Free NISM Series V-A Exam Flashcards

Define the future amount required, the time horizon, and the expected effect of inflation. A goal without an amount and date cannot be matched reliably to an investment strategy.

Higher expected return normally requires accepting more uncertainty, lower liquidity, or both. Compare investments on all three dimensions rather than selecting solely by the quoted return.

Risk capacity is the financial ability to absorb loss, based on horizon, income, obligations, and resources. Risk willingness is the investor's emotional tolerance for uncertainty and loss. A suitable recommendation evaluates both rather than treating willingness alone as ability to bear risk.

Asset allocation divides money among asset classes such as equity, fixed income, real estate, and commodities. Diversification spreads exposure within and across those classes so one security or risk source does not dominate the portfolio.

Investors pool money in a scheme and receive units representing a proportional interest in that scheme's net assets. The investor owns units of the scheme, not the underlying securities directly.

An open-ended scheme continuously issues and redeems units at applicable NAV-related prices. A close-ended scheme has a fixed maturity and limited subscription period. An interval fund permits transactions only during specified intervals.

An active fund uses portfolio decisions to seek performance relative to its objective or benchmark. A passive fund seeks to track a specified index or portfolio rule, so tracking quality and cost are central evaluation factors.

The sponsor establishes the mutual fund; the mutual fund is constituted as a trust; trustees oversee the fund and protect unitholder interests; and the Asset Management Company manages scheme investments and operations under the governing documents and regulations.

The custodian safeguards scheme securities, the Registrar and Transfer Agent maintains investor and transaction records, and the fund accountant records portfolio transactions and supports valuation and NAV calculation. Their functions are distinct from portfolio management.

SEBI is the statutory securities-market regulator and makes and enforces the mutual fund regulatory framework. AMFI is the mutual fund industry association; it supports standards, codes, data, and distributor registration but is not a substitute for SEBI.

Investors are entitled to prescribed disclosures, statements, redemption subject to scheme terms, and grievance redressal. They must provide accurate KYC and transaction information, read scheme documents, and comply with applicable payment and tax requirements.

First complain to the AMC or responsible intermediary and retain the reference. If unresolved, lodge and track the complaint through SEBI's SCORES platform; use its review stages when dissatisfied with the action-taken report. An unresolved dispute may proceed through the applicable SMART ODR process.

Due diligence helps an AMC assess a distributor's ownership, business practices, controls, complaint record, sales conduct, and regulatory compliance. Empanelment does not remove the AMC's responsibility to monitor distribution risk.

A distributor should understand the investor, explain material risks and costs, disclose the role and compensation as required, avoid false return assurances, and recommend only products consistent with the investor's needs and risk profile.

The SID is the principal scheme-specific disclosure document. It describes the investment objective, asset allocation, strategy, risks, benchmark, fees and expenses, plans and options, and operating terms needed to evaluate the scheme.

The SAI contains statutory and common information about the mutual fund, sponsor, trustees, AMC, service providers, policies, and investor rights that applies across schemes rather than describing only one scheme.

The KIM is a concise summary of the scheme's key features and risks for investors. It aids quick review but does not replace the fuller SID and SAI when detailed terms matter.

An addendum formally communicates a change or update to an existing scheme document. Read the base document together with every effective addendum; relying on the original document alone may leave the terms outdated.

Key ongoing disclosures include NAV, total expense ratio, portfolio information, scheme dashboards, financial results, annual reports, and performance information. Use the current AMC and AMFI disclosures rather than an old sales presentation.

The AMFI Registration Number identifies a registered mutual fund distributor. The Employee Unique Identification Number identifies the employee or sales person involved in an investor interaction, helping attribute the transaction and deter mis-selling.

A distributor facilitates scheme distribution and may receive disclosed product commissions. A SEBI-registered investment adviser provides regulated investment advice under the investment-adviser framework. The capacity, services, and compensation must not be misrepresented.

Trail commission is ongoing distributor remuneration generally linked to assets that remain invested rather than a one-time upfront sale. It creates a potential conflict, so required commission and cost disclosures matter to informed investor choice.

NAV per unit = (market or fair value of investments + receivables + accrued income + other assets − accrued expenses − payables − other liabilities) ÷ units outstanding. Subscriptions and redemptions change both assets and units, so a unit-count change alone is not investment performance.

Marking to market values portfolio holdings using current fair-value principles rather than keeping them at historical purchase cost. Changes in those values flow into the scheme's net assets and NAV.

TER expresses recurring scheme operating expenses as a percentage of net assets. Expenses are charged to the scheme, so a higher TER reduces NAV and investor return relative to an otherwise identical gross portfolio performance.

