Nism Series

NISM - Series -
MUTUAL FUND Distributors Certification

Examination - June 2010
Index
Day 1
Part 1
1. Concept and Role of Mutual Funds

2. Fund Structure and Constituents
3. Legal and Regulatory Environment
Part 2
4. Offer Document
5. Fund Distribution and Channel Management Practices
7. Investor Services
8. Return,Risk & Performance of Funds
Chapter 1
CONCEPT AND ROLE

OF MUTUAL FUNDS
History of Mutual Funds in India
Phase 1 (1964-87) : Growth of UTI
Phase 2 (1987-93) : Entry of Public Sector Funds-S.B.I.,Canara etc.
Phase 3 (1993-96) : Emergence of Private Sector Mutual Funds Joint Ventures

between Foreign Funds & Indian Promoters - bringing
latest product innovation, investment management
techniques, and investor servicing technology
Phase 4 (1996-99) : Growth and SEBI Regulation
Phase 5 (1999-04) : UTI Act 1963 repealed in Feb 2003 UTI Mutual Fund
becomes SEBI compliant Assured Return Schemes of
UTI taken over by a special undertaking administered by
GOI Emergence of large & uniform industry
Phase 6 (2004…) : Consolidation & Growth 32 Mutual Funds as at 31-03-07

What is a Mutual Fund ?
• It is a pool of money, collected from

investors, and is invested according to
certain investment objectives
• The ownership of the fund is thus joint

or mutual, the fund belongs to all
investors.
●
A mutual funds business is to invest
the funds thus collected, according to
the the wishes of the investors who
created the pool
Important characteristics of a Mutual Fund?
● The ownership is in the hands of the investors who have pooled in their
funds so it is joint or mutual.
● It is managed by a team of investment professionals and other service

providers.
● The pool of funds is invested in a portfolio of marketable investments.
● The investors share is denominated by ‘units’ whose value is called as Net

Asset Value (NAV) which changes everyday.
● The investment portfolio is created according to the stated investment

objectives of the fund.
● Mutual Funds are also known as Financial Intermediaries
● In India, Mutual Funds are constituted as TRUSTS.

Advantages of Mutual Funds to Investors ?
● Portfolio diversification
● Professional Management
● Economies of Scale
● Reduction in Risk
● Liquidity
● Tax Deferral
● Tax benefits
● Convenience and Flexibility
● Regulatory Comfort
● Systematic Approach to investment
Limitation of a Mutual Funds?
● Lack of Customisation
● Choice Overload
● Issue relating to management of protfolio of Mutual Funds
Mutual Fund Classifications – Open ended Funds
●
In an open ended fund, investors can enter and exit out of the fund, at NAV
related prices, at any time, directly from the fund.
●
Open ended scheme are offered for sale at a pre- specified price, say Rs.
10, during the New offer period. After a pre-specified period say 30 days,
the fund is declared open for further sales and repurchases.
●
Investors receive account statements of their holdings,
●
The number of outstanding units goes up and down
●
The unit capital is not fixed but variable.
●
The corpus of an Open-ended scheme changes everyday
Mutual Fund Classifications – Close ended Funds
●
A closed -end fund is open for sale to investors for a specified period, after
which further sales are closed.
●
Further transactions happen in the secondary market (stock exchange)
where closed-end funds are listed.
●
The price at which the units are sold or redeemed depends on the market
prices, which are fundamentally linked to the NAV.
●
The number of units of closed ended funds remains unchanged.
●
The unit capital is fixed because of one time sale.
Mutual Fund Classifications – Interval Funds.
Interval Funds
●
Combine features of both open-ended and close ended schemes.
●
They are largely close-ended, becomes open ended at pre- specified
intervals.
●
Might become open-ended between 1 to 15th Jan, & 1 to15 July,each year.
●
The benefit for investors is they are not completely dependent on the
exchange.
Mutual Fund Classifications – Active Funds / Passive Funds
Active Funds
●
where the fund manager has the flexibility to choose Portfolio, within the
parameters of Schemes
●
The expenses for running the fund turn out to be higher.
●
Investors would expect such funds to outperform the market.
Passive Funds
●
Invest on the basis of a specified index, whose performance it seeks to
track.
●
The proportion of each share in the portfolio would also be the same as the
weight age assigned to the share in the Sensex.
●
Thus, the performance of these funds would mirror the concerned index.
Such schemes are also called index schemes.
●
Running Cost of such scheme would be low.
Types of Funds - By Investment Objective
Equity Debt Money Market
Equity Funds Fixed Income Money Market

Index Funds Funds Mutual Funds
Sector Funds GILT Funds
Balanced Funds Liquid Funds

Risk associated with various types of funds
Risk Level Debt Funds Hybrid Funds Equity Funds
High Risk
Sector Funds
Balanced fund based on
Flexible asset allocation
Growth Funds
High Yield Debt Fund
Diversified Equity Funds
Index Funds
Value Funds
Equity Income Funds

Dividend yield Funds
Balanced fund based on
Fixed asset allocation
Monthly Income Plans
Capital protection funds

Diversified Debt Fund
Gilt Funds
Money Market & Liquid

Low Risk schemes
What are Equity Funds ? (A Risky asset class)
• Aggressive Growth Funds (Targets maximum capital appreciation.)

• Growth Funds (Capital appreciation over 3 to 5 years at above average rate.)
• Speciality Funds
 Sector Funds (Bank, Power, Pharma, IT, Telecom)
 Foreign Securities Fund
 Mid cap or Small cap Equity funds
• Diversified Equity Funds (Do not focus on any one or few sectors or shares)
• Equity Index Funds (These funds take only the overall market risk)
• Value Funds (Invests in the companies whose shares are under-priced)
• Equity Income or Dividend yield funds
(Invests in the shares of the companies with high dividend yield.)
ELSS ( Equity Linked Saving Scheme )
• 3 year lock in period
• Minimum investment of 90% in equity markets at all times
• So ELSS investment automatically leads to investment in equity shares.
• Eligible under Section 80 C up to Rs.1 lakh allowed
• Dividends are tax free.
• Benefit of Long term Capital gain taxation.

Arbitrage Funds
• Take contrary positions in different markets / securities, such that

the risk is neutralized, but a return is earned.
• For instance, by buying a share in BSE, and simultaneously selling

the same share in the NSE at a higher price.
• Most arbitrage funds take contrary positions between the equity

market and the futures and options market.
Comparison of Equity Funds
Types of Equity Funds

Sector Funds Growth Funds Diversified Equity Funds Thematic Funds Index Funds
Investment Concentrates in Single

Capital appreciation in 3 can invest in across all the To invest into theme
sector of market for To mirror the index
Objective to 5 years sectors. like infrastructure
investment.
Risk High Risk High Risk Average Above average Market risk
Return on Related more with
High High High High
Investment Market Return
Liquidity Yes Yes Yes Yes Yes
Asset Diversified across all Diversified across all Can be Diversified
Among sector only Most diversified
allocation sectors sectors across as per theme
Focused on stocks within a
Invest in to companies Best of the return are invest across A passive fund style
certain business or
Features show promise of strong generated per unit of risk companies which are suits to conservative
industry. More volatile than
growth in coming years taken by the investors. part of said theme. investors.
the overall market.
Debt Funds
Schemes with an objective that limits them to investments in debt securities like
Treasury Bills, Government Securities, Bonds and Debentures are called debt
funds.
Types of Debt funds:
Gilt funds
Invest in only treasury bills and government securities, with Zero credit risk.
Diversified debt funds
Invest in a mix of government and non-government debt securities.
Junk bond schemes
Invest in companies with poor credit quality.
What are debt funds?
Fixed maturity plans
are debt funds where the investment portfolio is closely aligned to the
maturity of the scheme & usually for shorter term – less than a year.
Floating rate funds:
Invests in floating rate debt securities where the interest rate payable by
issuer changes in line with the market. NAV`s of such schemes fluctuate
lesser than debt funds that invest more in debt securities offering a fixed rate
of interest.
Liquid schemes or money market schemes
invest only in debt securities that matures within 91-days. They are the lowest
in risk among all kinds of mutual fund schemes.
What are hybrid funds?
Monthly Income Plan

●
Seeks to declare a dividend every month.
●
invests largely in debt securities. & Small percentage in equity shares to
improve the scheme’s yield.
Capital Protected Schemes

●
They are close-ended schemes,
●
They are structured to ensure that investors get their principal back,
irrespective of market conditions.
●
Mainly invests in Zero coupon govt securities whose maturity is aligned
with scheme`s maturity.
What are other types of funds?
Gold Exchange Traded Fund,
●
They are like an index fund that invests in gold. NAV of such funds moves in
line with gold prices in the market.
Gold Sector Funds
●
Such funds like any equity sectors funds the prices of these shares are more
closely linked to the profitability and gold reserves of the companies. NAV of
these funds do not closely mirror gold prices.
Real Estate Funds
●
Such funds make it possible for small investors to take exposure to real
estate as an asset class. although permitted by law, such mutual funds are yet
to hit the market in India.
What are Other types of Funds
Commodities Funds
●
Such funds Invest in shares of Companies that are in to commodities Like
Gold sector funds, Commodity Sector Funds etc.
International funds
●
Invest outside the country the Common practice is tie up with a foreignfund.
In such case a feeder fund will be launched & will subsequently invest into
the host fund of the foreign fund house.
Fund of funds (FOF)

●
Such funds invest in various other funds, whether in India or abroad. They
are designed to help investors get over the trouble of choosing between
ultiple schemes and their variants in the market.
Exchange Traded Funds
●
An open ended fund that trades on stock exchange.
●
A baskets of securities that are traded, like individual stocks, on an exchange.
●
ETF`s can be bought and sold throughout the trading day like any stock.
●
It tracks a market index and trades like a stock on the stock market.
●
One must pay a brokerage to buy and sell ETF units.
●
ETF`s are not the index funds.
Comparison of Debt Funds
Debt Funds
Diversified Debt High Yield
Liquid Funds Gilt Funds FMP MIP
Funds Debt Funds
Investment For consistent For higher return For fixed returns over for regular For higher
High Liquidity
Objective returns & liquidity. than gilt funds & fixed-maturity income returns
Between the call rates & Nearly Fixed sort of Higher than pure
Return Moderate Higher Yield High
1yr T Bills returns debt fund
Default Risk Very less Nil Yes Yes Yes High
Interest rate
Nil Medium to high Yes Nil Yes Yes
risk
Credit rating Yes Yes Yes Yes Yes Yes
short duration
Invest in short-term debt invest G-Secs of Invest in a mix of Schemes maturity is
fixed income risky debt
Portfolio instruments with less central & state govt govt and non govt aligned with portfolio
paper & into instruments
than 1 year maturity. & T. Bills. securities. maturity
equity funds
can be redeemed
comparatively
Liquidity Very High 3 Business days before maturity at 3 Business days
low
exchange.
Balanced Fund
The discussion on asset allocation brought out the benefit of diversifying the
investment portfolio across asset classes
Balance fund is rarely a 50/50 fund!
Equity oriented Balanced funds (up to 65% in equity)
Income oriented Balanced fund (up to 65% in debt)
Investing in a balanced scheme makes things simpler for investor, because

Fewer scheme selection decisions to be made
Parameters to consider while selecting any fund
●
Fund Age
●
Scheme running expenses
●
Tracking error
●
Regular income yield
●
Risk, return and risk adjusted returns
●
Investor behavior
●
Experts view
Investment Choices
Investor can Achieve income & capital appreciation in all funds by various
choices available such as
●
Dividend Option – Regular Dividend
●
Dividend Reinvestment Option
●
Growth Option
Most of the Funds are available with all above options Investor can choose
according to his investment objective.
Very Important Points
●
An Open Ended Fund offers repurchase facility unconditionally at all times (But
It is not obliged to keep selling new units at all times).
●
A Gilt Fund is a special type of Fund that invests in Dated Securities only.
●
Units from an Open ended fund are bought through Distributors, Banks, Post
offices, brokers appointed by AMC.
●
The Unit Capital of a closed Ended Fund is fixed. Also the number of units are
also fixed.
●
Each unit holder of a mutual Fund is part owner of the asset of that Mutual fund
( he is not a creditor, not a debtor and not a trustee of that mutual fund).
●
Units from an Open Ended fund are bought from the Fund Itself ( not from the
AMFI, stock exchange, distributors or the banks).
Very Important Points
●
The Liquidity needs of an investor are met through Money Market Funds.
●
A retired person generally needs a greater proportion of Debt Funds.
●
A young investor, for growth and wealth creation, should be advised to invest
in Equity Growth Funds.
●
Retired investors should not invest in securities which bear risk of capital
erosion.
●
An Equity Fund can be said to be concentrated when Top 10 holdings account
for more than 50% of net assets invested.
●
The size of the market cap of fund’s equity holdings is inversely proportional
to the level of risk assumed by the fund. ( Large Market Cap have low risk).
●
A steady holdings of investments in an equity fund’s portfolio indicates both
Long Term orientation and Lower Transaction Costs.
●
Before investing in equity fund one should look at Ex Mark, Beta, Yield, Age
and size of the fund, Portfolio turnover rate.
Very Important Points – Debt Funds
●
Debt Schemes are popular because the returns are more predictable. Equity
returns are volatile and very less predictable.
●
If an investor needs income, he should select a fund with high current yield.
●
YTM ( Yield to maturity) of debt fund’s portfolio gives an indication of Total
Return ( Not current income).
●
Longer the average duration of debt fund portfolio, greater the interest rate risk.
●
Long term Debt funds carry high interest rate risk.
●
Running a Money Market Mutual Fund requires more of Trading Skills.
●
The investors should invest in Debt Fund with a Higher Rated Portfolio and
Lower Expense Ratio.
●
An Ideal money market MF has lower expense Ratio.
Question for Revision
Q-1 What is not an advantage of the Mutual Fund ?

