TEST DETAILS – The NISM Series XB – Investment Adviser Certification (Level 2) exam is a 100 mark exam

with 60% as passing marks. The question paper will consist of 36 multiple choice questions of 1 mark each
and 8 Case Studies having 4 multiple choice questions of 2 marks each ( A total of 36 + 32 = 68 questions).
There is 0.25% negative marking. The time duration is 120 Minutes.
PRACTICE TEST NO. 6 (Imp. Updated Questions)

Question 1 Health Insurance is an example of .

(a) Asset protection needs

(b) Income replacement need

(c) Income protection need

(d) Uberrimae Fidei

Question 2 A company issues a debenture of face value Rs. 100 with a coupon rate of
11% and these debentures are now trading at Rs 104. These debentures
will be redeemed in 5 years at a premium of 5%. Calculate the current
yield.

(a) 10.13%

(b) 10.57%

(c) 11.39%

(d) 11.78%

Correct Income protection need

Answer 1
Answer Income protection need the need to protect the available income from an unexpected charge.
Explanation Health insurance and motor insurance are examples of insurance products that cover such risks.
Life insurance, insurance for the maintenance and replacement of plant and machinery,
annuities, are examples of Income replacement need.
Insurance against theft or destruction of goods are examples of Asset protection needs.
‘Uberrimae Fidei’ means Utmost good faith.

Correct 10.57%
Answer 2
Answer The formula for calculating Current Yield is : Coupon Rate / Current Price X 100
Explanation Taking data from above sum : 11 / 104 x 100 = 10.57 %
Note - The redemption value is considered only while calculating the 'Yield to Maturity' and
not Current Yield.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 3 The Recency Bias applies to which type of events?

(a) Only to Negative events

(b) Only to Positive events

(c) Applies to both Positive and Negative events

(d) Applies to events in Stock Markets only

Question 4 is incidental to Margin Trading.

(a) Big profits

(b) Big losses

(c) Greater risks

(d) Small positions

Correct Applies to both Positive and Negative events

Answer 3
Answer Recency Bias: The impact of recent events on decision making can be very strong. This applies
Explanation equally to positive and negative experiences. Investors tend to extrapolate the event into the
future and expect a repeat.
A financial crisis leads people to prefer safe assets buy could actually be the right time to
invest as prices are low. The recent experience overrides analysis in decision making.

Correct Greater risks

Answer 4
Answer Margin trading is a facility provided by members of stock exchanges to their clients to leverage
Explanation their short term investments in the secondary markets, by providing a borrowing facility for
funds.
It enables the traders to take larger positions for a smaller amount. It can lead to either big
profits or big losses. This means there is a greater risk in margin trading.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 5 Who has to complete the Know Your Customer (KYC) process when an
investment is done by a minor?

(a) The Parent or the Guardian

(b) The minor himself / herself

(c) Both Minor and Guardian

(d) KYC is not required when an investment is done by minor

Question 6 Who decides the pricing in case of public issue?

(a) SEBI

(b) The Creditors

(c) The Merchant Bankers

(d) The Issuer and the lead manager

Correct Answer 5 The Parent or the Guardian

Answer Minors have to be sole holders or first holders of the investment. Guardians
Explanation have to provide all details and complete the Know Your Customer (KYC)
formalities, as if they were investing themselves.

Correct The Issuer and the lead manager

Answer 6
Answer A public issue of shares may be made at a fixed price decided by the issuer in consultation with
Explanation the lead manager.

(The other method of discovering the price is through a book building process in which the
issuer indicates the price band or a base or floor price and investors bid for the desired quantity
of shares at a price within the specified band)
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 7
If a mutual fund is held jointly, the tax benefits will accrue to .

(a) All the holders in equal proportion

(b) All the holders as per the percentage entered in the application form

(c) Only the first two holders

(d) Only the first holder

Question 8 is never disclosed in a FACTSHEET.

(a) The composition of the portfolio

(b) Sector wise allocation

(c) Comparison with benchmark returns

(d) The timing of investments

Correct Only the first holder

Answer 7
Answer The holders may have the option to operate the investment either jointly or on either or
Explanation survivor basis. However all payouts, such as dividend, interest and redemptions, are made in
the name of the first holder.
The tax benefits from the investments and any tax liability on the income accrue only to the
first holder.

Correct Answer 8 The timing of investments

Answer Factsheet will not disclose when, on which date or time the investments were
Explanation purchased.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 9 For Long Term Debt instruments, the highest credit rating symbol
assigned is .

(a) A+

(b) AAA

(c) A1

(d) AX

Question 10 Which of these can be registered as 'Insurance Intermediaries' ?

(a) Insurance consultants

(b) Insurance surveyors

(c) Loss assessors

(d) All of the above

Correct AAA
Answer 9
Answer Credit rating agencies assign credit ratings after carrying out a detailed analysis of the issuer’s
Explanation financial ability to honour the payments on time.
For Long term debt instruments - 'AAA' - Instruments with this rating are considered to have
the highest degree of safety regarding timely servicing of financial obligations. Such
instruments carry lowest credit risk.
For Short term debt instruments - the highest rating is 'A1'

Correct Answer 10 All of the above

Answer Under the Insurance Act - "intermediary or insurance intermediary " includes
Explanation insurance brokers, reinsurance brokers, insurance consultants, surveyors and
loss assessors.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 11 Which type of analysis believes in looking for clues in the share price
itself, for its future behaviour ?

(a) Ratio Analysis

(b) Fundamental Analysis

(c) Macro Economic Analysis

(d) Technical Analysis

Question 12
Which of these sector stocks is will be LESS popular for investment when
the economy is in an UPTURN?

(a) Commodities

(b) Pharmaceuticals

(c) Construction

(d) Auto

Correct Technical Analysis

Answer 11
Answer Technical analysis is about looking for clues in the share price itself, for its future behaviour. It
Explanation involves studying the price and volume patterns to understand how buyers and sellers are
valuing a stock and acting on such valuation.

Fundamental analysis is based on the premise that ‘fair value’ of an equity share can
be estimated from information about the company.

Correct Pharmaceuticals
Answer 12
Answer Sectors such as commodities, auto, construction, cement do well when the economy is an upturn;
Explanation defensive stocks such as FMCG, pharmaceuticals do well when the economy is in a downturn.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 13 The Collateralized Borrowing and Lending Obligations (CBLO) are

backed by .

(a) Only G Secs

(b) Only T Bills

(c) Both G Secs and T Bills

(d) No backing is required for CBLO

Question 14 and do NOT mean the same thing.

(a) Coupon and Yield

(b) Tenor and Tenure

(c) Purchasing power risk and Inflation risk

(d) Credit risk and Default risk

Correct Both G Secs and T Bills

Answer 13
Answer Collateralised Borrowing and Lending Obligation (CBLO) is a short-term instrument used to lend
Explanation or borrow for periods ranging from overnight to one year against the collateral of eligible debt
securities (mostly G-Secs and T-bills).

Correct Coupon and Yield

Answer 14
Answer Coupon is the actual rate of interest that a bond will pay - for eg. 10% on the face value of Rs
Explanation 100.

If this bond is purchased from the market at say Rs. 105, the interest earned will the same but the
YIELD will be lower as it was purchased at a higher price. Yield refers to the annual return on an
investment
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 15 Mr. X has taken a short position in a 'PUT' option. He therefore believes
that the price of the underlying will .

