GPT NISM

Scheme Related Information for NISM certification

Before investing, an investor should read what the scheme promises to do, what it may invest in, what it costs and how risky it is. This chapter covers the documents that say this, the choices within a scheme (plans and options), risk labels and the disclosures that follow the investment.

Mutual FundsSeries V-A60 MCQs5 lessons19 flashcards5 memory tricks

Practise Scheme Related Information free

What you'll learn

  1. The offer documents
    Say what the SID, SAI and KIM each contain and when each is updated.
  2. The NFO and the scheme's fundamental attributes
    Describe the NFO process and recognise a change in fundamental attributes.
  3. Plans and options
    Choose between direct and regular plans and among growth and IDCW options.
  4. Riskometer and potential risk class
    Read the riskometer and the debt PRC matrix.
  5. Loads, benchmarks and ongoing disclosures
    Know what is charged on entry and exit and what the AMC must disclose after you invest.

Concepts explained

SID, SAI and KIM

The offer document is the SID (one scheme) plus the SAI (whole fund). The KIM is a short version of the SID attached to every application form.

What it means

  • SID: objective, asset allocation, risks, plans, loads, expenses, benchmark.
  • SAI: sponsor, AMC, trustees, service providers, tax, legal information; updated within 3 months of the year end.
  • KIM: summary for quick reading.
Example 1: Where to look
  • Exit load → SID/KIM
  • AMC's directors → SAI
  • Tax rules (detailed) → SAI

Answer: Scheme-specific in SID; fund-wide in SAI

IDCW and growth options

In the growth option, gains stay in the NAV. In IDCW options, part of the NAV is paid out (or reinvested), and the NAV falls by that amount.

What it means

  • IDCW = Income Distribution cum Capital Withdrawal.
  • Payout is taxed at the investor's slab rate.
  • Reinvested IDCW buys more units at the ex-IDCW NAV.
Example 1: Reinvestment
  • 500 units, NAV ₹40, IDCW ₹4
  • Payout ₹2,000; ex-IDCW NAV ₹36
  • 2,000 ÷ 36 = 55.56 new units

Answer: 555.56 units worth ≈ ₹20,000

Related terms

  • Record date: date on which unit holders are identified for the IDCW

Exam tip: Choosing IDCW doesn't create extra return: it only changes how and when money reaches the investor.

Riskometer and PRC

The riskometer shows a scheme's current risk on six levels; the PRC matrix shows the maximum credit and interest rate risk a debt scheme may take.

What it means

  • Six levels: Low → Very High.
  • Assessed monthly; changes told to investors.
  • PRC: credit risk A/B/C × interest rate risk I/II/III.
Example 1: Read a PRC
  • A-I
  • Relatively low credit risk, relatively low rate risk

Answer: Typical of a liquid fund

Direct vs regular plans

Direct plans have no distributor commission and so a lower expense ratio and higher NAV; regular plans include commission.

What it means

  • Same portfolio, same fund manager.
  • Different NAVs because of different expenses.
  • Direct plans were introduced from 1 January 2013.
Example 1: Cost gap
  • Regular TER 1.8%, direct TER 0.8%
  • Gap = 1%
  • Over 15 years on ₹10 lakh at 12% gross: ≈ ₹46.5 lakh (direct, 11.2% net) vs ≈ ₹41.8 lakh (regular, 10.2% net)

Answer: About ₹4.7 lakh difference

Memory tricks

SID vs SAI'SID is the dish, SAI is the restaurant': the SID tells you about one dish (scheme), the SAI about the whole restaurant (fund, owners, kitchen rules).

SID = scheme-specific; SAI = fund-wide statutory information.

Riskometer levels'Low, Low-Mod, Mod, Mod-High, High, Very High' — six spice levels at a South Indian eatery, from curd rice to Guntur chilli.

Six riskometer levels: Low, Low to Moderate, Moderate, Moderately High, High, Very High.

20/25 rule'20 baraatis, nobody eats more than a quarter of the cake': at least 20 investors, none above 25%.

Each scheme needs at least 20 investors; no investor may hold more than 25% of the corpus.

IDCW'Apna hi paisa wapas': IDCW is your own money coming back, so the NAV drops by the same amount.

IDCW is Income Distribution cum Capital Withdrawal; NAV falls by the payout.

Entry load ban'2009 se entry free': no ticket to enter since August 2009; only an exit gate fee (exit load) may apply.

Entry loads were abolished from 1 August 2009; exit loads may still apply.

Try 3 NISM-style questions

Q1. Why is TRI a fairer benchmark than a price index?

  1. Because TRI always shows lower returns than the fund
  2. Because TRI leaves out the largest companies
  3. Because TRI is set by the AMC
  4. Because the fund also receives dividends, which TRI adds back
Show answer

Answer: (4) Because the fund also receives dividends, which TRI adds back

TRI makes a like-for-like comparison with the fund's total return.

Q2. Half-yearly unaudited financial results of schemes must be published within

  1. 6 months of the half-year end
  2. 1 week
  3. 1 year of the half-year end
  4. 1 month of the half-year end
Show answer

Answer: (4) 1 month of the half-year end

Half-yearly results within one month.

Q3. A scheme's asset allocation pattern is found in the

  1. SAI
  2. SID
  3. Account statement
  4. AMFI website's distributor list
Show answer

Answer: (2) SID

Asset allocation is scheme-specific, so it's in the SID (and summarised in the KIM).

Practise all 60 questions Free · explanations for every option · see where you go wrong

More Mutual Funds chapters (Series V-A)

Investment Landscape · Concept and Role of a Mutual Fund · Legal Structure of Mutual Funds in India · Legal and Regulatory Framework · Fund Distribution and Channel Management Practices · Net Asset Value, Total Expense Ratio and Pricing of Units · Taxation · Investor Services · Risk, Return and Performance of Funds · Mutual Fund Scheme Performance · Mutual Fund Scheme Selection · Selecting the Right Investment Products for Investors · Helping Investors with Financial Planning · Recommending Model Portfolios and Financial Plans