Indian mutual funds do not charge an entry load on purchase. An exit load may apply when units are redeemed within a stated period; it reduces the investor's redemption proceeds according to the scheme's disclosed load structure.

A sale or redemption can create a capital gain or loss relative to cost, while an Income Distribution cum Capital Withdrawal payment is a distribution to the investor. Their tax treatment differs and current rates and holding-period rules must be checked rather than copied from an old workbook.

Tax deducted at source is a withholding credit collected before final assessment. The investor's actual liability depends on current tax law and personal facts, so the return may show additional tax due or a refund after credit for TDS.

During a New Fund Offer, units are offered at the stated NFO price. After an open-ended scheme reopens for ongoing transactions, purchases and redemptions use the applicable NAV-related price; a low NFO unit price does not make the portfolio cheaper.

The applicable NAV depends on the transaction type and compliance with the prescribed cut-off and funds-availability rules. A time stamp records receipt, but submitting an order before cut-off may not alone satisfy every condition for that day's NAV.

KYC verifies identity and address; a KYC Registration Agency maintains standardized KYC records for securities-market use. FATCA and CRS declarations add tax-residency information and do not replace ordinary KYC.

A SIP invests a chosen amount into a scheme at recurring intervals. It automates disciplined investing and buys more units when NAV is lower and fewer when NAV is higher, but it does not guarantee profit or prevent loss.

An STP periodically redeems units from one scheme and invests the proceeds into another scheme, normally within the same mutual fund. Each transfer can have exit-load and tax consequences because the source-side movement is a redemption.

An SWP redeems units periodically to generate cash flow. It is not guaranteed interest: withdrawals reduce unit holdings, and sustainability depends on withdrawal size, investment returns, loads, and taxes.

Both plans belong to the same scheme and portfolio. A direct plan excludes distributor commission and therefore normally has a lower expense ratio and different NAV; a regular plan includes distribution services and related commission costs.

Nomination records the person designated to receive or claim units or proceeds after an investor's death. Transmission is the operational process of changing the holding after death using the nomination or other valid succession documentation.

Simple return=(ending value-beginning value+cash distributions)÷beginning value. Express it as a percentage and include distributions; price or NAV change alone can understate total return.

For beginning value B, ending value E, and n years, CAGR=(E/B)^(1/n)-1 when there are no intervening cash flows. CAGR smooths the path into one annualized rate and does not show year-to-year volatility.

Systematic risk affects a broad market and cannot be eliminated by holding more securities in that market. Company-specific risk arises from individual issuers and can be reduced substantially through diversification.

Standard deviation measures variability of a fund's own returns around their average, capturing total volatility. Beta measures sensitivity to movements in the selected market benchmark, focusing on systematic exposure relative to that benchmark.

A Price Return Index reflects constituent price changes only. A Total Return Index also reflects reinvested distributions such as dividends, making it the more complete benchmark for comparing a fund's total return.

Both relate excess return over a risk-free rate to risk. Sharpe uses total volatility measured by standard deviation; Treynor uses systematic risk measured by beta. The risk denominator determines the interpretation.

Tracking error measures the variability of a fund's return difference from its benchmark. For an index-tracking fund, lower tracking error generally means more consistent replication, though cost and tracking difference also matter.

Start with the investor's goal, horizon, liquidity need, tax situation, and risk profile; choose a suitable scheme category and strategy; then compare schemes within that category. Do not begin with last year's top return.

The Riskometer provides a standardized indication of a scheme's assessed risk level based on prescribed factors. Use it to screen suitability and monitor changes, but not as a guarantee that losses cannot exceed expectations.

Equity generally suits longer horizons and higher volatility tolerance; debt emphasizes income and capital stability but still carries interest-rate and credit risk; hybrid combines asset classes. The investor's goal and risk profile control the choice.

Assess interest-rate risk through maturity and duration, and credit risk through issuer quality and portfolio concentration. A higher yield may compensate for greater duration, credit, or liquidity risk rather than indicate a better scheme.

Portfolio holdings, sector and issuer concentration, market-cap exposure, maturity, credit quality, and turnover reveal how the strategy is actually implemented. A label alone cannot establish suitability or consistency.

Compare schemes in the same category and plan type over consistent periods, using total return, an appropriate benchmark, risk, portfolio quality, expense ratio, and process consistency. Different mandates make raw return rankings misleading.

Under growth, scheme earnings remain invested and are reflected in NAV. Under IDCW, the scheme may distribute amounts subject to availability and policy, reducing NAV by the distribution and related effects; IDCW is not guaranteed interest.