NISM Mutual Fund Module

Importance of this session.

Mutual fund is an important financial product.

Learning will help us sell this product in a better way.

NISM certification is a must for Financial planners, who need to sell Mutual
Funds.

Exam consists of 100 Questions, each carrying one mark.

Negative mark – 0.25%

Pass – 50%

Duration – 2 hrs
Concept & Role of a Mutual Fund
 Mutual Fund

A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal.

The money thus collected is then invested in capital market instruments

such as shares, debentures and other securities.

The income earned through these investments and the capital appreciation
realized is shared by its unit holders in proportion to the number of units
owned by them.

Investors are Beneficial Owners of MF.

A MF Invests in Marketable Securities.

Mutual Fund Operation Flow Chart
 Advantages of Mutual Funds to Investors

Portfolio Diversification

Professional management

Reduction in risk

Reduction in transaction cost (Economies of Scale)

Liquidity – Highly Liquid than Shares.

Convenience and flexibility

Tax benefits

Drawbacks of Mutual Funds

Selecting a Scheme from over 800 Schemes – Choice Overload

No tailor-made portfolios or lack of portfolio customization
Types of Funds
 Open Ended & Close Ended Funds
Open ended funds

Open ended funds are ones that sell &

repurchase units at all times.

Units are Issued and Redeemed by
AMC

Repurchase – Surrender of Units. Also
called as Redemption
Close ended funds
Close ended funds are one that make
a one time sale of units. After the
NFO CEF’s do not let the investors
buy directly from the fund.

To provide liquidity to the investors,
1. these funds are traded in the
stock markets as per Listing
Agreement with Exchange
2. Interval Scheme – Combination of
Closed and Open Ended. Open
during an Interval.

The unit capital of the scheme
remains stable
 Based on Schemes / Investment Philosophy

Equity Schemes
High Risk – High returns
Invests minimum 65% of Corpus in Indian Equity

Debt Mutual Funds

Risk is low. Alternative to Post office and Bank Deposits.
GILT Fund, Money Market Fund, Income, Medium/Short term funds.

Balanced Schemes
Invests in both Equity and Debt.
Equity Oriented and Debt Oriented Balanced Funds are available.
MIP, Pension Plan, Children's Plan are Debt oriented Balanced Funds.

By nature of investment objective

Growth funds invest for medium to long term capital appreciation.
Value funds invest in equities that are currently under valued, & whose value
might be unlocked in future.
 Types of Equity Schemes

Diversified Equity – Invest Across Sectors & Across Companies

Sector Funds /Thematic Funds

Invests only in a Particular Sector (Reliance Banking)
Invest based on a theme (Reliance Infrastructure Fund)
Carry the highest level of risk

ELSS Schemes (Equity Linked Saving Schemes)

Sec 80C benefit upto Rs 1 Lakh. Min – Rs 500/-. Max – No limit.
Dividends and Maturity are Tax Free
Lockin Period of 3 yrs.

Equity Income or Dividend Yield Schemes

Invests in High Dividend Yield Companies
Share Prices of such companies Fluctuate less and hence the NAV of such
schemes. Example : UTI Dividend Yield Fund
 Types of Equity Schemes

Arbitrage Funds
Take Contrary Positions in different markets
Ex: Buying a Share in NSE & Selling the same in BSE
Invest in Futures and Options (Derivatives)

Index Funds or Passive Funds

Follows Passive Style of Investment. Low Cost.
Invests in Underlying Index Stocks as per the Weightage.
Fund Manager has no role in deciding on investments.
These funds are not designed to Outperform the Index
Low Running Cost. Performance tends to mirror the particular index.
Tracking Error – Index return – Index Fund return

Active Funds
Fund Manager has an active role in Investment decision
Designed to Outperform the Market
High Running Cost
 Types of Debt Schemes

Diversified Debt Funds or Income Funds
Invest to generate regular income, rather than capital appreciation.
Invest in all the type of Debt Securities (both Gov bonds & Pvt Co Debentures)

Gilt Funds
Invests in Gov Sec & T-Bills. No Credit / Default risk as issued by government.
Dated Securities – Gov Securities with Maturity Period greater than a year.
T-Bills or Treasury Bills are G-Sec with less than one year maturity.

Fixed Maturity Plan / Fixed Term Plan.

A Closed End Debt Scheme investing in Predefined Investments.
Try to achieve the indicative Yield.
Invests in Sec that Matures along with the term of the Plan.
Alternative to Bank FD
fund manager has little ongoing role in deciding on the investment options

Floating Rate Funds

Invest in Floating Rate Debt Securities
The NAVs of such schemes fluctuate lesser than debt funds that invest more in debt
securities offering a fixed rate of interest.
 Types of Debt Schemes

Junk Bond Schemes or High Yield Bond Schemes

Invest in Companies that are of poor credit quality.
Invest in Debentures of High Coupon rates.
Risky avenue

Money Market or liquid funds.

Money Market is a place for short term borrowing and lending.
Used for Working Capital Requirement.
Call Money/Notice Money,T-Bills, Certificate of Deposits issued by SCB,
Commercial Paper issued by Corporate etc. are money market instruments.
Safest of all MF investments.
Invest mainly in securities of short term (less than 91 days of maturity)
Highly Liquid. Invests in Money Market Securities
Reliance Liquid Fund Treasury Plan

FOF – Fund Of Fund Invest in other Mutual Fund Schemes.
 Types of Hybrid / Balanced Schemes

Monthly Income Plan (not a guaranteed plan)
seeks to declare a dividend every month though not guaranteed.
Mostly 80% in Debt and 20% in Equity
Flexible Asset Allocation for fund manager
Ex : Reliance Monthly Income Plan

Capital Protected Schemes

Closed End Schemes - ensure that investors get their principal back
invest in Zero Coupon G-Sec which mature along with the scheme
Invests some portion in Equity to give better returns.
Capital Protection Oriented Schemes – Instead of Investing in Zero Coupon G-
Sec, they generally invest in Good Quality Debentures.
Capital Protection can also be offered by a Guarantor.
 Miscellaneous Schemes

ETF – Exchange Traded Funds
Open Ended Funds
Market Maker offers Buy and Sell Quote (Provides Liquidity)
Traded in Stock Exchange
Nifty Bees, Liquid Bees etc are Examples

Gold Funds
GOLD ETF – invests in Physical Gold
GOLD Sector Funds – Invests in the fund will invest in shares of companies engaged in gold
mining and processing - NAV of these funds do not closely mirror gold prices

Real Estate Funds

Commodity Funds
Invest in Commodities.
Commodity ETF are not available in INIDA
Commodity Sector Funds are available – SBI Magnum Comma

International Funds
Collects money in India (Feeder Fund)
Invests money in Foreign Mutual Fund Schemes (Host Funds)
R
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Charges
 Charges

Entry Load
Difference between the Sale Price and NAV is called ENTRY LOAD
W.e.f Aug 2009, ENTRY Load has been banned

Exit Load
Difference between NAV and Repurchase Price.
Called as Contingent Deferred Sales Charge (CDSC)
Varies with Holding period of investors. Longer the holding period lower the CDSC.
Exit loads/ CDSC in excess of 1% have to be credited back to the scheme
Needs to be same for all Unit Holders of a scheme.

