Professional Documents
Culture Documents
CONTENTS
Chapter 2: Fund Structure & Constituents Chapter 10: Selecting the right
investment products for investors
Chapter 3: Legal & Regulatory Chapter 11: Introduction to Financial
Environment Planning
Chapter 4: Offer Document Chapter 12: Recommending model
portfolios and financial plans
Chapter 5: Fund distribution & channel
management practices
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Let’s test our understanding of
personal finance
2. You have invested Rs. 100,000/- @ 8 % pa, what is your real rate of return?
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This workshop -
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NISM MF Distributors Certification
Exam
• Only online exam possible. No written exam available.
• NSE preferred over BSE for ease of Q paper layout.
• Certification Validity for 3 years only.
• Refresher program available thereafter – has to be taken
before expiry and is valid for 3 years.
• Examination consists of 100 questions of one mark each.
• Duration: 2 Hrs
• Passing marks is 50%
• No negative marking now so you should attempt all questions
even if some are wrongly answered.
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NISM MF Distributors Certification
Exam
Some suggested strategies to qualify the test:
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NISM MF Distributors Certification
Exam
1. Concept & Role of MF [6 marks]
2. Fund Structure & Constituents [4 marks]
3. Legal & Regulatory Environment [10 marks]
4. Offer Document [6 marks]
5. Fund Distribution & Channel Management Practices [8 marks]
6. Accounting, Valuation & Taxation [10 marks]
7. Investor Services [12 marks]
8. Return, Risk & Performance of Schemes [10 marks]
9. Scheme Selection [10 marks]
10. Selecting Right Investment Products for Investors [9 marks]
11. Helping Investors with Financial Planning (FP) [7 marks]
12. Recommending Model Portfolios & FP [8 marks]
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Chapter 1
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Why MFs came into existence ?
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I want to invest in Capital Markets -
What will I need to do?
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MFs came into existence as an
Answer…
Simply speaking, MFs provide a window for investing into Capital Markets
Prominent advantages -
• Professional Management
• Economies of scale
• Liquidity
Other Advantages -
• Tax deferral / Tax Benefits
• Convenient Options
• Investment & Regulations
• Systematic Approach to investments
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MFs & Economy
• Due to their size/expertise are known to be activist investors and can play
a significant role in Corp Governance
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Features of a Mutual Fund
• During NFO units are offered at face value and post at market value
• Every unit has a face value of Rs. 10. Face Value*Units = Unit Capital
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Features of a Mutual Fund
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Limitations of Mutual Funds
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Mutual Funds – A Packaged Product
Professional Portfolio
Management Diversification
Reduction/
Diversification
Reduction of of risk
Transaction
Cost
Liquidity
Convenience &
Flexibility Tax Benefits Safety
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How Do MF Schemes Operate?
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• Open ended fund is the one that sells & repurchases units
at all times
Is an Open Ended fund under an obligation to sell units at all
points of time?
