NISM Series II B Short Notes – Part 6 (Final): Financial Transactions, Non-Financial Transactions & Complete Exam Revision

NISM Series II B Short Notes – Part 6 (Final): Financial Transactions, Non-Financial Transactions & Complete Exam Revision

Welcome to the final part (Part 6) of our 6-part NISM Series II B short notes series for the Registrars to an Issue & Share Transfer Agent – Mutual Funds certification exam. In this concluding post, we cover the last two chapters — Financial Transactions (application form, purchase, redemption, SIP, STP, SWP, switches) and Non-Financial Transactions (change of address, bank details, name change, investor complaints via SCORES). We also include a complete revision summary of all 6 parts for your final exam preparation.

Quick Answer: What is a Folio in mutual funds? A folio is a unique account number assigned to an investor by the R&T Agent. It is similar to a bank account — one investor can hold units across multiple schemes of the same fund house within a single folio. The folio is used to identify the investor for all transactions.

Chapter 13 – Financial Transactions Application Form

The application form is the first point of contact between an investor and a mutual fund. Key points:

• Information from the application form is entered into the R&T (Registrar & Transfer Agent) records.
• Each investor is assigned a folio number. A folio is like a bank account created for a specific fund house and its investor.
• One investor can hold units from multiple schemes of the same fund house within a single folio.
• Folio numbers are assigned by R&T Agents.
• Application form fields are largely standardized across all mutual funds because of mandatory SEBI requirements.

Transaction Slip

After the first investment (fresh purchase), investors can use a transaction slip for all subsequent transactions. Key features:

• Contains the folio number to identify the investor in the system.
• Can capture multiple types of transactions — redemptions, additional purchases, switches, and even non-financial transactions like change of address or bank details.
• Must be signed as per the mode of holding of the folio (single, joint, or either or survivor) to be valid.

Purchase Transactions Types of Purchase Transactions

Note: An existing investor opening a new folio and investing is treated as a fresh purchase, not an additional purchase.

Statement of Account (SoA)

A Statement of Account (SoA) is proof of investment for the investor. R&T agents dispatch SoAs on behalf of AMCs every time a transaction occurs in a folio.

Consolidated Account Statement (CAS)

• A CAS must be sent for each calendar month by post or email before the 10th of the succeeding month.
• If an email address is registered with the fund, the CAS is sent only by email.
• Investors are identified across mutual funds by their PAN number for the purpose of CAS.
• If there are no transactions in a folio for six consecutive months, the CAS is sent at the end of each such six-month period (half-yearly basis).

Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) is a facility to make periodic, recurring investments in a mutual fund scheme — similar to a recurring deposit with a bank. Key points:

• SIP is a series of purchase transactions at pre-defined periodic intervals (monthly, quarterly, half-yearly, or annual).
• Investors commit to a fixed amount over a chosen investment tenure.
• AMCs offer specific dates for SIP deductions.
• Applicable NAV for SIP: The NAV on the SIP installment date. If that date is a holiday, the NAV of the next business day applies.

Payment Instruments for SIPs

Important: Mandates for direct bank account debit require signatures of all bank account holders as per the account's mode of operation (joint / either or survivor).

Redemption

Redemption is the process by which investors withdraw their investments from a mutual fund. Key points:

• In open-ended funds, on redemption, units are extinguished (cancelled) and not re-issued. Redemption reduces the fund's unit capital.
• In closed-end funds, redemption occurs only on the maturity date. It may be allowed during specified windows before maturity as mentioned in the offer document.
• Investors can specify redemption in unit terms (number of units) or rupee amount.

Exit Load

Exit load is a charge deducted when an investor redeems units. It reduces the effective redemption price received by the investor. If redemption is specified in unit terms, exit load reduces the redemption value. Exit load is designed to discourage very short-term or frequent redemptions.

Switch Transactions

A switch is a single transaction that combines a redemption from one scheme and a simultaneous purchase into another scheme of the same mutual fund.