Initial Issue Expenses – Deferred Load

Expenses incurred during launch of fund.
Initial expenses should not exceed 6% of the Corpus raised during the NFO.
AMCs need to bear the initial issue expenses now. So, deferred load is not
applicable for newer schemes.

Investment Management / Asset Management /Fund Management Fee
A fee charged for managing Investors funds. It is the business revenue of a MF.
Cannot be charged for funds parked in Short Term Deposits of Commercial
banks by Liquid Funds / Debt Funds.
Cannot be charged for AMCs own investment in a scheme

Recurring expenses - Expenses for an On going fund.

Fees of various service providers, such as Trustees, AMC,
Registrar & Transfer Agents, Custodian, & Auditor
Selling expenses including scheme advertising & commission to the distributors
Expenses on investor communication, account statements, dividend /
redemption cheques / warrants
Listing fees and Depository fees, Service tax etc.

Expenses that cannot be charged to the schemes

Penalties, Interest on delayed payment to Unit Holders
Legal,Marketing,Publication & other expenses not attributable to any scheme
 Expenses on General Management, General administration etc
Software development expenses, depreciation on fixed assets
Other expenses prohibited by SEBI from time to time.

Recurring Expenses – Limits

Limit on Expenses Equity fund Other than Equity

Net assets % of charge

First 100 crores 2.50% 2.25%
next 300 crores 2.25% 2.00%
next 300 crores 2.00% 1.75%
>700 crores 1.75% 1.50%

For FOF the total expenses should not exceed 0.75%

Recurring Expenses includes Fund Management Fee also
Maximum Expenses
 Rapid Fire

The number of mutual fund schemes in India is about:
100
800
2000

Open-ended schemes offer exit option through a stock exchange
True
False

Sector funds invest in a diverse range of sectors
True
False

High yield bond schemes invest in junk bonds
True
False

Investment objective is closely linked to
Scheme
Option
Plan
 Rapid Fire

A close-ended mutual fund has a fixed
NAV
Unit Capital
Rate of Return

An open ended Mutual fund is one that has
An option to invest in any kind of security
Units available for sales and purchase at all times
An upper limit on its NAV
A fixed fund size

_________ was the year SEBI Regulations for Mutual Funds was formulated.
1992
1993
1996

An investor in need of regular income should not select
A bank deposit
a debt fund
an equity growth fund

Debt Funds target
Low risk and stable income
Protection of principle
Low growth with risk
Long term capital appreciation

Excess distribution expenses are to be borne by the
AMC
Unit holders
SEBI
AMFI

Which of the following is not a benefit from a Mutual Fund?
Investor is able to diversify risk
Investor has custody of securities where fund invests
Investor can save costs
Professional Management of money

An investor asks you in what order he should list the following schemes, going from
the scheme with the least risk to the one with the highest risk.

1. A Balanced Fund,

2. A Stock Index Fund

3. A liquid/ Money Fund,

4. A Pharma sector fund
1,2,3,4
3,1,2,4
2,3,1,4

Charge to an investor at the time he redeems his units from the fund is known as
Repurchase load.
Redemption weight.
Exit load.

Contingent Deferred Sales Charge (CDSC).
is higher for investors who stay invested in the scheme longer
is lower for investors who stay invested in the scheme longer.
Is the same for all investors irrespective of how long they stay invested.
Is not allowed to be charged to mutual fund investors in India.
Fund Structure & Constituents
 Constituents of a Mutual Fund

Sponsor

Trustees

Asset Management Company

Custodian

R & T Agent

Distributors

Bankers

MF in India is a 3-Tier Structure consisting of Sponsor, Trustee and AMC.
 Sponsor

He is the promoter of a MF and gets the fund registered with SEBI.

A sponsor will form a trust & appoint a board of trustees with SEBI approval.

minimum 40% share holding in the capital of the AMC

Financial Services Business for past 5 years prior to the registration.

Positive net worth in last 5 yrs.

Profit making in 3 out of last 5 yrs including 5th Year.

 Mutual funds as a Trust

Mutual fund is a pass though vehicle. MF in India – Trust form.

Investors or unit holders are beneficial owners of the investments held

by the trust. Trust is the registered owner.

Acts as protector of unit holders money. Appoint AMC for managing funds.

Min – 4 Trustees. 2/3rd Trustees must be independent.

Signs Trust deed with SPONSOR

 Asset Management Company

Acts as an investment manager of the trust. It’s a Pvt Ltd. Co.

Net worth of Rs. 10 crores at all times.

50% of directors on the AMC board are independent.

An AMC cannot invest in its own schemes, unless the intention to invest is
disclosed in the Offer Document

The appointment of an AMC can be terminated by a majority of the

trustees, or by 75% of the Unit-holders (Subject to SEBI Approval)

Prior Approval of Trustee is required for appointing Board of Directors of

AMC
 Custodian & Depositories.

A custodian has custody of the assets of the fund & is appointed by the
board of trustees

custodian needs to accept & give delivery of securities for the purchase and
sale transactions of the various schemes of the fund – Clearing & Settlement

Sponsor & Custodian cant be the same. Custodian must be Independent

The SEBI regulations provide that if the sponsor or its associates control 50%
or more of the shares of a custodian, or if 50% or more of the directors of a
custodian represent the interest of the sponsor or its associates, then that
custodian cannot be appointed for the mutual fund operation

Have to be registered with SEBI

 Auditors

Scheme Auditor & AMC Auditor are different

Scheme Auditor appointed by Trustee, AMC auditor by AMC.

Registrars & transfer agents - RTA.

RTA appointed by AMC maintains investors records.

Investor Service Centres (ISCs), which perform a useful role in handling

the documentation of investors are offices of R&T.

