NISM-Series-V-A: Mutual Fund Distributors Certification Exam Review

This set of vocabulary flashcards covers essential terms from the NISM Series V-A workbook, including financial concepts, legal structures, scheme categories, risks, and performance measures necessary for mutual fund distributors.

Mutual Fund

A professionally managed investment vehicle established as a trust to mobilize money from investors for investment in different markets and securities in line with stated objectives.

Financial Goals

Financial objectives to which specific amounts and timelines have been assigned, such as funding a child's education or retirement lifestyle.

Inflation

The general rise in the prices of various products and services consumed, which erodes the purchasing power of money over time.

Real Rate of Return

The return on investment adjusted for inflation; it is the positive rate earned when investment returns exceed the inflation rate.

Liquidity Risk

The risk associated with the ease of converting an investment into cash without significant loss in value or incurring high transaction costs.

Credit Risk

The possibility that a borrower (the issuer of a bond or debenture) may default on the repayment of principal or the payment of interest according to the agreed schedule.

Interest Rate Risk

The risk that the value of fixed income securities will change due to fluctuations in market interest rates; bond prices and interest rates share an inverse relationship.

Availability Heuristic

A behavioral bias where investors rely on examples or experiences that come to mind immediately rather than conducting thorough research.

Loss Aversion

A behavioral tendency where individuals prefer avoiding losses to acquiring equivalent gains, identified by psychologists Daniel Kahneman and Amos Tversky.

Strategic Asset Allocation (SAA)

An approach to maintaining a target allocation across various asset categories based on an analysis of the investor's needs, risk appetite, and time horizon.

Tactical Asset Allocation (TAA)

A dynamic approach to changing the allocation between asset categories to take advantage of market opportunities or improve risk-adjusted returns.

Net Asset Value (NAV)

The true worth of a unit of a mutual fund scheme, calculated as: $\frac{\text{Unit-holders' Funds in the Scheme (Net Assets)}}{\text{No. of outstanding Units}}$

Assets Under Management (AUM)

The sum of all investments made by investors in a mutual fund scheme, representing the scheme's total size.

Mark to Market (MTM)

The process of valuing each security in a scheme's investment portfolio at its current market value to calculate daily NAV.

Open-ended Fund

A mutual fund scheme that allows investors to purchase or redeem units on a perpetual basis, resulting in a regularly changing unit capital.

Close-ended Fund

A scheme with a fixed maturity date where units can only be purchased during the New Fund Offer (NFO), with subsequent liquidity provided via listing on a stock exchange.

Exchange Traded Funds (ETFs)

Mutual fund schemes traded on a stock exchange throughout the day like individual stocks, usually tracking a specific index.

Large Cap

Companies ranked from 1st to 100th in terms of full market capitalization.

Mid Cap

Companies ranked from 101st to 250th in terms of full market capitalization.

Small Cap

Companies ranked from the 251st position onwards in terms of full market capitalization.

Specialized Investment Fund (SIF)

A product line under mutual funds that allows for higher portfolio flexibility, requiring a minimum aggregate investment of $Rs. 10\,lakhs$ from investors at the PAN level.

Sponsor

The primary entity behind a mutual fund business that makes the application to SEBI for registration and invests in the capital of the AMC.

Asset Management Company (AMC)

The professional firm appointed by the sponsor or trust to handle the day-to-day management of mutual fund schemes.

Custodian

An independent entity registered with SEBI that has physical custody of the assets (securities, gold, etc.) of a mutual fund scheme.

Registrar and Transfer Agent (RTA)

A service provider that maintains investor records (folios), processes purchases and redemptions, and generates account statements.

Scheme Information Document (SID)

A mandatory document that sets forth the specific features, investment objectives, asset allocation, and risk factors of a particular mutual fund scheme.

Key Information Memorandum (KIM)

A summarized version of the SID and Statement of Additional Information (SAI) that is mandatorily attached to every application form.

Trail Commission

Commission paid periodically to mutual fund distributors calculated as a percentage of the net assets attributable to the units sold by them.

Total Expense Ratio (TER)

The total percentage of a scheme's daily net assets used to pay for base expense ratios, brokerage, transaction costs, and statutory levies.

Equity Linked Savings Scheme (ELSS)

An open-ended equity scheme with a statutory lock-in period of 3 years that offers tax benefits under Section 80C of the Old Tax Regime.

Standard Deviation

A statistical measure of total risk that calculates the fluctuation of periodic returns of a scheme in relation to its own average return.

Beta

A measure of systematic risk that indicates the sensitivity of a scheme's returns relative to the fluctuations of a diversified stock index.

Sharpe Ratio

A measure of risk-adjusted return calculated as: $(\text{Scheme Return} - \text{Risk-free Return}) / \text{Standard Deviation}$

Tracking Error

The standard deviation of the excess returns generated by an index fund compared to its benchmark, measuring the consistency of the fund's tracking ability.

Segregated Portfolio

A mechanism (also called side-pocketing) to separate distressed or illiquid assets from the main portfolio in the event of a credit or default event.

Rupee Cost Averaging

The process where investing a fixed amount at regular intervals results in a lower average cost per unit, as more units are bought when prices are low and fewer when they are high.