(a) not go below the strike price

(b) not go above the strike price

(c) go below the strike price

(d) not go below the market price

Question 16 SEBI (Alternate Investment Funds) Regulations, 2012 classifies 'Venture

capital funds, SME Funds and Social venture funds' as .

(a) Category I Alternative Investment Fund

(b) Category II Alternative Investment Fund

(c) Category III Alternative Investment Fund

(d) None of the above

Correct not go below the strike price

Answer 15
Answer Basic Rule of CALL - PUT Options in stock trade -
Explanation
1. The buyer of a call option believes that the price of the stock will rise. The buyer of a put
option believes that the price of the stock will fall.

2. The seller of a call option believes that prices will not rise. The seller of the put option
believes that the price of the stock will not fall

Buying means going 'LONG' and selling means foing 'SHORT'

So the seller of a put option (short position), believes that the price will not fall below the
strike price.

Correct Category I Alternative Investment Fund

Answer 16
Answer Mutual Funds are regulated by the SEBI (Mutual Funds) Regulations, 1996. With a view
Explanation to regulate other funds SEBI introduced the Securities and Exchange Board of India
(Alternate Investment Funds) Regulations, 2012.
“Category I Alternative Investment Fund” which invests in start-up or early stage ventures or
social ventures or SMEs or infrastructure or other sectors or areas which the government or
regulators consider as socially or economically desirable and shall include Venture
capital funds, SME Funds, social venture funds, infrastructure funds and such other
Alternative Investment Funds as may be specified
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 17 SEBI (Alternate Investment Funds) Regulations, 2012 classifies a fund

which employs 'diverse or complex trading strategies' as .

(a) Category I Alternative Investment Fund

(b) Category II Alternative Investment Fund

(c) Category III Alternative Investment Fund

(d) None of the above

Question 18 With respect to investments, what does 'Do not put all your eggs in one
basket' refer to ?

(a) Systematic Investment Plans (SIPs)

(b) Equity Mutual Funds

(c) Asset Allocation

(d) Risk Profiling

Correct Category III Alternative Investment Fund

Answer 17
Answer Mutual Funds are regulated by the SEBI (Mutual Funds) Regulations, 1996. With a view
Explanation to regulate other funds SEBI introduced the Securities and Exchange Board of India
(Alternate Investment Funds) Regulations, 2012.

“Category III Alternative Investment Fund” which employs diverse or complex

trading strategies and may employ leverage including through investment in listed or
unlisted derivatives.

Correct Asset Allocation

Answer 18

Answer Asset allocation is an investment strategy that aims to balance risk and reward by apportioning
Explanation a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.
The three main asset classes - equities, fixed-income, and cash and equivalents - have different
levels of risk and return, so each will behave differently over time.

So dividing our investment money into Equities / Bonds / Gold / Liquid cash etc. is like 'Do not
put all your eggs in one basket'
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 19 Which of the following tool helps the investor to assess risk?

(a) Financial Planning

(b) Risk Profiling

(c) Risk journal

(d) Bank Statements

Question 20 Which type of strategy or strategies is/are adopted by a fund manager to

beat the benchmark?

(a) Stock weighting

(b) Sector rotation

(c) Stock selection

(d) All of the above

Correct Risk Profiling

Answer 19

Risk profiling is an exercise that determines the level of risk that an investor can take.
Answer
Explanation It is an assessment of an investor’s risk tolerance.
Risk profiling tools like a detailed questionnaire to be filled up by the investor helps in
understanding the risk tolerance etc.

Correct Answer 20 All of the above

Answer A diversified equity fund primarily uses sector rotation, stock selection, stock
Explanation weighting, and market timing as the strategies to do better than the benchmark
index.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 21 Making a good portfolio leads to diversification benefits in the form of

enhanced risk-adjusted return. Which of these is an investor NOT able to
do with a diversified portfolio?

(a) Earn a higher level of return at the same level of risk

(b) Reduce the level of risk, at the same level of return

(c) Increase the level of return and level of risk

(d) Earn a higher return at a lower level of risk

Question 22 What should ideally be the balancing figure after other items are taken
care of?
(a) Lifestyle expenses

(b) Payment of loans

(c) Expenses on necessary items

(d) Savings for retirement

Correct Increase the level of return and level of risk

Answer 21
Answer A portfolio leads to diversification benefits in the form of enhanced risk-adjusted return. The
Explanation investor is able to:
- Reduce the level of risk, at the same level of return
- Earn a higher level of return at the same level of risk, or
- Earn a higher return at a lower level of risk. However, after a certain level, a higher
return can be earned only by taking on additional risk.
Diversification does not eliminate risk or guarantee a return; it reduces the volatility in the
returns of a portfolio.

Correct Answer 22 Lifestyle expenses

Answer Expenses can be of two types - Essential and Lifestyle. Essential expenses like
Explanation food, shelter, savings etc. does not lend itself to much reduction but lifestyle
expenses like buying luxury goods, dining out etc. can be controlled to a large
extent. Such lifestyle expenses should be incurred only when other essential
expenses have been fully met.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 23 With respect to 'Satellite portfolio', which of the following is NOT true ?

(a) The expected returns are low

(b) It can consist of Sector Funds

(c) Its actively managed

(d) Investments are tactical in nature

Question 24 Longer the time to expiry in an option contract, .

(a) higher will be the premium on both call and put

(b) lower will be the premium on both call and put

(c) higher will be the premium on call and lower on put

(d) lower will be the premium on call and higher on put

Correct Answer 2 3 The expected returns are low

Answer The satellite portfolio includes actively managed investments. Satellite

Explanation investments are managed in order to benefit from economic and market
conditions. These are risky investments but can provide a much higher rate of
returns and provide a push up the overall returns of the portfolio.

Correct higher will be the premium on both call and put

Answer 24
Answer Option price consists of Intrinsic Value and Time Value.
Explanation As the time progress ie. expiry draws closer, the time value decreases.
So longer the time to expiry will mean increase in the premium of both Call and Put options.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 25
Which of these risks are faced by debt schemes of Mutual Funds?

(a) Only credit risk

(b) Only interest risk

(c) Only credit risk and liquidity risk

(d) Liquidity risk, Interest risk and Credit risk

Question 26 Which of these instruments have asymmetric pay-off?

(a) Futures

(b) Options

(c) Swaps

(d) Both future and options

Correct Liquidity risk, Interest risk and Credit risk

Answer 25
Answer Mutual Fund debt schemes suffer from -
Explanation Interest risk - Its the chance that investments in bonds / fixed-income securities – will suffer as
the result of unexpected interest rate changes.
Credit risk - Default or credit risk refers to the risk that debt issuers may default on interest
and/or principal payments.
Liquidity risk - The limited liquidity in the secondary markets and the dominance
of institutional players makes it difficult for most buyers of bonds, particularly
smaller investors, to sell what they have bought. Most investors end up holding a bond
to maturity.

Correct Options
Answer 26
Answer An option contract features an asymmetric pay-off. The upside and the downside are not
Explanation uniform or same. For eg. The buyer of a Call Option pays a premium to buy the option with a
view that prices will rise. If the prices fall, the maximum he will lose is the premium paid. But
if the prices rise, his profits can be huge as prices can rise to any extent.

