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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
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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.
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Portfolio Diversification
Professional management
Reduction in risk
Tax benefits
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Types of Funds
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Equity Schemes
High Risk High returns
Invests minimum 65% of Corpus in Indian Equity
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.
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Arbitrage Funds
Take Contrary Positions in different markets
Ex: Buying a Share in NSE & Selling the same in BSE
Invest in Futures and Options (Derivatives)
Active Funds
Fund Manager has an active role in Investment decision
Designed to Outperform the Market
High Running Cost
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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.
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Miscellaneous Schemes
Gold Funds
GOLD ETF invests in Physical Gold
GOLD Sector Funds Invests in the fund will invest in shares of companies engaged in gold
mining and processing - NAV of these funds do not closely mirror gold prices
International Funds
Collects money in India (Feeder Fund)
Invests money in Foreign Mutual Fund Schemes (Host Funds)
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Charges
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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.
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Limit on Expenses
Net assets
First 100 crores
next 300 crores
next 300 crores
>700 crores
Equity fund
2.50%
2.25%
2.00%
1.75%
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Rapid Fire
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Rapid Fire
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An investor asks you in what order he should list the following schemes, going from
the scheme with the least risk to the one with the highest risk.
1. A Balanced Fund,
2. A Stock Index Fund
3. A liquid/ Money Fund,
4. A Pharma sector fund
1,2,3,4
3,1,2,4
2,3,1,4
Charge to an investor at the time he redeems his units from the fund is known as
Repurchase load.
Redemption weight.
Exit load.
Contingent Deferred Sales Charge (CDSC).
is higher for investors who stay invested in the scheme longer
is lower for investors who stay invested in the scheme longer.
Is the same for all investors irrespective of how long they stay invested.
Is not allowed to be charged to mutual fund investors in India.
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Sponsor
Trustees
Custodian
R & T Agent
Distributors
Bankers
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Sponsor
A sponsor will form a trust & appoint a board of trustees with SEBI approval.
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Acts as protector of unit holders money. Appoint AMC for managing funds.
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An AMC cannot invest in its own schemes, unless the intention to invest is
disclosed in the Offer Document
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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
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Auditors
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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Rapid Fire
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Rapid Fire
The accounts and all other records of an AMC are filed with
AMFI
Registrar of Companies
Agents Association
UTI
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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
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Investor rights
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.
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SOA to dormant investors (no transaction during the previous 6 months can be
sent along with the Portfolio Statement / Annual Return.
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Investor rights
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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Rapid Fire
SEBI regulates
Mutual Funds
Depositories
Registrar & Transfer Agents
All the above
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Rapid Fire
If a unit-holder does not agree to the merger of his fund with another, he
has no exit option
True
False.
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The Sponsor of a fund can act as its custodian if it has the required
experience and SEBI registration
True
False
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Offer Document
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Offer Document
NFOs other than ELSS can remain open for a maximum of 15 days.
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Offer Document
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Contents of SID
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Risk
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.
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Scheme
Risk
Investment
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Is
All
Disclosures
OD
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Sales Practices
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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Rapid Fire
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Rapid Fire
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What document Mutual Fund distributors need to refer for finding out
eligible category of investors in a particular Mutual Fund Scheme?
SEBI Regulations Manual
AMFI booklet
Offer document
RBI Guidelines
Most eligible investors of Mutual Funds can broadly be grouped into either
individual or institutional investors
True
False
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The legal responsibility for the accuracy of the statements made in the
offer document lies with
SEBI
The AMC
AMFI
The Company Law Board
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Validate the statement - The investor is not obligated to read the offer
document before investing in Mutual Funds
Completely True
Completely False
Rarely True
Partly False
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Session 5
Accounting, Valuation & Taxation
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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
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Example : Investors have bought units of a mutual fund scheme during NFO. The
scheme has thus mobilized Rs 200 crore. An amount of Rs 140 crore, invested in
equities, has appreciated by 10%. The balance amount of Rs 60 crore, mobilized from
investors, was placed in bank deposits. Interest and dividend received by the scheme
is Rs 8 crore, scheme expenses paid is Rs 4 crore, while a further expense of Rs 1
crore is payable. Calculate NAV of the scheme ?
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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.
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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.
