NISM-Series-V-D: Mutual Fund - Specialized Investment Fund Distributors Certification Examination

Comprehensive practice vocabulary flashcards covering the NISM Series V-D syllabus: Mutual Funds, Specialized Investment Funds (SIF), Equity Derivatives, and Interest Rate Derivatives.

Strategic Asset Allocation (SAA)

An asset allocation strategy aligned with an individual's financial goals that sets target percentage allocations across various asset categories based on required returns, time horizon, and risk profile.

Tactical Asset Allocation (TAA)

A dynamic asset allocation approach that actively adjusts percentage weights across asset classes to capitalize on market opportunities and enhance the portfolio's risk-adjusted return.

Mandated Portfolio Rebalancing Period

The regulatory timeline of $30$ business days mandated by SEBI for all mutual fund schemes (excluding Index Funds, ETFs, and Overnight Funds) to restore asset allocation following passive deviations.

Multi Cap Fund

An open-ended equity scheme investing a minimum of $75\%$ of total assets in equity and equity-related instruments, with at least $25\%$ allocated each to large-cap, mid-cap, and small-cap companies.

Large Cap Fund

An open-ended equity scheme that invests a minimum of $80\%$ of its total assets in equity and equity-related instruments of large-cap companies ($1^{\text{st}}$ to $100^{\text{th}}$ by market capitalization).

Large and Mid-Cap Fund

An open-ended equity scheme investing a minimum of $35\%$ of total assets in large-cap companies and a minimum of $35\%$ of total assets in mid-cap companies.

Flexi-Cap Fund

An open-ended dynamic equity scheme investing a minimum of $65\%$ of its total assets in equity and equity-related instruments across large-cap, mid-cap, and small-cap stocks without pre-set allocation caps.

Focused Fund

An open-ended equity scheme investing in a maximum of $30$ stocks, with at least $80\%$ of its total assets allocated to equity and equity-related instruments.

ELSS (Equity Linked Saving Scheme)

An open-ended equity-linked saving scheme with a statutory lock-in period of $3$ years, eligible for tax deduction under Section 80C of the Income Tax Act, investing a minimum of $80\%$ of total assets in equities.

Liquid Fund

An open-ended debt scheme investing exclusively in debt and money market securities with residual maturities of up to $91$ days.

Ultra-Short-Term Debt Fund

An open-ended debt scheme investing in debt and money market instruments such that the portfolio's Macaulay duration is between $3$ months and $6$ months.

Corporate Bond Fund

An open-ended debt scheme that invests a minimum of $80\%$ of its total assets in corporate bonds rated $\text{AA+}$ and above.

Credit Risk Fund

An open-ended debt scheme investing a minimum of $65\%$ of its total assets in corporate bonds rated $\text{AA}$ and below (excluding $\text{AA+}$ rated instruments).

Gilt Fund

An open-ended debt scheme investing a minimum of $80\%$ of its total assets in government securities across various maturities.

Conservative Hybrid Fund

An open-ended hybrid scheme investing between $75\%$ and $90\%$ of total assets in debt instruments and $10\%$ to $25\%$ in equity and equity-related instruments.

Aggressive Hybrid Fund

An open-ended hybrid scheme investing between $65\%$ and $80\%$ of total assets in equity and equity-related instruments and $20\%$ to $35\%$ in debt instruments.

Arbitrage Fund

An open-ended hybrid scheme investing a minimum of $65\%$ of total assets in equity and equity-related arbitrage opportunities, with debt exposure restricted to government securities maturing in less than $1$ year and repo.

Life Cycle Fund

A mutual fund scheme following a glide-path strategy to dynamically reallocate across equity, debt, InvITs, ETCDs, and precious metal ETFs, offering maturities from $5$ to $30$ years in $5$-year multiples (maximum $6$ active funds per AMC).

Specialized Investment Fund (SIF)

A specialized category of mutual funds bridging the gap between mutual funds and Portfolio Management Services (PMS), requiring a minimum aggregate investment threshold of $\text{Rs. } 10\text{ lakhs}$ per investor across all strategies of an AMC.

Sponsor Eligibility Criteria

Regulatory requirements requiring a sponsor to have at least $5$ years in financial services, positive net worth and net profit after tax in all immediately preceding $5$ years, and an average annual profit of at least $\text{Rs. } 10\text{ crore}$.

Asset Management Company (AMC) Net Worth

The regulatory requirement mandating that an AMC maintain a continuous minimum liquid net worth of not less than $\text{Rs. } 50\text{ crore}$.

Independent Trustee Requirement

The corporate governance rule requiring at least two-thirds of the board of directors of a trustee company to be independent individuals who are not associates of the sponsor, the AMC, or the trustee company.

Risk-o-meter

A pictorial depiction of risk to the principal invested in a mutual fund scheme, categorizing portfolio risk into six levels: Low (Irish Green), Low to Moderate (Chartreuse), Moderate (Neon Yellow), Moderately High (Caramel), High (Dark Orange), and Very High (Red).

