10.3 Investment Plans and Services

NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

10.3 Investment Plans and Services

Key Takeaways Explain This Topic AI

Every scheme offers a regular plan and a direct plan holding the identical portfolio.

The direct plan carries a lower expense ratio because it embeds no distribution commission.

Within each plan, investors choose between the growth option and the IDCW option.

The growth option makes no distributions, allowing gains to compound and defer tax until redemption.

IDCW sub-options are payout, reinvestment and transfer, each with different tax and stamp duty consequences.

Last updated: August 2026

Two Decisions, Not One

An investor choosing a scheme makes two further choices that are frequently confused:

Which plan — regular or direct. This determines cost .

Which option — growth or IDCW. This determines whether income is distributed or accumulated .

The two are independent. All four combinations exist: regular growth, regular IDCW, direct growth, direct IDCW.

Regular Plan and Direct Plan

Regular plan Direct plan
Distributor involved Yes, ARN quoted No
Distribution commission Embedded in the expense ratio None
Expense ratio Higher Lower
Portfolio Identical Identical
Fund manager Same Same
NAV Grows more slowly Grows faster

Both plans hold exactly the same securities managed by the same person. The only difference is the expense ratio, and because expenses accrue daily the NAVs diverge steadily.

Direct plans were introduced in 2013 . The determinant of which plan applies is whether a distributor code is quoted , not the medium used — an investor transacting on an AMC website while quoting an ARN is in the regular plan.

Growth Option

No income is distributed. All gains remain in the scheme and are reflected in a rising NAV.

Units held remain constant; NAV grows
No tax until redemption , and then at capital gains rates
Gains compound within the scheme

For most investors who do not need periodic cash, this is the appropriate option, and the reasoning is set out in section 9.3: for a high-slab investor in an equity-oriented scheme, distributions taxed at 30% compare unfavourably with long-term capital gains at 12.5%.

IDCW Option

Income is distributed from realised gains and distributable surplus, and NAV falls by the amount distributed.

Sub-option Mechanism Consequences
IDCW payout Cash credited to the bank account Taxable at slab; TDS above INR 10,000

IDCW reinvestment Units issued at the ex-distribution NAV Taxable at slab and stamp duty on units issued, with no cash received

IDCW transfer Distribution invested into another scheme of the same fund house Taxable at slab; new units in the target scheme

IDCW reinvestment is the least attractive combination and is chosen surprisingly often. The investor receives nothing in hand, pays income tax on the distribution, and pays stamp duty on the units issued against it. If accumulation is the objective, the growth option achieves it without either charge .

Systematic Services

Beyond plans and options, schemes offer transaction services covered fully in section 10.10:

Systematic Investment Plan (SIP) — invest a fixed amount at fixed intervals
Systematic Transfer Plan (STP) — move a fixed amount periodically from one scheme to another
Systematic Withdrawal Plan (SWP) — redeem a fixed amount periodically
Dividend Transfer Plan — route distributions from one scheme into another
Trigger facilities — act automatically on a defined event, such as a value or date threshold
Other Services
Nomination — up to ten nominees may be registered per folio
Online access — transaction and portfolio viewing through AMC, RTA and platform channels
Consolidated Account Statement — across all funds linked to the PAN
Pledge or lien — units may be pledged as security for a loan, with the lien marked in the records
Demat holding — units may be held in dematerialised form
Switch — move between schemes or options, remembering that it is a redemption for tax purposes
Advising on Plan and Option

The practical guidance a distributor should be able to give:

Investor situation Suggested combination
Accumulating for a long-term goal, no cash need Growth
Needs regular cash from the portfolio Growth with a systematic withdrawal plan
Wants income and is in a low tax slab IDCW payout is defensible

Wants accumulation but selected IDCW reinvestment Move to growth; the reinvestment option costs tax and stamp duty for no benefit

Self-directed, has time and temperament Direct plan
Wants ongoing advice and service Regular plan, with the cost disclosed

The recommendation that most often needs correcting is IDCW reinvestment, and the correction costs the investor nothing but a switch instruction.

How the Plan Is Actually Determined

The plan is not something the investor ticks and the AMC honours. It is derived from the form:

ARN quoted in the distributor block, with EUIN or an execution-only declaration — the application is processed under the regular plan .

ARN left blank — the application is processed under the direct plan , whatever the investor wrote in the plan field.

This mechanical rule produces two recurring problems. An investor who intends to invest direct but writes an old distributor's ARN out of habit lands in the regular plan. An investor who intends to route business through a distributor but submits the form without the ARN lands in the direct plan, and the distributor is not paid on that folio.

Moving Between Plans and Options Is a Redemption

Switching from regular to direct, or from IDCW to growth, is executed as a redemption from one plan or option and a fresh purchase into the other . Three consequences follow, and all three are examinable:

Capital gains arise on the units being switched out, at the rate applicable to the scheme type and holding period.

Exit load may apply if the units have not completed the load period.

A new holding period begins for the units acquired, and stamp duty at 0.005% is charged on the purchase leg.

A switch is therefore not a free administrative correction. Where the investor's position is large and the gain material, the sensible advice is often to direct future contributions to the preferred plan or option and leave the existing units undisturbed.

Liquidity Services

Two facilities are worth knowing by name. The Instant Access Facility permits online instant redemption from a liquid scheme of up to INR 50,000 or 90% of the folio value, whichever is lower , per day per scheme per investor, available to resident individual investors, with units redeemed at the lower of the previous day's NAV and the prospective NAV. Trigger facilities automate an action — a switch, a redemption or a rebalance — when a stated index level, NAV level or date is reached, which removes the need for the investor to be watching.