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TAXATION
Product
Transaction
STT rate
Purchase
0.125%
Sell
0.125%
Sell
0.017%
Equity MF Repurchase
Sell
0.25%
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Individuals/HUF
Corporates
Equity schemes
Nil
Nil
Debt schemes
14.163%
22.66%
28.325%
28.325%
(25% + 10% + 3%)
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Capital Gain is the difference between sale price and acquisition cost
Long Term Capital Gain (LTCG) : Gains arising from Sale of Units held for > 12 months
Short Term Capital Gain (STCG): Gains arising from Sale of Units held for <=12 months
Equity Schemes NIL. Where STT is not paid, the taxation is similar to debtoriented schemes
Debt Schemes Lesser of 10% without indexation or 20% with indexation
Indexation means that the cost of acquisition is adjusted upwards to reflect the
impact of inflation
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Capital loss, short term or long term, cannot be set off against any
other head of income (e.g. salaries)
Loss
Short Term
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Rapid Fire
Wealth tax is payable at the applicable rates on equity mutual fund units
True
False
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Risk Measures
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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.
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Fundamental Analysis
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
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Risk Measures
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Risk Measures
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.
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Risk and Returns have co-relation. Risk adjusted Return is measured by using
Sharpe Ratio or Treynor Ratio
SHARPE RATIO =
TREYNOR RATIO =
_____Risk Premium___
Funds Standard Deviation
______Risk Premium ______
Funds Beta
Risk Premium - Difference between the Funds 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.
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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
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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
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Benchmark
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Rapid Fire
Loads and taxes may account for the difference between scheme returns
and investor returns
True
False
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Rapid Fire
According to SEBI code for MF Advertisement, for funds that have been in existence
for more than a year, annualized returns have to be furnished for
1Yr,3Yrs,5Yrs and since Inception
1yr,5yr and since launch
1yr,3yr,5yr
1yr,3yr and since launch
Returns can be annualized and compounded only if the scheme has completed
30 days
12 months
6 months
24 months
An Equity scheme is 90 days old. To compute yield it can use
Absolute return
Simple Annualized return
Compounded annualized return
Any of these
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Rapid Fire
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Rapid Fire
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Equity markets are more predictable in the long term than the short.
True
False
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Investor Services
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Investor Services
PAN Card is compulsory for all mutual fund investments except MICRO SIP
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Investor Services
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Applicable NAV
Received
anytime
Today NAV
Sale
Repurchase
Received till 3
Received after 3
Sale
Received
anytime
Sale
Received till 3
Received After 3
Sale
Received
anytime
Repurchase
Received till 3
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Rapid Fire
PAN Card is compulsory for all MF investments above Rs 50,000 including SIPs
TRUE
FALSE
Cut-off timing guidelines are not applicable for NFOs & International Funds
TRUE
FALSE
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Rapid Fire
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Financial Planning
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Financial Products
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
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Financial Products
Investors can invest through Points of Presence (POP)
3 kinds of portfolios are available for Investors
Asset Class E: Investment in predominantly equity market instruments
Asset Class C: Investment in Debt securities other than Government
Securities
Asset Class G: Investments in Government Securities
Investors can also opt for life-cycle fund. With this option, the system
will decide on a mix of investments between the 3 asset classes, based
on age of the investor.
The 3 asset class options are managed by 6 Pension Fund Managers
(PFMs)
Personal Retirement Account Number (PRAN), is applicable across all the
PFMs where the investors money is invested
POPs offer services related to moneys invested with any of the PFMs
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Classification of Investors
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Financial Needs
Investment Preferences
Accumulation Stage
(Phases of Life Cycle Stage:
Young Unmarried to PreRetirement.)
Transition Stage
Higher liquidity
requirements / Goal has
reached.
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Asset allocations
Tactical Asset allocation is taking calls on the likely behavior of the market.
Tactical asset allocation is for seasoned investors with large investible surpluses
An investor who decides to go overweight on equities i.e. take higher exposure
to equities, because of expectations of buoyancy in industry and share markets,
is taking a tactical asset allocation call.
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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
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Business Ethics
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Details of Sec Transactions by AMC Directors & Key Persons filed with
Compliance Officer once in 6 MONTHS to avoid FRONT RUNNING
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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Rapid Fire
X (1 + i)n
/ (1 + i)n
n X (1 + i)
n X (1 + i)
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Rapid Fire
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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
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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
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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
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How much equity would you suggest for a young well settled unmarried
individual
100%
80%
60%
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MODULE : AMFI
MODULE ID : AM 01
TRAINER NAME : SRINIVASAN .T
MOBILE : 98 94 94 9988
aim_cus@yahoo.co.in
Akshaya Investments, Madurai
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