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NISM Series V-A study materials
NISM Series V-A study resources

NISM Series V-A practice questions

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Question 1Introduction to the Securities Market

A company raises fresh capital by issuing new shares to investors for the first time. This transaction is executed in the:

  1. Secondary market
  2. Forex market
  3. Primary market Correct answer.
  4. Money market

Explanation

The primary market is the segment where new securities are issued for the first time and the issuing company receives the proceeds. Trading in already-issued securities between investors takes place later in the secondary market.

Question 2Introduction to the Securities Market

SEBI was given statutory status with powers to regulate the securities market by an Act of Parliament passed in the year:

  1. 1996
  2. 2000
  3. 1988
  4. 1992 Correct answer.

Explanation

SEBI was constituted in 1988 as an administrative body, but it became a statutory regulator only through the Securities and Exchange Board of India Act, 1992. That Act gave it the legal authority to regulate and develop the securities market.

Question 3Introduction to the Securities Market

Which entity holds the securities of investors in electronic form in India?

  1. The stock exchange
  2. A depository Correct answer.
  3. The merchant banker
  4. The clearing bank

Explanation

A depository, such as NSDL or CDSL, holds securities in dematerialised electronic form. Investors open an account with the depository through an intermediary called a depository participant.

Question 4Introduction to the Securities Market

Which stock exchange is recognised as the oldest in Asia?

  1. National Stock Exchange
  2. Calcutta Stock Exchange
  3. Ahmedabad Stock Exchange
  4. Bombay Stock Exchange Correct answer.

Explanation

The Bombay Stock Exchange traces its origins to 1875, which makes it the oldest stock exchange in Asia. The National Stock Exchange was set up much later, in the early 1990s.

Question 5Introduction to the Securities Market

A person who buys equity shares of a company becomes:

  1. A part owner of the company Correct answer.
  2. A lender to the company
  3. A guarantor of the company's debts
  4. A secured creditor of the company

Explanation

Equity shares represent ownership capital, so a shareholder is a residual owner of the company. The shareholder bears the business risk and is paid dividends only after all other claims are met.

Question 6Introduction to the Securities Market

A debenture is best described as:

  1. A derivative contract
  2. A debt instrument carrying a fixed obligation Correct answer.
  3. A short-term money market instrument
  4. An ownership stake in a company

Explanation

A debenture is a debt security under which the issuer is obliged to pay interest and repay principal as per the terms of the issue. The holder is a creditor of the company rather than an owner.

Question 7Introduction to the Securities Market

In a public issue, an 'offer for sale' means that:

  1. The promoter pledges shares with a bank for a loan
  2. The company issues fresh shares and retains the proceeds
  3. Existing shareholders sell their stake to the public Correct answer.
  4. Shares are allotted only to the company's employees

Explanation

In an offer for sale, existing shareholders offload their holdings to the public and the sale proceeds go to those selling shareholders. The company itself issues no fresh shares and receives no new capital.

Question 8Introduction to the Securities Market

Under the T+1 settlement cycle in Indian equities, a trade executed on Monday is settled on:

  1. The next working day Correct answer.
  2. One week later
  3. Two working days later
  4. The same day

Explanation

In a T+1 cycle, settlement of funds and securities takes place on the first working day after the trade date. Indian equity markets moved to this shorter cycle to reduce counterparty and market risk.

Question 9Introduction to the Securities Market

A SEBI-registered intermediary that executes buy and sell orders in securities on behalf of clients is a:

  1. A registrar to an issue
  2. A stock broker Correct answer.
  3. A debenture trustee
  4. A merchant banker

Explanation

A stock broker is registered with SEBI to buy, sell or deal in securities on behalf of clients through a recognised stock exchange. The contractual and margining relationship for trading runs between the client and the broker.

Question 10Introduction to the Securities Market

Foreign Portfolio Investors are granted registration and are regulated in India by:

  1. The Insurance Regulatory and Development Authority
  2. The Reserve Bank of India
  3. The Pension Fund Regulatory and Development Authority
  4. The Securities and Exchange Board of India Correct answer.

