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NISM/Certification/Series-V-A:MFD/2010/1 dated May 5, 2010

National Institute of Securities Markets Communiqu/Press Release NISM-Series-V-A: Mutual Fund Distributors Certification Examination NISM/Certification/Series-V-A: MFD/2010/01 dated May 05, 2010

In exercise of the powers conferred by sub-regulation (3) of regulation 7 of the Securities and Exchange Board of India (Certification of Associated Persons in Securities Markets) Regulations 2007, National Institute of Securities Markets (NISM) in consultation with the Securities and Exchange Board of India hereby specifies the NISM-Series-V-A: Mutual Fund Distributors Certification Examination as the requisite standard for associated persons including distributors, agents, brokers, sub-brokers or called by any other name, employed or engaged or to be employed or engaged in the sale and/or distribution of mutual fund products. The NISM-Series-V-A: Mutual Fund Distributors Certification Examination, offered by NISM, will be available to the associated persons from June 1, 2010. Details of NISM-Series-V-A: Mutual Fund Distributors Certification Examination are given in Annexure-I and Annexure-II attached to this communiqu/press release. The text of these Annexures and the registration details are available at www.nism.ac.in.

-sdM. L. Soneji Registrar National Institute of Securities Markets Copy to: 1. 2. 3. Executive Director, IMD, SEBI Executive Director, LAD, SEBI CEO, AMFI

Enclosures: Annexure I and II

Annexure I Syllabus Outline NISM-Series-V-A Mutual Fund Distributors Certification Examination Objective of the Examination: The examination seeks to create a common minimum knowledge benchmark for all persons involved in selling and distributing mutual funds including:

y y y

Individual Mutual Fund Distributors Employees of organizations engaged in sales and distribution of Mutual Funds Employees of Asset Management Companies specially persons engaged in sales and distribution of Mutual Funds

The certification aims to enhance the quality of sales, distribution and related support services in the mutual fund industry. On successful completion of the examination the candidate should:

y y y y

Know the basics of mutual funds, their role and structure, different kinds of mutual fund schemes and their features Understand how mutual funds are distributed in the market-place, how schemes are to be evaluated, and how suitable products and services can be recommended to investors and prospective investors in the market. Get oriented to the legalities, accounting, valuation and taxation aspects underlying mutual funds and their distribution. Get acquainted with financial planning as an approach to investing in mutual funds, as an aid for mutual fund distributors to develop long term relationships with their clients.

Examination Specifications: This is a computer-based examination with multiple choice questions. The examination consists of 100 questions of 1 mark each adding to 100 marks. The examination should be completed in 2 hours. There shall be negative marking of 25% of the marks assigned to a question. The passing score for the examination is 50 marks. Syllabus Outline with Weightages

Unit 1

Concept & Role of a Mutual 6% Fund Fund Structure & Constituents Legal & Regulatory Environment Offer Document 4%

Unit 2

Unit 3

10%

Unit 4 Unit 5

6%

Fund Distribution & Channel 8% Management Practices

Unit 6

Accounting, Valuation & Taxation Investor Services

10%

Unit 7 Unit 8

12%

Return, Risk & Performance 10% of Funds Scheme Selection Selecting the Right Investment Products for Investors Helping Investors with Financial Planning 10% 9%

Unit 9 Unit 10

Unit 11

7%

Unit 12

Recommending Model 8% Portfolios & Financial Plans

Annexure II Test Objectives NISM-Series-V-A Mutual Fund Distributors Certification Examination Unit 1: Concept and Role of a Mutual Fund 1.1. Describe concept and advantages of a mutual fund Define a mutual fund and list the functions of a mutual fund Explain what investment objectives are and illustrate how different mutual fund products serve different investment objectives Explain the concept of marking to market as a feature of mutual funds and Illustrate how the investment value changes with changes in market value Define and distinguish the terms unit capital, assets under management, fund running expenses and net asset value List the advantages and limitations of a mutual fund 1.2. Describe, in brief, the history of mutual funds in India Explain the factors impacting the growth of the industry at various stages of its development Know the key milestones 1.3. Understand and differentiate between various types of funds Compare and contrast closed end funds and open ended funds

Differentiate various fund types in terms of their investment objective Differentiate various fund types in terms of their investing horizon Differentiate various funds in terms of their risk Explain the features and types of debt funds Explain the features and types of equity funds Explain the features and types of hybrid funds Explain the features and types of International funds, and other funds that a mutual fund distributor in India encounters Compare and Contrast Fund of Funds, ETFs and regular MF schemes

Unit 2: Fund Structure and Constituents 2.1. Understand the legal structure of mutual funds in India Describe the structure of mutual funds in India Explain with illustrations the role of the Sponsor, Trustee and Asset Management Company (AMC) Explain the regulatory provisions with respect to Sponsor, Trustee and AMC 2.2. List other Fund Constituents Name the constituents involved in the structure of a mutual fund Identify the functions of each mutual fund constituent Explain the regulatory provisions with respect to other mutual fund constituents Unit 3: Legal and Regulatory Environment 3.1. Describe role of regulators in India Define the role of SEBI in regulating mutual funds Name the regulatory authority for each category of fund constituents Understand the concept of a Self Regulator List the functions of AMFI Understand the AMFI Code of Ethics 3.2. Know investment restrictions and related regulation Describe the relationship between investment policy and investment objective Indicate the SEBI norms on portfolio diversification pertaining to investment management 3.3. Understand Investors rights and obligations Identify the rights of investors in a mutual fund

