NISM Series V-A · Unit 4 of 12 · about 6% of the paper
Offer document: NISM Series V-A notes and practice questions
Before investing, an investor should read the scheme's offer document. This unit teaches the SID, SAI, NFO process and what each contains.
What to know in Unit 4
- SID, SAI and what each contains.
- NFO rules: price, period, allotment.
- Where the scheme's risk factors, load and asset allocation are found.
Key terms, examples and exam traps
Scheme Information Document (SID)
The SID contains scheme-specific details: investment objective, asset allocation, strategy, risk factors, load structure, benchmark and fees.
Example. An investor wants to know the scheme's asset allocation and exit load before investing.
Exam trap. This statement is false: The SID contains only the fund house's history.
Statement of Additional Information (SAI)
The SAI holds information common to the fund house and all its schemes: constitution, sponsor, trustees, AMC, service providers and legal details.
Example. A reader wants the sponsor's and trustees' details, not any one scheme's.
Exam trap. This statement is false: The SAI contains details of only a single scheme.
Key Information Memorandum (KIM)
The KIM is a short summary of the SID and SAI given with the application form so investors see the essentials first. SEBI has since moved towards a standard scheme summary document with the same purpose.
Example. A short summary document is attached to the application form.
Exam trap. This statement is false: The KIM replaces the need for any offer document.
New Fund Offer (NFO)
An NFO is the initial offer of a new scheme's units to the public. The offer period cannot exceed 15 days.
Example. A fund house opens subscription for a newly launched scheme for two weeks.
Exam trap. This statement is false: An NFO can stay open for six months.
NFO price
Units in an NFO are typically offered at ₹10 each, with no assurance that this is a better price than existing schemes' NAV.
Example. An investor assumes a ₹10 unit is cheaper than a ₹50 unit in another scheme.
Exam trap. This statement is false: A scheme at ₹10 is cheaper in value than one at ₹50.
Allotment timeline
Units must be allotted and refunds, if any, paid within five working days from the closure of the NFO.
Example. The NFO closes and units are allotted a few working days later.
Exam trap. This statement is false: Allotment can be made after two months.
Asset allocation pattern
The SID states the proportion of the scheme's assets to be held in each asset class and the permissible ranges, which are binding on the fund manager.
Example. A debt scheme's document says at least 80% will be in a certain type of paper.
Exam trap. This statement is false: The fund manager can ignore the stated asset allocation.
Scheme-specific risk factors
The offer document lists the risks specific to the scheme, such as credit risk for debt schemes, so that investors make informed decisions.
Example. A debt fund's document warns about downgrade of issuers' ratings.
Exam trap. This statement is false: Risk factors are required only for equity schemes.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? The SAI holds information common to the fund house and all its schemes: constitution, sponsor, trustees, AMC, service providers and legal details.
- Age-based rule of thumb
- Folio
- Statement of Additional Information (SAI)
- Financial plan
Q2. Which statement best describes “Asset allocation pattern”?
- An overnight fund invests in securities with a maturity of one day, so interest-rate and credit risk are very low.
- Mutual fund distribution channels include independent financial advisers, national distributors, banks, and online platforms and direct AMC routes.
- The SID states the proportion of the scheme's assets to be held in each asset class and the permissible ranges, which are binding on the fund manager.
- A change in a scheme's fundamental attributes needs a written notice to unit holders and an exit option at the prevailing NAV without exit load for at least 30 days.
Q3. Which statement best describes “Scheme-specific risk factors”?
- The offer document lists the risks specific to the scheme, such as credit risk for debt schemes, so that investors make informed decisions.
- Compound Annual Growth Rate is the constant yearly rate at which an investment would have grown to reach its final value, used for periods over one year.
- A gilt fund invests at least 80% in government securities across maturities, so credit risk is negligible but interest-rate risk can be high.
- The riskometer shows a scheme's risk on six levels: low, low to moderate, moderate, moderately high, high and very high, and is updated based on portfolio risk.
Q4. Which statement best describes “Allotment timeline”?
- Units must be allotted and refunds, if any, paid within five working days from the closure of the NFO.
- The SAI holds information common to the fund house and all its schemes: constitution, sponsor, trustees, AMC, service providers and legal details.
- For tax purposes, an equity-oriented fund invests at least 65% of its assets in equity shares of domestic companies.
- Professional management means a qualified fund manager and research team select and monitor securities for the scheme, for a fee charged as part of the expense ratio.
Q5. Which term is described here? Units in an NFO are typically offered at ₹10 each, with no assurance that this is a better price than existing schemes' NAV.
- NFO price
- Trail commission
- Asset allocation
- SEBI
Q6. Which statement best describes “Key Information Memorandum (KIM)”?
- Strategic asset allocation sets long-term target weights based on the client's profile, which are maintained by periodic rebalancing.
- A corporate bond fund invests at least 80% in the highest-rated (AA+ and above) corporate bonds.
- The KIM is a short summary of the SID and SAI given with the application form so investors see the essentials first. SEBI has since moved towards a standard scheme summary document with the same purpose.
- The Public Provident Fund is a government-backed savings scheme with a 15-year tenure and tax-free interest, with limited liquidity.
Frequently asked questions
How much of NISM Series V-A comes from Unit 4?
Unit 4 (Offer document) usually carries about 6% of the questions. The whole exam has 100 questions and the pass mark is 50%.
What should I study in NISM Series V-A Unit 4?
SID, SAI and what each contains. NFO rules: price, period, allotment. Where the scheme's risk factors, load and asset allocation are found.
Are these NISM Series V-A practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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UpperCrust Academy is independent study material from UpperCrust Wealth. It is not affiliated with NISM, SEBI or AMFI. For education only. Not investment advice. Always confirm the latest syllabus and rules on the official NISM website.