The payoff in a futures position is the same (symmetrical) whether the market price moves up
or down. The payoff in the options position is different (asymmetrical) for up and
down markets and depends on how much was the movement in prices, and what was
the premium paid.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 27 Investments in offers scope for good capital appreciation as well

as benefits under Section 80 of Income Tax.

(a) Public Provident Fund

(b) Bank Fixed Deposits

(c) National Saving certificate

(d) Equity Linked Saving Scheme (ELSS)

Question 28 SEBI (Alternate Investment Funds) Regulations, 2012 classifies

Infrastructure Funds as .

(a) Category I Alternative Investment Fund

(b) Category II Alternative Investment Fund

(c) Category III Alternative Investment Fund

(d) Category IV Alternative Investment Fund

Correct Equity Linked Saving Scheme (ELSS)

Answer 27
Answer Equity Linked Savings Schemes (ELSS) is a special category of equity diversified equity
Explanation funds. Investment in ELSS enjoys a tax deduction under Section 80C of the Income Tax Act.
Since ELSS invest in EQUITY, there is a good scope of appreciation.
PPF, NSC, Bank Fixed Deposits have only a fixed rate of return in the form of interest and so
there is limited capital appreciation

Correct Category I Alternative Investment Fund

Answer 28
Answer Mutual Funds are regulated by the SEBI (Mutual Funds) Regulations, 1996. With a view
Explanation to regulate other funds SEBI introduced the Securities and Exchange Board of India
(Alternate Investment Funds) Regulations, 2012.

“Category I Alternative Investment Fund” which invests in start-up or early stage ventures or
social ventures or SMEs or infrastructure or other sectors or areas which the government or
regulators consider as socially or economically desirable and shall include venture
capital funds, SME Funds, social venture funds, infrastructure funds and such other
Alternative Investment Funds as may be specified
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 6

Question 29 Investments in which of these generally gives minimum return?

(a) ELSS funds

(b) Gold Funds

(c) Bonds

(d) Cash Equivalents

Question 30 Which of these tools of investments generally requires the maximum

demand on the time of an investor?

(a) SIP in Mutual Funds

(b) Discretionary Portfolio Management services

(c) Non- Discretionary Portfolio Management services

(d) Direct Investing

Correct Cash Equivalents

Answer 29
Answer The potential return from each asset class varies. Growth assets like Equity offer higher return,
Explanation income assets like debt / fixed deposits offer lower returns, and cash equivalents the least
return.

Common examples of cash equivalents include commercial paper, treasury bills, short term
government bonds, marketable securities, and money market holdings

Correct Answer 30 Direct Investing

Answer In Direct Investing - The research and evaluation is done by the investor who
Explanation decides on what to invest in and the timing for entry and exit. Creating an
effectively diversified portfolio that will meet the return and risk requirements
of the investor will take time, given the limited resources that retail investors
will have. Managing a portfolio may require time and skills beyond
most investors.
 Question 1
is / are 'Insurance Intermediaries'

(a) insurance brokers

(b) insurance consultants

(c) insurance surveyors and loss assessors

(d) all of the above

Question 2 Investors and Traders trade in shares in the .

(a) Primary Market

(b) IPO Market

(c) Follow On Public offer (FPO)

(d) Secondary Markets

Correct Answer 1 all of the above

Answer Under the Insurance Act - ‘intermediary or insurance intermediary’ includes

Explanation insurance brokers, reinsurance brokers, insurance consultants, surveyors and
loss assessors.

Correct Answer 2 Secondary Markets

Answer The secondary market or the stock exchange is the place where shares once
Explanation issued can be bought or sold between investors.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 3 For Mutual Fund applications, a financial advisor can attest the copy of a
Pancard, but he has to be compulsorily be KYD compliant - State True or
False?

(a) TRUE

(b) FALSE

Question 4 There is no fixed maturity for .

(a) Fixed Deposits

(b) Debentures

(c) Close Ended Mutual Funds

(d) Open Ended Mutual Funds

Correct Answer 3 TRUE

Answer The investor’s financial advisor can also attest the PAN card, if the advisor
Explanation has complied with the Know Your Distributor (KYD) norms and registered as
such, with Association of Mutual Funds in India (AMFI).

Correct Answer 4 Open Ended Mutual Funds

Answer Open ended mutual funds are usually perpetual and one can buy and sell units
Explanation any time as per the NAV.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 5 The risk that affects the entire system is known as , and the risk
that can be reduced by diversification is known as _ .

(a) unsystematic risk, systematic risk

(b) systematic risk, unsystematic risk

(c) total risk, systematic risk

(d) market risk, trading risk

Question 6 Mr. P is a very conservative investor and is interested in protecting his

capital. Which amongst the following would you suggest to him?

(a) Equity Shares

(b) Land in an upcoming city

(c) Real Estate

(d) Public Provident Fund - PPF

Correct Answer 5 systematic risk, unsystematic risk

Answer Systematic risk refers to those risks that are applicable to the entire financial
Explanation market - for eg : Changes in government policy, inflation, interest rates,
external factors, wars or natural calamities.

Unsystematic risk is the type of uncertainty that is specific to the company or

industry, an investor invests in. This can be reduced by diversification ie. by
buying a portfolio of stocks etc.

Correct Answer 6 Public Provident Fund - PPF

Answer PPF is for risk-averse investors who do not want to subject their investments
Explanation to any market risk and are content with fixed and guaranteed return provided
by the PPF.

They are meant for capital protection and not for capital appreciation.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 7 If a Trust wishes to invest in a Investment Product, what should it check

before investing ?

(a) The Trusts Investment Charter

(b) The Offer Document

(c) The background of the people managing the investments

(d) Both - the Trusts Investment Charter and The Offer Document

Question 8 Commercial paper issued for 91-day, 182-day and 364-day tenor - State
True or False ?

(a) TRUE

(b) FALSE

Correct Answer 7 Both - the Trusts Investment Charter and The Offer Document

Answer The Trusts Investment Charter should allow such investments and also the
Explanation Offer Document should allow Trusts to invest in the product.

Correct Answer 8 FALSE

Answer
Explanation Treasury bills issued for 91-day, 182-day and 364-day tenor.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 9 There is a CALL RISK in investments in Callable Debt Securities - State

True or False ?

(a) TRUE

(b) FALSE

Question 10 policy allows the insured to have a say in the way his
portfolio will be maintained ?

(a) Unit linked policy

(b) Endowment Policy

(c) Term Policy

(d) Whole Life Policy

Correct Answer 9 TRUE

Answer Call risk refers to the possibility that the issuer of a bond may choose to
Explanation redeem it before maturity due to changes in the market interest rates etc.

Early redemption brings down the tenor of the bond, and forces the investor to
find alternate investments to invest the funds received, may be at a lower
interest rate.

Correct Answer 10 Unit linked policy

Answer In whole life,endowment and term policies, the insured has no say in deciding
Explanation how the savings component in the policy will be managed.

Unit-linked insurance policies allow the insured to decide on the kind of

portfolio (mix of asset classes, such as debt and equity) that the insurer should
maintain for the savings portion.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 11 The main benefit of diversification in a portfolio is .

(a) Maximising returns

(b) Guaranteeing returns

(c) Enhancing risk adjusted returns

(d) Eliminating risk

Question 12
The yield changes on a day to day basis for a debt instrument - State True
or False ?