Indicate the service standards mandated for a mutual fund towards its investors Unit 4: Offer Document 4.1. Understand regulatory aspects of an offer document Define an NFO and list the marketing steps involved in an NFO Define the role of an offer document and the objectives of information disclosure in an offer document Compare and contrast the objectives and contents of the Statement of Additional Information (SAI) and Scheme Information Document (SID) Explain the regulatory requirements that govern the contents and format of the SID and SAI 4.2. Understand regulatory aspects of a Key Information Memorandum (KIM) Define the KIM and contrast it with the SID, SAI List the contents of the KIM Explain the regulatory provisions governing the KIM Unit 5: Fund Distribution and Sales Practices 5.1. Understand who can invest and types of investors List investors who can invest and those that cannot invest in mutual funds in India Indicate the source of information on eligibility of investors to invest in a scheme of a mutual fund Differentiate between institutional and individual investors 5.2. Describe various distribution channels for mutual funds Classify traditional distribution channels into individual and institutional channels Discuss internet & stock exchange brokers as newer channels Describe the pre-requisites to be fulfilled to become a distributor of a mutual fund Describe the key elements covered in an agreement between a distributor and a mutual fund 5.3. Detail existing sales practices and commission structure Describe the arrangement for payment of commissions between the distributor and the mutual fund Identify the regulatory requirements governing payment of commissions to distributors Classify commissions into initial or upfront and trail commissions Define the basis of charging trail commissions Describe AMFI Code of Conduct and SEBI guidelines governing sales practices applicable to mutual funds Unit 6: Accounting, Valuation and Taxation 6.1. Understand accounting and expenses

Compute net assets and NAV and describe the requirements pertaining to calculation and announcement of NAV Explain the factors affecting the NAV of a mutual fund scheme Explain the basis of pricing of transactions in a mutual fund Explain the time-stamping requirement for mutual fund transactions Describe the requirements relating to charging of expenses to a mutual fund scheme Identify expenses that can be charged to a scheme and those that cannot be charged and the limits thereto Describe key accounting and reporting requirements applicable to mutual funds 6.2. Explain in brief the valuation process carried out by mutual funds. 6.3. Understand applicability of various taxes and know related regulations Explain the tax provisions applicable to a mutual fund Define the tax provisions applicable to distribution of dividend by a mutual fund Explain the taxability of dividends and capital gains in the hands of a mutual fund investor Determine the applicability of Securities Transactions Tax based on type of transaction and scheme Basics of setting off gains and losses under Income Tax Act Unit 7: Investor Services 7.1. Describe purchase and redemption transactions in a mutual fund Explain KYC requirements & Demat Account concept Explain the process for fresh and additional purchase in a mutual fund Describe the additional documentation requirements applicable to institutional investors. Describe the requirements pertaining to payment instruments accompanying an application form Explain the processes relating to redemptions by investors Describe the contents and periodicity of Statement of Account (SoA) to the investor Explain the process for nomination and pledge 7.2. Describe investment plans and services Differentiate the features of a dividend, growth and dividend re-investment options in a mutual fund. Explain the processes relating to of systematic investment plans Explain the processing relating to systematic withdrawals and transfers Describe other investor services and facilities offered by mutual funds. Unit 8: Risk, return and performance of funds 8.1. Understand the concept of return on investment

Calculate the various kinds of returns, such as simple, annualized and compounded returns. (Including MS Excel Functions) Explain why different types of returns may be used to evaluate different types of funds Outline the SEBI norms regarding return representation of mutual funds in India Identify and define the factors that may affect mutual fund performance 8.2. Explain risks in fund investing with a focus on investors Evaluate the risks in different type of mutual funds Identify the sources of risk in an equity fund Identify the sources of risk in a debt fund Classify mutual funds based on their risk 8.3. Define and describe benchmarking of performance Explain the concept of benchmarking performance Identify the basis of choosing an appropriate performance benchmark Describe the use of market benchmarks to evaluate equity fund performance Describe the use of market benchmarks to evaluate debt fund performance Describe benchmarking relative to other investment products Explain the concepts related to fund manager performance Unit 9: Scheme Selection 9.1. Understand how to select mutual fund schemes List the steps in selecting equity funds and classify funds based on portfolio characteristics and investment strategy List the steps in selecting debt funds and Identify debt funds that meet the investment objective of the investor List the steps in evaluating a money market fund and identify factors impacting their performance List the steps in evaluating balanced mutual funds and evaluate factors impacting their performance 9.2. Identify the sources of data to track mutual fund performance Unit 10: Selecting the Right Investment Products for Investors 10.1. Identify financial and physical assets Classify assets into physical and financial assets Identify the features of physical assets such as gold and real estate and the needs of the investor that they fulfill List the financial assets available for investment by an investor and their key features Unit 11: Helping Investors with Financial Planning

11.1. Understand basics of financial planning Define financial planning Relate financial planning to financial goals and the time horizon for their achievement Explain the objective of financial planning List the benefits and identify the need for financial planning to the investor 11.2. Define and describe life cycle and wealth cycle in financial planning Explain the need for tools to categorize investors needs Link the financial planning needs to the life cycle stage of the investor Describe the stages in the wealth cycle model of investor Identify the features of each stage and link them to investment needs Unit 12: Recommending Model Portfolios and Financial Plans 12.1. Define and describe risk profiling 12.2. Understand asset allocation Why asset allocation is done Fixed & Flexible Asset Allocation Strategic & Tactical Asset Allocation 12.3. Describe the steps in developing a model portfolio