Explanation

Foreign Portfolio Investors are registered and regulated by SEBI under the SEBI (Foreign Portfolio Investors) Regulations. The Reserve Bank of India separately administers foreign exchange rules applicable to such investments.

Question 11Introduction to the Securities Market

An option that gives its holder the right, but not the obligation, to buy the underlying asset at a stated price is a:

  1. Forward contract
  2. Put option
  3. Call option Correct answer.
  4. Futures contract

Explanation

A call option confers the right to buy the underlying at the strike price on or before expiry, in return for a premium. The buyer may choose not to exercise the right, which is what distinguishes options from forward and futures contracts.

Question 12Introduction to the Securities Market

A bonus issue involves:

  1. Issue of shares to the general public at a price fixed by the company
  2. Issue of free shares to existing shareholders in a stated ratio Correct answer.
  3. Buyback of shares from the open market
  4. Payment of dividend in the form of cash

Explanation

In a bonus issue, a company capitalises its free reserves and allots additional shares to existing shareholders free of cost in a declared ratio. No fresh funds come into the company and the shareholder's proportionate ownership is unchanged.

Question 13Introduction to the Securities Market

In a rights issue, shares are offered to:

  1. Employees under an ESOP scheme
  2. Only foreign portfolio investors
  3. The general public, on a first-come-first-served basis
  4. Existing shareholders in proportion to their holdings Correct answer.

Explanation

A rights issue gives existing shareholders the first right to subscribe to new shares in proportion to their existing holding, usually at a discount to the market price. This protects them from dilution of their ownership stake.

Question 14Introduction to the Securities Market

The main function of a clearing corporation is to:

  1. Approve the prospectus of a public issue
  2. Register the transfer of shares in the issuer's books
  3. Guarantee settlement and manage counterparty risk Correct answer.
  4. Fix the opening price of each security

Explanation

A clearing corporation determines settlement obligations and interposes itself between buyers and sellers, thereby guaranteeing settlement. This novation removes counterparty risk from the trading members.

Question 15Introduction to the Securities Market

Which of the following is a money market instrument?

  1. Commercial paper Correct answer.
  2. Convertible debenture
  3. Rights entitlement
  4. Equity share

Explanation

Commercial paper is an unsecured short-term promissory note issued by highly rated companies, with maturity of up to one year, and is therefore a money market instrument. Equity shares, debentures and rights entitlements belong to the capital market.

Question 16Introduction to the Securities Market

A merchant banker engaged for a public issue is primarily responsible for:

  1. Managing the issue, due diligence and marketing Correct answer.
  2. Guaranteeing a minimum price to investors
  3. Registering the transfer of shares after allotment
  4. Holding securities in electronic form

Explanation

The lead merchant banker conducts due diligence on the issuer, prepares and files the offer document and markets the issue. It acts as the issue manager and coordinates the various intermediaries involved.

Question 17Introduction to the Securities Market

Under which legislation are stock exchanges in India recognised and contracts in securities regulated?

  1. The Depositories Act, 1996
  2. The Securities Contracts (Regulation) Act, 1956 Correct answer.
  3. The Securities and Exchange Board of India Act, 1992
  4. The Companies Act, 2013

Explanation

The Securities Contracts (Regulation) Act, 1956 provides for the recognition and regulation of stock exchanges and for the regulation of contracts in securities. SEBI administers this Act, but the statute itself is the source of the framework.

Question 18Introduction to the Securities Market

The Nifty 50 index is computed using:

  1. Free-float market capitalisation weighting Correct answer.
  2. Equal weights assigned to all 50 constituents
  3. Total market capitalisation of all listed companies
  4. A simple average of the share prices

Explanation

Nifty 50 is a free-float market capitalisation weighted index, so each stock's weight reflects only the shares available for public trading. This excludes promoter and other locked-in holdings from the weight calculation.