It is not compulsory to appoint a RTA. The AMC can choose to handle this
activity in-house (Franklin)
Fund Accountants

performs the role of calculating the NAV by collecting information about the
assets and liabilities of each scheme

The AMC can either handle this activity in-house, or engage a service
provider
 Rapid Fire

The assets of the mutual fund are held by
AMC
Trustees
Custodian
Registrar

AMC directors are appointed with the permission of Trustees
True
False

Most investor service centres are offices of
Trustees
Registrar
Fund Accountant
Custodian

Fund accounting activity of a scheme is to be compulsorily outsourced
True
False
 Rapid Fire

The custodian of a mutual fund
Has custody of assets and is appointed by Trustees
need not be an entity independent of the sponsors
does not give or receive deliveries of physical securities

Issuing and redeeming units of mutual fund is the role of

the custodian
the transfer agent
the trustees
the bankers

The accounts and all other records of an AMC are filed with
AMFI
Registrar of Companies
Agents Association
UTI

The Board of Trustees of a mutual fund
Act as protector of investors interests
Directly manage the portfolio of securities
Do not have the right to dismiss the AMC
Cannot supervise and direct the working of the AMC

The AMC and directors are answerable to

Stock Exchanges
The Board of Trustees
Agents and distributors
Stock Brokers

Transfer Agents of mutual fund are not responsible for

issuing and redeeming units of the mutual fund
updating investor records
preparing transfer documents
investing the funds in securities markets

Who needs to sign the Trust Deed with the Trustee?
AMC
SEBI
Investor
SPONSOR

Under the Indian Trust Act the interest of Unit Holders is safeguarded by
A board of trustees
A trustee company
Either A or B
SPONSOR

The AMC shall make investment decisions solely in the interest of

SPONSOR
Trustee
Unit Holders
Employees of AMC
Legal & regulatory environment
 SEBI (Securities & exchange board of India)

The APEX regulator of capital market. Formed in 1992.

All MF constituents are registered with SEBI.

Self regulatory organizations

Prime responsibility is to regulate their own members.

The statutory regulatory bodies - lay down the broad policy framework,
and leave the micro regulation to the SRO

No SRO for Mutual Fund Industry. MF Industry directly regulated by SEBI

AMFI is not a self regulatory organization.

BSE & NSE, Institute of Chartered Accountants (ICAI) are examples
Investor Rights & obligation
 Investor rights

If 75% Unit Holders decide.
Scheme can be winded up.
AMC can be dismissed / terminated

Schemes except ELSS, need to allot units or refund moneys within 5 business
days of closure of the NFO.

Open-ended schemes, Except ELSS, to re-open for ongoing sale / re-purchase

within 5 business days of allotment

Right to Receive dividend with in 30 days of declaration.

Nominees -up to 3.The investor can also specify the percentage distribution
between the nominees.

The investor can also pledge the units.

Redemption proceeds with in 10 days or AMC to pay penalty of 15% PA.
 Investor rights – Dispatch of Statement of Account

In the case of NFO - within 5 business days of allotment of Units.

Post-NFO investment – within 10 working days of the investment

In the case of SIP / STP / SWP

• Initial transaction – within 10 working days

• Ongoing – Within 10 working days of the end of every quarter

• On specific request , SOA dispatched to him within 5 working days

SOA to dormant investors (no transaction during the previous 6 months can be
sent along with the Portfolio Statement / Annual Return.

If mandated by the investor, soft copy to be mailed to investor every month.

NAV has to be published daily, in at least 2 newspapers

NAV is to be updated in the website of AMFI and the mutual fund

In the case of Fund of Funds, by 10 am the following day

In the case of other schemes, by 9 pm the same day

In case of Closed End Schemes NAV calculated every Wednesday
 Investor rights

Investor can ask for a Unit Certificate. It is different from a SOA

SOA shows the opening balance, transactions during the period and closing
balance

A Unit Certificate only mentions the number of Units held by the investor.

SOA is like a bank pass book, while the Unit Certificate is like a Balance
Confirmation Certificate issued by the bank.

Unit Certificates are non-transferable & do not offer any real

transactional convenience.

On request, the AMC is bound to issue the Unit Certificate within 30 days
of receipt of request.
 Rapid Fire

SEBI regulates
Mutual Funds
Depositories
Registrar & Transfer Agents
All the above

Statement of Account is to be sent to investors within ___ days of NFO
closure
3
5
7
15

Within ___ days of dividend declaration, warrants will have to be sent to
investors
30
10
15
 Rapid Fire

Unit Holder can hold his unit in DEMAT form
True
False

If a unit-holder does not agree to the merger of his fund with another, he
has no exit option
True
False.

The structure which is required to be followed by mutual funds in India is

laid down by
Financial Ministry
Securities & Exchange Board of India (SEBI)
Fund Sponsor
Association of Mutual Funds of India (AMFI)

The role of AMFI in the mutual funds industry is not to
promote the interests of the unit holders
set a Code of Ethics
regulate mutual funds.
Increase public awareness of mutual funds in the country.

A Self Regulatory Organization can regulate

all entities in the market
only its own members in a limited way
it’s own members with total jurisdiction
no entry at all

The amount of authority enjoyed by a self regulatory organization is

defined by
the apex regulatory authority
company law board
it’s own members
RBI

Which of the following qualifies as a self regulatory organization?
SEBI
RBI
AMFI
NSE

The Sponsor of a fund can act as its custodian if it has the required
experience and SEBI registration
True
False

In order to ensure independence, the Compliance Officer reports directly
to the head of the AMC and works closely with the Trustees on various
compliance and regulatory issues
True
False
Offer Document
 Offer Document

Offer document: - Called as Prospectus/Legal or Reference Document.

Contains all the necessary information that a prospective investor ought to

know before investing.

Investors are mandated to read the OD. OD is filed with SEBI.

Investment is governed by the principle of caveat emptor i.e. let the

buyer beware

NFOs other than ELSS can remain open for a maximum of 15 days.

Open-ended schemes have to re-open for sale / re-purchase within 5

business days of the allotment
 Offer Document

OD has two parts
Scheme Information Document (SID) – has details of the scheme

Draft SID is available for viewing in SEBI website for 21 working days.

Final SID is hosted on AMFI site 2 days before the issue opens.

Statement of Additional Information (SAI) – has statutory

information about the Mutual Fund offering the scheme

Single SAI is relevant for all the schemes offered by a Mutual Fund

SAI is part of SID. SID should be read in conjunction with the SAI and
not in Isolation
 Contents of SID

Summary information – Cover Page
Name of the Mutual Fund
Name of Scheme
Type of the scheme (Equity / Debt, Open / Closed etc)
Price of the Units
Opening, closing and earliest closing date for the offer.
Disclaimer clause by SEBI
Name of guarantor in case of assured return scheme.

SAI Contains the following details for the past 3 years.

Financial Summary of Sponsor
Condensed Financial Information of All Schemes.
Associate Transactions if any.
Investor grievance summary report.

