nism mutual fund exam for distributor
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Presentation by;ASHISH SIDDIQUI,
ASSISTANT PROFESSOR,
SANSKRITI SCHOOL OF BUSINESS
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Worldwide, Mutual Fund or UnitTrust as it isreferred to in some parts of the world, has along and successful history.The popularity of
Mutual Funds has increased manifold indeveloped financial markets, like the UnitedStates. As at the end of March 2008, in the USalone there were 8,064 mutual funds withtotal assets of about US$ 11.734 trillion(Rs.470 lakh crores)*.
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The mutual fund industry in India started in1963 with the formation of Unit Trust ofIndia, at the initiative of the Government ofIndia and Reserve Bank of India. The historyof mutual funds in India can be broadlydivided into four distinct phases
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First Phase 1964-87 Unit Trust of India (UTI)was established on 1963 by an Act of Parliament.It was set up by the Reserve Bank of India andfunctioned under the Regulatory andadministrative control of the Reserve Bank ofIndia. In 1978 UTI was de-linked from the RBI and theIndustrial Development Bank of India (IDBI) tookover the regulatory and administrative control inplace of RBI. The first scheme launched by UTI
was Unit Scheme 1964. At the end of 1988 UTIhad Rs.6,700 crores of assets undermanagement.
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Second Phase 1987-1993 (Entry of Public SectorFunds) 1987 marked the entry of non- UTI, publicsector mutual funds set up by public sector banksand Life Insurance Corporation of India (LIC) andGeneral Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fundestablished in June 1987 followed by Canbank MutualFund (Dec 87), Punjab National Bank Mutual Fund(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank ofIndia (Jun 90), Bank of Baroda Mutual Fund (Oct 92).LIC established its mutual fund in June 1989 whileGIC had set up its mutual fund in December 1990. Atthe end of 1993, the mutual fund industry had assetsunder management of Rs.47,004 crores
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Third Phase 1993-2003 (Entry of Private SectorFunds) With the entry of private sector funds in1993, a new era started in the Indian mutualfund industry, giving the Indian investors a widerchoice of fund families.
Also, 1993 was the year in which the first MutualFund Regulations came into being, under whichall mutual funds, except UTI were to beregistered and governed. The erstwhile KothariPioneer (now merged with Franklin Templeton)was the first private sector mutual fundregistered in July 1993.
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Fourth Phase since February 2003 In February2003, following the repeal of the Unit Trust ofIndia Act 1963 UTI was bifurcated into twoseparate entities. One is the Specified Undertaking of the UnitTrust of India with assets under management ofRs.29,835 crores as at the end of January 2003,representing broadly, the assets of US 64scheme, assured return and certain otherschemes. The Specified Undertaking of Unit Trust
of India, functioning under an administrator andunder the rules framed by Government of Indiaand does not come under the purview of theMutual Fund Regulations.
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The second is the UTI Mutual Fund, sponsoredby SBI, PNB, BOB and LIC. It is registered with SEBIand functions under the Mutual FundRegulations. With the bifurcation of the erstwhileUTI which had in March 2000 more thanRs.76,000 crores of assets under managementand with the setting up of a UTI Mutual Fund,conforming to the SEBI Mutual Fund Regulations,and with recent mergers taking place among
different private sector funds, the mutual fundindustry has entered its current phase ofconsolidation and growth
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The 1993 SEBI (Mutual Fund) Regulations weresubstituted by a more comprehensive andrevised Mutual Fund Regulations in 1996. Theindustry now functions under the SEBI (MutualFund) Regulations 1996. The number of mutual
fund houses went on increasing, with manyforeign mutual funds setting up funds in Indiaand also the industry has witnessed severalmergers and acquisitions. As at the end ofJanuary 2003, there were 33 mutual funds with
total assets of Rs. 1,21,805 crores. The UnitTrust of India with Rs.44,541 crores of assetsunder management was way ahead of othermutual funds.
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A Mutual Fund is a trust that pools thesavings of a number of investors whoshare a common financial goal. Themoney thus collected is then invested incapital market instruments such asshares, debentures and other securities.
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The income earned through theseinvestments and the capital appreciationrealised are shared by its unit holders inproportion to the number of units owned bythem. Thus a Mutual Fund is the mostsuitable investment for the common man as itoffers an opportunity to invest in adiversified, professionally managed basket of securities at a relatively low cost .
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Professional ManagementDiversificationConvenient AdministrationReturn Potential
Low CostsLiquidity
TransparencyFlexibility
Choice of schemesTax benefits
Well regulated
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NAVNet Asset Value is the marketvalue of the assets of the schememinus its liabilities. The per unitNAV is the net asset value of thescheme divided by the number ofunits outstanding on thevaluation date
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Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. Itmay include a sales load.
Repurchase Price
Is the price at which units under open-ended schemes are repurchased bythe Mutual Fund. Such prices are NAV related.
Redemption Price
Is the price at which close-ended schemes redeem their units on maturity.Such prices are NAV related.
Sales Load
Is a charge collected by a scheme when it sells the units. Also called, Front -end load. Schemes that do not charge a load are called No Load schemes.
