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NISM-Series-II-B: Registrars to an Issue and Share Transfer Agents – Mutual Fund Certification Examination

Test Objectives

Unit 1: Introduction to Securities

1.1 Describe the broad categorization of securities as equity and debt.

1.2 Identify, from a list of different types of securities, those that represent ownership
      in a corporation and those that represent creditors.

1.3 Describe benefits to equity investors – dividend, growth, ownership.

1.4 Identify and describe the essential features of equity securities – uncertain
      payouts, perpetuity, and secondary market.

1.5 Identify and describe essential features of debt securities – interest payment,
      maturity, credit rating

1.6 Describe benefits to investors in debt – interest, redemption, right to assets

1.7 Describe hybrid structures - preferred and convertible instruments

Unit 2: Characteristics of Equities

2.1 Understand the rights of common shareholders.

2.2 Distinguish par value and share premium for equity shares.

2.3 Understand the concept of Dividend

      Identify dividend as the payout to equity investors and that it is not a predefined or fixed rate

      Identify dividend as payable on the face value and not current value of an equity share

      Solve a simple problem on rate of dividend and amount of dividend

2.4 Describe the terms authorized capital, issued capital, outstanding shares, paidup
      shares and share buy-back and match them to the appropriate definitions.

2.5 Distinguish the characteristics of preferred shares from those of common shares.

      Identify that preferred shares are normally privately placed with investors as opposed to a public offering.

      Identify the preferences of preferred share holders regarding dividends and assets in contrast to those of common shareholders and bondholders.

2.6 Identify the purpose of a rights offering as a preemptive right of shareholders to
      preserve their proportionate ownership in a corporation at the time additional shares are issued.

Unit 3: Characteristics of Other Securities

3.1 Identify the purpose of a warrant offering as a means to make an offering of new
      securities, usually debt securities, more attractive to investors. Contrast with a
      rights offering.

3.2 Identify the purpose of a convertible bond offering, to convert debt to equity over
      time, and manage cash flows.

3.3 Identify the purpose of Depository Receipts (DRs) and Fully Convertible
      Currency Bonds (FCCBs) to facilitate cross border trading and settlement,
      minimize transaction costs, and broaden the potential investor base, especially
      among institutional investors.

3.4 Understand Depository Receipts
      Define a DR as a negotiable instrument in the form of a certificate
      denominated in US dollars issued against certain underlying securities.

      Identify that certificates are issued by a depository bank that has a claim
      on securities deposited by the issuing corporation with a domestic
      custodian bank.

      Identify the right of DR holders to receive dividends and other payments
      when authorized by the underlying corporation, but NOT the right to vote
      on corporate matters.

Unit 4: Characteristics of Debt Instruments

4.1 From a list of different types of securities, identify those that represent the debt of
      a corporation.

      Distinguish the characteristics of corporate debt securities from those of
      common and preferred shares.

      Define the payment terms of corporate debt securities to include the face
      value, coupon and term to maturity.

4.2 Distinguish the face value of a corporate debt security from the market value.

4.3 Define current yield

     Distinguish the coupon of a corporate debt security from its current yield.
     Distinguish the yield to maturity of a corporate debt security from its
     current yield.

4.4 Types of debt securities

      Identify the distinguishing characteristic of bonds, debentures, deep
      discount bonds and convertible debt securities.

      Identify and distinguish the relative advantages and disadvantages to
      issuers and investors of the convertibility feature of corporate debt
      securities.

4.5 Identify, define and distinguish among the methods of corporate debt retirement
      to include the call feature, the put feature, and redemption.

      Identify the advantage(s) of the call feature to the issuer of corporate debt
      securities.

      Identify the advantage(s) of the put feature to the issuer of corporate debt
      securities.

4.6  Fixed and Floating rate instruments

      Identify and define the features of a floating rate bond.

      Differentiate a fixed coupon and a floating rate bond.

      Describe floating rate benchmarks and reset frequency

4.7 Credit Rating

      Identify the role of credit rating agencies with respect to the ability of
      issuers of corporate debt securities to make regular interest payments
      and to repay the face value at maturity.

      Identify credit rating symbols.

      Describe the nature of unrated bonds.

      Identify SEBI’s role in setting standards for credit rating agencies.