Risk Factors – Standard Risk Factor

Mutual funds and securities investments are subject to market risks

and there is no assurance or guarantee that the objectives of the mutual
fund will be achieved.

As with any investments in securities, the Net asset Value (NAV) of the
units of the schemes can go up as well as down depending on the factors
and forces affecting securities markets.

Past performance of the sponsor / the Asset Management Company /

Mutual Fund does not indicate the future performance of the schemes of
the mutual fund.

The names of the respective schemes do not in any manner indicate

either the quality of the scheme, or their future prospects and returns.

Investors are not being offered any guaranteed / assured returns


Scheme Specific Risk factors

Risk due to Investment Philosophy / Liquidity / Redemption etc.

Schemes investing in Equities

Schemes investing in Bonds

Risks associated with Investing in Foreign Securities

Risks associated with Investing in Derivatives

Risks associated with Investing in Securitized Debt

Risks associated with Short Selling and Securities Lending

Risk due to Non Diversification.

Fundamental Attributes of the Scheme

Investment Objective / Investment Pattern/Asset Allocation Pattern

Type of the scheme

Aggregate fees & Expenses

Liquidity provisions such as listing, repurchase etc

Guarantee if any

Options like Growth,Div etc

IsOffer Document Verified by SEBI for its Accuracy ? NO

OD is “Vetted” by SEBI though SEBI doesn't formally APPROVE them

DUE DILIGENCE CERTIFICATE (Legal & Regulatory Compliance)

Issued by Compliance Officer / CEO / MD/WHOLE TIME
DIRECTOR/EXECUTIVE DIRECTOR appointed by AMC

The draft OD forwarded to SEBI is in accordance with SEBI Regulations

All
legal requirements connected with launching of the scheme have been
complied with.

Disclosures made in the OD are TRUE, FAIR & ADEQUATE to enable the
investors to make a well informed decision regarding investment.

The intermediaries named in the OD are registered with SEBI and their
registration till date is valid.

OD without DUE DILIGENCE Certificate will be rejected by SEBI.


KIM – Key Information Memorandum (Abridged Version of OD).
Fundamental Attributes, Plans and Options under the scheme
Details about Fund Manager, Trustee Company, AMC
Performance of the scheme and Benchmark Index in CAGR
Source for obtaining daily NAV, Investor grievance Contact
Information about obtaining Account Statement, Annual Financial Results, Half
Yearly Portfolio etc.
Dates of Offer, Risk Profile of the scheme, Dividend Policy
KIM UPDATED ONCE IN A YEAR
KIM revised in case of change in Fundamental Attributes. Other changes are
disclosed through an Addendum

Lending & Borrowing by MF
No lending. Borrowing only to meet Redemption / Liquidity needs.
Borrowing limited to 20% of Net Assets for a Max Period of 6 months.
Borrowed amount cant be invested.

Minimum No of Investors in a Scheme – 20. No single investor should hold
more than 25% of Net Assets of a scheme.

Updation of SID – Regular Updation
If a scheme is launched in the first 6 months of FISCAL, then the first Update is
due with in 3 months of the end of Financial Year.
If a scheme is launched in the second half of the FISCAL, then the first update
is due within 3 months of the end of the next financial year.
Thereafter SID is to be updated once in a YEAR

Updation of SID – Need Based

Reconstitution of AMC
Change of Fundamental Attributes
Change in Key Personnel of the AMC especially the Fund Manager
Fresh Litigation cases or Adjudication proceedings against AMC/Sponsor.

SAI updated by the end of 3 months of every Financial Year

Eligibility to Invest in Mutual Funds
All except Foreign Citizens & OCB
PIO (Person of Indian Origin) can invest
Overseas Corporate Body (OCB) means a company, partnership firm, society
and other corporate body owned directly or indirectly to the extent of at least
60% by NRIs.
 PIO and OCB

A Person of Indian Origin (PIO) is usually a person of Indian origin who is
not a citizen of India

Person of Indian Origin Card (PIO Card) is a form of identification issued
to a Person of Indian Origin who hold a passport in another country other
than Pakistan and Bangladesh. Other conditions are:
person at any time held an Indian passport or;
person's parents or grand parents or great grand parents were born in and
permanent residents in India, but not moved to Pakistan and Bangladesh or;
person is spouse of a citizen of India or a person of Indian origin as per above.
It came into force with effect from 15 September 2002.

Overseas Corporate Body (OCB) means a company, partnership firm,

society and other corporate body owned directly or indirectly to the
extent of at least 60% by NRIs.
 Sales Practices

SEBI does not prescribe any limit of commission payable to distributors by the
fund house.

2 types of commissions
Upfront commission for mobilization of funds paid by Investors directly
Trail commission to encourage the retention of the investors.
Trail commission is paid Quarterly on Average Net Assets.
Trail Commission increases when the market value of investment increases.
 Rapid Fire

NFOs other than ELSS can be open for a maximum of
7 days
10 days
15 days
30 days

Legally, SAI is part of the SID
TRUE
FALSE

Offer documents of mutual fund schemes are approved by SEBI
TRUE
FALSE

Application form is attached to
SID
SAI
KIM

KIM has to be updated every 6 months
True
False
 Rapid Fire

The front page of an offer document need not cover
opening, closing and earliest closing date of the offer.
Disclaimer clause
Legal and regulator compliance
Price of units

Though the offer document of a scheme is prepared as per SEBI

Regulations and is filed with SEBI. SEBI does not certify the accuracy or
adequacy of the document.
True
False.

What document Mutual Fund distributors need to refer for finding out
eligible category of investors in a particular Mutual Fund Scheme?
SEBI Regulations Manual
AMFI booklet
Offer document
RBI Guidelines

Most eligible investors of Mutual Funds can broadly be grouped into either
individual or institutional investors
True
False

The front Page of the offer document contains
SEBI Disclaimer Clause
Name and Type of the fund
Major Objectives of the Fund
A&B

The Board of Trustees of a mutual fund
Act as protector of investors interests
Directly manage the portfolio of securities
Do not have the right to dismiss the AMC
Cannot supervise and direct the working of the AMC

The legal responsibility for the accuracy of the statements made in the
offer document lies with
SEBI
The AMC
AMFI
The Company Law Board

The rights of investors in a mutual Fund scheme are laid down in
the Offer Document of that scheme
Quarterly Reports
Annual reports
Marketing Brochures

The first time investor would be well advised to refer to
KIM
Offer Document
Either of the Above

Validate the statement - The investor is not obligated to read the offer
document before investing in Mutual Funds
Completely True
Completely False
Rarely True
Partly False
 Session 5
Accounting, Valuation & Taxation
 NET ASSET VALUE - NAV

The unit-holders’ funds in the scheme is commonly referred to as “net assets”.