Question 19Introduction to the Securities Market

Under the ASBA facility for a public issue, the application money is:

  1. Paid in cash to the broker
  2. Blocked in the investor's own bank account Correct answer.
  3. Deposited with the stock exchange in advance
  4. Transferred to the merchant banker's account

Explanation

In Application Supported by Blocked Amount, the investor's bank blocks the application money in the investor's own account until allotment. Only the amount corresponding to allotted shares is debited, and the balance is released.

Question 20Introduction to the Securities Market

SEBI's SCORES platform is used for:

  1. Bidding for shares in an initial public offer
  2. Registering foreign portfolio investors
  3. Redressal of investor complaints against intermediaries Correct answer.
  4. Computing the closing price of a security for the exchange

Explanation

SCORES is SEBI's centralised web-based system through which investors lodge complaints against listed companies, intermediaries and other regulated entities. The entity concerned must resolve the complaint within the prescribed timeline, failing which it is escalated.

Question 21Concept and Role of a Mutual Fund

Which feature best describes the pooling function of a mutual fund?

  1. Investments are restricted to government securities only
  2. Units are always issued at a price fixed in advance
  3. Each investor's money is kept in a separate portfolio account
  4. Many small sums are combined into a single investible corpus Correct answer.

Explanation

A mutual fund collects savings from a large number of investors and combines them into one corpus, which is then invested according to the scheme's stated objective. Investors do not receive individual portfolios; each holds units representing a proportionate share of the pooled assets.

Question 22Concept and Role of a Mutual Fund

Which entity is responsible for the day-to-day investment decisions of a mutual fund scheme?

  1. The asset management company Correct answer.
  2. The custodian bank
  3. The registrar and transfer agent
  4. The trustee company

Explanation

The asset management company employs the fund managers and takes the buy and sell decisions within the scheme's investment objective. The trustees supervise and monitor the AMC's activities but do not manage the portfolio themselves.

Question 23Concept and Role of a Mutual Fund

What does the net asset value (NAV) of a scheme express?

  1. The total market value of all assets held by the scheme
  2. The market value per unit of the scheme's net assets Correct answer.
  3. The annual expenses charged as a share of assets
  4. The price at which the scheme was launched

Explanation

NAV is calculated as total assets minus liabilities, divided by the number of units outstanding, so it is a per-unit measure of net asset value. It is the basis on which units are bought and redeemed.

Question 24Concept and Role of a Mutual Fund

The custodian of a mutual fund is primarily responsible for:

  1. Maintaining the register of unit holders
  2. Declaring the daily net asset value of the scheme
  3. Deciding which securities to buy or sell for the scheme
  4. Holding the scheme's securities in safe custody Correct answer.

Explanation

The custodian keeps the scheme's securities in safe custody and settles purchases and sales, holding them separately from the AMC's own assets. This segregation protects unit holders if the AMC faces financial difficulty.

Question 25Concept and Role of a Mutual Fund

An open-ended mutual fund scheme is one that:

  1. Can be redeemed only after a lock-in of five years
  2. Permits purchase and redemption on an ongoing basis Correct answer.
  3. Issues units only once, during the new fund offer
  4. Has a fixed maturity and trades only on a stock exchange

Explanation

Open-ended schemes offer units for subscription continuously and buy them back at NAV on every business day, so the corpus expands and contracts with investor flows. They are therefore not constrained by a fixed maturity date.

Question 26Concept and Role of a Mutual Fund

Under which regulations are mutual funds in India constituted and regulated?

  1. The Indian Trusts Act, 1882
  2. The Companies Act, 2013
  3. SEBI (Portfolio Managers) Regulations, 2020
  4. SEBI (Mutual Funds) Regulations, 1996 Correct answer.

Explanation

Mutual funds in India are registered with SEBI and governed by the SEBI (Mutual Funds) Regulations, 1996, which prescribe the trust structure, roles of the sponsor, trustees and AMC, and permitted investments. Other laws may apply incidentally but these regulations are the governing framework.