(a) professional management (b) Choice over load
(C) High liquidity (d) Economic scale
Q-2 Which of the following fund targets capital appreciation over 3 to 5 year
period at above average rate?
(a) Aggressive growth fund (b)Growth fund (c) Sector fund (d)None of the
above.
Q-3 Gold funds can invest in

(a) Gold (b) Gold futures (c) Shares of gold mines (d) All of the above.
Q-4 Which of the following fund would fall under passive management ?
(a) Diversified Equity Fund (b) Index Fund

(c) Equity Growth Fund (d) all of Above.
Q-5 Which one of the following funds does not qualify as a speciality fund?
(a)Pharma Fund (b) Balanced Fund

(c) Small-Cap Fund (d) Emerging Markets Fund
Q-6 After NFO in Open Ended fund transactions can be done by ?
(a) Existing Investors (b) Existing & New Investors

(b) New Investors (d) None of the Above.
Q-7 Compare to Sector Funds Thematic Fund would have a wider choice for
investment ?
(a) True (b) False
Answers:
Q-1 : (b), Q-2 : (b), Q-3 : (d), Q-4 : (b), Q-5 : (b) , Q-6 : (b), Q-7 : (True)
Chapter 2
FUND STRUCTURE AND

CONSTITUENTS
Structural Frame Work of Mutual Funds
Sponsor
(Reliance capital Limited)
Contributes
at least 40%
in the capital
Trustee AMC
Appoints Rel. Cap. Asset. Mgmt. Ltd
Rel. Cap. Trustee Co. Ltd.
Responsible for investors Marketing &

money (Primary Guardian) Fund
Management Development
Banks Registrar & Custodian*

*Custodians are appointed by Trustees
Karvy & CAMS
Regulatory structure of MF in India
●
The structure of mutual funds in India is governed by SEBI(Mutual Fund)
Regulations, 1996.
●
It is mandatory to have a three tier structure of Sponsor-Trustee-Asset
Management Company.
●
The Sponsor is the promoter and he appoints the Trustees who are
responsible to the investors of the fund.
●
AMC is the business face of the mutual fund as it manages all the affairs of the
fund
How are Mutual Funds Structured
●
In India Mutual fund is the form of a Public Trust created under the Indian trust
Act 1882.
●
The fund sponsor acts as the Settler of trust, contributes the initial capital and
appoints the trustees to hold the trust for the benefit of the unit holders.
●
Mutual fund is just a “pass-through vehicle”
●
In India, Mutual funds are organized as trusts. The trust is either managed by
a Board of Trustees, or by a trustee company.
●
The trustees hold the unit holders money in a fiduciary capacity. (Money
belongs to unit holders)
●
In legal sense, the investors are the beneficial owners of investments.
Sponsor
●
The sponsor is a promoter of the mutual fund
●
Sponsor appoints the Trustees, the AMC and custodians with prior approval of
SEBI and in accordance with SEBI Regulations.
●
Sponsor must have a 5-year track record in the financial Services business.
●
Sponsor must have been profit making in at least 3 of the above 5 years.
●
Sponsor must contribute at least 40% of the net worth of the AMC
●
Sponsor could be a bank (SBI, PNB, ICICI, HDFC) a financial institution (Fidelity,
Franklin Templeton) or a Corporate (Reliance, Birla, Tata etc.)
Trustee
●
The role of the trustee is to safeguard the interest of the investor of the fund.
●
The trustee make sure that the fund are invested as per the investment objective.
●
There must be at least 4 members in the Board of Trustees and at least 2/3 of the
members of the board of trustees must be independent.
●
Trustee of one mutual fund can not be a trustee of another mutual fund.
●
All major decisions are taken by trustee.
●
The 3rd schedule of the SEBI regulations specifies the content of the trust deed.
Rights & Obligations of trustees
Rights :-
●
Trustees appoint the AMC, consultation with the sponsor according to SEBI.
●
All Schemes floated by the AMC have to be approved by the Trustees.
●
Trustees can seek remedial actions from AMC & in cases dismiss the AMC
Obligations :-
●
Trustees must ensure due diligence on the part of AMC in the appointment of
constituents and business associates
●
Trustees must furnish to the SEBI, on half yearly basis a report on the
activities of the AMC
●
Trustees must ensure compliance with SEBI regulations
●
The meeting of the trustees should be held at least once in every 2 months.
Asset Management Company
●
Must be registered with SEBI
●
AMC also can be formed as Pvt Ltd Company.
●
Amc is responsible for all operational aspects.
●
AMC gets fees for fund management.
●
AMC must have a minimum net worth of Rs. 10 Cr., at all times
●
An AMC cannot be an AMC or Trustee, of another Mutual Fund
●
AMC’ s cannot indulge in any other business, other than that of asset
management.
●
AMC can not be trustee / AMC for another MF.
●
At least half of the members of the Board of an AMC, have to be independent
●
Quaterly reporting to trustees.
●
The agreement between the Trustees and the AMC is known as “Investment
Management Agreement”.
Functions of the Custodians
●
Responsible for the securities held in the mutual fund’s portfolio and is
required to be registered with SEBI
●
Custodian is appointed by the Board of Trustees
●
Keep an investment record of the mutual fund
●
Collect dividends and investment payments due on the mutual funds
investment
●
The custodian and sponsor cannot be the same entity
●
The custodian is the guardian of the funds and assets of investors
Registrar and Transfer Agents
●
They are responsible for issuing and redeeming units of the Mutual Fund. Their
other services include:
●
Process investor applications
●
Record details of Investors
●
Send information to Investors
●
Process dividend payout
●
Incorporate changes in investor information
●
Keeping Investor information up to date
●
Example Karvy and CAMS
Other's important authorities
Auditors : -
●
Auditors are responsible for the audit of accounts.
●
The auditor appointed to audit the scheme accounts needs to be different
from the auditor of the AMC.
●
While the scheme auditor is appointed by the Trustees
Fund Accountants : -
• Fund accountants calculate the NAV by collecting the information about the
assets and liabilities of each scheme.
• AMC can either handle this activity in house or can higher the agency.
Other's important authorities
Distributors :-
They play a key role in selling suitable types of units to their clients. But before
selling distributors needs pass the prescribed certification tests
Collecting Bankers :-
The Investors Money go into bank account of the scheme they have invested in .
These banks accounts are maintained with collection bankers who are appointed
by AMC.
Important Points
●
The appointment of AMC can be terminated by Majority of directors of
trustees.
●
Fund manager is responsible for filing details of the funds’ portfolio with
SEBI.
●
A sponsor of a mutual fund can act as the distributor of the Mutual fund.
●
The sponsor can be compared as promoter of a company
●
Sponsor can contribute to the initial corpus of the trust.
●
Sponsor contributes to the capital of the AMC and can invest in his own
fund’s schemes.
●
Sponsor can not act as Trustee , Custodian of the Mutual Fund.
Important Points
●
A sponsor of a mutual fund can act as the distributor of the Mutual fund.
●
Sponsor can contribute to the initial corpus of the trust.
●
Sponsor contributes to the capital of the AMC.
●
Sponsor can invest in his own fund’s schemes.
●
Sponsor can not act as Trustee of Mutual fund.
●
Sponsor can not act as Custodian of the Mutual Fund
Questions for Revision
Q-1 The appointments of fund distributors are made by

(a) The Transfer Agents (b) The Fund Sponsor (c) The Trustees (d) The AMC
Q-2 In India, a mutual fund has to be structured:
(a) As a trust (b) As an investment company
(c) Either as a trust or as a company at the choice of the sponsor (d) None of
the above
Q-3 Which of the following entities is responsible for issuing and redeeming units?
(a) Custodian (b) Bankers (c) Registrar (d) Distributors.
Q-4 Minimum Net worth needed by AMC ?
(a) 10Cr (b) 15 Cr (c) 20Cr (d) 5Cr.
Answers:
Q-1 : (d), Q-2 : (a), Q-3 : (c), Q-4 : (a)
Chapter 3
LEGAL AND REGULATORY

ENVIRONMENT
Regulating Agencies of Mutual Fund
●
Mutual Funds are regulated by SEBI (Mutual Funds) Regulations, 1996
●
SEBI regulates all funds, except offshore funds i.e. those schemes offered
in a foreign country
●
Bank-sponsored mutual funds were jointly regulated by SEBI and RBI
●
Subsequently it has been clarified that all MFs being primarily capital
market players,regulatory come under the umbrella of SEBI.
●
RBI regulates the money and government securities market where the
mutual funds invest. But not the MMMF.
Regulating Agencies of Mutual Fund
●
Liquid funds which invest in money market instruments are now governed by
SEBI alone. ( Money Market Mutual Funds are now regulated by SEBI). But
they need to comply with RBI's regulations
●
If a bank-sponsored mutual fund offers a guarantees, it requires RBI
permission
●
SEBI does not regulate Non Banking Finance companies.
●
The finance ministry is the supervisor of both the RBI and SEBI Aggrieved
parties can make appeals to the Ministry of finance on the SEBI rulings
relating to mutual funds.
Self regulatory organizations (SRO’s)
●
In developed Countries it is common for market players to Create
SRO, Whose prime responsibility is to regulate the their own
members
●
Where ever SRO exits statutory regulatory bodies lays down the broad
policy framework and leave micro regulation to the SRO.
●
SRO are the second-tier in the regulatory structure & gets their powers from
the apex regulating agency and act on their instructions
●
SRO facilitate decentralization in the regulatory structure.
●
For Instance - Stock exchanges are Self-Regulatory Organizations
What are the objectives of AMFI ?
● AMFI is an industry association, incorporated in 1995, is not an SRO, so it can

● Just issue guidelines to members. It cannot enforce regulations.
● To Define & Maintain high professional , ethical standards in all areas of
operation in MF Industry.
● To recommend best business practice and code of conduct to be followed by
the members and other engaged in various activities.
● To interact with the Securities and Exchange Board of India (SEBI) and
represent to SEBI on all matters concerning the mutual fund industry.
● To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.
● To develop a cadre of well trained agent distributors.
● To Undertake nationwide investor awareness programme to promote better
understanding of the concept & working of mutual funds
AMFI code of ethics (ACE)
●
Amfi Code of Ethics sets out the standards of good practices to be
followed by the AMC in their operations and in their dealings with
investors , intermediaries and the public.
●
SEBI Regulation 1996 requires all the AMC and trustees to abide by the
code of conduct.
Integrity
Members and their key personnel, in the conduct of their business shall
observe the high standard of integrity and fairness in all the dealing with the
investors, issuer,market intemediaries,other members and regulatory and other
government authorities.
Mutual Fund Scheme shall be organized, Operated, Managed and and their
portfolios of securities selected, in the interest of all classes of unit holder and
not in the intererest of
●
Sponsors
●
Directors of Members
●
Members of Board of Trustees or Directors of the Trustee company
●
Brokers and Other Market Intermediaries
●
Associates of Members
●
A Special class selected from out of Unit Holders
Due Diligence
●
Mem bers in the conduct of their Asset Management Business shall at all
times
●
Render high standard of service
●
Exercise due diligence
●
Excercise independent professional judgement
●
Member shall have and employ effectively adequately resources and
procedures which are needed for the conduct of Asset Management
activity
Disclosures
●
Member shall ensure timely dissemination to all unitholder of
adequate,accurate, and explicit information presented in a simple
language about the investment objectives, investment policies, financial
positions and general affairs oooof the scheme.
Professional Selling Practice