NAV = (Market value of investments + Assets – Liabilities) /(no of units outstanding)

Higher the interest, dividend & capital gains earned by the scheme, higher would be NAV.

Higher the appreciation in the investment portfolio, higher would be the NAV.

Lower the expenses, higher would be the NAV.

The process of valuing each security in the investment portfolio of the scheme at its
market value is called ‘mark to market’

MF Investments are Marked to Market.

 NET ASSET VALUE - NAV

Example : Investors have bought units of a mutual fund scheme during NFO. The
scheme has thus mobilized Rs 200 crore. An amount of Rs 140 crore, invested in
equities, has appreciated by 10%. The balance amount of Rs 60 crore, mobilized from
investors, was placed in bank deposits. Interest and dividend received by the scheme
is Rs 8 crore, scheme expenses paid is Rs 4 crore, while a further expense of Rs 1
crore is payable. Calculate NAV of the scheme ?
 Dividends & Distributable Reserves

SEBI guidelines stipulate that dividends can be paid out of distributable reserves.

All the profits earned (based on accrual of income & expenses as detailed above) are
treated as available for distribution.

Valuation gains are ignored. But valuation losses need to be adjusted against the profits.

That portion of sale price on new units, which is attributable to valuation gains, is not
available as a distributable reserve

Each scheme has separate Balance Sheet and profit and loss account.
 Key Accounting & Reporting Requirements

Accounts of the schemes need to be maintained distinct from the accounts of the AMC.

NAV rounded off to 4 decimals – Liquid Schemes, Index Funds & Debt Schemes

NAV rounded off to 2 decimals – Equity and Balanced or Hybrid Schemes

Investors can hold their units even in a fraction of 1 unit

The day on which valuation is done is known as Valuation day. The last quoted price of
the Security is taken from Stock Exchange where it is Principally Traded.

Debt sec not traded on the valuation date are valued on the basis of the Yield matrix.

Yield matrix estimates the yield for different debt securities based on the credit rating of
the security and its maturity profile

If an Illiquid Sec accounts for more than 5% of Net Assets, then it has to be valued by
Independent Valuer.
 TAXATION

STT – Securities Transaction Tax - tax on the value of transactions in equity
shares, derivatives and equity mutual fund units

STT is not payable on transactions in debt or debt-oriented mutual fund units

Product Transaction STT rate

Equity-Delivery & for Exchange Purchase 0.125%
Traded Equity Funds
Sell 0.125%

Sale of Futures and Options Sell 0.017%

Equity MF – Repurchase Sell 0.25%
 Dividend Distribution Tax

Dividends are Tax Free at the Hands of Investors.

Dividend Distribution Tax Individuals/HUF Corporates

Equity schemes Nil Nil
Debt schemes 14.163% 22.66%
(Tax + Surcharge + Cess) (12.5% + 10% + 3%) (20% + 10% + 3%)

Money market and Liquid schemes 28.325% 28.325%

(Tax + Surcharge + Cess) (25% + 10% + 3%) (25% + 10% + 3%)

Dividend Stripping Norms

Section 94(7) disallows any capital loss, arising to a unit holder

if, an investor buys units within 3 months prior to the record date for a dividend, and

sells those units within 9 months after the record date, any capital loss from the
transaction would not be allowed to be set off against other capital gains of the investor, up
to the value of the dividend income exempted.
 Capital Gains Tax

Capital Gain is the difference between sale price and acquisition cost

Long Term Capital Gain (LTCG) : Gains arising from Sale of Units held for > 12 months

Short Term Capital Gain (STCG): Gains arising from Sale of Units held for <=12 months

Long Term Capital Gain Tax
Equity Schemes – NIL. Where STT is not paid, the taxation is similar to debt-
oriented schemes
Debt Schemes – Lesser of 10% without indexation or 20% with indexation
Indexation means that the cost of acquisition is adjusted upwards to reflect the
impact of inflation

Short Term Capital Gain Tax
Equity Schemes – 15 %
Debt Schemes – Added to total income and taxed as per the slab

No TDS on the dividend distribution or re-purchase proceeds to resident

investors
 Setting off Gains and Losses under Income Tax Act

Capital loss, short term or long term, cannot be set off against any
other head of income (e.g. salaries)

Mutual Fund Investments are Exempted from Wealth Tax

Loss Set Off Against

Short Term Long Term / Short Term Gain
Long Term (Debt) Long Term Gain (Debt)
Long Term Equity Cannot be Set Off
 Rapid Fire

Net assets of a scheme is nothing but its investment portfolio
True
False

The difference between NAV and re-purchase price is
Entry Load
Exit Load
Expense

NAV of income funds is to be calculated upto ___ decimals
4
3
2
1

Securities Transaction Tax is applicable to Debt Schemes
True
False

Wealth tax is payable at the applicable rates on equity mutual fund units
True
False
Risk Measures
 Mutual funds – Return Disclosure Norms

Only SEBI Prescribed methods for computing returns.

Dividends declared shall be mentioned in rupees per unit & the prevailing
NAV

Returns for the Past 1,3, 5 years & since inception in CAGR should be
disclosed. The returns of the Benchmark shall also be disclosed for the
corresponding period.

For funds less than 1 year, absolute returns must be shown & not
annualized.

All advertisements must display `past performance may or may not be

sustained in future`

Ranking of the fund must be appropriately explained.

 Fundamental Analysis

Fundamental Analysis entails review of the company’s fundamentals viz. financial
statements, quality of management, competitive position in its product / service

Earnings per Share (EPS): Net profit after tax ÷ No. of equity shares outstanding
Tells investors how much profit the company earned for each equity share

Price to Earnings Ratio (P/E Ratio): Market Price ÷ EPS

indicates how much investors are prepared to pay , in relation to the
company’s earnings (Future Earning Potential)
normally calculated based on forward EPS
P/E may be high because the company’s prospects are indeed good

Book Value per Share: Net Worth ÷ No. of equity shares

indicator of how much each share is worth

Price to Book Value: Market Price ÷ Book Value per Share

indicator of how much the share market is prepared to pay for each share of
the company, as compared to its book value
 Technical Analysis & Portfolio Building

Technical Analysts (Chartists) study price-volume charts

Price behavior & volumes traded are a reflection of investor sentiment

long term investment decisions are taken through fundamental analysis

Comes in handy for short term speculative decisions like intra-day trading

When a fundamental analysis-based decision has been taken on a stock,
technical analysis might help decide when to implement the decision i.e.
the timing

Portfolio building approach – Top down and Bottom up
Top down approach - sector allocation is a key decision
good stocks within the identified sectors are selected for investment
Bottom-up approach - Stock selection is the key decision in this approach
sector allocation is a result of the stock selection decisions
The approach is therefore also called stock picking
 Risks in Mutual Fund Investing

Risk in a generic sense means the possibility of financial loss

In the investment world possibility of financial loss arises from

variability of earnings from time to time.

