Understanding the CFA Curriculum

CFA_Curriculum

A lot many CFA L1 aspirants are curious to know the CFA curriculum. While the curriculum is available over the internet and CFA homepage, the details around the same is missing. So to get you folks started, let me tell you that the entire CFA curriculum is divided into 10 modules each of which has its own weightage, relevance and difficulty level. While I intend to detail out each of these modules separately in my later blogs, the key objective of this one is to lay out the macro level understanding of the CFA Curriculum 🙂

All in all CFA has the following 10 modules. The weightage of each of them is as given below.

CFA_Curriculum_Weightage

CFA_Curriculum_Weightage

Let me quickly walk you through each of these modules and I promise to revisit each of these modules separately in a much broader detail later 🙂

1) Ethics and Professional Standards: This is THE most important section in CFA L1. Not only does it carry a hefty 15% weightage, but also it is one of the sections which can make or break your final results in CFA L1. CFA Institute places a lot of importance on ensuring that their candidates understand ethical best practices and any marks of <50% in this section can make your chances of passing L1 very very bleak 🙁

2) Quantitative Methods: Bit hard even for the junta with engineering background. The statistics part is bit tricky and it can really get onto your nerves if you proceed in this section without understanding the concepts! But Fikar not, if you join 360DegreeCFACoaching (admin@360degreecfacoaching.com), I will ensure you have your fundamentals intact. Without much boasting, let us proceed to the next module 🙂

3) Economics: One of the easier sections. The concepts here are very practical and are easy to crack in the first read itself. I would rather ask you to focus on other sections and prepare this section right in the end.

4) Financial Reporting and Analysis (FRA): This module forms the backbone of the entire CFA curriculum. It not only highlights the ways in which companies report their financial reports but also gives you a broad level understanding of book-keeping, market standards and financial frauds. The importance of this section only grows with the increasing levels, such that the weightage of the same in CFA L2 exam is 35% !!

I owe my understanding of FRA to Prof Kanagraj who taught us  accounting at IIM Indore. He had this unique way of dealing this section with transaction tables instead of those confusing T-tables. At 360DegreeCFACoaching we teach you FRA end to end with transaction tables which are so easy to understand and is sure to stick in your head for a very long time.

5) Corporate Finance: This module primarily deals with how capital is allocated to various projects in a particular firm. The concepts of NPV, IRR, PI, Payback period are few things which form the building blocks of this module. Easy to understand and quite easy to relate to the actual industry scenario. Net-net easy 8% for you here 🙂

6) Portfolio Management: Have you ever wondered how an equity portfolio manager manages to pick just the right set of stocks to make money for his clients? Portfolio management is that module which answers all your queries around the same. It gives you behind-the-scene perspective of a ‘Life of a Portfolio Manager’. A bit difficult to understand at first, but once you practice a bit it really is not that hard to grasp. For all you who want to get into the role of an equity analyst or a portfolio manager, this is one section you want to ace.

7) Equity Investments: As i write this blog today, Sensex is at its all time high and has closed at 28500+. How do you think this index value has been calculated? How do you think Infosys stock has been valued at 2454.16? Are these numbers being driven by the whims and fancies of a market regulator or there is some science to it? This module points to the latter and tells you exactly how a particular stock or for that matter a particular index is valued. This module also needs to be seen from a perspective of context setting for your Level 2 exam. This section has immense importance and is valued at 30% in your L2 exam. Better still for all the equity analyst profiles, this is one section you need to fall in love with 🙂

8) Fixed Income Investments: Fixed incomes primarily deal with bonds, their valuation and their sensitivity to market parameters. For those of you who are new to the world of finance, Bonds are nothing but a piece of paper which gives you fixed income periodically (either quarterly, semi-annually or annually) and returns back the par value after the maturity (which is anywhere between 3-20 years). The duration part in this module, which deals with the sensitivity of the bond instrument is a bit tough to grasp and might take some bit of practise and deeper understanding 🙂

A gud way to tackle this section would be to split the module in two parts: 1) Before Duration and 2) After Duration. The first part itself will tackle gud 50% (~6% of the overall marks) of the module 🙂

9) Derivatives: Not very high in weightage (only 5%) but is a stepping stone for CFA L2 preparation. The derivatives part in Level 2 is quite tricky and the concepts in L1 are immensely useful. This module is pretty interesting and is sure to give you an Intellectual Orgasm 🙂

10) Alternative Investments: Deals with investments in financial instruments like Real estate, PE etc. With just 3% weightage it is completely insignificant and can be relegated to the fag end of your preparation. When I wrote CFA L1 exam back in 2010, there were 6 questions in this section and were quite easy to handle.

So that’s it for now. In my next 10 blogs I promise to deep dive into each of these 10 modules and give you detailed insights into each of these modules 🙂

For any unanswered queries feel free to drop your comments below 🙂