●
Member shall not use any unethical means to sell,market or induce any
investors to buy their products and scheme
Investment Practice
●
Members shall manage all the schemes in accordance with the
●
Fundamental investment objectives and investment policies stated
●
In the offer documents and take investment decisions solely in the
●
Interest of the unitholders.
●
5.2 Members shall not knowingly buy or sell securities for any of their
schemes from or to
●
Any director, officer, or employee of the member
●
Any trustee or any director, officer, or employee of the Trustee Company
Operations
●
Members shall avoid conflicts of interest in managing the affairs of the schemes and
shall keep the interest of all unitholders paramount in all matters relating to the scheme.
●
Members or any of their directors, officers or employees shall not indulge in front
running (buying or selling of any securities ahead of transaction of the fund, with access
to information regarding the transaction which is not public and which is material to
making an investment decision, so as to derive unfair advantage).
Reporting Practices
●
Members shall follow comparable and standardized valuation policies in accordance
with the SEBI Mutual Fund Regulations.
●
Members shall follow uniform performance reporting on the basis of total return.
●
Members shall ensure scheme-wise segregation of cash and securities accounts.
Unfair Competition
●
Members shall not make any statement or become privy to any act, practice or
competition, which is likely to be harmful to the interests of other Members or is likely to
place other Members in a disadvantageous position in relation to a market player or
investors, while competing for investible funds.
Observance Of Statutes, Rules And Regulations

●
Members shall abide by the letter and spirit of the provisions of the Statutes,
Rules and Regulations which may be applicable and relevant to the activities
carried on by the Members.
10.0 Enforcement
Members shall:
●
Widely disseminate the AMFI Code to all persons and entities covered by it
●
Make observance of the Code a condition of employment
●
Make violation of the provisions of the code, a ground for revocation of
contractual arrangement without redress and a cause for disciplinary action
●
Require that each officer and employee of the Member sign a statement that
he/she has received and read a copy of the Code
●
Establish internal controls and compliance mechanisms, including assigning
supervisory responsibility.
AMFI code of ethics (ACE) - Summary
AMFI code of ethics broadly deals with:

● Integrity
● Due diligence
● Disclosures
● Professional selling practices
● Investment practices
● Operations
● Reporting practices
● Unfair competition
● Observation of statutes, rules and regulations
● Enforcement
● Definitions like AMFI, Member, Trustee, Trustee company etc.
AMFI guidelines & norms for intermediaries (AGNI)
●
Take necessary steps to ensure that the clients’ interest is protected.
●
Adhere to SEBI Mutual Fund Regulations and guidelines issued from time to
time related to selling, distribution and advertising practices.
●
Be fully conversant with the key provisions of the Scheme Information
Document (SID), Statement of Additional Information (SAI) and Key
Information Memorandum (KIM) as well as the operational requirements of
various schemes
●
Highlight risk factors of each scheme, avoid misrepresentation and
exaggeration and urge investors to go through SID/KIM before deciding to
make investments.
●
Disclose to the investors all material information including all the
commissions (in the form of trail or any other mode) received for the different
competing schemes of various Mutual Funds from amongst which the
scheme is being recommended to the investors.
AMFI guidelines & norms for intermediaries (AGNI)
●
Abstain from indicating or assuring returns in any type of scheme, unless the
SID is explicit in this regard.
●
Maintain confidentiality of all investor deals and transactions.
●
When marketing various schemes, remember that a client’s interest and
suitability to their financial needs is paramount.
●
Intermediaries will not rebate commissions back to investors and avoid
attracting clients through temptation of rebates / gifts etc.
●
A focus on financial planning and advisory services ensure correct selling, and
also reduces the trend towards investors asking for pass back of commission.
●
All employees engaged in sales and marketing should obtain AMFI (NISM
Series-V-A: Mutual Fund Distributors Certification Examination)
Investors Rights & Obligations
Service Standards Mandated for a Mutual Fund towards its Investors:

●
●
Schemes, other than ELSS, need to allot units or refund moneys within 5
business days of closure of the NFO.
●
Open-ended schemes, other than ELSS, have to re-open for ongoing sale /
re-purchase within 5 business days of allotment.
●
Statement of accounts are to be sent to investors as follows:
●
NFO - within 5 business days of closure of the NFO.
1. Post-NFO investment – within 10 working days of the investment
2. Ongoing Investments – Once in quarter end of calender year with in 10
working days
3. Request by investor - To be dispatched with in 5 working days with out
charges
●
Investor can ask for a Unit Certificate for his Unit Holding. AMC is bound to
issue unit certificates within 30 days of receipts of request.
●
NAV has to be published daily, in at least 2 newspapers
●
NAV, Sale Price and Re-purchase Price is to be updated in the website of
AMFI and the mutual fund
●
case of Fund of Funds, by 10 am the following day
●
In the case of other schemes, by 9 pm the same day
●
The investor/s can appoint upto 3 nominees, .
●
The investor has a right to pledge the units held.
●
Dividend warrants have to be dispatched to investors within 30 days of
declaration of the dividend
●
Redemption / re-purchase cheques would need to be dispatched to investors
●
within 10 working days from the date of receipt of transaction request.
●
Unit-holders have proportionate right to the beneficial ownership of the assets
of the scheme.
●
Investors can choose to change their distributor or go direct. In such cases,
AMCs will need to comply, without insisting on any kind of No Objection
Certificate from the existing distributor.
●
Investors can choose to hold the Units in dematerialized form. The AMC is
bound to co-ordinate with the RTA and Depository to facilitate.
●
In the case of unit-holding in demat form, the demat statement given by
the Depository Participant would be treated as compliance with the
requirement of Statement of Account.
●
The mutual fund has to publish a complete statement of the scheme
portfolio and the unaudited financial results, within 1 month from the close of
each half year. Advertisement need to publish in one national English &
regional language of the region where the HQ of the mutual fund is situated.
●
Debt-oriented, close-ended / interval, schemes /plans need to disclose their
portfolio in their website every month, by the 3rd working day of the
succeeding month.
●
Unit-holders can inspect key documents such as the Trust Deed, Investment
Management Agreement, Custodial Services Agreement, R&T agent
agreement and Memorandum & Articles of Association of the AMC.
●
Scheme-wise Annual Report, or an abridged summary has to be mailed to all
unitholders within 6 months of the close of the financial year.
●
The offer document has details of the number of complaints received and
their disposal. Pending investor complaints can be a ground for SEBI to
refuse permission to the AMC to launch new schemes.
●
The trustees / AMC cannot make any change in the fundamental attributes of a
scheme, unless a written communication is sent to each Unit-holder, and an
advertisement should be published in news papers (english & regional).
●
An option of exit would be give to unit holders with out any exit load.
with in 30 days.
●
The appointment / Termination of an AMC - A majority of the trustees or by
75% of the Unit-holders (in practice, Unit-holding) of the Scheme.
●
The Winding of a Scheme - Only after 75% of the Unit-holders (in
practice, Unit-holding) pass a resolution to wind-up a scheme.
●
The Trustees are bound to obtain consent of the Unit-holders:
●
Whenever required to do so by SEBI, in the interest of the Unit-holders
●
Whenever required to do so by 75% of the Unit-holders (in practice, Unit-
holding) of the scheme.
●
When the trustees decide to wind-up or prematurely redeem the scheme
●
If an investor feels that the trustees have not fulfilled their obligations,
then he can file a suit against the trustees for breach of trust.
Limitations to Investors right
●
Investors cannot sue the trust as they are not distinct from the trust
●
Investors cannot lodge complaints against the trustees (with the Registrar of
Public Trusts) or the AMC (with the CLB).
●
Investors can lodge complaints with SEBI for non-compliance.
●
Investors cannot be compensated if the performance of the fund is below
expectations.
●
There are no legal remedies available for a prospective investor.
●
The principle of caveat emptor (let the buyer beware) applies to mutual fund
investments. So, the unit-holder cannot seek legal protection on the grounds
of not being aware, especially when it comes to the provisions of law, and
matters fairly and transparently stated in the Offer Document.
Unclaimed Amounts
●
The mutual fund has to deploy unclaimed dividend & redemption amounts in the
money market.
●
AMC can recover investment management and advisory fees at maximum
rate of 0.50% p.a.
●
Recovery of such unclaimed amounts by the investors is as follows:
●
If the investor claims the money within 3 years, then payment is based on
prevailing NAV i.e. after adding the income earned on the unclaimed money
●
If the investor claims the money after 3 years, then payment is based on the NAV
at the end of 3 years
●
AMC is expected to make a continuous effort to remind the investors through
letters to claim their dues.
●
The Annual Report has to mention the unclaimed amount and the number of
such investors for each scheme.
Important Points
●
SEBI entertains the complaints against MF and intervenes with fund
managements to help the investor.
●
SEBI requires that sponsors of a new scheme should appoint a compliance
officer who must issue a Due Diligence Certificate to the effect that all
regulations have been complied with by the fund and sponsors.
●
The fund investors are neither shareholders nor depositors in the AMC
●
Mutual fund has to deploy unclaimed dividend and redemption amount in money
market, where they can charge .50% as investment management and advisory
fees.
●
Unit holders have right to timely service, right to information, right to approve
changes in fundamental attributes, right to wind up a scheme, right to terminate
the AMC.
●
3rd Schedule of SEBI (MF) regulations 1996 specifies the contents of the Trust
Deed.
●
The body to which investors may address their complaints is SEBI.
●
Investors money is not protected by the Companies Act.
Q-1. Bank owned mutual funds are regulated by

(a) RBI and SEBI (b) Respective parent banks (c) RBI (d) SEBI
Q-2. If an investor failed to claim the redemption proceeds after 3 years of due
date he has the right to receive an amount equal to
(a) Zero (b) Face value of the unit
(c)Due date NAV plus interest @15% p.a.
(d)NAV at the end of three years after the due date
Q-3 Payment of redemption is delayed then what % Interest has to be paid by
AMC ?
(a) 10% (b)20% (c)9% (d) 15%
Answers: Q-1 : (d) Q-2 : (d) Q-3 : (d)
Chapter 4
OFFER DOCUMENT
New Fund Offer
●
Units of mutual fund are offered to investors for the first time through a
NFO. Following are the key steps leading to NFO.
●
AMC decide the scheme to take to the market.
●
AMC prepares offer Document for the NFO. This needs to be approved by
the trustees.
●
The documents are to be filed with SEBI. And any observation made by
SEBI needs to be incorporated in OD.
●
Only After approval from SEBI & trustees OD can be issued in the Markets.
●
AMC decides the suitable time for launch
New Fund Offer
●
AMC holds events for intermediaries and press to make them familiar with
the scheme.
●
Finally offer documents and Application forms are distributed to market
intermediaries for investor to apply.
There are 3 Relevant dates related to NFO

●
NFO Open date
●
NFO Close Date
●
Scheme Reopening Date
The Offer Document
●
Offer Document is the most important source of information about a
mutual fund scheme for investors
●
OD is the operating document and describes the product.
●
Mutual fund offer document is divided into two parts, Scheme information
document (SID) and Statement of additional information (SAI).
●
SID comprises of details of the scheme while SAI deals with statutory I
information about the mutual fund that is offering scheme.
●
Both documents are prepared in the format as prescribed by SEBI.
The Offer Document
●
SEBI does not approve or dis approve the offer document, it gives its
observation which needs to be incorporated in the offer document by the
mutual fund.
●
Investors are required to read and understand the OD.
●
Investors sign the form stating that they have read the OD. No recourse is
available to investors for not reading the OD or KIM
●
The OD is issued by the AMC on behalf of the trustees
●
The AMC is responsible for the information in the OD
Contents of SID
●
Cover Page has the name of the scheme followed by its type
●
Open-ended / Close ended / Interval
●
Equity / Balanced / Income / Debt / Liquid / ETF
●
Finally the cover page has the following standard clauses.
●
Table of Contents
●
Highlights
●
Introduction - Risk Factors
●
Standard
●
Scheme-specific - Minimum no. of investors in scheme, Definitions, Due
Diligence Certificate (issued by the AMC)
●
Information about the scheme - Units & Offer, Fees & Expenses ,Rights &
Penalties Unit-holders, Litigation etc.
Updation of SID
● If a scheme is launched in the first 6 months of the financial year (say, April
2010), then the first update of the SID is due within 3 months of the end of the
financial year (i.e. by June 2011).
● If a scheme is launched in the second 6 months of the financial year (say,