SIF Risk-Band

A dedicated 5-level pictorial risk framework designed specifically for Specialized Investment Funds, ranging from Risk Band Level 1 (Lowest Risk) to Risk Band Level 5 (Highest Risk).

Base Expense Ratio (BER) Notice Period

The requirement that any change in the Base Expense Ratio (BER) must be communicated to unitholders via email or SMS, and posted on the AMC website, at least $3$ working days prior to taking effect.

Total Return Index (TRI)

An index calculation methodology that incorporates all dividend and interest cash flows notionally reinvested as of the ex-date, alongside capital appreciation, mandated as the performance benchmark for mutual fund schemes.

Execution Only Platforms (EOP)

Digital platforms facilitating subscription, redemption, and switch transactions in direct plans of mutual fund schemes, operating either as Category 1 (registered with AMFI as agent of AMCs) or Category 2 (registered with SEBI as stockbroker).

Distributor Due Diligence Thresholds

Criteria mandating formal due diligence by AMCs on distributors who have: presence in over $20$ locations, AUM raised over $\text{Rs. } 100\text{ crore}$, commission received over $\text{Rs. } 1\text{ crore}$ across the industry, or commission over $\text{Rs. } 50\text{ lakhs}$ from a single AMC.

Distributor Change Cooling-off Period

A mandatory period of $12$ months from the date of change in distributor code initiated by an investor during which no trail commission is payable to the transferee distributor.

Equity Mutual Fund Taxation

Income tax rules for schemes with $\ge 65\%$ in domestic equities: Short-Term Capital Gains (STCG, held $\le 12$ months) taxed at $20\%$, and Long-Term Capital Gains (LTCG, held $> 12$ months) taxed at $12.5\%$ on gains exceeding $\text{Rs. } 1.25\text{ lakh}$ per financial year.

Debt Mutual Fund Taxation

Tax rules for debt-oriented mutual funds (equity exposure $\le 35\%$), where both short-term and long-term capital gains are taxed at the investor's applicable Marginal Slab Rate (MSR).

Bonus Stripping Rule

A tax provision disallowing the set-off of capital losses against capital gains if units were purchased within $3$ months prior to the bonus record date and sold within $9$ months after the record date.

Mutual Fund Stamp Duty

A statutory duty levied at $0.005\%$ on the value of units issued on all scheme inflows (lumpsum, SIP, STP, dividend reinvestment) and $0.015\%$ on transfer of units between demat accounts.

Cut-off Timing for Liquid and Overnight Funds

For purchases and switch-ins, $1:30\text{ PM}$ is the cut-off time (requiring funds to be available before cut-off to receive the prior day's closing NAV); for redemptions, the cut-off time is $3:00\text{ PM}$ ($7:00\text{ PM}$ for online overnight fund redemptions).

Instant Access Facility (IAF)

A redemption mechanism in liquid schemes enabling same-day credit of repurchase proceeds up to a limit of $\text{Rs. } 50,000$ or $90\%$ of the investment value, whichever is lower, per day per investor.

Gating of Redemptions

A crisis provision allowing an AMC to restrict redemptions with board and trustee approval for up to $10$ working days in any $90$-day window; requests up to $\text{Rs. } 2\text{ lakhs}$ are completely exempt from gating.

Segregated Portfolio (Side-Pocketing)

A mechanism to isolate distressed and illiquid debt or money market securities affected by a credit event or actual default, separating them from the main portfolio and issuing pro-rata units to existing unitholders.

MITRA Platform

Mutual Fund Investment Tracing and Retrieval Assistant, an industry-wide platform operated by QRTAs (CAMS and KFintech) to help investors identify inactive and unclaimed mutual fund folios.

Sharpe Ratio

A risk-adjusted performance measure calculating excess return over the risk-free rate per unit of total risk: $\text{Sharpe Ratio} = \frac{R_s - R_f}{\sigma}$.

Treynor Ratio

A measure of risk-adjusted performance evaluating excess return over the risk-free rate per unit of systematic risk: $\text{Treynor Ratio} = \frac{R_s - R_f}{\beta}$.

Information Ratio (IR)

A mandatory disclosed metric measuring a portfolio manager's skill in generating excess returns relative to a benchmark per unit of tracking error: $\text{IR} = \frac{\text{Portfolio Return} - \text{Benchmark Return}}{\text{Standard Deviation of Excess Return}}$.

Impact Cost

The percentage degradation between the actual execution price of an order and the ideal mid-quote price ($\frac{\text{Bid} + \text{Ask}}{2}$), measuring market liquidity and trading friction.

Non-Benchmark Index Derivatives Prudential Norms

SEBI rules requiring non-benchmark index derivatives to have at least $14$ constituents, a single constituent weight capped at $\le 20\%$, and a combined top $3$ constituents' weight capped at $\le 45\%$.