Risk is thus equated with volatility of earnings - a statistically

measurable concept.

Volatility of earnings of an equity fund comes from

Degree of diversification
Fund manager’s success at market timings
Company Specific Risk or Non Systematic Risk – Can be diversified
Sector Specific Risk
Market Level or Systematic Risk - Not diversifiable, not controllable
because of changes due to broad economic, political and other factors.
Can be controlled to some extent through Equity Index Futures and
Options
 Risk Measures

Beta Coefficient Measure of Risk :

Beta relates a fund’s return with a market index.

Measures Market risk or Systematic Risk.

Measures the sensitivity of the Fund’s returns to changes in the Market

Beta of 1– Fund moves with the market i.e.Passive Fund or Index Fund

Beta of less than 1 –less risky than the market i.e conservative Fund.

Beta of More than 1 – more risky than the market i.e Aggressive Fund.
Beta not relevant to Debt Funds.
 Risk Measures

Standard deviation measure of risk
measures fluctuation in periodic returns of a scheme in relation to its own average
return.
relevant for both debt and equity schemes.

ALPHA - Difference between a scheme’s return & its optimal return.

Alpha – a measure of the fund manager’s performance.

Positive alpha is indicative of out-performance by the fund manager;

Negative alpha indicates underperformance.

Portfolio turnover rate - Measures how many times the fund manager churns
his holdings. A 100% means a complete change in portfolio during the period
under consideration
High indicates High Transaction Cost.
Relevant for Equity/Balanced funds particularly for those which derive
income from active trading.
Not relevant for Value, Growth funds.
 Risk Adjusted Performance Measures

Risk and Returns have co-relation. Risk adjusted Return is measured by using
Sharpe Ratio or Treynor Ratio

SHARPE RATIO = _____Risk Premium___

Fund’s Standard Deviation

TREYNOR RATIO = ______Risk Premium ______

Fund’s Beta

Risk Premium - Difference between the Fund’s Average return and Risk free
return on Government Securities or Treasury Bills over a given period

Treynor ratio uses Market risk to rank funds while Sharp ratio uses total risk.
 Basic characteristics of bonds or debt security

Par value – principal value Face value of the bond.

Coupon – annual rate of interest paid on the par value of the bond.

Debt securities which mature within a year - money market securities

Return that an investor earns or is likely to earn on a debt security is its

yield.

Current yield = (Coupon in Rs / Current Market Price) * 100 %

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.

The difference between the yield on Gilt and the yield on a non-Government
Debt security is called its yield spread
 Risk Measurement of Debt Funds

Debt Funds exposed to Risk of loss through Default (Non Performing Assets)
and Interest Rate risk

Interest Rate Increases, Yield Increases, Price of Existing BOND Decreases

Average maturity or duration – Longer the Weighted Average maturity

(duration) of a debt portfolio greater the loss if interest rates go up.

Modified Duration – Measures Sensitivity of Bond Prices with respect to

Interest Rates

Higher the Modified Duration, Higher the Interest rate sensitivity of a Bond

CREDIT PROFILE of Investments

 Benchmark

Benchmark – Representative of the behavior of returns from the markets
MF should use Benchmarks that reflect the asset allocation / Investment
Objective/representative of the portfolio of the fund.
Benchmark should be calculated by an independent agency in a transparent
manner and should be widely available
Choice of Benchmark is easy for an Index Funds.
Benchmark is decided by AMC in consultation with trustees.
Benchmark mentioned in the OD should be used
SENSEX,S&P CNX Nifty, BSE 100 etc are examples.

Benchmark for Debt Schemes
Developed by Rating agencies recommended by AMFI
NSE’s MIBOR, CRISIL LiquiFEX for Liquid Schemes
ICICI Securities’ Sovereign Bond Index (I-Bex)
Si-Bex (1 to 3 years), Mi-Bex (3 to 7 years) & Li-Bex (more than 7 years)
CRISIL Gilt Bond Index – for G-Sec, CRISIL AAA Corporate Bond Index
CRISIL CompBEX - Composite Bond Index, CRISIL STBEX - Short-Term Bond Index
CRISIL Debt Hybrid Index – 60:40 : CRISIL Debt Hybrid Index – 75:25
 Rapid Fire

Fundamental analysis is a evaluation of the strength of the company’s
price-volume charts.
True
False

In a top-down approach, sector allocation precedes stock selection
True
False

Which of the following is a truly international asset class
Real Estate
Equity
Debt
Gold

Loads and taxes may account for the difference between scheme returns
and investor returns
True
False
 Rapid Fire

According to SEBI code for MF Advertisement, for funds that have been in existence
for more than a year, annualized returns have to be furnished for
1Yr,3Yrs,5Yrs and since Inception
1yr,5yr and since launch
1yr,3yr,5yr
1yr,3yr and since launch

Returns can be annualized and compounded only if the scheme has completed
30 days
12 months
6 months
24 months

An Equity scheme is 90 days old. To compute yield it can use
Absolute return
Simple Annualized return
Compounded annualized return
Any of these
 Rapid Fire

Technical analysis tries to predict future movement of stock price by
The financial workings of a company
The stock price movements of a company

Beta of an equity fund measures its
Performance.
Systematic Risk.
Non Systematic Risk
Both the above.

Which one of the following portfolios is most risky
75% Equity 25% Debt
40% Equity 60% Debt
80% Equity 20% Debt

Which of the following aspects of portfolio would an investor in a debt
scheme give most importance
Sector selection
Stock selection
Weighted Average Maturity
Number of securities in portfolio
 Rapid Fire

Certificates of Deposits (CDs) are issued by
Regional Rural Banks
Corporate India
Schedules commercial banks
None of the above

Government securities are issued through the RBI
True
False

Debt securities bought at a discount to their face value are generally
zero coupon bonds or Deep discount Bonds
pay interest at a floating rate
none of the above

The comparable for a liquid scheme is
Equity scheme
Balanced Scheme
Gilt Fund
Savings Bank account

Current yield relates interest on a security to
its current market price
its face value
its fair value
the current price of T-bills

When interest rates rise, bond prices

also rise
fall
are not affected
fluctuate either up or down

Equity markets are more predictable in the long term than the short.
True
False

Arbitrage funds are meant to give better equity risk exposure
True
False
Investor Services
 Investor Services

KYC Requirements – Investments of Rs 50,000 or more

Investments by a minor, KYC requirements done by the Guardian.