October 2010), then the first update of the SID is due within 3 months of the
end of the next financial year (i.e. by June 2012).
● Thereafter, SID is to be updated every year.
● In case of change in the fundamental attributes, the SID has to be updated

immediately after the lapse of the time period given to existing investors to exit
the scheme.
Contents of SID – Other changes
●
It will be printed on a separate piece of paper (addendum) and distributed
along with the SID, until the SID is updated.
●
If a change is superseded by a further change (for instance, change in load),
then addenda is not required for the superseded change i.e. addenda is only
required to disclose the latest position.
●
The change is to be advertised in an English newspaper having nation-wide
circulation, and in a newspaper of the language of the region where the head
office of the mutual fund is located.
●
The change is to be mentioned in the website of the mutual
Contents of SAI
●
Information about Sponsors, AMC & Trustee ,shareholding pattern,
responsibilities, names of directors and their contact information.
●
profiles of key personnel, and contact information of service providers
{Custodian, Registrar & Transfer Agent, Statutory Auditor, Fund Accountant (if
outsourced) and Collecting Bankers}
●
Condensed financial information (for schemes launched in last 3 financial
years)
How to apply
Rights of Unit-holders
Investment Valuation Norms
●
Tax, Legal & General Information (including investor grievance redressal
mechanism of past 3 years.
Update of SAI
●
Regular update is to be done by the end of 3 months of every financial
year.
●
Material changes have to be updated on an ongoing basis and uploaded
on the websites of the mutual fund and AMFI.
Contents of KIM
●
KIM is a summary of the SID and SAI. As per SEBI regulations, every application
form is to be accompanied by the KIM.
●
Name of the AMC, mutual fund, Trustee, Fund Manager and scheme
●
Dates of Opening /Closing Issue & Re-opening for Sale & Re-purchase
●
Plans and Options under the scheme
●
Risk Profile of Scheme
●
Price at which Units are being issued and minimum amount / units for initial
purchase, additional purchase and re-purchase
●
Bench Mark , Dividend Policy
●
Performance of scheme and benchmark over last 1 year, 3 years, 5 years and
since inception.
●
Loads and expenses
●
Contact information of Registrar for taking up investor grievances
Update of KIM
● KIM is to be updated at least once a year.
● As in the case of SID, KIM is to be revised in the case of change in

fundamental attributes. Other changes can be disclosed through addenda
attached to the KIM.
Fundamental attributes
● Fundamental attributes of a scheme are its basic features. For eg. Open
or close ended, lock-in period, fund objectives, asset allocation, loads
and charges etc.
● For any change in fundamental attributes, SEBI and Trustee approval is
required.
● Investor approval is not needed. However, each investor must be
informed through a communication and given the option to exit without
exit load.
Standard risk factors
●
Mutual fund and securities are subject to market risk and there is no assurance
that the objective will be achieved
●
NAV of units issued under the scheme can go up or down depending on
factors and forces affecting capital markets.
●
Past performance of the sponsor/AMC/ Mutual fund does not indicate the
future performance of the scheme.
●
The name of the scheme does not in any manner indicate any either the quality
of the scheme or the future performance of the scheme
Scheme specific risks
●
Risk arising from investment objective, investment strategy and asset
allocation of the scheme
●
Risk arising from non –diversification , if any
●
If a scheme offers assured returns, the scheme must state that the assurance
is on the basis of the guarantees provided by the sponsor/AMC
●
If the AMC has no previous experience in managing a mutual fund, a
disclosure to the at effect should be made
Important Points regarding OD and KIM
●
In USA, the OD is known as prospectus
●
The first time investor should read detailed offer document, once he has
gained familiarity with the AMC, he can just refer to KIM
●
The offer document is issued by the AMC / Trustees
●
OD is a legal document.
●
OD issued for launching of a new schemes is valid for a period of six months
and if the scheme is not launched within this period a fresh OD is required to
be filed.
●
OD contains the accounting policies to be followed. Such policies should be
in accordance with the SEBI regulations.
●
OD must disclose the names and background of fund managers, key
personnel, investor relation officer, AMC and its directors, custodian,
registrar, transfer agent and the statutory auditor.
Important Points
●
KIM is available at various distribution points such as banks, distributors and
brokers
●
AMC must confirm that a due diligence certificate signed by Compliance
officer / CEO / MD has been submitted to SEBI.
●
If a scheme’s name implies that it will invest primarily in a particular type of
security or in certain industry, then it will invest at least 65% of the value of its
assets in the indicated type of security/ industry.
●
OD must contain brief description of investors’ complaint history for the last 3
Fiscal years of existing schemes.
●
In practice, SID and SAI are two separate documents, though the legal
technicality is that SAI is part of the SID. Both documents need to be updated
regularly.
Q-1 Which of the following is the operating document for a mutual fund?
(a) Offer Document (b) KIM (c) Trust deed (d) None of the above.
Q-2 The OD may not disclose the names and background of

(a) Fund manager (b) Key personnel (c) Investor relation officer
(d) Statutory auditor (e) None of the above.
Q-3 Offer Document issued on launch of the new scheme is valid for ?
(a) 1 month (b) 3 months (c) 6 months (d) 1 year.
Q-4 Which of the following is not the scheme specific risk factor?
(a) Risk arising from the schemes objective
(b) Risk arising from the non-diversification
(c) No previous experience in managing a fund
(d) Movement in NAV because of the market movements.
Q-5 SEBI directs that certain information must appear on the cover page of the
offer document of any scheme. This includes the following except
(a) A statement to the effect that the document contains information that
a prospective investor should know before investing
(b) A description of the investment policies for the scheme on offer
(c) Opening, closing and earliest closing date for the offer
(d) Type of scheme and price of units on offer
Q-6 Which of the following document is attached with the application form?
(a) Offer document (b) Prospectus
(c) Offer for sale document (d) KIM.
Q-7 Only one of the following statements is correct as regards the required
frequency of updating the contents of the Offer Document of an existing
mutual fund scheme. Which one?
(a) Once issued, the OD of an existing scheme can`t be updated
(b) The OD must be updated whenever there is a material change in its
contents
(c) The OD must be updated on a half-yearly basis
(d) The OD must be updated on a yearly basis.
Answers:
Q-1 : (a), Q-2 : (e), Q-3 : (c), Q-4 : (d), Q-5 : (B), Q-6 : (d), Q-7 : (b)
Chapter 5
FUND DISTRIBUTION AND

CHANNEL MANAGEMENT
PRACTICES
Trainer must elaborate the concept before starting the ppt.

Traditional Distribution Channels
●
Individual Agents
Those agents who facilitates the investment individually for Insurance co`s or
Govt. Savings schemes etc.
●
Institutional Channels
The changing competitive context led to the emergence of the institutional
distributors for a wide spectrum of financial products such as
Private Distribution Companies
Banks and NBFC`s
Post Offices
Newer distribution Channels
Technologies has opened the doors to newer ways with help of such
technologies there is a emergence of newer distribution channels which would
play an important role in the years to come.
Internet
• Direct Interactions
• Reduction in Cost
• Convenience
• Less paper work
• High standards in Servicing the clients
Stock Exchanges
• High penetration
• High volume of transactions
• Cost effectiveness.
Pre-requisites to become MF Advisor
●
The Individual needs to pass the certification Examination conducted by NISM.
And get the ARN registration from AMFI.
●
With out Certification / registration one can not advise or sell any Mutual fund
schemes.
●
In case of corporates employee involved in sales & Marketing has to Pass the
certification examination.
●
Once the passing certification one can advise all the AMC`s Mutual Fund After
completing the empenalment process with each AMC separately
Commission structure for mutual fund agents
Initial ( Upfront )commission

Paid on the amount mobilised by agents. The scheme application forms
carry a suitable disclosure to the effect that the upfront commission to
distributors will be paid by the investor directly to the distributor, based on his
assessment of various factors including the service rendered by the
distributor.
Trail commission
it is paid normally on quarterly basis for the funds that remain invested in
the scheme. Trail is an effective way to restrict the practice of rebating, and
link commissions.
Example
Suppose an investor has bought 1000 units at Rs 10 each.
The distributor who procured the investment may have been paid an initial
commission calculated as a percentage on 1000 units X Rs 10 i.e. Rs 10,000.
Later, suppose the NAV of the scheme goes up to Rs 15.
Trail commission is payable on 1000 units X Rs 15 i.e. Rs 15,000 & not on the Rs
10,000 mobilised.
The rates of commission are decided by the mutual fund themselves and are not
subject to regulation by either AMFIor SEBI.
SEBI’s advertising code
• Standard measures to compare such as Compounded Annualized Yield,

CAGR etc. for scheme in existence for more than 1 year.
• Annualised yields for at least one, three, five years & since launch
• For less than 1 year performance, Absolute Return without annualisation
except for Liquid Mutual Funds.
• Dividend declared to be mentioned in rupees per unit with face value of
each unit and the prevailing NAV at the time of declaration
• Risk factors prominently stated
• For comparing performance against benchmarks,appropriate benchmark to be
used and identical time periods to be used
• No add-ons during offer
• Any ranking of fund to be explained appropriately
Loads
●
Load is charged to investor when the investor redeems units. It is primarily
used to meet the expenses related to sale and distribution of units
●
Load charged on redemption is exit load. It reduces price.
●
Maximum Exit load is 7%. (For Open ended Funds)
●
Exit load should be charged equally for all types of investors. AMC should not
discriminate on the basis of Investment Value.
●
Load is an amount which is recovered from the investor.
Q-1 Which one of the following statements is correct?

(a) An individual agent can distribute/sell only one mutual fund's products
(b) Any category of distributors/agents can distribute as many of the mutual
funds' products as allowed by the concerned AMCs
(c) Banks are not allowed to sell mutual fund products, except their own funds'
(d) A distribution company can distribute/sell only one mutual fund's products
Q-2 Which of the following can invest in Indian Mutual fund?
(a) SEBI (b) RBI (c) Foreign Banks (d) AMFI.
Q-3 Which of the following categories of distributors will be exempt from passing
the AMFI Mutual Fund Test?
(a) All the existing agents of UTI mutual fund and other funds
(b) New applicants for distributorship, if the AMC approves their applications
(c) Employees of banks who distribute the funds
(d) None of the above.
Answers: Q-1 : (b), Q-2 : (c), Q-3 : (d)
Chapter 7
INVESTOR SERVICES
Categories of investors eligible to buy MF units
●
Resident Individuals
●
Indian Companies
●
Indian trusts and charitable institutions
●
Banks
●
NBFC’s
●
Insurance companies
●
Provident funds
●
Non-resident Indians / PIO
●
OCB’s
●
SEBI registered FII’s
●
Advisor should refer to the OD to know the eligible investors.
KYC Requirement for MF investors
●
It is compulsory for all investments of Rs 50,000 and above to be compliant
with the regulatory requirements prescribed under the Anti-Money
Laundering Act, 1992 and SEBI circulars in this regard.
●
Broadly, mutual fund investors need the following Documents:
●
Proof of Identity
●
Proof of Address
●
PAN Card
●
Photograph
●
In order to make the process hassle free for the MF investors, MF have
made an arrangement with CVL ( CDSL venture Ltd) to comply with the
documentation requirement.
●
Select branches / offices of mutual funds, registrars and large distributors
serve as Points of Service (POS) for the KYC documentation, listed in AMFI
website – .www.amfiindia.com
●
Investors will need to provide the Original, along with a copy of the relevant
documents, to any of the POS (The Original will be returned after
verification. Alternatively, the investor can provide a True Copy attested by a
Notary Public, Gazetted Officer or Manager of a Scheduled Commercial
Bank.
●
CVL provides a facility where the POS, from their own office, can access
CVL’s system, enter the requisite data and generate an acknowledgment
with a Mutual Fund Identification Number (MIN).
• KYC documentation has to be done only ONCE, with CVL acting through the
POS.
• Based on this acknowledgment, the mutual fund investor can invest in any
mutual fund.
• In case of any change in address or any other information, investor can get it
updated at any POS and the same will be changed with all the AMC where
the investor has invested.
• Where investment is made by a minor, KYC requirements have to be

complied with by the Guardian.
• In the case of investments by a Power of Attorney holder on behalf of an

investor, KYC requirements have to be complied with, by both, investor and
POA holder.
PAN requirement for micro SIPs
●
PAN Card is compulsory for all mutual fund investments. Exception has been
made for Micro-SIPs i.e. SIPs where annual investment (12 month rolling or
April-March financial year) does not exceed Rs 50,000.
●
Micro-SIP investment by individuals, minors and sole-proprietory firms are
exempted from the requirement of PAN card. Instead of they can produce any
of the photo identification document along with micro SIP application.
●
Voter Identity Card, Driving License, Government / Defense identification card,
Passport, Photo Ration Card
●
Photo Debit Card (Credit card not included because it may not be backed up
by a bank account).
●
Employee ID cards issued by companies registered with Registrar of
Companies) etc....
●
It may be noted that the relaxation in documentation requirements for micro-
SIPs is not available for HUFs and non-individuals. It is available for NRIs, but
not PIOs.
Demat Account - Benefits
●
Dematerialisation is a process whereby an investor’s holding of investments in
physical form (paper) is converted into a digital record.
●
Investors purchase & sale of investments get automatically added or
subtracted from their investment demat account, without having to execute
cumbersome paperwork.
●
Less paperwork in buying or selling the Units, and correspondingly, accepting
or giving delivery of the Units.
●
Direct credit of bonus and rights units that the investor is entitled to, into the
investor’s demat account.
●
Change of address or other details need to be given only to the Depository
Participant, instead of separately to every company / mutual fund where the
investor has invested.
●
NSE’s platform is called NEAT MFSS. BSE’s platform is BSE STAR Mutual
Funds Platform.
Transaction with Mutual Funds
Fresh Purchase
Is a instance where the Investor does not have an investment account with
specific Mutual Fund.
Additional Purchase
Once the Investor has the folio and he again transact new purchase transaction
in the same folio.
Online Transaction
Are transaction done through Internet. AMC issues a personal PIN number
through which investor can transact except the SIP.
Payment mechanism for purchase & additional purchase
●
Mutual funds do not accept cash.
●
Application moneys need to come through normal banking channels like;
●
Cheque
●
DD
●
NRI / PIO applications need to be accompanied by cheque drawn on an
NRO account (for non-repatriable investment) or NRE account (for
repatriable investment).
●
If payment from NRI is by DD, and investment is on repatriable basis, a
banker’s certificate will be required to the effect that the DD has come out of
moneys remitted from abroad. When the NRI receives money in his bank
account in India, the banker would issue a Foreign Inward Remittance
Certificate (FIRC), which is evidence that the money was remitted from
abroad.
Payment mechanism for purchase & additional purchase
Electronics clearing service (ECS), generally in case of SIP.
Application Supported by Blocked Amount (ASBA) – This is a facility where

the investment application is accompanied by an authorization to the bank
to block the amount of the application money in the investor’s bank
account. The benefit of ASBA is that the money goes out of the investor’s
bank account only on allotment. Until then, it keeps earning interest for the
investor.
M-Banking is nascent in India. RBI has permitted banks to offer the facility
of transferring up to Rs 50,000 per customer per day, through the mobile
connection. Once people are comfortable with M-banking, this will become
a convenient way to invest.
Investment plans and services
Most mutual fund schemes offer three options –

