Knowt
NISMVAImportantQuestions (1)
Chapter 1: Investment Landscape
Understanding Financial Goals
Financial goals should be defined in terms of time horizon and money needed.
Key Life Events: Child education, marriage, retirement, etc.
Prioritization: Assign priorities to events based on importance.
Timeline & Funding: Establish timeline and funding needs for each event.
Investor Behavior and Biases
Investors tend to exhibit recency bias, anticipating current trends to continue into the future.
Recency Bias (Answer: c): Affects decision-making based on recent events, leading to a preference for safe assets after a bear market or over-investment in risky assets after a bull market.
Chapter 2: Mutual Fund Concepts
Asset Allocation Strategies
Fixed Asset Allocation involves maintaining constant ratios through portfolio rebalancing.
Example: A 50:50 Debt to Equity allocation requires selling equity when it rises above this ratio.
Investment Risks
Inflation Risk (Answer: c): Also known as purchasing power risk, where inflation decreases real investment cash flow value.
Chapter 3: Legal Structure of Mutual Funds in India
Regulatory Requirements
Mutual funds must have a minimum of 20 investors, with no single investor holding more than 25% of the total corpus.
Custodian Role: Safeguard and ensure secure custody of assets.
Trustees: Ensures compliance with SEBI regulations and investor interests.
Chapter 4: Risk, Return & Performance of Funds
Assessing Risk and Performance
Controlling Risks: Use of metrics like Standard Deviation, Tracking Error, and Beta to evaluate performance and risks.
Beta: Measures volatility relative to market indices; a beta greater than 1 indicates higher risk.
Sharpe Ratio: Used to determine risk-adjusted return; denominator is standard deviation of portfolio returns.
Chapter 5: Fund Distribution and Channel Management Practices
Distribution Models and Commission Payments
SIP and Costs: Trail commission is ongoing as long as the investor holds the fund; upfront transaction charges are applied for large investments.
Channels for Investment: Options include direct investment via AMCs or through distributors.
Chapter 6: NAV, Total Expense Ratio & Fees
Understanding NAV and Fees
NAV is affected by expenses that can be directly charged to the scheme, typically detailed in the Total Expense Ratio (TER).
Impacts on NAV: fluctuations occur due to changes in fund performance, market conditions, and redemption requests.
Chapter 7: Taxation
Understanding Tax Implications
Long-Term Gains: Tax strategies vary based on fund type (e.g., tax exemptions based on holding periods and type of securities).
Tax Reporting: Understanding TDS regulations, particularly as they apply to NRIs.
Chapter 8: Investor Services
Transaction Handling & KYC
KYC Requirements: Essential for all investors; specific rules apply to minors and corporate investors.
Changing KYC: KYC registrations must be updated with any change of address or significant account changes.
Chapter 9: Selection and Market Performance
Evaluating Fund Performance
Use benchmarks appropriately for performance comparison; understanding that market fluctuations impact mutual fund performance.
Balanced Hybrid Index: Use appropriate indices like Crisil Benchmarks.
Chapter 10: Realizing Potential Returns
Strategies for Return Optimization
Comparative Analysis: Use metrics like Sharpe Ratio and Treynor Ratio to assess fund performance against benchmarks.
Historical performance is informative but does not guarantee future success.
Chapter 11: Performance Evaluation & Selection
Selecting Suitable Funds
Assess a fund's performance based on expense ratios, risks, and management quality, with attention to market conditions for long-term investments.
Chapter 12: General Best Practices
Making Informed Investments
Investors should always factor their risk tolerance and time horizon when selecting funds, whether through direct or managed routes.
Liquidation Awareness: Investors need to understand the liquidity requirements and potential penalties or fees associated with their holdings.
NISMVAImportantQuestions (1)
Chapter 1: Investment Landscape
Understanding Financial Goals
Financial goals should be defined in terms of time horizon and money needed.
Key Life Events: Child education, marriage, retirement, etc.
Prioritization: Assign priorities to events based on importance.
Timeline & Funding: Establish timeline and funding needs for each event.
Investor Behavior and Biases
Investors tend to exhibit recency bias, anticipating current trends to continue into the future.
Recency Bias (Answer: c): Affects decision-making based on recent events, leading to a preference for safe assets after a bear market or over-investment in risky assets after a bull market.
Chapter 2: Mutual Fund Concepts
Asset Allocation Strategies
Fixed Asset Allocation involves maintaining constant ratios through portfolio rebalancing.
Example: A 50:50 Debt to Equity allocation requires selling equity when it rises above this ratio.
Investment Risks
Inflation Risk (Answer: c): Also known as purchasing power risk, where inflation decreases real investment cash flow value.
Chapter 3: Legal Structure of Mutual Funds in India
Regulatory Requirements
Mutual funds must have a minimum of 20 investors, with no single investor holding more than 25% of the total corpus.
Custodian Role: Safeguard and ensure secure custody of assets.
Trustees: Ensures compliance with SEBI regulations and investor interests.
Chapter 4: Risk, Return & Performance of Funds
Assessing Risk and Performance
Controlling Risks: Use of metrics like Standard Deviation, Tracking Error, and Beta to evaluate performance and risks.
Beta: Measures volatility relative to market indices; a beta greater than 1 indicates higher risk.
Sharpe Ratio: Used to determine risk-adjusted return; denominator is standard deviation of portfolio returns.
Chapter 5: Fund Distribution and Channel Management Practices
Distribution Models and Commission Payments
SIP and Costs: Trail commission is ongoing as long as the investor holds the fund; upfront transaction charges are applied for large investments.
Channels for Investment: Options include direct investment via AMCs or through distributors.
Chapter 6: NAV, Total Expense Ratio & Fees
Understanding NAV and Fees
NAV is affected by expenses that can be directly charged to the scheme, typically detailed in the Total Expense Ratio (TER).
Impacts on NAV: fluctuations occur due to changes in fund performance, market conditions, and redemption requests.
Chapter 7: Taxation
Understanding Tax Implications
Long-Term Gains: Tax strategies vary based on fund type (e.g., tax exemptions based on holding periods and type of securities).
Tax Reporting: Understanding TDS regulations, particularly as they apply to NRIs.
Chapter 8: Investor Services
Transaction Handling & KYC
KYC Requirements: Essential for all investors; specific rules apply to minors and corporate investors.
Changing KYC: KYC registrations must be updated with any change of address or significant account changes.
Chapter 9: Selection and Market Performance
Evaluating Fund Performance
Use benchmarks appropriately for performance comparison; understanding that market fluctuations impact mutual fund performance.
Balanced Hybrid Index: Use appropriate indices like Crisil Benchmarks.
Chapter 10: Realizing Potential Returns
Strategies for Return Optimization
Comparative Analysis: Use metrics like Sharpe Ratio and Treynor Ratio to assess fund performance against benchmarks.
Historical performance is informative but does not guarantee future success.
Chapter 11: Performance Evaluation & Selection
Selecting Suitable Funds
Assess a fund's performance based on expense ratios, risks, and management quality, with attention to market conditions for long-term investments.
Chapter 12: General Best Practices
Making Informed Investments
Investors should always factor their risk tolerance and time horizon when selecting funds, whether through direct or managed routes.
Liquidation Awareness: Investors need to understand the liquidity requirements and potential penalties or fees associated with their holdings.
