In exercise of the powers conferred by sub-regulation (3) of regulation 7of the Securities and Exchange Board of India (Certification of Associated Persons in Securities Markets) Regulations 2007, National Institute of Securities Markets (NISM) in consultation with the Securities and Exchange Board of India hereby specifies the NISM-Series-II-B: Registrars to an Issue and Share Transfer Agents – Mutual Fund Certification Examination as the requisite standard for the associated persons employed or engaged or to be employed or engaged by Registrars to an Issue and Share Transfer Agents for performing any of the following functions for Mutual Funds:
The NISM-Series-II-B: Registrars to an Issue and Share Transfer Agents – Mutual Fund Certification Examination is offered by NISM. The examination is available to the candidates from August 7, 2009.
Details of NISM-Series-II-B: Registrars to an Issue and Share Transfer Agents – Mutual Fund Certification Examination are given in Annexure-I and Annexure-II attached to this communiqué/press release.
The text of these Annexures and the registration details may be found in www.nism.ac.in.
Objective of the Examination
The examination seeks to create a common minimum knowledge benchmark for persons working in Registrars to an Issue and Share Transfer Agents (R&T agent) organizations in the mutual fund R&T function, in order to enable better quality investor service, operational process efficiency and risk controls.
The examination will be mandatory for all associated persons employed or engaged by Registrars to the Issue and Transfer Agents (RTA) and performing RTA functions for Mutual Funds.
This is a computer-based examination with multiple choice questions.
NISM-Series-II-B: Registrars to an Issue and Share Transfer Agents – Mutual Fund Certification Examination
Syllabus Outline with Weightages
Introduction to Securities
Characteristic of Equities
Characteristics of Other Securities
Characteristics of Debt Securities
Basics of Mutual funds
SEBI- Role and Regulations
Structure and organization of mutual funds
Mutual fund products
Applicable NAV and cut-off time regulations
Purchase, redemption and systematic transactions
Investor and distributor processes and payouts
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 pre- defined 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, paid-up 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.
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:
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:
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