Repurchase or Back - endLoad
Is a charge collected by a scheme when it buys back the units from theunitholders.
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These do not have a fixed maturity. You dealwith the Mutual Fund for your investmentsand redemptions.The key feature is liquidity.You can conveniently buy and sell your unitsat Net Asset Value(NAV) related prices, at anypoint of time.
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Schemes that have a stipulated maturity period (rangingfrom 2 to 15 years) are called close ended schemes.Youcan invest in the scheme at the time of the initial issueand thereafter you can buy or sell the units of the
scheme on the stock exchanges where they are listed.The market price at the stock exchange could vary fromthe schemes NAV on account of demand and supplysituation, unitholders expectations and other marketfactors. One of the characteristics of the close-endedschemes is that they are generally traded at a discountto NAV; but closer to maturity, the discount narrows
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These combine the features of open-ended and close-endedschemes. They may be traded onthe stock exchange or may beopen for sale or redemptionduring predetermined intervals atNAV related prices .
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Aim to provide capital appreciation over themedium to long term. These schemesnormally invest a majority of their funds inequities and are willing to bear short term
decline in value for possible futureappreciation. These schemes are not forinvestors seeking regular income or needingtheir money back in the short term.
Ideal for:Investors in their prime earning years.Investors seeking growth over the long term.
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Aim to provide both growth and income byperiodically distributing a part of the income andcapital gains they earn. They invest in bothshares and fixed income securities in the
proportion indicated in their offer documents. Ina rising stock market, the NAV of these schemesmay not normally keep pace or fall equally whenthe market falls.
Ideal for :Investors looking for a combination of incomeand moderate growth.
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Aim to provide easy liquidity, preservation of capital and moderate income. These schemesgenerally invest in safer, short term instrumentssuch as treasury bills, certificates of deposit,commercial paper and interbank call money.Returns on these schemes may fluctuate,depending upon the interest rates prevailing inthe market.Ideal for:
Corporates and individual investors as ameans to park their surplus funds for short
periods or awaiting a more favourableinvestment alternative.
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Tax Saving Schemes (Equity Linked SavingScheme - ELSS)
These schemes offer tax incentives to theinvestors under tax laws as prescribed fromtime to time and promote long terminvestments in equities through Mutual
Funds.Ideal for: Investors seeking tax incentives
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Fund of Funds are schemes that invest in other mutual fund schemes. The
portfolio of these schemes comprise only of units of other mutualfund schemes and cash / money market securities/ short term deposits
pending deployment. The first FOF was launched by Franklin Templeton
Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific
e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific
e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc.
Please bear in mind that any one scheme may not meet all your
requirements for all time. You need to place your money judiciously in
different schemes to be able to get the combination of growth, income and
stability that is right for you. Remember, as always, higher the return you
seek higher the risk you should be prepared to take
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Exchange traded funds popularly also known as ETFs, is a type of mutual fundwherein, the corpus is invested in a basket of securities, which is being traded on anexchange.
Further, an Exchange traded fund investments are being made either on all thesecurities or on a sample of the representative securities that are being traded in thesaid index.The exchange traded funds employ the process of arbitration during
trading, in order to keep its trading value in sync with the values of the underlyingstocks, which makes up the portfolio.
All the Exchange Traded Funds in India are regulated by the Association of MutualFunds of India (AMFI). Further, the Association of Mutual Funds of India (AMFI)operates in accordance with the laid down guidelines of the Securities andExchange Board of India (SEBI). The Chapter III of the Income Tax Act, 1961
provides tax exemption on investment on Exchange Traded Funds. The rise of theIndian capital markets and increasing numbers of exchange has propelled thegrowth in the numbers of Exchange traded funds in India.
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The Sector Funds are those types of mutual funds which accumulate stocks of particular sector.
In other words sector funds invest in a single type of industry, like InformationTechnology, Telecommunication, Pharmaceuticals, Infrastructure, etc.
The Sector Funds are structured in this particular manner in order to take advantageof growth of particular type of industry. The Sector Funds can offer tremendous
profit to the investor if the funds are carefully chosen. The authorities to the Sector Funds in India are the Association of Mutual Funds of India (AMFI), which operatesin accordance with the laid down guidelines of the Securities and Exchange Board of India (SEBI). Moreover, investments in Sector Funds offer tax exemptions to theinvestors (Chapter III of the Income Tax Act, 1961). With the growth of the Indianindustries the financial markets have undergone tremendous transformation. The riseof different sectors has necessitated structuring of sector specific funds to attractsubstantial amount of money for the growth of a specific sector in India.
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All investments whether in shares, debentures ordeposits involve risk: share value may go downdepending upon the performance of thecompany, the industry, state of capital markets
and the economy; generally, however, longer theterm, lesser the risk;
companies may default inpayment of interest/principal on their debentures
/bonds/ deposits; the rate of interest on aninvestment may fall short of the rate of inflationreducing the purchasing power.