(a) TRUE

(b) FALSE

Correct Answer 11 Enhancing risk adjusted returns

Correct Answer 12
TRUE

Answer Yield basically means the return which the investor will get. This reduces
Explanation every day as time progress towards maturity.

For example - A 10% Bond is maturing on 31 Dec. An investor who buys it

on 1 Jan will get a yield of 10% and an investor who bays it on 1 July will get
appx 5% yield.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 13 can deal with multiple insurance companies.

(a) Corporate insurance agent

(b) Insurance broker

(c) Insurance agent

(d) Bank assurance channel

Question 14 In the National Pension System -NPS, the investor is alloted a .

(a) Special NPS number

(b) MANN

(c) PRAN

(d) PENSION Number

Correct Answer 13 Insurance broker

Answer Insurance brokers represent the insurance buyer. They can deal with any
Explanation number of insurance companies in order to give the insurance buyer the best
deal.

Correct PRAN
Answer 14

PRAN - Permanent Retirement Account Number.

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 15 The tenor of Money Market instruments is .

(a) Less than 365 days

(b) up to 90 days

(c) up to 180 days

(d) up to 2 years

Question 16 The relationship between the yield of a bond and its price is .

(a) always positively related

(b) always inversely related

(c) positively related in a rising interest rate scenerio

(d) positively related in a falling interest rate scenerio

Correct Answer 15 Less than 365 days

Correct Answer 16 always inversely related

Answer The inverse relationship between price and yield of bonds implies that every
Explanation change in yield would bring about a change in price in the opposite direction.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 17 Which amongst the following schemes has the maximum concentration of
risk ?

(a) ELSS Funds

(b) Index Funds

(c) Sector Funds

(d) Value Funds

Question 18 A bull run in the equity markets starts off with large cap stocks and then
moves on to .

(a) Banking Stocks

(b) Low beta stocks

(c) Mid cap and small cap stocks

(d) Software stocks

Correct Answer 17 Sector Funds

Answer A sector fund invests in one particular sector viz - Banking or IT or Pharma
Explanation etc.

The risk in this is very high because if that sector does not perform, the
investor faces huge losses.

Therefore its advisable to go for Diversified Schemes as they invest across

various sectors, thus eliminationg the risk of underperformance of one
particular sector.

Correct Answer 18 Mid cap and small cap stocks

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 19 is/are Institutional Investors.

(a) Qualified Foreign Investors

(b) Hindu Undivided Family (HUF)

(c) Non Resident Indians (NRI)

(d) Trusts and Societies

Question 20 In case of a 'Satellite Portfolio', which of the following is NOT TRUE ?

(a) Low Expected Returns

(b) High Expected Returns

(c) Tactical Managed

(d)
Managed in order to benefit from economic and market conditions

Correct Answer 19 Trusts and Societies

Answer Institutional Investors - Companies, trusts, charitable organizations and

Explanation societies. They may be financial institutions, portfolio investors, pension
funds, insurance funds and banks, among others.

Individual Investors - Resident investors, Minors, Hindu undivided family

(HUF), Non-resident Indians (NRIs) and Qualified Foreign Investors (QFIs).

Correct Answer 20
Low Expected Returns

Answer The core-satellite strategy is a method of portfolio construction that allows

Explanation investors to focus on long term financial goals while minimizing volatility,
costs and taxes.

The core portfolio is geared to meet the long-term goals. The satellite portfolio
is managed tactically to try and get higher returns.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 21 Option is an option to SELL the security.

(a) Call

(b) Put

(c) Delta

(d) Call or Put as per the investor view

Question 22 What is the Bottom Up approach in Fundamental Analysis ?

(a) Economy - Industry - Company analysis

(b) Company - Industry - Economy analysis

(c) Analysis of low prices of various stocks

(d) Buying when share prices are at a bottom price

Correct Answer 21 Put

Answer
An option to buy a security is called a call option; an option to sell a security
Explanation
is called a PUT option.

Correct Answer 22 Company - Industry - Economy analysis

Answer If the analysis begin from studying the company first and then the industy and
Explanation Economy, its called Bottom Up approach.

If the analysis begin from studying the Economy, then Industry and then
Company - Its called Top Down approach.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 23 In , the complete redemption proceeds is tax free.

(a) Debentures

(b) 5 year Bank Deposits

(c) Mutual Funds

(d) Public Provident Fund

Question 24 An Indian company - PQR Ltd, has a manufacturing unit in USA. The
value of goods manufactured there will be included in .

(a) The GDP of India

(b) The GNP of USA

(c) The GNP of India and GDP of USA

(d) The GDP of India and GNP of USA

Correct Answer 23 Public Provident Fund

Answer Schemes such as the PPF and bonds designated as tax-free are exempt from
Explanation taxation on interest earned.

Correct Answer 24 The GNP of India and GDP of USA

Answer Gross Domestic Product (GDP) refers to output produced in the country, both
Explanation by Indian companies and foreign comapnies having their manufacturing in
India.

Gross National Product (GNP) measures the final value of all goods and
services produced by domestically owned entities, even if such production
happens abroad.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 25 Which funds seeks to beat the benchmark returns ?

(a) Index Funds

(b) Active Funds

(c) Passive Funds

(d) Equity Funds

Question 26 To buy or sell equity shares, an investor has to .

(a) do online trading

(b) deal with a subbroker

(c) deal through a registered broker or sub broker

(d) go to BSE / NSE .

Correct Answer 25 Active Funds

Correct Answer 26 deal through a registered broker or sub broker

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 27 When interest rates are decreased by the RBI, the price of which bond is
likely to see a greater impact ?

(a) 30 year bond with 2 years to maturity

(b) Commercial paper of company

(c) 15 year Government security

(d) AAA rated 5 year bond

Question 28 Revolving Credit is one of the most expensive form of loans - State True
or False ?

(a) TRUE

(b) FALSE

Correct Answer 27 15 year Government security

Answer The longer the time to expiry, more will be the effect.
Explanation

Correct Answer 28 TRUE

Answer When a credit card user does not pay the entire amount i.e. some amount is
Explanation carried over for payment in the following business cycles, it is called
“revolving credit”.

A credit card company generally charges 3% pm as interest, this leads to an

compounded interest charge of more than 42% pa -which is very costly.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 5

Question 29 Amongst the following options, what is true when a Non Resident Indian
(NRI) becomes a Resident Indian ?

(a) He can continue to operate his FCNR A/c

(b) He can continue to operate his NRO A/c

(c) He can continue to operate his NRE A/c

(d) He can open a Resident Foreign Currency (RFC) account

Question 30 is /are example (s) of Growth and Income Assets.

(a) Gold

(b) Property and Equity Shares

(c) Long Term Debt

(d) Equity Shares

Correct Answer 29 He can open a Resident Foreign Currency (RFC) account

Answer Once an NRI becomes a RI, he cannot operate his NRO/NRE/FCNR (B)
Explanation accounts.

Resident Foreign Currency (RFC) account may be opened by a returning

Indian to transfer balances from NRE /FCNR (B) accounts.

Correct Answer 30 Property and Equity Shares

Answer Real estate contributes both growth and income in the form of capital
Explanation appreciation and rental income. Equity Shares contributes both growth and
income in the form of capital appreciation and dividends received.
 NISM SERIES X B : INVESTMENT ADVISER
(LEVEL 2) CERTIFICATION EXAM –
PRACTICE TEST NO. 3

Question 1
Reduction in risks of a portfolio strongly depends on the .