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Types of Funds
Active Passive
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Debt / Hybrid Funds
Sub Categories Scheme Characteristics Taxation
Overnight Investment in overnight securities having maturity of 1 day Debt
Liquid Maturity of upto 91 days only Debt
Ultra Short Term Macaulay duration of the portfolio is between 3 months - 6 months Debt
Low Duration Macaulay duration of the portfolio is between 6 months- 12 months Debt
Money Market Maturity of up to 1 year Debt
Short Duration Macaulay duration of the portfolio is between 1 year – 3 years Debt
Medium Duration Macaulay duration of the portfolio is between 3 years – 4 years Debt
Medium to Long Duration
Macaulay duration of the portfolio is between 4 years – 7 years Debt
Fund
Long Duration Fund Macaulay duration of the portfolio is greater than 7 years Debt
Dynamic Bond Investment across duration Debt
Corporate Bond Min 80% in invested in Corporate Bonds Debt
Credit Risk Min 65% in invested in Corporate Bonds below highest rated instruments Debt
Gilt Fund with 10 year Min 80% in invested in Gsecs such that the Macaulay duration of the portfolio is
Debt
constant duration equal to 10 years
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Debt / Hybrid Funds
Sub Categories Scheme Characteristics Taxation
Conservative Hybrid 10 - 25% in Equity related instruments & 75 to 90% in Debt instruments Debt
Balance Hybrid 40 - 60% in Equity related instruments & 40 to 60% in Debt instruments Debt
Aggressive Hybrid 65 - 80% in Equity related instruments & 20 to 35% in Debt instruments Equity
Dynamic Asset
Allocation/ Balanced Investment in equity/ debt that is managed dynamically Equity/Debt
Advantage
Multi Asset Allocation Min 10% investment in atleast 3 asset classes Equity/Debt
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Equity Funds
• Invests only into the Blue-chip stocks – The company having the
large Market Capitalization
• Top 100 listed companies based on market capitalization
• Min 80% in Largecap companies
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Equity Funds
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Equity Funds
Dividend Yield
• Min 65% in Equities investing predominantly in high Dividend
yield stocks
Value
• Min 65% in Equities which should follow value strategy
• Min 65% in Equities which should follow contrarian strategy
• Mutual Funds will be permitted to offer either Value fund or
Contra fund.
Focused
• Min 65% in Equities (Maximum 30 stocks). Focus can be on
Largecap, Multicap, Midcap or Smallcap
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Equity Funds
Sectoral/Thematic Fund
• Invests only into one sector – e.g. Pharma Fund, Banking Fund
• Risk is higher compared to any other equity fund category
• Min 80% in stocks of a particular sector/theme
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2. Open-ended schemes generally offer exit option to
investors through a stock exchange
a. True
b. False
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4. High yield bond schemes invest in junk bonds
a. True
b. False
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Chapter 2
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Legal Structure of Mutual Funds in
India
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Example: Pramerica Mutual Fund –
Legal Structure
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Key Constituents
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Other Service Providers
Custodian RTA
Fund
Auditors
Accountants
Collecting
Distributors
Bankers
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Other Service Providers
Custodian
• Custodian accepts and gives delivery of securities for the
purchase and sale transactions of the various schemes of the
fund
RTA
• RTA maintains investor records
Auditors
• Auditors are responsible for the audit of accounts
Fund Accountants
• Fund accountants performs the role of calculating the NAV
Distributors
• Distributors sell suitable types of units to their clients
Collecting Bankers
• Collecting bankers maintain the bank a/c of the scheme
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Multiple Choice Questions
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5. Most investor service centers are offices of
a. Trustees
b. Registrar
c. Custodian
d. Fund Accountant
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Chapter 3
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Role of regulators in India
• Disclosures Norms
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Other Regulators
• Ministry of Finance
• Stock Exchanges
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Self Regulatory Organizations
• Is an industry body
Is AMFI an SRO?
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Important Learning Points
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• SOA should be sent within 5 days of NFO closure
• Investors in whose folios transactions have taken place
during a calendar month shall be sent a Consolidated
account statement ( CAS) by the 10th of next month
• Dividend warrants have to sent within 30 days of declaration
date
• Investors can ask for Unit Certificate
• NAV has to be published daily in at least 2 Newspapers
• NAV, Sale Price, Re-Purchase price is to be updated in the
website of AMFI and the Mutual Fund
• MF units can be pledged
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• Investors can choose to change their broker or go direct.
NOC from existing broker is not required.
• Redemption payouts have to be sent within 10 business
days from the date of redemption
• Investors can have their units in de-mat form
• Trustees / AMC can only make any changes in the
fundamental attributes of a scheme after giving dissenting
unit holder options to withdraw at prevailing NAV without
any exit load. Exit window should be open for 30 days
• AMC can be discontinued – By majority of trustees or 75%
of the unit holders
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• Investors can file a suit against trustees
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• Merger or consolidation of schemes is not considered a
change in the fundamental attribute of the surviving
scheme if the following conditions are met –
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Unclaimed Amounts
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Can a Mutual Fund scheme go bust?
