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13.3 Scheme Selection Based on Investment Strategy

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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

13.3 Scheme Selection Based on Investment Strategy

Key Takeaways Explain This Topic AI

Active management seeks to beat a benchmark; passive management seeks to replicate it.

Value, growth, quality and momentum are distinct equity styles that lead at different points in a cycle.

Accrual and duration are the two principal debt strategies.

Concentrated portfolios raise the dispersion of outcomes in both directions.

Strategy must match the investor's horizon and tolerance for periods of underperformance.

Last updated: August 2026

Active versus Passive

  • Active Passive
  • Objective Beat the benchmark Replicate the benchmark
  • Expense ratio Higher Much lower; BER capped at 0.90% for index funds and ETFs
  • Success measured by Alpha, information ratio Low tracking error
  • Depends on Manager skill Execution quality
  • Outcome dispersion Wide Narrow, near the index less costs

The case for passive is strongest where the market segment is efficient and widely researched, so that consistent outperformance is hard, and where the cost difference is large relative to the achievable alpha. Indian large cap is the segment where this argument is most often made.

The case for active is strongest in less efficiently priced segments — mid and small caps, and credit-sensitive debt — where research can genuinely add value, and where an index may include companies a manager would decline to own.

Many portfolios sensibly combine both: passive exposure in the efficient core, active exposure where research plausibly earns its fee.

Equity Styles

  • Style Approach Leads when
  • Value Buy companies priced below intrinsic worth Valuations mean-revert; after excesses unwind
  • Growth Buy companies with high expected earnings growth Growth is scarce and rewarded
  • Quality Buy consistent, low-leverage, high-return businesses Markets are stressed or uncertain
  • Momentum Buy what has been performing Trends persist
  • Blend Combine approaches Reduces style dependence

The essential point for a distributor: styles go out of favour for years at a time. A value manager lagging for three years during a growth-led market has not necessarily failed; the style was out of favour. Judging any style-driven manager over less than a full cycle is unreliable.

This is exactly what the Tier 2 benchmark exists to reveal. A value scheme lagging its broad Tier 1 index while beating its Tier 2 value index has handled a difficult style environment well — a conclusion invisible from the headline number alone.

Concentration

Approach Characteristics

Concentrated — for example a focused fund with up to 30 stocks Higher conviction; wider dispersion of outcomes in both directions

Diversified — 50 to 70 stocks Smoother; individual selection matters less

Concentration amplifies both skill and error. It is appropriate for an investor with a long horizon and genuine tolerance for periods of significant underperformance, and inappropriate as a first equity holding.

SEBI's revised categorisation raised the minimum equity allocation for focused schemes to 80% and applies a 50% portfolio overlap cap with other equity schemes of the same AMC for several strategy categories, with monthly overlap disclosure — which makes it possible to check whether a supposedly distinctive scheme genuinely holds something different.

Debt Strategies

  • Strategy Approach Principal risk
  • Accrual Hold to maturity, earn the coupon Credit risk
  • Duration Position duration for expected rate movements Interest-rate risk
  • Roll-down Hold a defined maturity profile that shortens over time Both, in reducing measure
  • Credit Hold lower-rated paper for higher yield Credit risk, concentrated

An accrual strategy suits an investor who wants predictability and can hold to the scheme's maturity profile. A duration strategy is a call on interest rates and produces meaningful volatility; it suits an investor who understands that a long duration fund can fall several percent in a quarter.

The examinable caution: a debt scheme showing a yield to maturity well above its peers is describing its risk, not forecasting its return. The rating profile in the same fact sheet shows whether it comes from credit or from duration.

Matching Strategy to the Investor

  • Investor Suitable strategy
  • First-time equity investor Diversified active or a broad index fund; avoid concentration and single styles
  • Long horizon, tolerant of underperformance A style-driven or concentrated scheme is defensible
  • Cost-sensitive, wants market returns Passive in the efficient core
  • Needs predictable debt returns Accrual or roll-down, high credit quality
  • Has a view on rates and can bear volatility Duration strategy, sized appropriately
  • Checking That the Strategy Is Actually Being Followed

The stated strategy and the observed portfolio occasionally diverge. Three checks:

Market-capitalisation split — is a flexi cap scheme genuinely flexible, or effectively a large cap fund?

Portfolio turnover — does it match the stated approach? A long-term value manager with turnover above 2.0 is not doing what the strategy describes.

Portfolio overlap — with the AMC's other schemes, now disclosed monthly for several categories. High overlap means the distinctive strategy is not producing a distinctive portfolio.

These take a few minutes with a fact sheet and are far more informative than a performance ranking.