Update ‐ 1

to

Work Book for Certifying Examination for Mutual Fund Distributors

October 25, 2010

Kindly note the following updates. Candidates attempting the examinations from December 1, 2010
will need to answer questions in the examination on the basis of this update, read along with the
prescribed Workbook.

1) Page 56, Para 3.3.1, Service Standards Mandated for a Mutual Fund towards its Investors
Units of all mutual fund schemes held in demat form are freely transferable.
Only in the case of ELSS Schemes, free transferability of units (whether demat or physical) is
curtailed for the statutory minimum holding period of 3 years.

2) Page 59, Para 3.3.2, Other Rights of Investors

SEBI has prescribed a detailed format for annual reporting on redressal of complaints received
against the mutual fund (including its authorised persons, distributors, employees etc.). The
report categorises different kinds of complaints. For each complaint category, the mutual fund
has to report on the number of complaints, the time period in which they were resolved, and if
not resolved, for how long they remain unresolved.
The trustees have to sign off on this report, which is to be disclosed in AMFI website, the website
of the individual mutual fund, and its Annual Report.

The merger or consolidation of two or more schemes has so far been considered as a change in
the fundamental attributes of the schemes. It has now been provided that such merger or
consolidation shall not be considered a change in the fundamental attribute of the surviving
scheme if the following conditions are met:
a) There is no other change in the Fundamental attributes of the surviving scheme i.e. the
scheme which remains in existence after the merger.
b) Mutual Funds are able to demonstrate that the circumstances merit merger or consolidation
of schemes and the interest of the unit holders of surviving scheme is not adversely affected.

3) Page 174, Para 6.1.6, Recurring Expense Limits

The limits for Fund of Funds have been revised. The scheme can choose between the following:
a) Management Fee limit of 0.75% of net assets; or
b) Management Fees plus Scheme Running Expenses plus Charges levied by underlying
schemes (weighted average of total expense ratio of underlying schemes) – limit of 2.50% of
net assets.

Please note: Different versions of workbook may have slightly different page numbers from those
mentioned here.
 The Scheme Information Document is to mention which of these limits is being adopted for the
scheme.

Schemes existing as on July 29, 2010 can adopt either of the above limits with the permission of
trustees, and after giving existing unit‐holders the option of exiting from the scheme at the full
NAV.

4) Page 196, Para 7.2, KYC Requirements for Mutual Fund Investors
The following investors have to be KYC compliant, irrespective of the investment value:
• Non‐individual investors i.e. companies, partnership firms, trusts, HUF etc.
• Non‐Resident Indians
• Investors coming through channel distributors
The benefit of exemption from KYC documentation for investment value upto Rs50,000 is
therefore not available for the above‐mentioned categories of investors.

SEBI is keen that investors have unrestricted access to AMCs, and thus ensure that AMCs can
execute all financial and non‐financial transactions of investors. Therefore, it has been
stipulated that:
a) All new folios/ accounts shall be opened only after ensuring that all investor‐related
documents including account opening documents, PAN, KYC, PoA (if applicable), specimen
signature are available with AMCs/RTAs and not just with the distributor.
b) For existing folios, AMCs are responsible for updation of the investor related documents
including account opening documents, PAN, KYC, PoA (if applicable), specimen signature by
November 15, 2010.

5) Page 205, Para 7.6.4, Payment Mechanism for Purchase / Additional Purchase
Cheques accompanying the investment application are to be signed by the investor. Third‐party
cheques are not accepted.

6) Page 260, Use of Derivatives (under Para 8.3.1, Risk in Mutual Fund Scheme)
Mutual Funds are barred from writing options (they can buy options) or purchasing instruments
with embedded written options.

Please note: Different versions of workbook may have slightly different page numbers from those
mentioned here.
 Corrigendum -1
to

Work Book for Certifying Examination for Mutual Fund Distributors

August, 2010

1. Page 3 – Read third para as:

Mutual funds can also act as a market stabilizer, in countering large inflows or outflows from
foreign investors. Mutual funds are therefore viewed as a key participant in the capital market of
any economy.

2. Page 7 – Read first heading as ‘Affordable Portfolio Diversification’

3. Page 8 – Read first para as:

Liquidity

At times, investors in financial markets are stuck with a security for which they can’t find a buyer
– worse, at times they can’t find the company they invested in! Such investments, whose value
the investor cannot easily realise in the market, are technically called illiquid investments and
may result in losses for the investor.

4. Page 11 – before ‘1.2 Type of Funds’ Read the following:

No control over costs

All the investor's moneys are pooled together in a scheme. Costs incurred for managing the
scheme are shared by all the Unit‐holders in proportion to their holding of Units in the scheme.
Therefore, an individual investor has no control over the costs in a scheme.
SEBI has however imposed certain limits on the expenses that can be charged to any scheme.
These limits, which vary with the size of assets and the nature of the scheme, are discussed in
Chapter 6.

5. Page 22 – before ‘1.2.11 Fund of Funds’ read the following:

In such schemes, the local investors invest in rupees for buying the Units. The rupees are
converted into foreign currency for investing abroad. They need to be re‐converted into rupees
when the moneys are to be paid back to the local investors. Since the future foreign currency
rates cannot be predicted today, there is an element of foreign currency risk.
As will be clear from Para 8.1.3 in Chapter 8, investor's total return in such schemes will depend
on how the international investment performs, as well as how the foreign currency performs.
Weakness in the foreign currency can pull down the investors' overall return.

Please note: Different versions of workbook may have slightly different page numbers from those
mentioned here.
6. Page 35 ‐ before the bullet point "Although the AMC manages the schemes, custody ..." read the
following:
• The trustees execute an investment management agreement with the AMC, setting out its
responsibilities.

7. Page 35 read footnote as:

The names of any market entities used in this workbook are for the purpose of illustration only.
No other meaning should be construed in the choice of illustrations. NISM does not recommend
any market entity or any product discussed in this workbook.

8. Page 42 – Read the following as a new paragraph (last paragraph) as:

The custodian also tracks corporate actions such as dividends, bonus and rights in companies
where the fund has invested.

9. Page 59 – before para 3.1.2, read the following as a new para:

Anyone who is aggrieved by a ruling of SEBI, can file an appeal with the Securities Appellate
Tribunal.

10. Page 56 – Read last major bullet point as:

NAV and Re‐purchase Price are to be updated in the website of AMFI and the mutual fund

11. Page 81 ‐ Read 9th bullet point as:

NAV and Re‐purchase Price is to be updated in the website of AMFI and the mutual fund

12. Page 85 – Read last bullet point as:

AMC prepares the Offer Document for the NFO. This needs to be approved by the Trustees and
the BoD of the AMC

13. Page 223 – Para 7.8.5 – At the end of 2nd para, read the following text as new paras:
It stands to reason that if the market continues to go up after the trigger is auctioned, the
investor loses on the further gain.
Similarly, an investor can set a trigger to transfer moneys into an equity scheme when the market
goes down, say, 20%. This would help the investor conveniently increase his position in equities,
when the market goes down 20%.

14. Page 291 – Ignore the first sentence ‘While deciding on the scheme cat’

Please note: Different versions of workbook may have slightly different page numbers from those
mentioned here.