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While risk cannot be eliminated, skillfulmanagement can minimize risk. Mutual FundsUNDERSTANDING AND MANAGING RISKhelp to reduce risk through diversification andprofessional management. The experience andexpertise of Mutual Fund managers in selectingfundamentally sound securities and timing their
purchases and sales, help them to build adiversified portfolio that minimizes risk andmaximizes returns.
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Step1 .. Identify your investment needs.Step2 .. Choose the right Mutual Fund.Step3 .. Select the ideal mix of Schemes.
Step4 .. Invest regularlyStep4 .. Keep your taxes in mindStep5 .. Start earlyStep6 .. The final step
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SYSTEMATICE INVESTMENT PLANS (SIPs)A Systematic Investment Plan allows an investor to buy units
of a mutual fund scheme on a regular basis by means of periodic investments into that scheme in a manner similar to
installments paid on purchase of normal goods. The investoris allotted units on a predetermined date specified in theapplication form of the scheme based on that days NAV.Here the Plan allows the investor to take advantage of the
Rupee Cost Averaging methodology..minimum investmentof Rs 500 every month.
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Systematic Withdrawal Plan A Systematic Withdrawal Plan permits theinvestor to receive a pre-determined amount/ units from his investment in a mutual fundscheme on a periodic basis. Retirees in needof a regular income often opt for this.
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Systematic Transfer PlanAn STP allows the investor to transfer a pre-determined amount from his investment in amutual fund scheme to another mutual fundscheme (of the same company) on a periodicbasis. This Plan is generally used to transfersums from a Money Market / Liquid / Cashscheme to another scheme.
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SEBI (Mutual Funds) Regulations, 1996
ASSOCIATION OF MUTUAL FUNDS OF INDIA(AMFI)
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An applicant proposing to sponsor a mutual fund in India mustsubmit an application in Form A along with a fee of Rs.25,000. The application is examined and once the sponsor satisfiescertain conditions such as being in the financial servicesbusiness and possessing positive net worth for the last fiveyears, having net profit in three out of the last five years andpossessing the general reputation of fairness and integrity in all
business transactions, it is required to complete the remainingformalities for setting up a mutual fund. These include inter alia,executing the trust deed and investment managementagreement, setting up a trustee company/board of trusteescomprising two- thirds independent trustees, incorporating theasset management company (AMC), contributing to at least 40%of the net worth of the AMC and appointing a custodian. Uponsatisfying these conditions, the registration certificate is issuedsubject to the payment of registration fees of Rs.25.00 lacs Fordetails, see the SEBI (Mutual Funds) Regulations, 1996.
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Every mutual fund shall compute the Net Asset Value of each
scheme by dividing the net assets of the scheme by thenumber of units outstanding on the valuation date.
(2) The Net Asset Value of the scheme shall be calculatedand published at least in two daily newspapers atintervals of not exceeding one week :
[Provided that the Net Asset Value of a close ended scheme,other than that of equity linked savings scheme, shall becalculated on daily basis and published in at least two
daily newspapers having circulation all over India.]
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(1) The price at which the units may be subscribed or sold and the price at which such
units may at any time be repurchased by the mutual fund shall be made available to the
investors.
(2) The mutual fund, in case of open-ended scheme, shall at least once a week publish in
a daily newspaper of all India circulation, the sale and repurchase price of units.
(3) While determining the prices of the units, the mutual fund shall ensure that the
repurchase price is not lower than 93 per cent of the Net Asset Value and the sale price is
not higher than 107 per cent of the Net Asset Value:
Provided that the repurchase price of the units of close ended scheme launched prior
to the commencement of the Securities and Exchange Board of India (Mutual Funds)
(Amendment) Regulations, 2009 shall not be lower than ninety five per cent of the NetAsset Value:]
Provided further that the difference between the repurchase price and the sale price of
the unit shall not exceed 7 per cent calculated on the sale price
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Certification SEBI vide its Gazette Notification dated May
31, 2010 has notified that with effect from June 1, 2010 allthe distributors, agents, any persons employed orengaged or to be employed or to be engaged in the saleand/ or distribution of Mutual Fund Products shall berequired to have a valid certification from the NationalInstitute of Securities Market (NISM) by passing their
certification examination 'NISM Series V-A : Mutual FundDistributors Certification Examination'. For further detailsas well as for study material, which c an be download ed,please log on to the website of NISM www.nism.ac.in .
It is further notified that if the said associated personpossesses a valid AMFI Mutual Fund (Advisors) ModuleCertificate obtained before June 1, 2010, he shall beexempted from the requirement of the abovementionedNISM Certification Examination.
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Q1.How Do I Invest Mutual Fund?Q2.What Does Risk Means In Mutual Fund?Q3.How Do Mutual Funds Minimize Risk?
Q4.How Much Return Can I Expect?Q5. How Can Know Performance Of My M.F
On Daily Basis?Q6. How The Returns Distributed?Q7.How Is Investment In M.F Is Different
From Investment In F.D?
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Q.8. What Are Tax Exempt And Non ExemptTax Funds??
Q.9. Can M.F Help In Saving Tax??
Q.10. What Are The Advantages In Investing InSip ??
Q.11. What Should Investor Look Into OfferDocument?
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