Summary of "NISM VA Mutual Fund Chapter 4 - Legal & Regulatory Framework | 2024 - New Syllabus | #nism #nism5a"
Summary of Finance-Specific Content from “NISM VA Mutual Fund Chapter 4 - Legal & Regulatory Framework | 2024 - New Syllabus”
Regulators & Regulatory Framework
Key Regulators in India:
- Ministry of Finance: Top-level authority.
- RBI (Reserve Bank of India): Regulates banking, money markets, treasury bills, commercial papers, certificates of deposits, and money market intermediaries.
- SEBI (Securities and Exchange Board of India): Regulates capital markets including stock exchanges, depositories, mutual funds, custodians, registrars, and transfer agents.
- IRDAI (Insurance Regulatory and Development Authority of India): Regulates insurance markets (life, health, digital insurance).
- PFRDA (Pension Fund Regulatory and Development Authority): Regulates pension funds and related markets.
Mutual funds investing in money market instruments must comply with both RBI and SEBI regulations.
SEBI was established post-1996 reforms (after the Harshad Mehta scam) to ensure investor protection and market transparency.
Mutual Fund Scheme Documentation & Investor Information
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Scheme-Related Documents: Include scheme objectives, minimum investment, entry/exit loads, fund manager details, and investment strategy (e.g., equity fund, liquid fund). These documents are updated regularly (every 6 months to annually).
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Scheme Mergers and Consolidations: When mutual fund schemes merge, objectives must remain consistent. Investors must be informed, and there should be no adverse impact on unit holders.
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New Product Launches: Mutual funds must obtain SEBI approval before launching new schemes. SEBI reviews scheme details for compliance and investor protection.
Risk Management & Portfolio Construction
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Exposure Limits:
- Equity schemes must maintain minimum equity exposure (e.g., 65% in equity for equity funds).
- Diversification is mandatory: no more than 10% investment in a single company.
- Sector/industry-specific schemes are exempt from the 10% single-company limit but must diversify within the sector.
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Portfolio Restrictions:
- No intraday trading by mutual funds; only delivery-based transactions allowed.
- Mutual funds cannot lend or take loans.
- Investment in other mutual funds limited to 5% of net assets.
- Open-ended debt funds must maintain at least 10% of corpus in liquid assets.
- Maximum 15% of net assets can be parked in short-term deposits with scheduled commercial banks.
- Investment in unlisted non-convertible debentures capped at 10% of scheme portfolio.
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Equity Linked Savings Scheme (ELSS): Must invest at least 80% in equity and equity-related instruments.
Asset Classes & Instruments
- Money Market Instruments: Treasury bills, commercial papers, certificates of deposit.
- Debt Instruments: Bonds, debentures, liquid funds.
- Equity Instruments: Shares of listed companies (e.g., Reliance, Tata, HUL, ITC, Infosys).
- REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts):
- Mutual funds can invest in REITs/InvITs.
- REITs invest in income-generating real estate; InvITs invest in infrastructure assets.
- Restrictions apply: maximum 10% investment in a single REIT/InvIT.
Fees, Loads, and Expenses
- Expense Ratio: Typically 0.3% for index funds; active funds may charge up to 2%.
- Entry Load: Not applicable currently.
- Exit Load: Charged if investors redeem units before a specified period (e.g., 0.5% to 2% if redeemed within 1 year).
Fees cover fund manager salaries, research, and operational expenses.
Net Asset Value (NAV)
- NAV represents the market price per mutual fund unit.
- It changes daily based on the market value of underlying securities.
- Cut-off time for purchase/redemption affects the NAV applicable to transactions (e.g., before 3 PM gets that day’s NAV, after 3 PM gets next day’s NAV).
Disclosure & Transparency
Mutual funds must provide transparent information on:
- Scheme performance vs. benchmark (e.g., Nifty 50 benchmark).
- Fund manager details and qualifications.
- Riskometer indicating scheme risk level.
- Fees and expenses.
Advertising must be:
- True, fair, clear, and not misleading.
- Free from exaggerated claims or guarantees.
- Inclusive of mandatory disclaimers such as: “Mutual Fund investments are subject to market risks. Read scheme related documents carefully.”
Celebrity endorsements are allowed only for promoting mutual funds at the industry level, not individual schemes.
Investor Rights & Obligations
Investor Rights include:
- Beneficial ownership of units.
- Right to receive account statements and transaction records.
- Right to switch between schemes.
- Right to nominate beneficiaries.
- Right to change distributors without objection.
- Right to lodge complaints via SEBI’s SCORES platform (scores.gov.in).
Investors can escalate unresolved complaints to SEBI.
Mutual fund units can be pledged as collateral for loans.
Termination of an Asset Management Company (AMC) requires 75% unit holder approval.
Regulatory Bodies & Codes
- SCORES: SEBI’s centralized complaint redressal system.
- AMFI (Association of Mutual Funds in India): Issues guidelines and code of conduct for intermediaries (distributors, agents, brokers).
Distributors must be registered and adhere to the code of conduct; violations can lead to cancellation of registration.
Performance Metrics & Examples
Example: Nifty 50 Index Fund
- Average return since launch: ~11.48%
- Benchmark return: ~13.70%
- Expense ratio: ~0.3%
- Total Assets Under Management (AUM): ₹1,165.99 crore
- Minimum investment: ₹5,000 lump sum; ₹1,000 SIP
Methodology / Framework Highlighted
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Portfolio Construction: Define scheme objectives, maintain minimum equity/debt exposure as per scheme type, diversify across companies/sectors (max 10% in single company), maintain liquidity norms (e.g., 10% liquid assets for debt funds), and follow exposure limits for unlisted securities and mutual fund investments.
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Risk Management: Set exposure limits to avoid concentration risk, with regular reporting and compliance with SEBI guidelines.
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Investor Transparency: Provide scheme-related documents and regular updates, ensuring clear disclosure of fees, loads, risks, and performance.
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Regulatory Compliance: Obtain SEBI approval before launching new schemes, follow advertising norms to avoid misleading investors, and ensure intermediaries adhere to codes of conduct.
Key Numbers & Timelines
- SEBI Mutual Fund Regulations Act: 1996
- ELSS minimum equity investment: 80%
- Max investment in single company: 10%
- Max investment in unlisted non-convertible debentures: 10%
- Debt fund liquid asset minimum: 10%
- Parking funds in bank deposits: max 15% of net assets
- Expense ratio range: 0.3% (index funds) to 2% (active funds)
- Exit load: typically 0.5% to 2% if redeemed before 1 year
- SCORES website: scores.gov.in
Disclaimers
- Mutual funds are subject to market risks.
- Past performance does not guarantee future returns.
- Investors should read scheme-related documents carefully before investing.
- Advertisements must include mandatory disclaimers about risks.
Mentioned Tickers / Companies / Instruments
- Stocks: Reliance, Tata, Hindustan Unilever (HUL), ITC, Infosys
- Indices: Nifty 50
- Instruments: Treasury bills, Commercial papers, Certificates of Deposit, Bonds, Debentures, REITs, InvITs
- Mutual Funds: Nifty 50 Index Fund (example used)
Presenter
- Channel: Finance with Nobita
- The presenter provides detailed explanations aligned with the NISM VA Mutual Fund certification syllabus, focusing on legal and regulatory frameworks.
This summary captures finance-specific content including regulatory bodies, mutual fund operations, portfolio restrictions, risk management, investor rights, fees, and compliance requirements as taught in the video.
Category
Finance