(a) Correlation

(b) Variance

(c) Standard Deviation

(d) Delta

Question 2 In investments through , the investor can easily evaluate the

performance over different time horizons.

(a) Mutual Funds

(b) Discretionary Portfolio Management Service

(c) Non Discretionary Portfolio Management Service

(d) FII

Correct Answer 1 Correlation

Answer In addition to the risk of each investment and its weight in the portfolio,
Explanation portfolio risk will also depend on the correlation between the asset classes
included in it.

.
Correct Answer 2 Mutual Funds

Answer In Mutual Funds, investors can easily evaluate how the fund has performed
Explanation over different time horizons.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 3 Which amongst the following are characteristics of Satellite portfolio ?

(a) Its actively managed

(b) Its highly volatile

(c) Its involves high churning of stocks in portfolio

(d) All of the above

Question 4 Which of the following factor is not considered as a description of risk ?

(a) Current Yield

(b) Volatility

(c) Default

(d) Mismatch between actual returns and estimated returns

Correct Answer 3 All of the above

Answer Satellite investments are managed in order to benefit from economic and
Explanation market conditions. They involve regular buying and selling of securities as per
market trends.

Correct Answer 4 Current Yield

Answer Volatility, Default Risk and Return mismatch are risks associated with
Explanation investments.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 5 When a NRI becomes a Resident Indian, which of the following needs to
be changed in the KYC wrt. Mutual Fund investments ?

(a) Only Status

(b) Only Bank Details

(c) Only address

(d) Status, Bank Details and Address

Question 6 Certificates of Deposits are predominantly issued by banks, to meet short-

term requirements of funds. They can be issued for maturities up to
days.

(a) 90 days

(b) 182 days

(c) 1 to 14 days

(d) 364 days

Correct Answer 5 Status, Bank Details and Address

Correct Answer 6 364 days

Answer CDs are predominantly issued by banks, to meet short-term requirements of

Explanation funds. They can be issued for maturities up to 364 days.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 7 is actually a consumption expenditure but can prove to be a

smart investment.

(a) Buying the latest model of a car

(b) Going on a foreign vacation

(c) Buying a hi end music system

(d) Education

Question 8 In the National Pension Scheme (NPS), the Government offers an assured
return as per the prevailing interest rates - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 7 Education

Correct Answer 8 False

Answer The NPS invests some portion in equities and thus cannot offer an assured rate
Explanation of return.

.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 9 Investment with is the riskiest.

(a) high credit rating

(b) low standard deviation

(c) low market volatility

(d) high beta

Question 10 Foreign Exchange exposures can be managed in in India

(a) Only in OTC Markets

(b) Only in Exchange Traded Markets

(c) Exchange Traded Markets and OTC Markets

(d) Call Money Markets

Correct high beta

Answer 9

Answer Beta measures the systematic risk in a stock by measuring the volatility in the price of a
Explanation stock relative to the overall market.

A high beta is associated with riskier growth stocks. Equity stocks that move up quickly
when the economy is doing well and decline rapidly during periods of low economic growth
are high beta stocks.

Correct Exchange Traded Markets and OTC Markets

Answer 10

Answer The Indian foreign exchange market has an OTC derivatives market as well as an exchange
Explanation traded derivatives market.

OTC markets are basically trade between registered entities like Banks, Importers, Exporters
etc. Exchange traded markets are basically trades executed on recognised stock / currency
exchanges.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 11 as an asset class generally gives the best return during phases of
high growth.

(a) Gold

(b) Debt

(c) Real Estate

(d) Equity

Question 12 A state of inaction is caused by which of the following bias or biases ?

(a) Only Recency bias

(b) Only Herd Mentality bias

(c) Only Loss Aversion bias

(d) Both Loss Aversion and Choice Paralysis biases

Correct Equity
Answer 11

Answer Equity markets tends to perform the best during phases of high growth,
Explanation

Correct Both Loss Aversion and Choice Paralysis biases

Answer 12

Answer Loss Aversion Bias : The fear of losses leads to inaction.

Explanation

Choice Paralysis: The availability of too many options for investment can lead to a situation of
not wanting to evaluate and make the decision and thus lead to inaction.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 13 Schemes of different Mutual Funds give different returns and this can be
mainly due to .

(a) The Investment Strategy and Portfolio composition of the scheme

(b) The brokerage charged by different brokers thro' whom the MF trade

(c) SEBI charges applied on various stock exchanges

(d) The cost of administration in the Mutual Fund

Question 14 is an Individual Investor.

(a) Hindu Undivided Family

(b) Non Resident Indians

(c) Qualified Foreign Investors

(d) All of the above

Correct Answer 13 The Investment Strategy and Portfolio composition of the scheme

Correct Answer 14 All of the above

Answer Individual investors include resident investors who are competent to contract,
Explanation Minors, Hindu undivided family, Non-resident Indians and Qualified Foreign
Investors.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 15 Option means an option to BUY the security.

(a) Put Option

(b) Call Option

(c) Arbitrage Option

(d) Swap Option

Question 16 offers benefit under Sec 80 C of the Income Tax Act and
also has scope of good appreciation.

(a) Bank Deposits in Nationalised Banks

(b) Public Provident Fund

(c) Equity Linked Saving Schemes

(d) Kisan Vikas Patra

Correct Call Option

Answer 15

Answer An option to buy a security is called a call option; an option to sell a security is called
Explanation a put option.

The seller of the option is also called the writer of the option. The buyer is the investor in the
option.

Correct Equity Linked Saving Schemes

Answer 16

Answer Equity Linked Savings Schemes (ELSS) is a special category of diversified equity funds.
Explanation Investment in ELSS to the extent of Rs. 1.5 lakh in a year enjoys a tax deduction under Section
80C of the Income Tax Act.

Since ELSS invest in Equity, there is a good scope of apprecaition.

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 17 The National Securities Clearing Corporation Ltd (NSCCL) is a counter

party to both sides of a Collateralised borrowing and lending obligations
(CBLO) transaction - True or False ?

(a) TRUE

(b) FALSE

Question 18 When a folio is held jointly, the PAN and KYC process has to be complied
with by .

(a) Only the first holder

(b) Any one of the joint holders

(c) The joint holders depending upon mode of operation

(d) All the joint holders

Correct Answer 17 False

Answer The Clearing Corporation of India (CCIL) acts as counterparty to both sides
Explanation on a CBLO deal and its system matches borrowing and lending orders.

Correct Answer 18 All the joint holders

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 19 stocks are generally the first to rise in a bull run.

(a) Large Cap

(b) Mid Cap

(c) Small Cap

(d) Pharma

Question 20 Which of these is TRUE ?

(a) informing about family's medical history is a breach of good faith

after receiving the insurance policy, the insured need not disclose the facts he
(b) had concealed

insurable interest is of no significance in life insurance contracts but has a lot

(c) of importance in Non life insurance

Any information which can influence the insurer risk perception of the insured
(d)
is important

Correct Answer 19 Large Cap

Answer A bull run in the equity markets starts off with large cap stocks and then
Explanation moves on to mid and small caps.

Correct Answer 20 Any information which can influence the insurer risk perception of the insured
is important
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 21 Correlation between two asset class return series ranges from .