4.8 Money market instruments

      Identify the essential characteristics of money market instruments to
      include short-term maturity, and low risk.

      Identify the distinguishing characteristics of the three types of money
      market instruments—treasury bills, commercial paper and certificates of
      deposit.

4.9 Identify the risk implications for government debt issues versus corporate debt
      securities.

4.10 Company Fixed Deposits

       Identify the basic features of company fixed deposits to include a fixed
       interest rate, a defined term to renewal or refunding and the unsecured
       nature of the obligation.

       Identify the distinction between company fixed deposits making periodic
       interest payments versus those providing for cumulative payments of
       interest and principal at maturity.

       Identify the effect of longer terms to renewal or refunding on company
       deposit interest rates.

       Identify investor ownership of a company fixed deposit evidenced by a
       non-transferable fixed deposit receipt issued by the company registrar.

Unit 5: Basics of Mutual Funds

5.1 Understand Mutual Funds

      Define a mutual fund product as a portfolio of securities.

      Define fund objective. Identify objective of a fund and associate it with the
      portfolio.

      Define units of a fund, face value and ongoing value.

5.2 Understand the benefits of mutual funds to investors. List these benefits.

5.3 Describe and distinguish open and closed end funds, in terms of unit capital,
      ongoing transactions and investors’ liquidity.

5.4 Describe how units of fund change with investor transactions.

5.5 Define Assets under Management (AUM) of a portfolio and fund management
      fees.

      Describe how value of a unit changes with changes in the AUM.

      Identify value of securities as the cause for changes in AUM.

      Describe how AUM can move up or down every day.

5.6 Define and describe NAV of a fund.

5.7 Unit Capital

     Describe how unit capital can move up or down every day.

     Describe issuance of fractional units.

     Solve a simple problem on amount invested or redeemed and units.

     Solve a simple problem on NAV, AUM and units, for one unknown.

5.8 Types of Mutual Fund products

      Describe mutual fund products and their classification into equity, debt,
      hybrids and money market.

      Associate mutual fund products with the securities they invest in.

5.9 Dividends and Capital Gains

      List the payouts to investors in mutual funds as dividends and capital
      gains.

      Indicate how investment options enable choosing between dividends and
      capital gains.

Unit 6: SEBI – Role and regulation

6.1 Understand the securities market regulatory environment

6.2 Identify the SEBI mission and contrast it to the purposes for which other financial
      regulatory authorities were established.

6.3 Name SEBI as the government agency with authority to register and regulate
      stock exchanges and contrast with the roles of other financial regulatory
      authorities.

6.4 Identify SEBI’s powers to:

      Conduct investigations of all market participants

      Adjudicate offenses and penalize violators

      Register and regulate market intermediaries

      Standards of disclosure for issuers

      Regulation of securities exchanges

6.5 Name SEBI rules and regulations specifically aimed at investor protection

      Prohibition of insider trading on non-public information

      Prohibition of fraudulent and unfair trade practices

6.6 Identify the statutory basis for the Investor Education and Protection Fund (IEPF)
      from a list of potential acts.

      Identify the funding sources for the IEPF to include unclaimed dividends,
      interest, allotment application fees, matured deposits and debentures,
      and government grants and investment income of the period.

      Identify the purpose of the IEPF.

6.7 Know SEBI Regulations Relevant for Registrars and Transfer Agents

      Securities and Exchange Board of India (Registrars to an Issue

      and Share Transfer Agents) Regulations, 1993

      Securities and Exchange Board of India (Intermediaries) Regulations, 2008

      Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996

Unit 7: Structure and Constituents of Mutual Funds

7.1 Describe the structure of a mutual fund, in terms of the definition and role of
      sponsor, trustees and AMC

      Describe SEBI guidelines for setting up of Mutual funds and their
      structure

      Describe the appointment and functions of trustees

      List the functions and departments of the AMC

      Describe the relationship between investors, trustees and AMC

      Describe the mutual fund as a trust

7.2 Describe the regulatory aspects in structuring a mutual fund, including listing of
      the approvals and registrations required.

7.3 Describe the constituents of a mutual fund.

      Name each constituent and match their names with their functions.

       Describe the regulatory requirements for each constituent.

       Sponsor

       Trustee

        AMC

        Custodian

        RTA Agent

        Banks

        Auditors

        Distributor

7.4 Describe the role and functions of the R&T agent in detail, with respect to
      investor records, unit capital, banking and fund transfer and NFO.

