NISM Series V-D · Unit 2 of 12 · about 9% of the paper
Legal, regulatory framework and scheme information: NISM Series V-D notes and practice questions
SEBI regulation, the role of AMFI, scheme documents, offer rules and scheme categories.
What to know in Unit 2
- SEBI Mutual Fund Regulations.
- SID, SAI and KIM.
- Scheme categorisation.
Key terms, examples and exam traps
SEBI as regulator
SEBI regulates mutual funds in India through the SEBI (Mutual Funds) Regulations and issues circulars to AMCs, trustees and distributors.
Example. SEBI changes how schemes are categorised through a circular.
Exam trap. This statement is false: Each AMC makes its own rules without SEBI's approval.
AMFI
AMFI is the industry body of AMCs that promotes standards, sets code of conduct for distributors and registers them with an ARN.
Example. A distributor gets an ARN code through AMFI.
Exam trap. This statement is false: AMFI is the statutory regulator of mutual funds.
ARN and EUIN
A distributor needs an AMFI Registration Number to sell funds, and an EUIN identifies the employee or sales person who gave advice.
Example. A bank staff member quotes an EUIN on the application form.
Exam trap. This statement is false: A distributor can sell funds without an ARN.
Scheme Information Document
The SID contains the scheme's objective, strategy, risks, fees and other details an investor needs before investing.
Example. An investor reads the SID before applying in an NFO.
Exam trap. This statement is false: The SID is optional and not available to investors.
Statement of Additional Information
The SAI has details about the mutual fund such as constitution, trustees and legal matters, and is common to all its schemes.
Example. A distributor checks the SAI for the sponsor details.
Exam trap. This statement is false: The SAI is specific to one scheme only.
Key Information Memorandum
The KIM is a short summary of key scheme features that is given with the application form.
Example. An applicant receives the KIM along with the form.
Exam trap. This statement is false: The KIM replaces the SID for risk factors.
Scheme categorisation
SEBI groups schemes into categories such as equity, debt, hybrid, solution-oriented and others, with defined features for each.
Example. Large cap, mid cap and flexi cap are equity categories.
Exam trap. This statement is false: AMCs can name categories freely.
One scheme per category
An AMC can generally offer only one scheme in each defined category, with a few exceptions, to avoid confusion.
Example. An AMC cannot launch two large cap funds.
Exam trap. This statement is false: An AMC can launch any number of schemes in a category.
Riskometer
The riskometer shows a scheme's risk on six levels from low to very high and must be shown on scheme documents.
Example. A cover page shows a dial at very high.
Exam trap. This statement is false: The riskometer shows expected return.
New fund offer
An NFO is the first-time offer of units of a new scheme, usually at a face value of ₹10 per unit.
Example. An investor applies for units of a new scheme at ₹10.
Exam trap. This statement is false: NFO units are priced at the earlier NAV of another scheme.
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 statement best describes “AMFI”?
- AMFI is the industry body of AMCs that promotes standards, sets code of conduct for distributors and registers them with an ARN.
- Put-call parity links call, put, spot and the present value of strike for European options with the same strike and expiry.
- If market movement reduces an investor's holding below ₹10 lakh, the investor can only redeem the entire remaining amount rather than part.
- Stamp duty is charged at 0.005% on purchase of units, including switches and SIP instalments.
Q2. Which term is described here? The SAI has details about the mutual fund such as constitution, trustees and legal matters, and is common to all its schemes.
- Initial margin
- Bull call spread
- Exchange-traded and OTC
- Statement of Additional Information
Q3. Which statement best describes “One scheme per category”?
- An AMC can generally offer only one scheme in each defined category, with a few exceptions, to avoid confusion.
- The futures price moves inversely to yield, so a rise in yields lowers the futures price.
- TER is the annual cost of running a scheme as a percentage of assets, charged to the scheme and reflected in NAV.
- SIPs, SWPs and STPs are allowed in SIFs provided the investor's investment meets the minimum threshold.
Q4. Which statement best describes “Statement of Additional Information”?
- The SAI has details about the mutual fund such as constitution, trustees and legal matters, and is common to all its schemes.
- Hedging with futures leaves basis risk because the portfolio and the contract do not move together perfectly.
- Unhedged short exposure through derivatives is limited to 25% of net assets, and non-hedging use of exchange-traded derivatives is also limited to 25%.
- AMCs pay trail commission to distributors for regular plans and this must be disclosed to investors.
Q5. Which statement best describes “SEBI as regulator”?
- SEBI regulates mutual funds in India through the SEBI (Mutual Funds) Regulations and issues circulars to AMCs, trustees and distributors.
- The Equity Long-Short strategy must invest at least 80% in equity and equity-related instruments and may take limited short positions through derivatives.
- Duration measures a bond's sensitivity to interest rate changes, and a longer duration means greater price change for a change in yield.
- If market movement reduces an investor's holding below ₹10 lakh, the investor can only redeem the entire remaining amount rather than part.
Q6. Which statement best describes “Scheme categorisation”?
- The minimum investment in SIFs is ₹10 lakh per investor, aggregated across all the SIF strategies of the same AMC at the PAN level.
- The SID contains the scheme's objective, strategy, risks, fees and other details an investor needs before investing.
- SEBI groups schemes into categories such as equity, debt, hybrid, solution-oriented and others, with defined features for each.
- The breakeven for a long call is the strike plus premium, and for a long put it is the strike minus premium.
Frequently asked questions
How much of NISM Series V-D comes from Unit 2?
Unit 2 (Legal, regulatory framework and scheme information) usually carries about 9% of the questions. The whole exam has 150 questions and the pass mark is 60%.
What should I study in NISM Series V-D Unit 2?
SEBI Mutual Fund Regulations. SID, SAI and KIM. Scheme categorisation.
Are these NISM Series V-D practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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