(a) -10 to + 10

(b) -1 to + 1

(c) -1 to zero

(d) -Infinity to + Infinity

Question 22 Health insurance and motor insurance are examples of .

(a) Income replacement need

(b) Income protection need

(c) Asset protection needs

(d) None of the above

Correct -1 to + 1
Answer 21

Answer Correlation between two asset class return series ranges from -1 to +1.
Explanation
- A correlation of -1 means that they move exactly in opposite directions.
- A correlation of +1 means that they move exactly in the same directions.

Correct Answer 22 Income protection need

Answer Income protection need is the need to protect the available income from an
Explanation unexpected charge. Health insurance and motor insurance are examples of
insurance products that cover such risks.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 23 The is the average deviation of actual returns from the average
return over a time period and is computed using a statistical formula.

(a) Variance

(b) Beta

(c) Delta

(d) Standard Deviation

Question 24 In case of a PASS THROUGH CERTIFICATE, which amongst the

following is FALSE ?

(a) Low liquidity

(b) Issued by Government of India

(c) Can be Listed

(d) Credit Rating is compulsary

Correct Answer 23 Standard Deviation

Correct Answer 24 Issued by Government of India

Answer Pass Through Certificates can be issued by Private Companies also.

Explanation
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 25 Risk appetite is higher when life expectancy is .

(a) shorter

(b) longer

(c) Life expectancy does not have an effect on risk appetite

(d) None of the above

Question 26 A new bond maturing in 10 years is issued at Rs 100, coupon of 9%

payable annually. If the interest rates fall to 8% after a year, the investors
will face a .

(a) Credit Risk

(b) Default Risk

(c) Reinvestment Risk

(d) Repricing Risk

Correct Longer
Answer 25

Answer Life expectancy has a positive relationship with risk appetite.

Explanation
Longer the expected life, higher the risk appetite.

Correct Answer 26 Reinvestment Risk

Answer If the investors cannot reinvest the money at the same or higher rate of
Explanation interest, they face a reinvestment risk.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 27 Which among the following statements is FALSE with respect to a minor
investing in a Mutual Fund ?

(a) Minor can be a single holder

(b) Minor can be a joint holder along with gaurdians

(c) Minor can be joint holders along with any other person

(d) Minor can be a joint holder along with parents

Question 28 The risk and return features of a mutual fund scheme will be defined by
.

(a) Investment objective and asset class chosen

(b) Asset class performance and investment style adopted

(c) Market cycles and portfolio selection

(d) Economic cycle and fund manager expertise

Correct Answer 27 Minor can be joint holders along with any other person

Answer An investment on behalf of a minor cannot have joint holders. Thus

Explanation investments can be held solely by the minor or jointly with the guardians, as
allowed by the terms of the investment product.

Correct Investment objective and asset class chosen

Answer 28

Answer The investment objective of a fund describes what the fund seeks to achieve.
Explanation

In order to decide suitability of a fund to investors, information about how the money
would be invested by the fund is important. This is defined by the investment objective of a
fund.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 29 Generally more number of Initial Public Offers (IPO's) are made during
.

(a) phases of low economic growth

(b) bullish market conditions

(c) bearish market conditions

(d) range bound market conditions

Question 30 Investors who undergo a change in status from resident to non-resident

or vice versa have to .

(a) change their Status with the respective financial service providers

(b) change the details of address

(c) change the details in their bank accounts

(d) all of the above

Correct Answer 29 bullish market conditions

Answer In bullish markets the investor confidence in the markets is high and during
Explanation these phases, the IPOs get good response and get subscribed. So we generally
see more numbar of IPOs during bullish market conditions.

Correct Answer 30 all of the above

 The meaning of 'Uberrimae Fidei' is .
Question 1
(a) Income replacement need

(b) Information asymmetry

(c) Income protection need

(d) Utmost good faith

Question 2 Which amongst the following would you suggest to an investor who is
looking for capital appreciation ?

(a) PPF

(b) Equity Mutual Funds

(c) Kisan Vikas Patra

(d) Treasury Bills

Correct Answer 1 Utmost good faith

Answer Its the obligation of the insured person to disclose all relevant information
Explanation truthfully. For eg. Family history of medical conditions, habits regarding
smoking and drinking, nature of the profession etc. have implications on risk
perception.

These need to be disclosed by the insured before getting covered by the

insurer. If this is not done, the insured is said to have acted in breach of good
faith.

Correct Answer 2 Equity Mutual Funds

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 3 The financial goals of a person are personal to him and therefore the
Financial Planner have no role in influencing them - State True or False ?

(a) TRUE

(b) FALSE

Question 4 Mr. Swami has invested in an ELSS scheme of a mutual fund a year back.
Now he wishes to invest in an MIP of the same mutual fund. Can it be
held under the same folio?

(a) Will depend upon the particular mutual fund policy

(b) Can be held in either the same folio or different folio

(c) Can be held only under the same folio

(d) No, since the scheme is different

Correct Answer 3 False

Answer The Financial Planner may have to provide inputs on the financial goals,
Explanation especially if the client is financially constrained. Also the Financial Plannert
has to help the client prioritize, so that less critical goals are deferred or even
dropped.
So in such cases and other similar cases, the Financial Planner influences the
financial goals of an individual.

Correct Answer 4 Can be held in either the same folio or different folio
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 5 Theft / Burglary Insurance is an example of .

(a) Income replacement need

(b) Income protection need

(c) Asset protection needs

(d) All of the above

Question 6 The Indian derivative foreign exchange market is .

(a) OTC Market

(b) Exchange Traded Market

(c) Both OTC and Exchange Traded

(d) None of the above

Correct Answer 5 Asset protection needs

Answer Asset protection needs is the need to protect assets created. Insurance against
Explanation theft or destruction of goods is an example of insurance product that covers
the risk.

Correct Answer 6 Both OTC and Exchange Traded

Answer The Indian foreign exchange market has an OTC derivatives market as well as
Explanation an exchange traded derivatives market.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 7 In which analysis are the Economic, Industry and Company (EIC) factors
considered ?

(a) Bottom up approach of Technical Analysis

(b) Candle Stick pattern of Technical Analysis

(c) Top Down approach of Fundamental Analysis

(d) Bollinger Band analysis

Question 8 As per the SEBI (Alternate Investment Funds) Regulations, 2012.

Category Alternative Investment Fund does not fall in Category
I and III and does not undertake leverage or borrowing other than to
meet day-today operational requirements and as permitted in these
regulations. Fill in the blanks.

(a) IV

(b) V

(c) II

(d) None of the above

Correct Answer 7 Top Down approach of Fundamental Analysis

Answer Techinal Analysis is more to do with analysing the historic prices and volumes
Explanation in a security.

If the analysis begin from studying the Economy, then Industry and then
Company - Its called Top Down approach.

If the analysis begin from studying the company first and then the industry
and Economy, its called Bottom Up approach.

Correct Answer 8 II
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 9 Which of the following process is most time consuming with respect to
investments in equities ?

(a) Non-discretionary Portfolio Management Services

(b) Discretionary Portfolio Management Services

(c) Mutual Funds

(d) Direct Investing

Question 10 A order is an instruction to buy or sell at the best price

currently available in the market.

(a) market

(b) limit

(c) stop loss

(d) Immediate or cancel (IOC)

Correct Answer Direct Investing

9

Answer Direct investing in equity requires access to information, skills to analyse and
Explanation time to monitor and rebalance the portfolio by continuous evaluation.