• Source Scheme — The scheme from which money is switched out (treated as redemption)
• Target Scheme — The scheme into which money is switched (treated as purchase)
• Switches can also be between different options (e.g., dividend payout to growth) within the same scheme.
• Both legs — switch-out and switch-in — are processed at their respective applicable NAVs.
• Tax implications: Each switch transaction is subject to capital gains tax (short-term or long-term) in the hands of the investor based on the holding period of the units being switched out.

Systematic Transfer Plan (STP)

A Systematic Transfer Plan (STP) is a periodic redemption from one mutual fund scheme combined with an investment into another scheme of the same mutual fund house.

• Allows unit holders to transfer fixed sums periodically from one scheme (e.g., liquid fund) to another (e.g., equity fund).
• Units redeemed/purchased at applicable NAV on the STP date. If the STP date falls on a holiday, the next business day's NAV applies.

Systematic Withdrawal Plan (SWP)

A Systematic Withdrawal Plan (SWP) is a facility for periodic, recurring redemptions from a mutual fund scheme.

• Allows unit holders to withdraw fixed amounts at regular intervals (monthly, quarterly, etc.).
• Useful for investors who need a regular income stream from their investments.
• Redemptions happen at applicable NAV on the SWP date. If a holiday, next business day's NAV applies.

Chapter 14 – Non-Financial Transactions

Non-financial transactions involve updating or changing personal information in the investor's folio. They do not impact the NAV or unit balance of the investor.

Change of Address (CoA)

• An investor can change their registered address/contact details by applying to the KRA using a KYC update form.
• Must provide new address, PAN details, and documentary proof of the new address.

Change of Bank Details (CoB)

• Providing bank account details is mandatory when investing in a mutual fund.
• As per SEBI regulations, dividend and redemption proceeds are payable only to the investor's registered bank accounts.
• Investors can register multiple bank accounts and set a default account for redemption payments.
• Bank details can be added, updated, or deleted using the prescribed format for change in bank details.

Change in Dividend Option

• Investors can switch between dividend payout and dividend reinvestment options using a transaction slip or a letter to the mutual fund.
• There is no financial implication in changing the dividend option because the NAV for both dividend payout and reinvestment is the same.

Change in Name (Individual Investors)

• Investors can request a name change (common case: women changing maiden name to married name) by submitting a letter to the mutual fund.

Minor Becoming Major

• When a minor unit holder turns 18, the process is:
  1. Obtain a new PAN card
  2. Complete KYC process with KRA
  3. Update information with the bank
  4. Inform the AMC of the change (done after the above steps)

Change in Corporate Name or Status

• Corporate status change (e.g., private limited to public limited company) or name change (due to merger, acquisition, or board decision) requires updating investment records from old name to new name.

Change in Authorized Signatories

• Institutional investors must update authorized signatories when officials change, are transferred, or leave the organization.

Investor Complaints & SCORES

• AMCs must report all investor complaints received to SEBI periodically in a prescribed format.
• SEBI's online investor grievance mechanism is called SCORES (Securities and Exchange Board of India Complaints Redress System), available at www.scores.gov.in.
• Investors can use SCORES to register complaints against AMCs and other SEBI-regulated intermediaries.

COMPLETE EXAM REVISION — All 6 Parts Summarized Part 1: Introduction to Securities & Equity Shares

• Equity capital = permanent; no fixed return; no security
• Debt capital = borrowed; fixed period; fixed interest
• Authorized Capital (max in MOA) → Issued Capital → Paid-up Capital
• Preference shares: fixed dividend; priority over equity in dividends and liquidation
• Rights issue: existing shareholders offered new shares proportionately
• Dividend yield is inversely related to share price