Unit 8: Mutual fund products and features

8.1 Describe the features of mutual fund products in detail. Associate a fund product
      with its investment objective.

      Equity funds and their variants, including Exchange Traded Funds (ETFs) and Equity Linked Saving Schemes (ELSS)

      Debt funds and their variants, including Fixed Maturity Plans (FMPs)

      Hybrid funds, including balanced, asset allocation and Monthly Income Plans (MIPs)

      Money market funds, including liquid and liquid plus funds.

      Fund of funds and pension funds.

8.2 Understand the taxability of a mutual fund

      Describe the difference in taxability of income and capital gains for mutual fund investors.

      Define Dividend Distribution Tax (DDT)

      Describe Securities Transaction Tax (STT) and how it applies to mutual funds.

8.3 Understand payment mechanisms

     List the payment instruments used by investors in mutual funds – EFT,
     RTGS, HV cheque, “at par” cheques and Demand Drafts.

     Understand that mutual funds do not accept outstation cheques.

     Describe the role of a collecting bank and the concept of cleared funds

Unit 9: Applicable NAV and cut-off time regulations

9.1 Describe the computation of NAV in a mutual fund

      Solve a simple problem on computing NAV

      Describe the sequence in computing and applying NAV to transactions in a mutual fund

9.2 Describe the concept of applicable NAV and its linkage to working hours and cut
      off time.

9.3 Describe the cut off time Cut off time for liquid and non-liquid schemes

      Concept of business day SEBI Regulations on cut off time

9.4 Describe time stamping process and regulations governing time stamping
      Risk control processes for time stamping

      Operational control process for time stamping.

      Identify the applicable NAV given the description of a transaction and time stamp.

9.5 Describe the applicable NAV for liquid funds as a special process, depending on
      realisation of funds and Calendar day NAV.

Unit 10: Purchase, redemption and systematic transactions

10.1 Differentiate a fresh purchase and an additional purchase transaction.

10.2 Define purchase processing, including allocation of units, updating of unit capital,
       notifying the AMC, Statement of Account (SoA) to investors and reversals.

10.3 Define entry load

       Describe how load would affect purchase transaction, differential load and
       no-load transactions.

10.4 Describe a redemption transaction.

       Describe STT on redemption.

       Define exit load.

       Describe how exit loads affect redemption.

       Describe redemption process for open and closed end funds.

10.5 Describe the SoA.

10.6 Describe the NFO process. Internal approvals, Offer document, SEBI approval and Offer.

10.7 List the brief contents of the Offer Document and the Key Information
        Memorandum (KIM) and know the relevant SEBI guidelines

10.8 Describe New Fund Offer (NFO) Price

10.9 Describe the NFO process. Describe the process for:

       Collection

       Reconciliation

       Creation of records

       Allotment

       Inception date and on-going transactions

10.10 Describe types of switches and systematic transactions, and explain the
         process for each of them

         Applicable NAV for switches; Inter-scheme and Intra Scheme switches;

         Applicability of loads for switches

         Systematic Investment Plan (SIP) process including SIP with NFO

         Payment options for SIP, direct debit mandate, ECS and Standing
         Instructions (SI).

         Systematic Withdrawal Plans (SWPs) and Systematic Transfer Plans
         (STPs) – fixed and appreciation options


Unit 11: Investor and distributor processes and payouts

11.1 List the types of mutual fund investors and their basic features.

11.2 Describe the dividend declaration and payout process in a mutual fund and the
       role of RTA.

11.3 Describe SEBI regulations pertaining to dividend announcement and payout

11.4 List the functions of an Investor Service Centre (ISC)

11.5 List the new folio creation documentation required for individual investors and
       special cases of individual investors such as minors, Power of Attorney (PoA)
       and HUF.

11.6 Describe the PAN and Know Your Customer (KYC) verification process

11.7 Describe the registration process for resident and non resident investors for:
        Nomination Power of Attorney (PoA)

11.8 Describe the process and documentation required for registering changes in
        investor details

11.9 Describe the process of transmission of units under various possibilities

11.10 List the documentation required for institutional investors

11.11 Describe the process of registering changes in names, authorised signatories
         of institutional investors

 

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