Mutual Funds require the least amount of time of an investor..

In a discretionary PMS, the portfolio manager manages the portfolio in

alignment with the investor’s requirement.

In a non-discretionary PMS, the portfolio manager will provide advice

and information to the investor who will themselves take the decisions on
investment choices and timing of the investment.

Correct Answer 10 market

Answer A ‘market order’ is an instruction to buy or sell at the best price

Explanation currently available in the market.

A ‘limit order’ is where the investor specifies the maximum price at which
they are willing to buy or the minimum price at which they are willing to sell.

An ‘immediate or cancelled’ (IOC) order is executed immediately (fully or

partly) or cancelled if not executed.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 11 If an investor has registered with the Centralised KYC Registration

Agency (KRA), this will be applicable with all .

(a) Mutual Funds

(b) Registered Stock Brokers

(c) Depositories

(d) All of the Above

Question 12
In the Indian currency future markets, which amongst the following is the
correct contract size ?

(a) 1000 units of a foreign currency except JPY which is 10000

(b) 1000 units of a foreign currency except JPY which is 100000

(c) 10000 units of a foreign currency except JPY which is 100000

(d) 10000 units of a foreign currency except JPY which is 1000

Correct Answer 11 All of the Above

Answer SEBI has introduced the system of KYC Registration Agency (KRA) to
Explanation enable this.

Intermediaries covered under the uniform KYC norms include mutual funds,
DPs, stock brokers, portfolio managers, venture capital funds and collective
investment schemes.

Correct Answer 12 1000 units of a foreign currency except JPY which is 100000

Answer The contract size in the case of USDINR it is USD 1000; EURINR it is EUR
Explanation 1000; GBPINR it is GBP 1000 and in case of JPYINR it is JPY 100,000.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 13 Investors hold on to some information that may no longer be relevant,

and make their decisions based on that - This is known as bias.

(a) Choice Paralysis

(b) Anchoring

(c) Recency

(d) Familiarity

Question 14 The shares which are listed on a Stock Exchange after an IPO are listed
at .

(a) the issue price or at a premium or Discount to the issue price

(b) the issue price only

(c) a premium

(d) a discount

Correct Answer 13 Anchoring

Answer In Anchoring bias, Investors stick to some information that may no longer be
Explanation relevant. New information is labelled as incorrect or irrelevant and ignored in
the decision making process.

For example - Investors may be holding some loss making stocks, but they
still do not sell them expecting the stock to perform well, even though there
are negative news inflow of the company.

Correct Answer 14 the issue price or at a premium or Discount to the issue price

Answer The listing price of the shares is decided by the market forces, and can list at
Explanation any price.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 15 Insurable interest is not of any importance in LIFE insurance contracts -

State True or False ?

(a) TRUE

(b) FALSE

Question 16 Which of the following is NOT considered while calculating Return on

Investments (ROI) ?

(a) Expected dividend

(b) Periodic interest

(c) Unrealized capital appreciation

(d) Realized capital appreciation

Correct Answer 15 False

Answer With regard to a life insurance policy, an insurable interest is based on a
Explanation relationship whereby there is a common interest in another person continuing
to live or a financial loss that would result at that person’s death.

When applying for life insurance coverage, it is typically required that the
beneficiary have an insurable interest in the person who is being insured.

Correct Answer 16 Expected dividend

Answer ROI = Return ie. Profits - Investments / Investments

Explanation
Only those profits are considered which are certain. Expected dividend is an
uncertainty.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 17 have no fixed maturity.

(a) Open Ended Debt Schemes

(b) Fixed Deposits

(c) Debentures

(d) Bonds

Question 18 Does one need to open a new Demat a/c when a minor turns into a major
?

(a) Yes

(b) No

Correct Answer 17 Open Ended Debt Schemes

Answer Open-ended debt schemes have no maturity even though the scheme invests in
Explanation securities with fixed tenors.

The fund manager manages cash flows to earn market returns and provide
liquidity to investors even though the underlying securities are illiquid.

Correct Answer 18 Yes

Answer Since demat accounts of minors can be held only on single-name basis,
Explanation the account opening process has to be redone for a minor-turned-major.
Securities held in the old demat account with minor status are transferred to
the new demat account.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 19 The costs mentioned in today's terms can be translated into the rupee
requirement in future using the formula and the same
formulae can be used for finding out the future value of an amount
invested today.

(a) P X (1 + i) ^n

(b) P X (1 - i) ^n

(c) P / (1 + i) ^n

(d) P + (1 + i)^ n

Question 20 Housing Loan is an example of Mortgage Loan - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 19 P X (1 + i) ^n

Correct Answer 20 True

Answer Mortgage is a debt instrument, secured by a collateral of specified real estate

Explanation property. The loan is secured on the borrowers property.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 21
While constructing a CORE Portfolio, which of these options is not
considered ?

(a) Blue Chip Stocks

(b) Small Cap Stocks

(c) Long term goals of the investor

(d) Strategic needs of the investor

Question 22 Ratio is an indication of indebtedness.

(a) Solvency Ratio

(b) Expenses Ratio

(c) P/E Ratio

(d) Leverage Ratio

Correct Answer 21 Small Cap Stocks

Answer The core portfolio is constructed to meet the long-term goals and strategic
Explanation needs of an investor. It usually consists of Large Cap and Blue Chip stocks.

Changes in the core portfolio are rarely made, only when there is a change in
investor needs, objectives or life stage.

Correct Answer 22 Leverage Ratio

Answer Leverage Ratio measure of the role of debt in the asset build-up of the
Explanation investor. Higher the leverage, more risky it is for the individual’s financial
situation.

It is calculated as Total Liabilities / Total Assets.

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 23 Which bias prevents an investor from benefiting from market

corrections?

(a) Recency Bias

(b) Familiarity Bias

(c) Confidence Bias

(d) Herd Mentality Bias

Question 24 is the decision that comes out of calls on the likely behaviour
of the market.

(a) Strategic asset allocation

(b) Tactical asset allocation

(c) Investor risk profile

(d) None of the above

Correct Answer 23 Herd Mentality Bias

Answer Herd mentality is characterized by a lack of individual decision-making or

Explanation thoughtfulness, causing people to think and act in the same way as the
majority of those around them.

Small investors keep watching other participants for confirmation and then
end up entering when the markets are over heated and poised for correction.

Correct Answer 24 Tactical asset allocation

Answer Tactical Asset Allocation is the decision that comes out of calls on the likely
Explanation behaviour of the market.

Strategic Asset Allocation is the ideal that comes out of the risk profile of the
individual.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 25 If the real rate of interest is 5% and rate of inflation is 3%, what is the
nominal rate of return?

(a) 8%

(b) 8.15%

(c) 2%

(d) 2.74%

Question 26 Stocks which have a beta greater than one are likely to be riskier
than the market.

(a) more

(b) less

(c) equally

(d) no effect

Correct Answer 25 8.15%

Answer The Formula is : ( 1+Nominal Rate)= (1+Real Rate)*(1+Inflation Rate)

Explanation
Therefore ( 1+Nominal Rate) = (1+.05) * (1+.03)

( 1+Nominal Rate) = 1.05 x 1.03

( 1+Nominal Rate) = 1.0815

Nominal Rate = 1.0815 - 1 = .0815 = 8.15%

Correct Answer 26 more

Answer Beta measures the systematic risk in a stock by measuring the volatility in the
Explanation price of a stock relative to the overall market.