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While the AMC manages the investments of the scheme, the
assets of the scheme are held by the Custodian.
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Multiple Choice Questions
1. SEBI regulates
a. Mutual Funds
b. Depositories
c. Registrar & Transfer Agents
d. All the above
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2. Investment objective defines the broad = investment
charter
a. True
b. False
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4. Within ___ days of dividend declaration, warrants
will have to be sent to investors.
a. 7
b. 10
c. 15
d. 30
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Chapter 4
Offer Document
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Offer Document
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Important Learning Points
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• KIM (summary of the SID and SAI). As per SEBI regulations,
every application form is to be accompanied by the KIM.
• KIM updation has to be done on yearly basis
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Riskometer
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Riskometer
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Riskometer
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Requirements of Minimum Investors
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3. Offer documents of mutual fund schemes are
approved by SEBI
a. True
b. False
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5. KIM has to be updated every 6 months
a. True
b. False
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Chapter 5
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Traditional • Individuals
• Institutional – Banks /
NDs
Current • IFAs
• Internet
New • Stock Exchanges
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How to become an MF Distributor
KYD Requirements:
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How to become an MF Distributor
Armed with the ARN No., the IFA / distributor / stock exchange
broker can get empaneled with any number of AMCs.
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Distribution Incentives
Upfront commission –is a one time payment and is paid as a percentage of the
amount invested through the distributor.
In addition to this a Mutual Fund may also declare volume incentives based of
the total amount of business generated through a distributor.
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SEBI Regulations related to Sales
Practices
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SEBI Advertising Code
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3. The distributor can charge a fee from the investor.
a. True
b. False
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Chapter 6
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Net Asset Value (NAV) Computation
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Profitability Metric
+ive
• Interest Income
• Dividend Income
• Realized Capital gains
• Valuation Gains
-ive
• Realized Capital Losses
• Valuation Losses
• Scheme expenses
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Mark to Market
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Price and Loads
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Recurring Expenses
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Inadmissible Expenses
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ETFs / FOFs
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Dividends & Distributable Reserves
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Tax Aspects
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Short Term Capital Gain: < 3 Years
Short Term Capital Gain Tax Rate: As per tax slab
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Indexation
Adjusting capital gains for inflation by applying an appropriate factor from Cost
Inflation Index to the original price.
Applicable for 3 years and above tenure (Long Term Capital Gains only from Debt
Funds)
For Example:
Original Investment = Rs. 100,000/-
Redemption Value = Rs. 150,000 (After 3 year)
Inflation Index = 7%
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Multiple Choice Questions
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3. NAV of income funds is to be calculated upto ___
decimals
a. 4
b. 3
c. 2
d. 1
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5. Wealth tax is payable at the applicable rates on
equity mutual fund units
a. True
b. False
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Chapter 7
Investor Services
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Important Learning Points
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• To become KYC compliant, broadly mutual fund investors
need the following documents:
• Proof of Identity
• Proof of Address
• PAN Card
• Photograph
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 both – investor and PoA holder.
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• Micro SIPs are exempted from the PAN Card requirement.
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Parameter Dividend Dividend Growth
Payout Reinvestment Option
Option Option
Dividend received Yes No No
in bank account
Income Yes, for debt Yes, for debt No
Distribution Tax schemes schemes
Increase in number of units No Yes No
on account of reinvestment of
Dividend
NAV change NAV declines to the NAV declines to NAV
extent of dividend and the extent of captures
Income Distribution tax dividend and the portfolio
income change
distribution tax Entirely
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• Automatic reinvestment plans
• Systematic investment plans
• Systematic transfer plans
• Systematic withdrawal plans
• Trigger Options
• Other facilities are : 1) Transact on the net
2) Pledging of units
3) Nomination facility available with funds
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Multiple Choice Questions
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3. Investments in mutual fund can be made using
a. Cheque / DD
b. Remittance
c. ASBA
d. Any of the above
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5. STP is a combination of SIP and SWP
a. True
b. False
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Chapter 8
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What drives the performance of the scheme?