Cost of Carry Model

A no-arbitrage valuation model stating that the fair futures price of an asset equals its spot price adjusted for carrying costs and holding benefits: $F = S e^{(r - q)T}$.

Spot-Futures Convergence

The economic phenomenon where the futures price converges to the cash spot price as time to expiration approaches zero, making the basis zero at maturity.

Portfolio Beta Hedge Ratio

The mathematical formula determining the number of index futures contracts needed to hedge a stock portfolio's systematic risk: $\text{Hedge Ratio} = \frac{V_p \times \beta_p}{V_i}$.

Delta ($\Delta$)

An option Greek measuring the rate of change in option premium for a unit change in the underlying asset's price, positive for call buyers ($0$ to $+1$) and negative for put buyers ($-1$ to $0$).

Gamma ($\gamma$)

A second-order option Greek measuring the rate of change of an option's Delta for a unit change in the underlying asset's price.

Theta ($\theta$)

An option Greek measuring the sensitivity of an option's premium to the decay of time to expiration, representing the daily loss of time value.

Vega ($\nu$)

An option Greek measuring the sensitivity of an option's price to a $1\%$ change in the implied volatility of the underlying asset.

Black-Scholes Formula

A closed-form European option pricing model that takes spot price, strike price, risk-free rate, time to expiration, and volatility as inputs to compute call and put premiums along with option Greeks.

Bull Call Spread

A vertical spread trading strategy involving the purchase of a lower-strike call option and the simultaneous sale of a higher-strike call option of the same underlying and expiration.

Long Straddle

A market-neutral volatility strategy created by purchasing both a call option and a put option having the same strike price and expiration date.

Covered Call

An investment strategy consisting of a long position in the underlying asset combined with a short position in a call option, functionally equivalent to a synthetic short put.

Protective Put

A risk management strategy combining a long position in the underlying asset with a long put option, establishing downside protection and acting as a synthetic long call.

Put-Call Parity

A fundamental arbitrage relationship for European options linking the prices of calls, puts, underlying spot, and strike price: $c + X e^{-rt} = p + S_0$.

India VIX

A real-time volatility index computed by the NSE from the order book of out-of-the-money and at-the-money NIFTY options, reflecting annualized market volatility expectations over the next $30$ calendar days.

Normal Yield Curve

An upward-sloping yield curve indicating that longer-term debt maturities carry higher yields than short-term instruments to compensate investors for duration, inflation, and term premium.

Clean Price vs. Dirty Price

The distinction in bond pricing where the Clean Price represents the negotiated price excluding interest, and Dirty Price represents the total settlement invoice price including accrued interest: $\text{Dirty Price} = \text{Clean Price} + \text{Accrued Interest}$.

Macaulay Duration

The weighted average maturity of a bond's future cash flows, measuring the time required in years for an investor to recover the bond's purchase price through discounted cash flows.

Modified Duration

A measure of a bond's price sensitivity to interest rate fluctuations, calculated as: $\text{Modified Duration} = \frac{\text{Macaulay Duration}}{1 + \frac{\text{YTM}}{n}}$, giving the approximate percentage change in dirty price for a $100\text{ bps}$ shift in yield.

Bond Convexity

A measure of the curvature of the bond price-yield relationship (the second derivative of price with respect to yield) that corrects for the linear estimation error of duration during large interest rate changes.

Price Value of a Basis Point (PV01)

The absolute change in currency terms of a bond's dirty price resulting from a one basis point ($0.01\%$) change in yield: $\text{PV01} = \frac{\text{Dirty Price} \times \text{Modified Duration}}{10,000}$.

Forward Rate Agreement (FRA)

An over-the-counter contract between two parties that fixes the borrowing or lending interest rate on a notional principal over a defined future period, settled in cash on the settlement date.

Interest Rate Swap (IRS)

A bilateral derivative contract involving the periodic exchange of interest payments calculated on a notional principal amount, typically exchanging a fixed interest rate for a floating rate.

Novation (Clearing Corporation)

The legal and operational process wherein a Central Counterparty (Clearing Corporation) interposes itself between the buyer and seller of every trade, becoming the buyer to every seller and seller to every buyer to guarantee contract performance.

Exchange-Traded Interest Rate Futures (IRF)

Standardized, exchange-traded, cash-settled futures contracts on single Government of India (GOI) securities (such as $6$, $10$, and $13$-year tenors) with a lot size of $2,000$ units (face value $\text{Rs. } 2\text{ lakhs}$) and a tick size of $\text{Rs. } 0.0025$.

Duration-Based Hedge Ratio for Bonds

The quantitative formula used to calculate the number of interest rate futures contracts needed to immunize a bond portfolio from yield movements: $\text{Hedge Lots} = \frac{\text{Portfolio Modified Duration} \times \text{Market Value of Portfolio}}{\text{Futures Modified Duration} \times \text{Futures Price} \times 20}$.