– Dividend and
– Growth.
– Dividend reinvestment Option.
These are different options within a scheme; they share the same
portfolio. Therefore the portfolio returns are the same for all three
options. However, they differ in the structure of cash flows and income
accruals for the unit-holder, and therefore, the Unit-holder’s taxability,
number of units held and value of those units.
Dividend Payout Dividend Reinvestment

Parameter Option Option Growth Option
Dividend received in
bank accoun Yes NO NO
Income Distribution Yes, for debt Yes, for debt
Tax Schemes Schemes NO
Increase in number
of units on account
Of reinvestment
of Dividend No Yes NO
extent of dividend
NAV declines to the and Income distribution NAV captures
extent of dividend tax NAV declines to The portfolio
And Income the extent of dividend Change
Distribution tax and Income entirel
NAV change Distribution tax
Systematic Investment Plan

SIP is investing a fixed sum periodically in a disciplined manner for long term. It
gives benefit of Rupee Cost averaging ( Discussed in later half of presentation).
Voluntary Accumulation Plan
VAP is modified version of SIP. It is Voluntary Accumulation Plan. It allows the
investor flexibility with respect to the amount and frequency of investment.
In VAP, investor has to impose voluntary self discipline.
Systematic Withdrawal Plan
In cases where an investor does not want to withdraw all the amount invested at
one time he can opt for facility called SWP which would enable investor to
withdraw a specific amount at specific period.
Systematic Transfer Plan
It is a systematic way of investing an amount at pre-specified frequency from a
pool of money available or from any debt scheme to equity.
Triggers
It is type of an standing instruction given to particular fund for

purchase or sell at desired market level.
Transactions cut off time
Sr.no Scheme type Transaction Cut of time Applicable NAV

1 Liquid Scheme Sale Received upto 12 Noon Previous day NAV
2 Liquid Scheme Sale Received After 12 Noon Next day NAV
3 Liquid Scheme Re-purchase Received before 3 pm Previous day NAV
4 Liquid Scheme Re-purchase Received After 3 pm Next day NAV
5 Other Than Liquid above 1 Cr. Sale Received any time Same day NAV
6 Other Than Liquid up to 1 Cr. Sale After 3 PM Next day NAV
7 Other Than Liquid above 1 Cr. Sale (With Outstation cheque & DD) Same day NAV
8 Other Than Liquid Re-purchase Received upto 3 PM Same day NAV
9 Other Than Liquid Re-purchase After 3 PM Next day NAV
Q-1 Investor A has opted for a systematic transfer plan. This means
(a) The investor is allowed to transfer on a periodic basis a specified amount
from one scheme to another scheme within the fund family
(b) A specified amount is automatically transferred from his bank account
to his fund account
(c) The investor can withdraw specified amounts at periodic intervals from
the plan
(d) The investor can invest any amount in the scheme at periodic intervals
Q-2 Which of the following is not true with respect to the SWP?
(a) All allows the investor to make systematic withdrawals on a regular intervals
(b) Here the amount withdrawn is treated as the redemption of units
(c) SWP is same as the Monthly Income Plan
Q-3 Which of the following is not true with respect to the voluntary
accumulation plan?
(a) It give the flexibility to the investor regarding the amount to be
invested
(b) It give the flexibility to the investor regarding the frequency of
investment
(c) VAP follower is obliged to keep investing
Answer: Q-1 : (a), Q-2 : (c), Q-3 : (d)

Chapter 8
RETURN, RISK &

PERFORMANCE OF FUND
Drivers of Returns in a scheme
The portfolio is the main driver of returns in a mutual fund scheme.

The underlying factors are different for each asset class.
Equity scheme
Securities Analysis Disciplines
●
Fundamental Analysis & Technical Analysis - These are quantitative
approaches to securities analysis. securities analysis is an important aspect
of actively managed schemes.
●
Fundamental Analysis entails review of the company’s fundamentals viz.
financial statements, quality of management, competitive position in its
product / service market etc. The analyst sets price targets, based on
financial parameters like --
Earnings per Share (EPS): Net profit after tax ÷ No. of equity shares
●
This tells investors how much profit the company earned for each equity
share that they own.
Price to Earnings Ratio (P/E Ratio): Market Price ÷ EPS

●
When investors buy shares of a company, they are essentially buying into its
future earnings. P/E ratio indicates how much investors in the share market
are prepared to pay (to become owners of the company), in relation to the
company’s earnings.
●
P/E may be high because the company’s prospects are indeed good, while
another company’s P/E may be low because it is unlikely to replicate its past
performance
Book Value per Share: Net Worth ÷ No. of equity shares
This is an indicator of how much each share is worth, as per the company’s
own books of accounts.
Price to Book Value: Market Price ÷ Book Value per Share

An indicator of how much the share market is prepared to pay for each share
of the company, as compared to its book value.
Note :-
Most financial indicators cannot be viewed as stand-alone numbers. They
need to be viewed in the context of unique factors underlying each company.
The fundamental analyst keeps track of various companies in a sector, and
the uniqueness of each company, to ensure that various financial indicators
are understood in the right perspective.
Technical Analysis
The discipline of Technical Analysis has a completely different approach.

Technical Analysts believe that price behavior of a share, and the
volumes traded are a reflection of investor sentiment, which in turn will
influence future price of the share.
Investment Styles
Growth investment style

●
entails investing in high growth stocks i.e. stocks of companies that are
likely to grow much faster than the economy.
●
valuation of these stocks tends to be on the higher side.
●
In the event of a market correction, these stocks tend to decline more.
Value investment style
●
is an approach of picking up stocks which are valued lower, based on
fundamental analysis.
●
The belief is that the market has not appreciated some aspect of the
●
value in a company’s share – and hence it is cheap.
●
When the market recognizes the intrinsic value, then the price would
●
shoot up. Such stocks are also called value stocks.
●
valuation of these stocks tends to be on the lower side.
Portfolio building approach – Top down and Bottom up:
In a top down approach,
the portfolio manager decides how to distribute the investable corpus
between countries (if it invests in multiple geographies) and sectors.
Thereafter, the good stocks within the identified sectors are selected for
investment. Thus sector allocation is a key decision.
A bottom-up approach
on the other hand give emphasis on good stock picking. If a stock is
good, it is picked for investment. The approach is therefore also called
stock picking. Stock selection is the key decision in this approach; sector
allocation is a result of the stock selection decisions.
Therefore, it can be said that equity returns are a function of sector and
stock selection.
Debt
Investment in a debt security, as in the case of a loan, entails a return in the

form of interest (at a pre-specified frequency for a prespecified period), and
refund of a pre-specified amount at the end of the pre-specified period.
●
The pre-specified period is also called tenor.
●
At the end of the tenor, the securities are said to mature.
●
The process of repaying the amounts due on maturity is called redemption.
●
Debt securities that are to mature within a year are called money market
securities.
●
The return that an investor earns or is likely to earn on a debt security is
called its yield.
●
yield is a combination of interest paid by the issuer and capital gain.
●
Debt securities are issued by Central / State Governments, Banks, Financial
Institutions, Public Sector Undertakings (PSU), Private Companies,
Municipalities etc.
Debt
●
Securities issued by the Government are called Government Securities or G-
Sec or Gilt.
●
Treasury Bills are short term debt instruments issued by the Reserve Bank of
India on behalf of the Government of India.
●
Certificates of Deposit are issued by Banks (for 91 days to 1 year) or Financial
Institutions (for 1 to 3 years)
●
Commercial Papers are short term securities (upto 1 year) issued by
companies.
●
Bonds / Debentures are generally issued for tenors beyond a year.
Governments and public sector companies tend to issue bonds, while private
sector companies issue debentures.
●
The difference between the yield on Gilt and the yield on a non- Government
Debt security is called its yield spread.
Interest Rates Risk
●
The interest rate payable on a debt security are specified as a fixed rate, say
6% or floating rate.
●
Interest rates on floating rate securities (also called floaters) are specified as a
“Base + Spread”. For example, 5-year G-Sec + 2%.
●
Interest rates and Market price of debt security are inversely related to each
other.
●
Interest rate sensitivity of the debt security is measured by modified duration of
the debt security.
●
If the portfolio manager expects interest rates to rise, then the portfolio is
switched towards a higher proportion of floating rate instruments; or fixed rate
instruments of shorter tenor. On the other hand, if the expectation is that
interest rates would fall, then the manager increases the exposure to longer
term fixed rate debt securities.
Yield Spreads:
●
Suppose an investor has invested in the debt security of a company.
Subsequently, its credit rating improves. The market will now be
prepared to accept a lower yield spread. Correspondingly, the value of
the debt security will increase in the market.
●
A debt portfolio manager explores opportunities to earn gains by
anticipating changes in credit quality, and changes in yield spreads
between different market benchmarks in the market place.
Gold
Gold is a truly international asset, whose quality can be objectively

measured. The value of gold in India depends on the international price of
gold (which is quoted in foreign currency), the exchange rate for converting the
currency into Indian rupees, and any duties on the import of gold.
Therefore, returns in gold as an asset class depends on:
1) Global price of gold
Gold is seen as a safe haven asset class. Therefore, whenever there is political or
economic turmoil, gold prices shoot up. Most countries hold a part of their
foreign currency reserves in gold. Similarly, institutions like the International
Monetary Fund have large reserves of gold. When they come to the market to
sell, gold prices weaken. Purchases of gold by large countries tend to push up
the price of gold.
Strength of the Rupee
Economic research into inflation and foreign currency flows helps
analysts anticipate the likely trend of foreign currency rates.
When the rupee becomes stronger, the same foreign currency can be
bought for fewer rupees. Therefore, the same gold price (denominated in
foreign currency), translates into a lower rupee value for the gold
portfolio. This pushes down the returns in the gold fund. A weaker rupee,
on the other hand, pushes up the rupee value of the gold portfolio, and
consequently the returns in gold would be higher.
Real Estate
Unlike gold, real estate is a local asset. It cannot be transported and its value is
driven by local factors. Some of these factors are:
Economic scenario
In the recent past, when there was uncertainty about the economy, people
preferred to postpone real estate purchases. Consequently, real estate prices
weakened. As the economy improves, real estate prices also tend to keep pace.
Infrastructure development
Whenever infrastructure in an area improves, real estate values go up.
Interest Rates
When money is cheap and easily available, more people buy real estate. This
pushes up real estate values. Rise in interest rates therefore softens the real
estate market.
Measures of Returns
Simple Return:
(End Value – Initial Value) X 100

Initial value
Suppose you invested in a scheme, when its NAV was Rs 12. Later, you
found that the NAV has grown to Rs 15. How much is your return?
= (15 – 12) / 12 = 25%