Question 27Concept and Role of a Mutual Fund

The trustees of a mutual fund are expected to:

  1. Select the securities held in each scheme's portfolio
  2. Compute and publish the daily NAV of each scheme
  3. Protect unit holders' interests and oversee the AMC Correct answer.
  4. Market and distribute the fund's schemes to investors

Explanation

Trustees hold the fund's assets in trust for unit holders and are required to supervise the AMC, review its operations and ensure compliance with the regulations. They act as the fiduciary guardian of investor interests.

Question 28Concept and Role of a Mutual Fund

The expense ratio of a mutual fund scheme measures:

  1. Annual scheme expenses as a percentage of average net assets Correct answer.
  2. The return earned by the scheme over its benchmark
  3. The commission paid to distributors on each purchase
  4. The difference between the entry and exit loads charged

Explanation

The expense ratio expresses the annual recurring expenses of a scheme, including management fees and other costs, as a percentage of average daily net assets. SEBI prescribes limits on the total expense ratio to keep costs reasonable for investors.

Question 29Concept and Role of a Mutual Fund

Which of the following is a genuine limitation of investing through mutual funds?

  1. Schemes are barred from holding equity shares
  2. Units cannot be redeemed during market hours
  3. Investors cannot diversify across sectors
  4. Returns are not guaranteed and depend on market performance Correct answer.

Explanation

Mutual fund units carry market risk, and no scheme is permitted to assure a return except in the narrow cases allowed by regulation. Investors therefore bear the risk that the scheme's portfolio value may fall.

Question 30Concept and Role of a Mutual Fund

A mutual fund scheme's portfolio is diversified across many companies primarily in order to:

  1. Guarantee a minimum assured return to unit holders
  2. Reduce the impact of any one company's poor performance Correct answer.
  3. Eliminate the effect of overall market movements
  4. Increase the scheme's exposure to a single sector

Explanation

Spreading investments across many issuers lowers company-specific or unsystematic risk, so an adverse event in one holding has a limited effect on the portfolio. Diversification cannot remove systematic risk, which affects all securities in the market.

Question 31Concept and Role of a Mutual Fund

The registrar and transfer agent (RTA) of a mutual fund mainly handles:

  1. Approval of the scheme's annual expense ratio
  2. Investment decisions for the scheme's portfolio
  3. Custody of the scheme's securities
  4. Processing of unit holder applications and records Correct answer.

Explanation

The RTA processes purchase and redemption requests, maintains the unit holder register and handles related investor servicing on behalf of the AMC. It does not take investment or custody decisions.

Question 32Concept and Role of a Mutual Fund

A close-ended scheme differs from an open-ended scheme mainly because it:

  1. Always charges a higher exit load than open-ended schemes
  2. Invests only in money market instruments
  3. Has a fixed maturity and limited redemption window Correct answer.
  4. Is not required to declare a NAV

Explanation

A close-ended scheme is launched through a new fund offer, has a defined maturity period and does not offer continuous redemption, so investors normally exit by selling units on the exchange. An open-ended scheme, by contrast, redeems units continuously at NAV.

Question 33Concept and Role of a Mutual Fund

As per SEBI regulations, the sponsor of a mutual fund must contribute at least what proportion of the net worth of the asset management company?

  1. 25 percent
  2. 10 percent
  3. 40 percent Correct answer.
  4. 75 percent

Explanation

The sponsor is required to hold at least 40 percent of the net worth of the AMC, so that it retains a meaningful financial stake and long-term interest in the fund's sound management. The balance may be held by other shareholders.

Question 34Concept and Role of a Mutual Fund

Which statement about a mutual fund unit holder's ownership is correct?

  1. The unit holder has a right to vote on each portfolio trade
  2. The unit holder directly owns the shares held in the scheme's portfolio
  3. The unit holder holds a fixed-interest claim on the AMC
  4. The unit holder is a beneficiary of the trust, not a direct owner Correct answer.

Explanation

A mutual fund is constituted as a trust in which unit holders are the beneficiaries, while the trustees hold the fund's property on their behalf. Unit holders therefore have a beneficial interest in the scheme's assets but no direct title to individual securities.