In case of Investments by a PoA holder, KYC requirements have to be complied

with, by both, investor and PoA holder.

PAN Card is compulsory for all mutual fund investments except MICRO SIP

MICRO SIP – Aggregate SIP amount is Rs 50,000 or less.

Relaxation in documentation requirements for micro-SIPs is not available for

HUFs and non-individuals. It is available for NRIs, but not PIOs

Dematerialisation – Converting Paper holdings to Electronic Form.

Rematerialisation – Converting Electronic Holdings to Physical Form

Investment Account of an Investor is known as FOLIO

NRI / PIO applications need to be accompanied by cheque drawn on an NRO A/c

(for non-repatriable investment) or NRE A/c (for repatriable investment)
 Investor Services

If payment from NRI is by DD, and investment is on repatriable basis then
Foreign Inward Remittance Certificate (FIRC) from his banker is required

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

Benefit of ASBA is that the money is transferred only on allotment. Until
then, it keeps earning interest for the investor.

The investor does not have to wait for any refund

RBI has permitted transferring Rs 50,000 per day through Mobile Banking

NSE’s platform is called NEAT

MFSS. BSE’s platform is BSE StAR Mutual Funds Platform
CUT OFF TIMING
 CUT OFF TIMING

CUT OFF TIME – Schemes other than Liquid Schemes

Cut off time – 3 PM – for Purchase and Repurchase – Same Day NAV
After 3 PM – Next Business day NAV
The above CUT OFF Time is not applicable for NFO Schemes and
International Schemes
 Scheme Type Transaction Cut Off Time Applicable NAV

Liquid Funds Sale Received NAV of the day previous to the day on which Funds
anytime are available for utilization
Liquid Fund – Funds Sale Received after 12 Today NAV
are available on
Same day
Liquid Funds Repurchase Received till 3 Same Day NAV
Received after 3 Next Day NAV
Non Liquid Schemes Sale Received NAV of the day on which funds are available for
>= 1 Crore anytime utilization
Non Liquid Schemes < Sale Received till 3 Same day NAV
1 Crore
Received After 3 Next Day NAV
Non Liquid Schemes Sale Received NAV of the day on which funds are available for
with Outstation anytime utilization
DD/Cheque
Non Liquid Schemes Repurchase Received till 3 Same Day NAV
 Rapid Fire

Foreign nationals are freely permitted to invest in Indian mutual funds
TRUE
FALSE

PAN Card is compulsory for all MF investments above Rs 50,000 including SIPs
TRUE
FALSE

Investments in mutual fund can be made using
Cheque / DD
Remittance
ASBA
Any of the above

Cut-off timing guidelines are not applicable for NFOs & International Funds
TRUE
FALSE

STP is a combination of SIP and SWP
True
False
 Rapid Fire

Which is the most appropriate position under MF Regulation
Buyer Beware
Buyer is always right
Seller is always right
Seller is guilty unless proved right

Practice of taking larger positions based on margin payments is called
leveraging
True
False

Turnover rates would be most relevant to analyze the performance of
Equity Funds
Debt Funds
Value Funds

A high turnover rate for a fund indicates
high transaction costs
greater efficiency
high returns to the investor
a rising market

The MF Regulations prescribe
The Minimum Commission to the distributor
The Maximum Commission to the distributor
Both of the above
Neither of the Above

An NRI holds units in a MF. What should he do if he takes up a foreign
citizenship?
Redeems
Continues
Transfers units to his mother, who resides in INDIA
None of the above

Risk factors may not be mentioned in
Product Launch Advertisement
Tombstone Advertisement
Performance Advertisement
All of the above

Which of the distribution channels is preferred by Pvt. Mutual Fund ?
Individual Distributor
Small Distribution Companies
Established Distribution Companies
Internet
Financial Planning
 Types of Financial Planning

Goal Oriented Financial Planning a financial plan for a

specific goal like making the son a doctor

Comprehensive financial plan all the financial goals of a

person are taken together, & the investment strategies
worked out on that basis.

An objective of financial planning is also to let the
investor know in advance, if some financial goal is not
likely to be fulfilled.
 Financial Products

Important Points
Gold futures contracts – For Leveraging
Deposit Insurance Scheme – Upto Rs 1 lakh per depositor in a bank across
branches including Principal and Interest will be paid by the insurer.
Interest earned in a bank deposit is taxable each year
No income tax is payable on year to year accretions in a DEBT Scheme
GOLD ETF and GOLD Bonds are Exempted from Wealth Tax where as
Physical Gold is NOT EXEMPTED

New Pension Scheme

Pension Funds Regulatory and Development Authority (PFRDA) is the
regulator
Tier I (Pension account), is non-withdrawable
Tier II (Savings account) is withdrawable to meet financial contingencies.
An active Tier I account is a pre-requisite for opening a Tier II account
 Financial Products

Investors can invest through Points of Presence (POP)

3 kinds of portfolios are available for Investors
Asset Class E: Investment in predominantly equity market instruments
Asset Class C: Investment in Debt securities other than Government
Securities
Asset Class G: Investments in Government Securities
Investors can also opt for life-cycle fund. With this option, the system
will decide on a mix of investments between the 3 asset classes, based
on age of the investor.
The 3 asset class options are managed by 6 Pension Fund Managers
(PFMs)
Personal Retirement Account Number (PRAN), is applicable across all the
PFMs where the investor’s money is invested
POPs offer services related to moneys invested with any of the PFMs
 Classification of Investors

Life cycle based classification

Childhood Stage
Young Salaried Unmarried Investor with NO Dependants –
 Mediclaim / Disability Insurance
 Equity SIP + Whole Life Insurance
Retirement Income – 2/3rd of Previous Year Income
Go for Term Insurance – Cheapest form of Insurance
Go for Cashless Mediclaim Policy
Retirement Stage – Invest some portion in Equities to protect
against Inflation
 Wealth Cycle Stages
Stage
Accumulation Stage
(Phases of Life Cycle Stage:
Young Unmarried to Pre-
Retirement.)
Transition Stage
Reaping Stage/ Distribution Stage –
Equivalent to Retirement Phase of
Life Cycle Stage
Inter- Generational transfer
Sudden Wealth Surge (Lottery,
Sale of Shares/Business,
Inheritance, Contest etc.)
Financial Needs Investment Preferences
Investing for long term Growth options & long term
identified financial goals products. High risk appetite
Near Term needs for Short & Medium term investments.
funds as pre- specified Lower risk appetite
needs draw closer
Higher liquidity Liquid / Money Market Mutual
requirements / Goal has Funds Lower risk appetite.
reached.
transfer of wealth to the Low liquidity needs. Ability to take
next generation, in the risk & invest for long term.
event of death
Medium to long term Wealth Preservation. Initially
invested in Liquid Funds then FP
charts a plan.
 Asset allocations

Asset Allocation refers to the distribution of the investor’s wealth between
different asset classes (gold, property, equity, debt etc.)