Measures of Returns
Annualized Return:
Annualized helps us compare the returns of two different time periods.
Simple Return X 12
Period of simple return (in months)
Suppose Two investment options have indicated their returns since

inception as 5% and 3% respectively. If the first investment was in
existence for 6 months, and the second for 4 months, then the two
returns are obviously not comparable.
1) 5% *12 / 6 = 10%
2) 3% * 12 / 4 = 9%
Measures of Returns
Compounded Return:
[ (LV / IV )^(1/n) - 1 ] X 100
LV = later value
IV = Initial value
N = period in years
Suppose if Rs 1,000 grew to Rs 4,000 in 2 years, LV = Rs 4,000; IV =

Rs 1,000; n = 2 years, then the compounded return is given by such
investment;
= [ ((4000 / 1000) ^ ½ ) - 1 ] 100 = 100%

Drivers of risk in a scheme
Risk in Mutual Fund Schemes

Portfolio Risk
It is basically a risk of investment allocated by the Fund manager in to
different assets classes. As there is no certainty regarding the performance of
the selected assets classes by the fund manager.
Portfolio Liquidity
It is a risk of investment made by the fund manager in to assets which are not
liquid. Especially in case of open ended schemes where investor can ask for
redemption at any time.
SEBI has therefore laid down criteria to identify illiquid investments and also
set a ceiling to the proportion of such illiquid investments in the net assets of
a scheme.
Liabilities in the scheme
The outside liabilities need to be paid by a scheme, irrespective of the

performance of the assets. It is bad enough when the assets perform
poorly, but if heavy outside liabilities need to be paid during that time, the
scheme faces extreme pressure. Therefore, outside liabilities add to the
risk in a mutual fund scheme.
Some outside liabilities are part of the business. For example, when a
scheme purchases an investment, it is liable to pay for it to the stock
exchanges.
The practice of taking liabilities beyond what is inherent to the normal
business of a mutual fund scheme is called leveraging. Internationally,
such leveraged funds are commonly found.
Recognizing the risks involved in such leveraging, SEBI regulations
stipulate that:
• A mutual fund scheme cannot borrow more than 20% of its net assets
• The borrowing cannot be for more than 6 months.
• The borrowing is permitted only to meet the cash flow needs of investor
servicing viz. dividend payments or re-purchase payments.
Use of derivative
Mutual funds are permitted to use derivatives for hedging against risk or
re-balancing the portfolio, but not for leveraging.
Unit holders churn

Frequent churning by unit holders keeps the fund under redemption
pressure therefore maintaining the higher liquidity. It may sometime force
to further liquidate the portfolio in order to meet the redemption. This is
generally happen due to FIIs where retail investors suffers for no fault.
As a measure to protect the investor, SEBI has stipulated the 20 :25 rule
viz. every scheme should have at least 20 investors; no investor should
represent more than 25% of net assets of a scheme.
Evaluating the Risks of a MutualFund
• What is Risk ?
– Risk means the possibility of financial loss.
– “Risk” is thus equated with Volatility of Earnings
• Equity Price Risk
– Company Specific
– Sector Specific
– Market Level
Volatility of an Equity mutual fund comes from:
Kind of stocks in the portfolio (growth/value/big/small)
The number of stocks ( Degree of diversification. Smaller portfolios are more
volatile than large PFs)
Fund manager’s success at market timings.
It is independent of number of investors in the scheme.
The Risk tolerance of an investor is dependent on his age, his income and
his job security.
Risk Tolerance is independent of the Stock Market Movements.
Evaluating the Risks of a MutualFund
●
Risk Measures
●
Standard Deviation – SD measures the fluctuations of a fund`s returns around
a mean level. SD gives an idea of how volatile the earnings are. SD measures
total risk.
●
Disadvantage of SD is that it is based on Past Returns.
●
Beta Coefficient – Beta relates a fund's return with a market index and
measures the sensitivity of the fund's returns to change in market index. A
beta of 1 means the fund moves with market. A beta of less than one means
the fund will less volatile than the market.
●
Beta is based on past returns.
●
Ex Marks or a number known as “R-Squared”
●
How much of a fund's fluctuations is attributable to movements in the overall
market from 0 to 100 percent.
●
An index fund will have ExMarks of nearly 100%. Non Diversified funds will
have lower ExMarks.
●
Ex Marks of an equity fund measures its Performance
●
Standard Deviation is the best measure of risk.
●
Beta of an equity fund measures its RISK.
Evaluating the Risks of a Mutual Fund
• Alpha
– Risk adjusted performance calculation is called Alpha.
– Alpha of a fund compares the fund's actual results with what

would have been expected given the fund`s beta and the market
index performance.
Risk Adjusted performance
Sharpe ratio and Treynor Ratio
Risk premium= Funds return – Risk free rate of return
Sharpe Ratio = Risk premium/SD
Treynor Ratio = Risk Premium/Beta
Both the ratios measures the adequacy of returns against the risk assumed.
Important Points
●
Money Market Funds are low risk fund.
●
Sectoral Fund are high risk fund.
●
Risk is equated with Volatility of Earnings.
●
Diversification reduces Company specific risk but it does not reduce Market
Risk.
●
Short Term investment in Equity market is most risky.
●
BEST FUND WILL HAVE HIGHER EX MARKS, LOWER BETA AND HIGHER
GROSS DIVIDEND YIELD
Other performance measures
●
The expense ratio ( Ratio of total expenses to average net assets of the fund)-
Funds with small corpus size will have a higher expense ratio affecting investor
returns. It is indicator of the Fund’s Efficiency and Cost Effectiveness.
●
The income ratio ( It is the net investment income divided by its net assets for
the period) – useful for debt fund
●
Fund size – Small funds are easy to manage and can achieve their objectives
in a focused manner with limited holdings.
●
Large funds benefit from economies of scale with lower expense ratios and
superior fund management skills.
●
Cash holdings
Important Points
●
The returns should be computed on an annualized average compound
rate of return from cumulative figure.
●
If the fund performance data relates to a period of less than one year,
it should not be annualized, except for liquid mutual funds which have
a short investment horizon.
Borrowings by Mutual Fund

●
A mutual fund can borrow for a maximum of 20% of net assets.
●
For Maximum period of 6 months.
●
Purpose should be to meet liquidity requirements for paying dividend
or meeting redemptions.
●
It is not a permanent source of funds for the scheme.
Benchmarking
●
Benchmarking should be selected by reference to – The asset class it
invests in and the fund’s stated investment objective.
●
3 kinds of benchmarks are used – Relative to market as a whole, relative to
other mutual funds, and relative to other comparable financial products.
●
For debt funds, the benchmark should have the same portfolio composition
and the same maturity profile
●
Main benchmark for debt funds is I-sec
●
Tracking Error – Applicable for Index Fund
●
SEBI requires MF to specify Benchmark for each scheme in OD & KIM
Criteria for peer group comparisons
●
The investment objective and risk profiles of the two funds should be the
same.( Debt with debt and equity with equity)
●
Portfolio composition of two funds is similar. ( Gilt cannot be compared with
riskier corporate debt)
●
Fund size should be comparable.( same size)
●
Expense Ratios is also important factor
●
Funds should be compared over the same periods only
●
Name of Benchmarking Debt and MM Funds
●
I-SEC: Its I-bex index is often used to track Govt. securities performance.
●
CRISIL: Has 8 debt indices
●
NSE: Has designed Govt. security index and T-bill index.
●
Besides NSE, JP Morgan has also developed a T-bill index.
Sources for tracking Mutual Fund Performance
• Mutual Funds Annual & periodic Reports.
• Mutual Funds website.
• AMFI website
• Financial News Papers.
• Fund Tracking Agencies – Credence, Value Research
• Newsletters
• Offer Document of the Fund
• Analytical Articles
The Credit Rating Agency CRISIL evaluates the Fund Performance and Ranks
the Scheme by Performance.
Index
Day 2
Part 3
9. Accounting, Valuation and Taxation

10. Investment Management
Part 4
Helping investors with Financial Planning

Recommending Financial Planning Strategies to Investors
Selecting the Right Investment products for Investors
14. Recommending Model Portfolios and Selecting the Right Fund
15. Business Ethics in Mutual Fund
Chapter 6
ACCOUNTING VALUATION
AND TAXATION

What are net assets of a mutual fund ?
The net assets represent the market value of assets which belong to the investors,
on a given date.
Net assets are calculated as: Market value of investments

Plus(+): Current assets and other assets
Plus(+): Accrued income
Less(-): Current liabilities and other liabilities
Less(-): Accrued expenses
Net Assets/Total no. of Units Issued = NAV per unit.
A fund’s NAV is affected by four sets of factors

− Purchase and sale of investment securities
− Valuation of all investment securities held
− Other assets and liabilities
− Units sold and redeemed.
How frequently is the NAV calculated ?
• All mutual funds have to disclose their NAVs daily, by posting it on the AMFI
web site by 9.00 p.m. In case of any other scheme except FOF where it is to be
published by 10 a.m. Of the following day.
• Open –ended funds have to compute and disclose NAVs everyday; closed end
funds can compute NAVs every week, but disclosures have to be made
everyday.
• Closed end schemes not mandatorily listed on the stock exchange can publish
NAV according to the periodicity of 1 month or 3 months, as permitted by
SEBI.
Latest changes since August 1, 2009
●
SEBI has abolished entry loads. So, the Sale Price needs to be the same as
NAV.
●
Exit loads in excess of 1% of the redemption proceeds have to be credited
back to the scheme immediately i.e. they are not available for the AMC to
bear selling expenses.
●
Exit load structure needs to be the same for all unit-holders representing a
portfolio.
New SEBI guidelines for Dividend Distribution :-
●
All profit earned (including accrual income) are available for distribution.
Valuation gain are ignored but valuation losses needs to be adjusted against
profit.
The proportion of sale price on new units which is attributable to the valuation
gains is not available as a distributable reserve.
There are two types of expenses:
• Initial issue expenses
• Recurring expenses
What are the initial issue expenses ?
Expenses that are incurred in the launch of the fund are called as initial issue
expenses it should not exceed 6% of the funds mobilized. Any amount above this
has to be borne by the sponsor or the AMC.
Initial Issue Expense are charged as follows :-

 For Close Ended Schemes – Charged over the life of the scheme , on a weekly
basis until maturity.
 For Open ended Scheme – the initial issue expenses used to be carried in the
balance sheet as “deferred revenue expenses” and written off over a period not
exceeding 5 years.
What are recurring expenses
●
These can be charged to the scheme. Since the recurring expenses drag down
the NAV, SEBI has laid down the expenses, which can be charged to the
Scheme.
An indicative list is as follows:
●
Fees of various service providers, such as Trustees, AMC, Registrar & Transfer
Agents, Custodian, & Auditor
●
Selling expenses including scheme advertising and commission to the
distributors
●
Expenses on investor communication, account statements, dividend /
redemption cheques / warrants
●
Listing fees and Depository fees
●
Service tax
Recurring expense limit: SEBI has stipulated the following annual limits
on recurring expenses (including management fees) for schemes other
than index schemes.
Equity Debt
Net Asset ( Rs crore)
Scheme Scheme
Upto Rs 100 cr. 2.50% 2.25%
Next Rs 300 cr. 2.25% 2.00%
Next Rs 300 cr. 2.00% 1.75%
Excess over Rs 700 cr. 1.75% 1.50%
The above percentages are to be calculated on the average net asset of

the scheme.
Within above limits, the management fees can not exceed:
• 1.25% on the first Rs 100 crore of net assets of a scheme
• 1.00% on the balance net assets.
Management fees cannot be charged by liquid schemes and other
debt schemes on funds parked in short term deposits of
commercial banks.
The expense limits for index schemes (including Exchange Traded
Funds) is as follows:
• Recurring expense limit (including management fees 1.50%
• Management fees 0.75%
As regards Fund of Funds, the recurring expense limit (including
management fees) is 0.75%.
Expenses that can not be charged to the Scheme
• Penalties and fines for infraction of law
• Interest on delayed payment
• Legal, marketing, publication and other general expenses not attributable to

any scheme
• Expenses on general administration corporate advertising and infrastructure

costs
• Depreciation on fixed assets

Tax provision for Equity Schemes
Equity >65%
Dividends Capital Gains
Within 12 m After 12 m
Short Long
Investors DDT Terms Terms
Tax Free NIL 15% Tax Free

●
Taxability of mutual fund investor in an equity-oriented mutual fund scheme
●
Would pay STT on the value of the transactions of sale (0.125%) and
purchase (0.125%) of units in the stock exchange; or on re-purchase (0.25%)
of the units by the AMC.
●
Would be exempt from capital gains tax, if the units were held for more than
a year
●
Would pay capital gains tax at 15%, if the units were held for 1 year or less
●
Will receive any dividend free of tax; the scheme too will not incur any tax on
the dividend distribution.
Tax provision for Debt Mutual Funds
Debt Mutual Fund
Dividend Capital Gain
Within 12 m After 12 m
Investor DDT Short term Long term
As per slab Two options

