................................................... 186
8.5 Benchmarks and Performance ............................................................................... 188
8.6 Quantitative Measures of Fund Manager Performance ........................................ 192
CHAPTER 9: SCHEME SELECTION ................................................................................... 199
9.1 How to choose between Scheme Categories? ....................................................... 199
9.2 How to select a Scheme within a Scheme Category? ............................................ 206
9.3 Which is the Better Option within a Scheme? ....................................................... 208
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9.4 Sources of Data to track Mutual Fund Performance ............................................. 209
CHAPTER 10: SELECTING THE RIGHT INVESTMENT PRODUCTS FOR INVESTORS .............. 215
10.1 Financial and Physical Assets .................................................................................... 215
10.2 Gold – Physical or Financial? ..................................................................................... 217
10.3 Real Estate – Physical or Financial? ........................................................................ 218
10.4 Fixed Deposit or Debt Scheme ............................................................................... 219
10.5 National Pension System (NPS) .............................................................................. 220
10.6 Other Financial Products ........................................................................................ 221
CHAPTER 11: HELPING INVESTORS WITH FINANCIAL PLANNING .................................... 225
11.1 Introduction to Financial Planning ............................................................................ 225
11.2 Alternate Financial Planning Approaches ................................................................. 230
11.3 Life Cycle and Wealth Cycle in Financial Planning .................................................... 230
CHAPTER 12: RECOMMENDING MODEL PORTFOLIOS AND FINANCIAL PLANS ................ 237
12.1 Risk Profiling .............................................................................................................. 237
12.2 Asset Allocation ...................................................................................................... 239
12.3 Model Portfolios ........................................................................................................ 240
List of Abbreviations ..................................................................................................... 244