Question 35Concept and Role of a Mutual Fund

SEBI has barred mutual fund schemes from charging an entry load, which means that:

  1. Exit loads are also banned for all schemes
  2. Distributors no longer receive any commission
  3. Investors pay no expenses at all when buying units
  4. No sales charge is deducted from the amount invested Correct answer.

Explanation

With the entry load prohibited, the entire amount an investor submits is applied towards the purchase of units at NAV, with no upfront sales charge deducted. The AMC may still pay distributor commissions from its own resources or through the expense ratio as permitted.

Question 36Concept and Role of a Mutual Fund

Which of the following best explains why mutual funds offer liquidity to investors?

  1. Units are insured against falls in market value
  2. The AMC guarantees to return the original capital
  3. The stock exchange compensates investors for losses
  4. Schemes buy back units at NAV on specified days Correct answer.

Explanation

In an open-ended scheme the fund itself repurchases units at the applicable NAV, so an investor can exit without finding a buyer in the market. This continuous repurchase facility is what provides liquidity.

Question 37Concept and Role of a Mutual Fund

A scheme's NAV per unit rises from Rs. 20 to Rs. 22 over one year and the scheme makes no distributions. The investor's return for the year is closest to:

  1. 2 percent
  2. 10 percent Correct answer.
  3. 20 percent
  4. 12 percent

Explanation

Return equals the change in NAV divided by the opening NAV, that is (22 minus 20) divided by 20, which is 10 percent. With no distributions, the entire gain comes from NAV appreciation.

Question 38Concept and Role of a Mutual Fund

The sponsor of a mutual fund is best described as:

  1. The entity that holds the scheme's securities in safe custody
  2. The entity that maintains records of unit holders
  3. The promoter who establishes the fund and seeds it with capital Correct answer.
  4. The entity that takes the day-to-day investment decisions for the scheme

Explanation

The sponsor promotes the mutual fund, establishes the trust, appoints the trustees and contributes the seed capital required to set up the AMC. It must satisfy SEBI's eligibility and net worth criteria before the fund is registered.

Question 39Concept and Role of a Mutual Fund

An AMC wishes to launch a new mutual fund scheme in India. Before the scheme opens for subscription, it must obtain:

  1. Approval by a simple majority of the existing unit holders
  2. Approval of the trustees and clearance from SEBI Correct answer.
  3. Approval by the stock exchanges where the units will be listed
  4. Approval by the custodian and the registrar and transfer agent

Explanation

A new scheme must be approved by the board of the AMC and by the trustees, and the offer documents must be filed with SEBI, which may issue observations before the scheme is launched. The trustees' approval is a key safeguard for investor interests.

Question 40Concept and Role of a Mutual Fund

A scheme has total assets of Rs. 1,100 crore, liabilities of Rs. 100 crore and 5 crore units outstanding. Its NAV per unit is:

  1. Rs. 20
  2. Rs. 200 Correct answer.
  3. Rs. 22
  4. Rs. 220

Explanation

Net assets equal total assets of Rs. 1,100 crore less liabilities of Rs. 100 crore, giving Rs. 1,000 crore. Dividing by 5 crore units outstanding gives an NAV of Rs. 200 per unit.

Question 41Legal Structure of Mutual Funds in India

In India, a mutual fund is legally constituted as which of the following?

  1. A partnership firm under the Indian Partnership Act, 1932
  2. A statutory corporation created by an Act of Parliament
  3. A company under the Companies Act, 2013
  4. A trust under the Indian Trusts Act, 1882 Correct answer.

Explanation

A mutual fund in India is constituted as a trust under the Indian Trusts Act, 1882, with the sponsor as settlor and the trustees holding the scheme assets for the benefit of unit holders. The fund is then registered with SEBI under the SEBI (Mutual Funds) Regulations, 1996.

Question 42Legal Structure of Mutual Funds in India

In the three-tier structure of a mutual fund, which entity is responsible for investing the scheme's corpus in securities?

  1. The asset management company Correct answer.
  2. The sponsor
  3. The board of trustees
  4. The custodian

Explanation

The AMC, a company registered with SEBI, conducts the investment operations of the schemes and is accountable to the trustees for performance and compliance. The sponsor establishes the trust and the custodian only safekeeps the securities.