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What drives the performance of
equities
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Long Term Trend of Equity Markets
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Equity Funds
Fundamental Analysis
• Understanding internal and external factors impacting
the business
Technical Analysis
• Studying historic Price and Volume movements to
predict future movement
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Valuation Ratios
Book Value Per Share = Total Assets – Liabilities & Intangible Assets
Total outstanding shares
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PE Ratio (Price to earnings ratio /
Earnings Multiple)
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PB Ratio or Price to Book Value
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Investing style
Value
Growth
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Portfolio Building Approach
Stocks Sectors
Bottom Up Portfolio
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Debt Schemes
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Issuer Instrument Typical Maturity range Investors
Central Government Dated Securities (G- 2 - 30 years RBI, Banks, Insurance Companies, Provident Funds,
Sec) Mutual Funds, PDs, FII
Central Government T-Bills 91-364 days RBI, Banks, Insurance Companies, Provident Funds,
PDs, Mutual Funds, Individuals, FII
State Government Dated Securities (SDLs) 5-10 years Banks, Insurance Companies, Provident Funds, FII
PSUs Bonds, Debentures 5-10 years Banks, Insurance Companies, Corporate, Provident
Funds, Mutual Funds, Individuals, FII
Corporate Bonds, Debentures 1-15 years Banks, Mutual Funds, Corporate, Individuals, FII
Banks Certificates of Deposit 91-364 days Banks, Corporate, FII, Mutual Funds
Corporate, PDs Commercial paper 91-364 days Banks, Corporate, Financial institutions, Mutual
Funds, Individuals, FII
Maturity
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Credit Ratings
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Duration – Measure of Interest rate
risk
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Risk of Investing in Bonds
• Interest rate risk - As interest rates move up or down , price of the bond
moves in opposite direction
• Reinvestment risk - Risk of not being able to redeploy the cash flows at
the same rate as coupon
• Call risk - Risk that the borrower may call back the bond as rates have
fallen
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Major factors impacting interest rates
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Other Options
Gold
Real Estate
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Gold
Annualized Return
Simple Return * 12 / Period of Simple Return (in Months)
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Compounded Annualized Growth Rate (CAGR)
Formula: A = P x (1+R/100) N
• P = Principal invested
• A = Maturity Value
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Q) Can there be a difference between scheme returns and return to
investor
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Risks in Mutual Fund Schemes
• Portfolio Risks
• Portfolio Liquidity
• Use of derivatives
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Risk Control Measures
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Fund Category Specific Risks
Equity / Debt
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Risk Measures
• Variance
• Standard Deviation
• Beta – Systematic Risks / Non Systematic Risks
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Risk Adjusted Returns
• Sharpe Ratio
• Treynor Ratio
• Alpha
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Benchmarking
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Benchmarks are the milestones which an investor can use
to evaluate performance of Mutual Fund schemes.
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3 types of Benchmarks
• Relative to Market
For example Debt Fund with Bond Index, Mic Cap Fund
with BSE Mid Cap.
• Relative to other Mutual Funds
Peer group comparison
• Relative to other Investment options
Equity fund vs PPF vs FD
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• What should be the benchmark of Gold Fund
• What should be the benchmark of International
Funds
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Multiple Choice Questions
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3. Which of the following is a truly international asset class
a. Real Estate
b. Equity
c. Debt
d. Gold
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5. The most appropriate measure of returns for a
scheme in existence for several years is:
a. Simple Return
b. Dividend Return
c. Annualised Return
d. CAGR
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While selecting a Scheme
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• Costs or expense ratio
• Tracking Error in Index Funds
• Ranking and Rating
• Growth or Value funds
• Fund size
• Portfolio turnover
• Fund age
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Data Sources
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Multiple Choice Questions
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3. The comparable for a liquid scheme is
a. Equity scheme
b. Balanced Scheme
c. Gilt Fund
d. Savings Bank account
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Chapter 10
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Various Asset Classes
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Implication
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Gold – Physical / Financial
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Real Estate – Physical / Financial
Physical
• Loss due to fire / other hazards
• Ticket Size
• Concentration Risk
• Encroachment Issues
• Liquidity
• Transactions Costs
• Risks related to tenancy
• Project Risk
Financial
• Option not available in India currently
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Fixed Deposit or Debt Scheme
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National Pension Scheme (NPS)
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.