Tax free Paid by the Fund
10%
20% after
indexation
●
Taxability of mutual fund investor in an debt-oriented mutual fund scheme
●
Would not bear any STT
●
Would bear a tax on long term capital gains at the lower of 20% with
indexation, or 10% without indexation
●
Would bear a tax on short term capital gains, as per the investor’s tax slab.
●
Will receive any dividend free of tax; but the scheme would have paid a tax
on the dividend distribution.
DDT Paid by Mutual fund companies
This is a tax on dividend distributed by debt-oriented mutual fund
schemes. Applicability is as follows:
Money Market Mutual Funds / Liquid Schemes:
25% + Surcharge + Education Cess
Other debt funds (investors who are individual / HUF):
12.5% + Surcharge + Education Cess
Other debt funds (other investors):
20% + Surcharge + Education Cess

Numerical
• An investor purchased units in an approved debt Mutual Fund on Jan. 1, 1998

for Rs.500000/-. He sold the units on December 1, 2001 for Rs. 750000/-.
Calculate the capital gain taxes paid by him. ( Ignore indexation).
• Answer :
– Long term capital gain = 250000/
– So Tax on LTCG = 2500000* 10% = Rs. 25000/-

Other points
●
Section 80 C – Individual and HUF are entitled to deduction up to Rs.1 lakh
in respect of payment out of taxable income towards certain instruments
which includes ELSS of Mutual funds.
●
Dividend Stripping – Section 94(7) – As per the finance Act 2001, If investor
buy units within 3 months prior to record date of dividend and sells those
units within 9 months of record date, then the loss if any, shall be ignored.
●
Limitation on set off in case of bonus units – NAV of the scheme is get
adjusted after bonus units are issued therefore any capital loss arising out
of such transaction is not allowed to set off if such transaction has
happened within 3 months prior to record date of bonus issue and sold off
within 9 months after the record date.
●
Units are not considered under wealth tax
●
Section 195 – 20% TDS for LTCG and 30% TDS on STCG if unit
holder is a NRI.
●
48% TDS if unit holder is foreign company.
Non Performing Assets (NPA)
An asset shall be classified as an NPA, if the interest and/or principal amount

have not been received or have remained outstanding for one quarter, from the
day such income/instalment has fallen due.
Such assets will be classified as NPA`s, soon after the lapse of a quarter from the
date on which payments were due.
Important Points
• Investors’ subscriptions are accounted for by the fund not as liabilities or
deposits but as Unit Capital.
• Unit Capital is found in the Liability side of scheme’s balance sheet.
• Investment made by Mutual fund on behalf of investors are accounted as
Assets.
• Liabilities in Balance sheet of mutual fund are strictly short term in nature.
• The Day on which NAV is calculated is known as Valuation Date.
Q-1An equity fund has weekly average net assets of Rs. 1400.00 crore outstanding
in the year. The maximum ongoing expenses (excluding issue/redemption
expenses) that may be charged to the fund amount to:
(a) Rs. 26.75 crore (b) Rs. 35.00 crore (c) Rs. 19.75 crore (d) Rs. 27.5 crore
Q-2 Generally the income earned by the mutual fund registered with SEBI is
exempt from tax under section
(a) 80 (C) (b)10(35) (c) 10 (23D) (d) 115 (R).
Q-3 A fund's portfolio includes an equity security which is listed at the NSE. Its last
quoted closing prices were: Rs. 27 on July 10, Rs. 35 on July 13 and Rs. 28 on July
16. On July 28, using SEBI norms, the fund should value this security at:
(a) 35 (b) 28 (c) 30 (d) 31.50.
Q-4 A mutual fund holds a debenture redeemable after two years and with next
quarterly interest receivable on 31/12/2001. The debenture issuing company failed to
pay the interest on that date. Is this debenture a Non Performing Asset? If yes, from
what date?
(a) Yes, it would be considered an NPA from 1/4/2002, if interest is not received for
the quarter ending 30/3/2002 as well
(b) No, it is not an NPA, as the principal amount is not yet due
(c) No, it would not be considered an NPA until both principal and interest amounts
become overdue
(d) Yes, it would be considered an NPA from 1/1/2002.
Q-5 Which of the following is the most liquid type of shares?
(a) Large cap shares (b) Mid cap shares
(c) Small cap shares (d) All of the above.
Answer: Q-1 : (d), Q-2 : (c), Q-3 : (b), Q-4 : (a), Q-5 : (a)
Chapter 11
HELPING INVESTORS WITH

FINANCIAL PLANNING

Definition and objective of FP
• It is identifying all the financial needs of an individual
– Translating needs to monetarily measurable goals
– Planning financial investments that will allow individual to provide for and
satisfy his future financial needs and achieve his life’s goals.
The objective is to ensure that right amount of money is available in the

right hands at the right point in future to achieve an individual’s financial
goals.
Financial Planner
• A person who uses the financial planning process to help another person
determine how to meet his or her life goals.
• Possesses detailed knowledge of wide range of products and financial

planning tools and help clients in choosing the best products.
• He looks at all of client’s needs including budgeting and saving, taxes,

investments, insurance and retirement planning.
Benefits of Financial Planning
●
Financial Plans are tax efficient.
●
It provides direction and meaning to financial decisions.
●
It allows one to understand how each financial decision one makes
affects other areas of one’s finances.
Benefits to Financial Planner

●
Ability to establish long term relationships (Multiple products to one
client)
●
Financial Planner should ideally link his rewards and fees to the clients
financial success and achievement of the financial goals.
●
Ability to build a profitable business (NO rebating)
Qualities of a Good Financial Planner
• Building trust with the client

• Good knowledge of Financial products
• Familiarity with taxation and estate planning issues
• Understanding of stages of client’s life and wealth cycle and asset allocation
• Independent judgement and balanced thinking
• Organized way of working
• Regular contact with clients
• Clear Focus on Overall Financial Planning of client rather than on individual
transactions.
• The basis of genuine advice should be Financial planning to suit the investor’s
advice.
Steps to Financial Planning
It is used to prepare a comprehensive financial plan where all financial
goals are taken together and the investment strategies are worked out
on that basis.
●
Establish and define client-Planner Relationship
●
Gather client data, Define client Goal
●
Analyze and evaluate clients financial Status
●
Develop and present financial planning recommendations
●
Implement the financial planning recommendation
●
Monitor the financial planning recommendations
Important responsibilities of investors in the financial planning exercise?
• Should set measurable financial goals.
• Should understand the impact of financial decisions on their cash flows and
their income.
• Should be willing to revise and re-balance their portfolios with changing market
conditions, performance and their changing needs and changes in lifestyle or
circumstances( inheritance, marriage, birth, house purchase or change of job
status)
• Investors benefit immensely by starting early and being systematic and

disciplined in their approach.
Very important points on financial planning
• The planner can look at all the clients need including budgeting, saving,
taxes, investments, insurance and retirement planning.
• A financial planner can link his own rewards and fees to the client’s financial
success and the achievement of their financial goals
• MUTUAL FUND IS THE MOST IMPORTANT TOOL FOR FINANCIAL

PLANNING.( CORE PRODUCT)
• Financial is not only investing. It comes before investing.
• It is relevant for all category of clients.
• It is not as same as retirement planning.
• It is not only Tax Planning.
• Financial planning is important at younger stage of life.

Very important points on financial planning
●
The basis of genuine investment advice should be financial planning to suit
the investor’s situation. It should not be current market condition.
●
Financial Planning allows a person to achieve financial goals through proper
management of finances.
●
Financial planners and their clients should focus on allocating funds to
different asset classes.
●
Financial planning is relevant not only to HNIs
●
Financial planning works better for younger/ middle aged client
Stages of Life Cycle
• Childhood Stage
• Young Unmarried Stage
• Young Married Stage
• Young Married with Children Stage
• Married with Older Children Stage
• Pre-retirement Stage
• Retirement Stage
Wealth cycle for investors (Very Important)
Stage Financial needs Investment preferences
Accumulation stage Investing for long term identified Growth options and long term
financial goals products.High risk appetite
Transition Stage Near term needs for funds as Liquid and medium term investments.
pre-specified needs draw closer Lower risk appetite

Reaping Stage Higher liquidity requirements Liquid and medium term investments.
Preference for income and debt products

Long term investment of inheritance
Inter Generational Low liquidity needs.
Ability to take risk and invest for the long

transfer
term

Sudden wealth surge Medium to long term Wealth preservation.
Preference for low risk products
Affluent investors – the rich investors are of 2 types:
Wealth creators – Those who prefer growth and are willing to take the risk of
equity investments. For such investors 70% to 80% allocation to diversified
equity and sector funds is advisable.
Wealth preservers – Those who prefer capital safety and are risk averse; they
prefer debt investments. For such investors a conservative portfolio with a
70% to 80% exposure to income, gilt and liquid funds would be appropriate.
Q-1 The stage at which the goals and purpose towards which the clients have
been investing have arrived, is known as
(a) Accumulation (b) Transition (c) Reaping (d) Transfer.
Q-2 As a good financial planner, you should avoid applying the normal Life Cycle
Model to your client who is
(a) A 25-year-old unemployed person (b) A 60-year-old person who has just
retired
(c) A Well-known 32 years old cricketer (d) A 35-year-old unmarried person.
Q-3 A salaried executive in late fifties who is planning to retire at 60 years of age,
his wealth cycle stage is
(a) Accumulation (b) Transition (c) Reaping (d) Transfer.
Q-4 For older investors who want to transfer their wealth
(a) No financial planning is required
(b) The right investment strategy depends upon who the beneficiaries are
(c) The right investment strategy depends upon the state of the stock market
(d) All the funds can be invested in aggressive equity funds.
Q-5 A high amount of equity investment is suggested to the investor if he is in
(a) Accumulation phase

(b) Transition phase
(c) Distribution phase
(d) Investment has no such relation with any phase of life.
Answers:
Q-1 : (c) Q-2 : (c) Q-3 : (b) Q-4 : (b) Q-5 : (a)
Chapter 12
RECOMMENDING MODEL
PORTFOLIO
& FINANCIAL PLANS

FINANCIAL PLANNING STRATEGIES
• Harness the Power of Compounding – 1% interest per month is better than

12% yearly return.
• Buy and hold is most common strategy BUT most common mistake. Ideally it
should be, track your investments, discard the non performers and keep the
good performers.
• Rupee cost averaging
• Value Averaging.
• Jacob’s Rebalancing Strategy ( Combination of RCA and Value averaging

strategies- Using a aggressive growth fund and liquid fund of the same
family.) ( putting regularly money in liquid fund and set a target value for the
equity fund)
●
Buy and hold strategy may not be a beneficial strategy because investors
may not weed out poor performing companies and invest in better
performing companies
●
Rupee Cost Averaging (RCA) is a technique that involves:
●
Fixed amount invested at regular intervals
●
When NAV is down, more units are bought and when price is high, fewer
units are bought
●
Over a period of time, the average purchase price of the investor’s
holdings will be lower
●
Investors use the SIP or AIP to implement RCA
●
Disadvantage: RCA does not tell when to sell or switch from one scheme
to another.
Rupee Cost Averaging (RCA)
Amount No of units Cumulative Value of

Month Invested (Rs) NAV (Rs) bought No of units Holding (Rs)
1 1000 10.00 100.00 100.00 1,000.00
2 1000 12.50 80.00 180.00 2,250.00
3 1000 14.25 70.18 250.18 3,565.00
4 1000 11.75 85.11 335.28 3,939.56
5 1000 10.50 95.24 430.52 4,520.46
6 1000 9.00 111.11 541.63 4,874.68
7 1000 8.50 117.65 659.28 5,603.86
8 1000 7.65 130.72 790.00 6,043.48
9 1000 8.80 113.64 903.63 7,951.97
10 1000 9.25 108.11 1,011.74 9,358.61
11 1000 12.00 83.33 1,095.07 13,140.90
12 1000 15.00 66.67 1,161.74 17,426.12
Average Cost 12000/1162= 10.33
●
Value Averaging (VA) involves:
●
A fixed amount is targeted as desired portfolio value at regular intervals
●
If market has moved up, the units are sold and the target value is restored
●
If market moves down, additional units are bought at the lower prices
●
Over a period of time, the average purchase price of the investor’s holding
will be lower than if one tries to guess the market highs and lows
●
VA is superior to RCA because it enables the investor to book profits and
rebalance the portfolio
●
Investors can use the systematic withdrawal and automatic withdrawal plan
to implement value averaging
●
Investors can also use an equity and a money market mutual fund to
implement value averaging.
Value Averaging
Target Value Cumulative no