Asset Allocation helps in Risk Management

Risk Profiling - Risk profiling is an approach to understand the risk appetite of

investors through Survey, Questionnaire etc.

Strategic Asset Allocation – Investors allocation to Debt is Equal to his age.

Strategic Asset Allocation is done based on Risk Profiling

Tactical Asset allocation is taking calls on the likely behavior of the market.

Tactical asset allocation is for seasoned investors with large investible surpluses

An investor who decides to go overweight on equities i.e. take higher exposure

to equities, because of expectations of buoyancy in industry and share markets,
is taking a tactical asset allocation call.
Recommending a model portfolio
 Model Portfolios for Client’s

Young call centre / BPO employee with no dependents
50% in Diversified Equity Funds through SIP
20% in Sector Funds, 10% each in Gold ETF, Diversified Debt, Liquid Schemes.

Young married single income family with two school going kids
35% diversified equity schemes; 15% in gold ETF,
30% diversified debt fund, 10% each in Sector and liquid schemes

Single income family with grown up children who are yet to settle
35% diversified equity schemes;
15% each in gold ETF, gilt fund & diversified debt fund
20% liquid schemes
 Model Portfolios for Client’s

Couple in their seventies, with no immediate family support

15% diversified equity index scheme; 10% gold ETF
30% gilt fund, 30% diversified debt fund, 15% liquid schemes

Couple in their seventies, with no immediate family support but very

sound physically and mentally, & a large investible corpus
20% diversified equity scheme; 10% diversified equity index scheme;
10% gold ETF, 25% gilt fund, 25% diversified debt fund,
10% liquid schemes
Business Ethics
 Ethics related regulations

Details of Sec Transactions by AMC Directors & Key Persons filed with
Compliance Officer once in 6 MONTHS to avoid FRONT RUNNING

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).

Maintain records of all activities and transactions for at least three years, &
those records shall be subject to review by the Trustees

A “Significant Unit holder” means any entity holding 5% or more of the total
corpus of any scheme

MF Distributors are banned from Passing back the commissions to the investors.

MF Distributors are not entitled for Brokerage for their own investments.
 Rapid Fire

Today’s costs can be translated into future requirement of funds using
A=P X (1 + i)n
A=P / (1 + i)n
P=A n X (1 + i)
P=A n X (1 + i)

According to the Certified Financial Planner – Board of Standards (USA),
the first stage in financial planning is
Analyse and Evaluate Client’s Financial Status
Establish and Define the Client-Planner Relationship
Gather Client Data, Define Client Goals
Develop and Present Financial Planning Recommendations and / or Options

Investor can get into long term investment commitments in
Distribution Phase
Transition Phase
Inter-generational Phase
Accumulation Phase
 Rapid Fire

To satisfy a young investor’s need for growth, a greater proportion of
investment should be advised in
Gilt Funds.
Income Funds.
Equity Growth funds.
Liquid funds.

A high proportion of investment in income funds is required by
Accumulating investors.
Affluent investors.
Investors in the inter-generational transfer phase.
Investors in the distribution phase.

For older investors who want to transfer their wealth
No financial planning is required.
The right investment strategy depends upon who the beneficiaries are.
The right investment strategy depends upon the state of the stock market.
All the funds can be invested in aggressive equity funds.

Investors who acquire sudden wealth.
can speculate with all the acquired money in the stock markets.
Should not use any of the new wealth to invest in equity.
Should take the effect of taxes into account
Need not pay any taxes on the newly acquired wealth at it is not a part of
their regular income.

Financial Planning is
Investing funds to receive the highest rate of return possible
Resorting to tax planning to keep taxes as low as possible
Planning for retirement with the maximum income possible
Process of solving financial problems and reaching financial goals

The strategy advisable for an investor to maximise investment return in
the long run is
Buy and hold on to investments for a long time
Liquidate poorly performing investments from time to time
Liquidate good performing investments from time to time
Switch from poor performers to good performers

Your client has won Rs 1 Crore in Lottery. What would your suggestion be ?
Invest the entire amount without any delay in "Old Economy stocks" - since
they are back in favor
Invest the entire amount immediately in an Equity Index Fund since the index
is at historic low
Invest in very safe liquid investment options and take the time needed to work
out a financial plan
Invest immediately in IT stocks, since their valuations are low

A criticism of Rupee Cost Averaging
Over a period of time average per share price will become more than guessing
the highs and lows
It does not tell you when to buy, sell or switch from one scheme to another
Rupee cost averaging has no serious shortcomings

Which of the following has highest level of liquidity
Stocks
MF
Gold
Real Estate

SIP is best example of
Rupee Cost Averaging
Value Averaging
Buy and Hold

Direct investments in stock markets can be a better option over investing
through mutual funds if
The investor wants better returns than those offered by Mutual Funds
The investor has large capital, knowledge and resources for research
the investor has identified a bullish phase in the stock market
the investor wants to invest for the long term

Which of the following should not be viewed primarily as an investment?
Life Insurance
MF Investments
Debentures
Stocks

What type of portfolio asset mix would you recommend to your 55 year
old client who plans to retire at the age of 58? choose a portfolio that is
closest match to the investors needs
40% in equity schemes 60% in debt
40% in equity 60% in balanced
20% in equity 20% in liquid 60% in debt
100% in monthly income schemes

For which of the funds would you consider average maturity as an
important factor in selecting the right one for the investor?
debt fund
balanced fund
a money market or liquid fund
both 1 and 2 above

Distribution phase of Wealth Cycle is a parallel of Retirement phase of
Life Cycle
TRUE
FALSE

Risk appetite of investors is assessed through
Risk Appetizers
Asset Allocators
Risk Profilers
Financial Plan

The objective of asset allocation is risk management
True
False

Model portfolios are a waste of time for financial planners
True
False

How much equity would you suggest for a young well settled unmarried
individual
100%
80%
60%

Mutual Funds in India are required by SEBI to
prohibit their employees from personal trading in secondary markets
to establish a code of conduct and allow employees to do personal trading that
conforms to SEBI Guidelines
allow all employees to trade freely in secondary market without any
restrictions
allow employees to carry on personal trading as long as they abide by SEBI
guidelines.

MODULE : AMFI

MODULE ID : AM 01

TRAINER NAME : SRINIVASAN .T

MOBILE : 98 94 94 9988

aim_cus@yahoo.co.in

Akshaya Investments, Madurai