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Multiple Choice Questions
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3. As regards wealth tax, ETF Gold is superior to
physical gold.
a. True
b. False
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5. An investor under the new pension scheme can
choose which of the following asset classes
a. Equities
b. Corporate debt
c. Government Securities
d. Any of the above
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Chapter 11 - Introduction to Financial
Planning
Is it really required?
What has changed in last couple of years in
Personal Finance space?
Can a Person do his own Financial Planning?
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For house hold expenditure of Rs. 20,000 increasing @
of 8% / 10%, can you guess what will be the amount
required after…
8% 10%
3,48,988
2,01,253
1,34,550
93,219
43,178 51,875
A financial planner
– identifies investor needs
– translates needs into measurable financial goals
– plans investment to achieve these goals
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Role of Mutual Funds in Financial
Planning
• Provides option for all the investor classes like Retail, HNI,
Institutional.
Establish &
Gather Client Analyze &
define the client
data & define Evaluate Client’s
–planner
goals Financial Status
relationship
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Common mistakes in Financial
Planning
• Not setting measurable goals
• Confusing financial planning with investing
• Not revisiting a financial plan
• Assuming only wealth/older investors need financial plan
• Starting to plan after a financial crisis
• Fearing that involving a planner means loosing control
• Thinking financial planning, tax planning and retirement
planning are the same
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Roles of various participants
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Life Cycle
Married with
Retirement Pre Retirement
Older Children
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Wealth Cycle Guide
Transition
Stage
• Financial • Cashing out
goals are • Goals are stage
some time near
away
Accumulatio Reaping
n Stage Stage
Intergenerational
Transfer Stage
• Estate Planning Sudden Wealth Stage
• One time windfall gains
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Financial Planning for Affluent
Investors
BroadlyWealth
classified
Creating
into – Wealth Preserving
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Recommending Financial Planning
Strategies
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Rs. 1000 Investment per month for 20
years
@ 8% @ 15%
@ 8% @ 15%
Equity/Debt
Accumulation Distribution
80 60
Young Investors
20 40
70 50
Older Investors 30 50
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Multiple Choice Questions
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4. Investor can get into long term investment
commitments in
a. Distribution Phase
b. Transition Phase
c. Inter-generational Phase
d. Accumulation Phase
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Chapter 12 - Recommending Model
Portfolios and Financial Plans
Factor Influence on Risk Appetite
• Risk Profiling
Family Information
Earning Members Risk appetite increases as the number of earning members
increases
Dependent Members Risk appetite decreases as the number of dependent
members increases
Life expectancy Risk appetite is higher when life expectancy is longer
Personal Information
Age Lower the age, higher the risk that can be taken
Employability Well qualified and multiskilled, professionals can afford to take
more risk
Nature of Job Those with steady jobs are better positioned to take risk
Psyche Daring and adventurous people are better positioned mentally, to
accept the downsides that come with Risk
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Factor Influence on Risk Appetite
Financial Information
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Asset Allocation
Strategic Asset
• As a result of risk profile
Allocation
Tactical Asset
• Call on Market Behavior
Allocation
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Model Portfolios
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Multiple Choice Questions
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3. The asset allocation that is worked out for an
investor based on risk profiling is called
a. Tactical Asset Allocation
b. Fixed Asset Allocation
c. Flexible Asset Allocation
d. Strategic Asset Allocation
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4. Model portfolios are a waste of time for financial
planners
a. True
b. False
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Thank you
&
wish you all the best
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