NISM/Certification/Series-II-B: RTA-MF/2009/4 dated August 3, 2009

National Institute of Securities MarketsCommuniqué/Press ReleaseNISM-Series-II-B: Registrars to an Issue and Share Transfer Agents – Mutual Fund Certification ExaminationNISM/Certification/Series-II-B: RTA-MF/2009/4 dated August 3, 2009

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:

1. dealing or interacting with the investors or issuers;
2. dealing, collecting or processing applications from the applicants;
3. dealing with matters relating to corporate actions, refunds or redemptions, repurchase of securities, etc;
4. handling redressal of investors’ grievances;
5. responsible for internal control and risk management;
6. responsible for any compliance of securities laws;
7. responsible for any other activity performed under the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993.

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.  G.SethuOfficer on Special DutyNational Institute of Securities Markets 

Copy to:

1. Executive Director, MIRSD, SEBI
2. Executive Director, LAD, SEBI
3. Executive Director, DNPD, SEBI
4. CEO, BSE
5. CEO, MCX-SX
6. CEO, NSE

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

 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. On successful completion of the examination the candidate should:

• Know the basics of securities and securities markets
• Understand broadly the role and functions of the RTAs in the mutual fund issuance and transaction process.

• Know the regulatory environment in which the RTAs operate in India.

 Functional Coverage

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.

 Examination Specifications

 This is a computer-based examination with multiple choice questions.

• The Examination will consist of 100 questions of 1 mark each adding to 100 marks.
• The examination should be completed in 2 hours.
• There shall be negative marking of 25% of the marks assigned to a question.
• The passing score for the examination will be 50 marks.

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

 Syllabus Outline with Weightages 

Unit 1	Introduction to Securities	3%
Unit 2	Characteristic of Equities	7%
Unit 3	Characteristics of Other Securities	3%
Unit 4	Characteristics of Debt Securities	7%
Unit 5	Basics of Mutual funds	6%
Unit 6	SEBI- Role and Regulations ­­	4%
Unit 7	Structure and organization of mutual funds	10%
Unit 8	Mutual fund products	15%
Unit 9	Applicable NAV and cut-off time regulations	10%
Unit 10	Purchase, redemption and systematic transactions	20%
Unit 11	Investor and distributor processes and payouts	15%

Annexure- IINISM-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 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.

• 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