Month (Rs) NAV (Rs) Value of Holding Units to invest of units
1 1000 10.00 100.00 100.00 100.00
2 2000 12.50 1,250.00 60.00 160.00
3 3000 14.25 2,280.00 50.53 210.53
4 4000 11.75 2,473.68 129.90 340.43
5 5000 10.50 3,574.47 135.76 476.19
6 6000 9.00 4,285.71 190.48 666.67
7 7000 8.50 5,666.67 156.86 823.53
8 8000 7.65 6,300.00 222.22 1,045.75
9 9000 8.80 9,202.61 (23.02) 1,022.73
10 10000 9.25 9,460.23 58.35 1,081.08
11 11000 12.00 12,972.97 (164.41) 916.67
12 12000 15.00 13,750.00 (116.67) 800.00
Some Key concepts of Financial Planning
●
When to invest – when they have money to invest
●
When to cash out
●
When the goals have arrived and clients need the money for the purpose for
which they have invested
●
IF the overall market appears overvalued in terms of fundamentals and historic
valuations
●
Start planning and investing regularly
●
Have realistic expectations
●
Invest Regularly
●
The Strategy advisable for an investor to maximise investment return in long
run is Switch from poor performers to Good performers.
Risk Profiling
Need for Risk Profiling
●
Risk profiling is an approach to understand the risk appetite of investors-an
essential pre-requisite to advise investors on their investments.
The investment advice is dependent on understanding both aspects of risk:
●
Risk appetite of the investor
●
Risk level of the investment options being considered.
Factors that influence the investor's risk profile:
Asset Allocation
●
'Don't put all your eggs in one basket' is an old proverb. It equally applies to
investments.
●
Asset allocation refers to deciding the composition of the portfolio in terms of
debt, equity and money market segments
●
Asset allocation differs from investor to investor and depends upon their
situation, their financial goals and risk appetite
●
The asset allocation for an investor depends upon his life and wealth cycle stage
●
A model portfolio creates and ideal approach for an investor’ situation and is a
sensible way to invest.
●
Economic environment and market are dynamic. Your prediction about market
can go wrong. But with the prudent asset allocation investor may not end up
with total fiasco.
Asset Allocation
Investors can have 2 approaches:

●
Fixed asset allocation
●
Flexible asset allocation
Fixed asset allocation means
●
maintaining the same ratio between various components of the portfolio i.e.
being disciplined
●
Re-balancing the portfolio in a disciplined manner
●
Periodical review and returning to original allocation
●
If value of equity component increases, investor books profits
Flexible asset allocation means
●
Allowing the portfolio profits to run, without booking them
●
If equity market appreciates, it results in higher proportion in equity than
debt.
Asset Allocation – The Strategic Tool
●
Allocation of money between equity, debt and money market instruments.
●
Depends upon situations, financial goals and risk appetite.
●
Benjamin Graham advocates 50/50 split between equities and bond . But
Bogle suggests different combinations.
●
Bogle gives a nice rule of thumb for asset allocation : Debt portion for an
investors portfolio should be equal to his age.
●
Example: A 30 year old investor will make 70/30 asset allocation.
Model Portfolio
Since investors’ risk appetites vary, a single portfolio cannot be suggested

for all. Financial planners often work with model portfolios – the asset
allocation mix that is most appropriate for different risk appetite levels. The
list of model portfolios, for example, might read something like this:
Young call centre / BPO employee with no dependents:
50% diversified equity schemes (preferably through SIP); 20% sector funds;
10% gold ETF, 10% diversified debt fund, 10% liquid schemes.
Young married single income family with two school going kids:
35% diversified equity schemes; 10% sector funds; 15% gold ETF, 30%
diversified debt fund, 10% liquid schemes.
Single income family with grown up children who are yet to settle down
35% diversified equity schemes; 15% gold ETF, 15% gilt fund, 15%
Couple in their seventies, with no immediate family support

15% diversified equity index scheme; 10% gold ETF, 30% gilt fund, 30%
Q-1 A criticism of rupee-cost averaging is

(a) Investment is for the same amount at regular intervals
(b) Over a period of time, the average purchase price will work out higher than if
one tries to guess the market highs and lows
(c) It does not inform an investor when to buy, sell or switch from one scheme to
another
(d) Rupee cost averaging has no serious shortcomings.
Q-2 Fixed ratio of asset allocation means
(a) It is a relatively aggressive approach for managing investments
(b) Investing the same amount every month
(c) Not doing any re-balancing
(d) Balance is maintained by liquidating a part of the position in the asset class with
higher return and reinvesting in the other asset with lower return
Q-3 Asset allocation for any investor generally depends on
(a) Age (b) Financial status (c) Investment objective (d) All of the above.
Answers: Q-1 : (c), Q-2 : (c), Q-3 : (d), Q-4 : (d)
Chapter 10
SELECTING THE RIGHT

INVESTMENT PRODUCTS FOR
INVESTORS

Physical Assets include gold and real estate and traditionally very popular
●
Gold is not subject to value erosion on account of rupee depreciation
●
Gold is perceived as a protection/hedge against inflation
●
Gold ETF, Gold Sector fund , gold futures, gold deposit scheme (offered by
bank).
●
Gold in physical form attract wealth tax, however gold deposit scheme and gold
MF are free from it.
●
Real estate requires a high capital investment and may not be easy to liquidate
at the appropriate price
●
Some fund houses are preparing to launch Real estate mutual funds in the near
future
Financial assets include equity, debt and money-market instruments
●
Equity, debt and money market instruments are direct investments
with the borrower/ issuer of securities
●
Mutual funds represent an indirect investment through an
intermediary.
Bank deposits
●
Offer high liquidity and perceived safety
●
Low or negligible returns after factoring inflation and tax
Corporate
Equity
●
Issued publicly and listed
●
Issued privately and unlisted
●
Investors may acquire shares either at the time of IPO or secondary (stock)
market
●
Equity offers high growth potential and liquidity
●
The challenge is to identify the right shares that are likely to appreciate
●
Requires capital to build a diversified portfolio.
●
The Listing of shares at Stock Exchange ensures High Liquidity as you can
trade regularly to sell your shares.
Debt
●
Debentures issue a fixed rate of interest
●
Debentures are secured by the assets of the borrower
●
Debentures are provided rating by credit-rating agencies
●
Bonds are also generally provided rating by independent agencies if the
maturity exceeds 18 months
●
Creditworthiness of borrower and risk of default have to be analysed
before investing in these bonds and debentures
●
Company fixed deposits carry a higher interest rate and are unsecured
●
These would also have tax implications.
●
The Rate of interest paid by a company on debentures issued by it
depends on the Company’s Credit rating.
●
The most important factor to look for when investing in a corporate fixed
deposit is the Credit Rating of the deposit.
Government
Public Provident Fund
●
15-year product
●
Risk-free government obligation
●
Open to individuals and HUFs
●
Only one account permitted per entity
●
Offers tax-free interest of 8% p.a. and contribution up to Rs. 70,000 (min Rs.
500) are eligible for deduction under section 80C
●
Option to withdraw 50% of 4th year balance in the 7th year
●
Restriction on withdrawal reduces liquidity.
Kisan Vikas Patra
●
Introduced as post office scheme to tap savings in rural India
●
Very popular with urban investors also
●
Current yield is 8% over 6 years, fully taxable
●
Easily transferable and liquid.
RBI Relief Bonds
●
Issued by RBI on behalf of the Government of India
●
A 5-year investment product with 8% interest offering
●
Interest is currently taxable (used to be tax-free earlier)
●
Free of risk of default
Government Securities
●
Long-term government paper
●
Risk-free government obligation
●
Low-return and define the benchmark rate of return on the yield curve
●
Specially appointed Primary dealers deal in G-Secs
●
Generally high ticket investments
●
Best accessible to small investors through mutual funds.
New Pension Scheme
Pension Funds Regulatory and Development Authority (PFRDA) is the regulator

for the New Pension Scheme. Two kinds of pension accounts are envisaged
• Tier I (Pension account), is non-withdraw able
• Tier II (Savings account) is withdraw able to meet financial contingencies. An

active Tier I account is a pre-requisite for opening a Tier II account.
New Pension Scheme
Investors can invest through Points of Presence (POP).

They can allocate their investment between 3 kinds of portfolios:
• 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). The
investors’ moneys can thus be distributed between 3 portfolios X 6 PFMs = 18
alternatives.
Life Insurance
●
Viewed more for investment and tax purposes than a vehicle for risk protection
●
Premium qualify for deduction under section 80C
●
Important to assess need for life insurance with respect to earning potential
●
A Without Profits policy offers the Sum Assured in the event of death only
●
A With Profit policy pays not only the Sum Assured but also bonus declared
from time to time
●
In case a policy is discontinued during its tenure, the policy’s surrender value
is paid which is a proportionate value based on premiums paid so far
●
A ‘convergence’ of insurance and mutual funds is the development of Unit-
Linked Insurance products – which offers investors choice of asset allocation
between debt and equity.
●
The Amount an insurance company pays to the nominee if a policyholder dies
is known as the SUM ASSURED.
●
A comparison of investment products can be done on risk, return, volatility and
liquidity
●
Mutual funds combine the advantages of all investment vehicles while doing
away with their shortcomings
●
The returns in a mutual fund are adjusted for market movements.
●
In India, Individual Investors does not direct access to Money Market
Instruments.
●
The biggest advantage of Investment in Gold is hedge against inflation.
●
The biggest disadvantage of investment in Real estate is High Purchase Price.
You have to invest huge amount.
●
The advantage of bank deposits is liquidity, high perceived safety and low entry
price. ITS disadvantage is low Yield after TAX.
Important Points
●
Mutual Funds are more recommended option for individual investors than
direct equity.
●
Direct Investment in stock market can be a better option than investing in
Mutual Funds if the investor has large capital, knowledge and resources for
research.

Q-1 RBI relief bonds have the maturity of
(a) 3 years (b) 5 years (c) 7 years (d) 10 years
Q-2 Which of the following is not the advantage of bank fixed deposits?
(a) Safety (b) Liquidity (c) Lower entry price (d) High yield
Answers: Q-1 : (b), Q-2 : (d)

Thanks
Target should be to Pass the exam – Do not try to

attempt all the questions. Answer only those in which
you are confident.
'Best of Luck'

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NISM - Series -

MUTUAL FUND Distributors Certification

1. Concept and Role of Mutual Funds

CONCEPT AND ROLE

Phase 1 (1964-87) : Growth of UTI

Phase 2 (1987-93) : Entry of Public Sector Funds-S.B.I.,Canara etc.

Phase 3 (1993-96) : Emergence of Private Sector Mutual Funds Joint Ventures

Phase 4 (1996-99) : Growth and SEBI Regulation

Phase 6 (2004…) : Consolidation & Growth 32 Mutual Funds as at 31-03-07

• It is a pool of money, collected from

• The ownership of the fund is thus joint

● It is managed by a team of investment professionals and other service

● The pool of funds is invested in a portfolio of marketable investments.

● The investors share is denominated by ‘units’ whose value is called as Net

● The investment portfolio is created according to the stated investment

● Mutual Funds are also known as Financial Intermediaries

● In India, Mutual Funds are constituted as TRUSTS.

Equity Debt Money Market

Equity Funds Fixed Income Money Market

Balanced Funds Liquid Funds

Diversified Equity Funds

Equity Income Funds

Monthly Income Plans

Capital protection funds

Money Market & Liquid

• Aggressive Growth Funds (Targets maximum capital appreciation.)

• 3 year lock in period

• Minimum investment of 90% in equity markets at all times

• So ELSS investment automatically leads to investment in equity shares.

• Eligible under Section 80 C up to Rs.1 lakh allowed

• Dividends are tax free.

• Benefit of Long term Capital gain taxation.

• Take contrary positions in different markets / securities, such that

• For instance, by buying a share in BSE, and simultaneously selling

• Most arbitrage funds take contrary positions between the equity

Types of Equity Funds

Investment Concentrates in Single

Fixed maturity plans

Floating rate funds:

Liquid schemes or money market schemes

Monthly Income Plan

Capital Protected Schemes

Gold Exchange Traded Fund,

Gold Sector Funds

Real Estate Funds

Fund of funds (FOF)

Balance fund is rarely a 50/50 fund!

Equity oriented Balanced funds (up to 65% in equity)

Income oriented Balanced fund (up to 65% in debt)

Investing in a balanced scheme makes things simpler for investor, because

Q-1 What is not an advantage of the Mutual Fund ?

Q-3 Gold funds can invest in

(a) Diversified Equity Fund (b) Index Fund

(a)Pharma Fund (b) Balanced Fund

Q-6 After NFO in Open Ended fund transactions can be done by ?

(a) Existing Investors (b) Existing & New Investors

FUND STRUCTURE AND

Responsible for investors Marketing &

Banks Registrar & Custodian*

Q-1 The appointments of fund distributors are made by

LEGAL AND REGULATORY

● AMFI is an industry association, incorporated in 1995, is not an SRO, so it can

Professional Selling Practice