NISM Certifications Mutual Funds and Distribution Flashcards

24 sample cards from the Mutual Funds and Distribution deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What additional TER can be charged for inflows from beyond the top 30 cities (B-30)?

   AMCs may charge additional expense of up to 0.30% of daily net assets for inflows from beyond the top 30 cities (B-30), to incentivise penetration into smaller towns (subject to prevailing SEBI rules).

2. What is the difference between absolute return and annualised (CAGR) return?

   Absolute (point-to-point) return = (End value - Start value) / Start value, ignoring time. CAGR (Compound Annual Growth Rate) annualises the return over the holding period and is used for periods over one year.

3. What is the formula for simple (absolute) return of a mutual fund?

   Absolute Return % = [(Sale value/NAV - Purchase value/NAV) / Purchase value/NAV] x 100. It does not account for the holding period.

4. How is CAGR calculated?

   CAGR = [(Ending Value / Beginning Value)^(1/n)] - 1, where n is the number of years. It gives the constant annual rate that would grow the start value to the end value.

5. What is a 'benchmark' and why is it used in performance measurement?

   A benchmark is a market index (e.g., Nifty 50, S&P BSE Sensex, a debt index) against which a scheme's performance is compared to judge whether the fund manager has added value (out/under-performance).

6. What do Standard Deviation, Beta and Sharpe Ratio measure?

   Standard Deviation = total volatility of returns (risk). Beta = sensitivity of the fund to market movements (systematic risk; market beta = 1). Sharpe Ratio = excess return per unit of total risk = (Return - Risk-free rate) / Standard Deviation; higher is better.

7. What are the main distribution channels for mutual funds in India?

   Individual distributors (IFAs/MFDs), banks, national distributors and brokerages, online platforms/aggregators, stock-exchange platforms (BSE StAR MF, NSE NMF II), RTA portals, and Registered Investment Advisers (who advise, not distribute, for a fee).

8. What registration is required to sell mutual funds, and how is it obtained?

   A distributor must pass the NISM Series V-A: Mutual Fund Distributors Certification Examination, then obtain an AMFI Registration Number (ARN) from AMFI. The ARN must be quoted on all transactions.

9. What is an EUIN and why is it required?

   Employee Unique Identification Number - a number assigned to the individual employee/relationship manager of a distributor who advises the investor. It is captured on the application to fix accountability for mis-selling, separate from the firm's ARN.

10. What is the difference between upfront commission and trail commission?

    Trail commission is paid periodically as long as the investor stays invested, calculated on AUM. Upfront commission (paid at the time of sale) has been largely banned by SEBI; mutual funds now follow an all-trail commission model (upfront only allowed for SIPs in limited form).

11. What is the difference between Growth and IDCW (Dividend) options?

    In the Growth option, profits are reinvested and reflected in a rising NAV (no payouts). In the IDCW (Income Distribution cum Capital Withdrawal) option, the fund periodically pays out from income/capital, reducing the NAV by the amount distributed.

12. What is a Systematic Investment Plan (SIP)?

    A facility to invest a fixed amount at regular intervals (e.g., monthly), enabling rupee-cost averaging and disciplined investing. More units are bought when NAV is low and fewer when high, averaging the cost over time.

13. Differentiate SIP, SWP and STP.

    SIP = invest a fixed amount regularly into a scheme. SWP (Systematic Withdrawal Plan) = withdraw a fixed amount regularly. STP (Systematic Transfer Plan) = transfer a fixed amount regularly from one scheme to another (e.g., debt to equity).

14. What is rupee cost averaging?

    Investing a fixed sum at regular intervals so that more units are purchased when prices are low and fewer when prices are high, lowering the average per-unit cost over time and reducing the risk of mistiming the market.

15. What are the key steps in the financial planning process?

    1) Establish client relationship and gather data/goals, 2) Analyse the client's financial situation and risk profile, 3) Develop and present recommendations/plan, 4) Implement the plan, 5) Monitor and review periodically.

16. What is asset allocation and why is it important?

    Distributing investments across asset classes (equity, debt, gold, cash) based on goals, risk appetite and time horizon. It is the primary driver of long-term portfolio returns and manages risk through diversification.

17. What is the model portfolio approach using a 'rule of thumb' for equity allocation by age?

    A common rule of thumb suggests equity allocation = (100 - age)% of the portfolio, with the remainder in debt - reducing equity exposure as the investor ages. It is only a starting guideline, to be tailored to goals and risk profile.

18. How are equity mutual funds taxed (capital gains) in India?

    Short-Term Capital Gains (holding up to 12 months) are taxed at a special rate (15%, raised to 20% per recent budget). Long-Term Capital Gains (holding over 12 months) above the annual exemption (Rs 1 lakh, raised to Rs 1.25 lakh) are taxed at 10%/12.5% without indexation.

19. How are debt mutual funds purchased on/after 1 April 2023 taxed?

    Gains from specified debt mutual funds (under 35% equity) are treated as short-term capital gains irrespective of holding period and taxed at the investor's slab rate - the LTCG benefit and indexation were removed for such funds.

20. What is Securities Transaction Tax (STT) on mutual funds?

    STT is levied on redemption/sale of units of equity-oriented mutual funds (and on ETF/listed unit trades). No STT applies on purchase or redemption of units of non-equity (debt) funds.

21. State three key items from the AMFI Code of Conduct for distributors.

    Examples: provide full and accurate information to investors and do not mis-sell; recommend products suitable to the investor's needs/risk profile; disclose commissions earned across schemes if asked; never rebate commission to investors; abstain from indulging in fraudulent or unfair trade practices.

22. What are key requirements of the SEBI Advertising Code for mutual funds?

    Ads must be true, fair and not misleading; past performance must not be the sole basis (with the standard 'mutual fund investments are subject to market risks, read all scheme-related documents carefully' disclaimer); performance must be shown in a prescribed standardized format; no guaranteed returns may be promised unless fully funded/disclosed.

23. What are the key Scheme Related Documents an investor must read?

    Scheme Information Document (SID) - detailed scheme features/risks; Statement of Additional Information (SAI) - statutory/legal details of the fund; and the Key Information Memorandum (KIM) - an abridged summary accompanying the application form. The SID/SAI are updated periodically.

24. What are some key rights of mutual fund unit-holders?

    Right to timely service (allotment/redemption within prescribed days), to receive account statements and annual reports, to dividends/redemption proceeds on time, to approve major changes (75% of unit-holders can wind up a scheme), to nominate, and to grievance redressal (including SEBI SCORES and the Ombudsman/Online Dispute Resolution mechanism).

What this deck covers

Mutual Funds and Distribution flashcards FAQ