Question 43Legal Structure of Mutual Funds in India

Who establishes a mutual fund trust in India and appoints its first trustees?

  1. The asset management company
  2. The unit holders
  3. The sponsor Correct answer.
  4. SEBI

Explanation

The sponsor is the settlor of the trust: it settles the trust, appoints the trustees and is also expected to contribute capital to the AMC. The sponsor cannot itself run the schemes, which is why an AMC is appointed.

Question 44Legal Structure of Mutual Funds in India

The appointment of an asset management company to manage a mutual fund requires which of the following?

  1. A simple majority vote of the existing unit holders
  2. A resolution of the AMC's own board of directors
  3. Trustees' approval and SEBI's prior approval Correct answer.
  4. Consent of the scheme's custodian and auditor

Explanation

The trustees appoint the AMC and the appointment takes effect only with SEBI's prior approval, which allows the regulator to vet the entity running the fund. The same approval requirement applies when an existing AMC is replaced.

Question 45Legal Structure of Mutual Funds in India

At least what proportion of the board of trustees of a mutual fund must consist of independent directors?

  1. At least one-third
  2. At least one-half
  3. At least three-fourths
  4. At least two-thirds Correct answer.

Explanation

The regulations require at least two-thirds of the trustees, or of the board of the trustee company, to be independent of the sponsor and the AMC. This independence is meant to ensure that trustees act solely in the interest of unit holders.

Question 46Legal Structure of Mutual Funds in India

A sponsor must contribute what minimum percentage of the net worth of the asset management company it promotes?

  1. At least 40 per cent Correct answer.
  2. At least 33 per cent
  3. At least 51 per cent
  4. At least 20 per cent

Explanation

The sponsor is required to contribute at least 40 per cent of the net worth of the AMC, which gives it a continuing stake in the fund's proper management. The remaining stake may be held by other shareholders.

Question 47Legal Structure of Mutual Funds in India

Which entity is appointed to hold the securities and other assets of a mutual fund scheme in safe custody?

  1. The custodian Correct answer.
  2. The registrar and transfer agent
  3. The scheme's auditor
  4. The sponsor

Explanation

A custodian registered with SEBI holds the scheme's securities and settles its trades, and is appointed by the trustees on the recommendation of the AMC. This separation prevents the AMC from having physical control of the scheme's investments.

Question 48Legal Structure of Mutual Funds in India

Which activity is the registrar and transfer agent of a mutual fund primarily responsible for?

  1. Holding the scheme's securities in safe custody
  2. Auditing the annual accounts of each scheme of the fund
  3. Framing the investment strategy for the scheme
  4. Keeping unit holder records and processing transactions Correct answer.

Explanation

The RTA, which must be registered with SEBI, handles investor servicing: maintaining folios, processing subscriptions and redemptions, and paying dividends or processing redemptions. It acts on behalf of the AMC and reports to the trustees.

Question 49Legal Structure of Mutual Funds in India

Apart from a five-year track record in financial services, a sponsor must have been profitable in at least how many of the immediately preceding five years?

  1. Three years Correct answer.
  2. Four years
  3. Five years
  4. Two years

Explanation

The eligibility criteria require a sound track record: five years in financial services, positive net worth in each of the preceding five years, and profits in at least three of those five years. The sponsor must also have a reputation for fairness and integrity.

Question 50Legal Structure of Mutual Funds in India

Which of the following falls within the responsibilities of the trustees of a mutual fund?

  1. Marketing and distributing the schemes to investors
  2. Holding the scheme's securities in dematerialised form
  3. Reviewing the AMC's operations and reporting to SEBI Correct answer.
  4. Executing day-to-day trading decisions for each scheme

Explanation

Trustees act as guardians of unit holders' interests: they oversee the AMC's operations, review compliance and performance, and submit periodic reports to SEBI. They must also ensure that the AMC and its associates do not profit at the expense of the schemes.