Part 2: Other Securities & Debt Securities

• ADR = US listed; GDR = Non-US listed; FCCB = forex convertible debt
• T-Bills: 91/182/364 days; zero coupon; issued by RBI auction
• CBLO: collateral = G-Secs; managed by CCIL; 1 day to 1 year
• CD = transferable bank deposit; CP = 7 days to 1 year company paper
• Current Yield = Coupon / Market Price × 100; YTM = rate equating discounted cash flows to price
• Credit rating agencies must be registered with SEBI (Credit Rating Regulations, 1999)
• Mutual fund NAV = Net Assets ÷ Total Units; AUM = portfolio market value

Part 3: SEBI Regulations & Mutual Fund Products

• SEBI established April 12, 1992 under SEBI Act, 1992
• R&T Agent Cat I = Rs.50L net worth; Cat II = Rs.25L
• MF 3-tier: Sponsor → Trust/Trustees → AMC
• Regulation: SEBI (MF) Regulations, 1996
• Riskometer: 5 levels (Low to High)
• ELSS: Section 80C; Rs.1.5L deduction; min 80% equity; 3-year lock-in
• Gold ETF: 1 unit ≈ 1 gm physical gold; demat; real-time trading
• FoF: taxed as debt fund regardless of underlying

Part 4: Tax Aspects & Operational Concepts

• Equity-oriented fund: minimum 65% equity
• Three options: Growth / Dividend / Dividend Reinvestment
• NFO price: Rs.10; inception date = allotment date; NAV starts next day
• Time stamping: 3 impressions; determines applicable NAV
• Rs.2 lakh+ non-liquid fund purchase & all liquid fund purchases: NAV = date of fund realization
• NSE platform = MFSS; BSE platform = BSE StAR

Part 5: Investors, KYC & Banking Operations

• PAN exemption: <Rs.50,000 annual investment
• KYC done once, valid everywhere; managed by KRA
• Max 3 joint holders per folio
• NRE = foreign currency; fully repatriable | NRO = rupee; USD 1M/year repatriation
• OCBs: prohibited from MF investment
• QFIs: only purchase & redeem; no SIP/SWP/transfer/switch
• FATCA: self-certification required from all MF investors
• ASBA: funds blocked in account; debited only on allotment
• NACH: centralised ECS replacement; by NPCI

Part 6: Financial & Non-Financial Transactions

• Folio = unique account per investor per AMC; assigned by R&T
• Fresh purchase = new investor or new folio; Additional purchase = existing unit holder, same folio
• CAS sent before 10th of next month; half-yearly if no transactions for 6 months
• SIP NAV = installment date or next business day if holiday
• Open-end redemption: units extinguished (cancelled); unit capital reduces
• Closed-end redemption: only at maturity
• Switch = redemption from source scheme + purchase in target scheme; subject to capital gains
• STP: inter-scheme transfer (within same AMC); SWP: periodic partial withdrawal
• Change of address: only through KRA KYC update form
• Dividend & redemption: paid only to registered bank accounts
• Investor complaints: SCORES at www.scores.gov.in

NISM Series II B Exam Pattern – Quick Reference

Complete Your Exam Preparation at PassNISM.in

• Part 1 – Introduction to Securities, Equity & Debt Capital
• Part 2 – Other Securities, Debt Instruments & Mutual Fund Basics
• Part 3 – SEBI Regulations, MF Structure & Products
• Part 4 – Tax Aspects & Operational Concepts (NFO, NAV, SIP)
• Part 5 – Investors in MF, KYC, Banking Operations
• NISM Series II B Free Mock Test – Practice 100 Questions
• NISM Series II B Exam Fees & Registration
• NISM Study Material PDF Download
• Complete List of NISM Certification Courses
• Mutual Fund Distributor Exam – NISM VA Guide

This is Part 6 of 6 — the final post in our complete NISM Series II B Short Notes series. These notes cover the entire NISM II B exam syllabus in a simple, exam-focused format. For mock tests, question banks, and more exam preparation resources, visit PassNISM.in — India's trusted NISM exam preparation platform. All the best for your exam!