The market index is assumed to have a beta of 1. Stocks with a beta greater
than one are likely to be riskier than the market. Stocks with beta less than one
are less risky than the market.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
ERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 27 Of the various factors affecting risk appetite of an individual, which of

the below mentioned factors does NOT have a negative relationship with
risk appetite ?

(a) Age of the individual

(b) Number of dependents

(c) Life Expectancy

(d) Both Life Expectancy and Age

Question 28 A company declares 50% dividend. On which value is this payable ?

(a) Market Price of the company's share

(b) Face Value of the company's share

(c) Either Face or Market value, which ever is lower

(d) Either Face or Market value, which ever is higher

Correct Answer 27 Life Expectancy

Answer Age - Lower the age, higher the risk that can be taken (negative relationship)
Explanation
No. of Dependents - Risk appetite decreases as the number of dependent
members increases (negative relationship)

Life Expectancy - Risk appetite is higher when life expectancy is longer

(positive relationship)

Correct Answer 28 Face Value of the company's share

Answer Dividend is always payable on Face Value. So if a company declares 50%

Explanation dividend and the face value of its share is Rs 10, then Rs 5 ( 50% of Rs 10) is
the dividend payable per share.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 4

Question 29 In the SEBI (Alternate Investment Funds) Regulations, 2012, the funds
that employs diverse or complex trading strategies are classified as
.

(a) Category I Alternative Investment Fund

(b) Category II Alternative Investment Fund

(c) Category III Alternative Investment Fund

(d) Sector Funds

Question 30 The Gross Domestic Product - GDP calculations are done on the value of
goods and services at their prices.

(a) Cost

(b) Market

(c) Notional

(d) Cost or Market -which ever is higher

Correct Answer 29 Category III Alternative Investment Fund

Answer Category I Alternative Investment Fund invests in start-up or early stage

Explanation ventures etc.

Category II Alternative Investment Fund does not fall in Category I and III
etc.

Category III Alternative Investment Fund employs diverse or complex trading

strategies etc.

Correct Answer 30
Market

Answer GDP computation values goods and services at their market prices and not
Explanation cost.
 Question 1 'Style Box' is a part of the

(a) Financial Advisors Kit

(b) Mutual Fund Fact Sheet

(c) Insurance Companies Marketing Tool

(d) None of the above

Question 2 In addition to the risk of each investment and its weight in the portfolio,
portfolio risk will also depend on the between the asset
classes included in it.

(a) Standard deviation

(b) Correlation

(c) Variance

(d) Theta

Correct Answer 1 Mutual Fund Fact Sheet

Answer Style of a Mutual fund scheme is represented using a style box. The style box

Explanation shows a overview of the category of the fund ie. Aggressive, Passive etc.

Correct Answer 2 correlation

Answer In addition to the risk of each investment and its weight in the portfolio,

Explanation portfolio risk will also depend on the CORREALATION between the asset

classes included in it.

If the assets included in the portfolio have a negative correlation, then by

combining them there is a scope to reduce total portfolio risk.

 Question 3 Money Back policies allow the insured to decide on the kind of portfolio

(mix of asset classes, such as debt and equity) that the insurer
should maintain for the savings portion - State True or False ?

(a) True

(b) False

Question 4 What does it mean by RISK APPETITE ?

(a) Its the level of risk the investor is comfortable with

(b) Its the level of risk the investor should take to fulfill his financial goals

(c) Its the level of risk the investor should take based on his age

(d) Its the proportion of the investors portfolio in risk instruments like equity etc

Correct Answer 3 False

Answer Unit-linked insurance policies allow the insured to decide on the kind of

Explanation portfolio.

Correct Answer 4 Its the level of risk the investor is comfortable with

Answer Risk Appetite is a very personal factor. Although factors like age,

Explanation employability etc. does affect it, but ultimately its the level at which the

investor is comfortable which is most important.

Two sets of individual who have same age and other factors can still
have different risk appetite.
Question 5 For dealing in foreign exchange market, the intermediaries need to be

registered with .

(a) SEBI

(b) RBI

(c) FEDAI - Foreign Exchange Dealers Association of India

(d) Finance Ministry

Question 6 A company (issuer of shares) who comes out with a Initial Public Offer -

IPO has to sign an listing agreement with .

(a) SEBI

(b) RBI

(c) Depository

(d) Stock Exchange

Correct Answer 5 RBI

Correct Answer 6 Stock Exchange.

Answer Explanation -

Shares issues in the IPO have to be traded in the secondary markets ie.
The Stock Exchange. The issuer of the shares has to sign the listing
agreement with the Stock Exchanges and the company to disclose
information about its working, financial and other key information that
may affect the share prices.
 Question 7 The seller of the option is also called the of the option.

(a) investor

(b) writer

(c) arbitrageur

(d) exerciser

Question 8 The Core Portfolio is that portfolio of securities that have been bought

keeping the short terms market trends in mind and to benefit from such

short term movements - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 7 writer

Answer The seller of the option is also called the writer of the option. The buyer is the

Explanation investor in the option.

Correct Answer 8 False

Answer The core portfolio is constructed to meet the long-term goals and strategic

Explanation needs of an investor. Investments that are part of the core are long-term

holdings. Changes in the core portfolio are made only when there is a change

in investor needs, objectives or life stage.

 Question 9 'Model Portfolio' means _.

(a) A single portfolio for all investors of an age group

(b) A portfolio for each client profile, which is customised for each investor

(c) A special portfolio suitable for all types of investors

(d) A portfolio which gives the highest returns

Question 10 gives the buyer a right but not the obligation to SELL the

underlying at a predetermined price during a predetermined period.

(a) Put Option

(b) Call Option

(c) In the Money CALL Option

(d) Futures

Correct Answer 9 A portfolio for each client profile, which is customised for each investor

Answer The model portfolios hold an indicative allocation that may be suitable for
Explanation investors who fit the defined risk profile and investment objective.

Correct Answer 10 Put Option

 Question 11 Bias means holding on to an old information that may no

longer be relevant, and make their decisions based on that.

(a) Anchoring

(b) Familiarity

(c) Herd Mentality

(d) Choice Paralysis

Question 12 A person can have a maximum of PPF Account(s) in his/her name

in
India.

(a) 5

(b) 3

(c) 2

(d) 1

Correct Answer 11 Anchoring

Answer Investors hold on to some information that may no longer be relevant, and

Explanation make their decisions based on that. New information is labeled as incorrect or

irrelevant and ignored in the decision making process. This is known as

Anchoring bias.

Correct Answer 12 1
 Question 13 In bias, the impact of current events on decision making can be

very strong and investors tend to extrapolate the event into the future
and expect a repeat.

(a) Herd Mentality

(b) Loss Aversion

(c) Recency

(d) Familiarity

Question 14 Which of the below mentioned stocks have a high BETA ?

(a) Pharma Company Stocks

(b) Defensive Stocks

(c) Growth Stocks

(d) High Yield Stocks

Correct Answer 13 Recency

Answer In Recency Bias the impact of recent events on decision making is strong.

Explanation This applies equally to positive and negative experiences.

For example - In a bear market, when prices of securities are low, still

investors do not invest as they belive the recent events which caused bear

market will continue.

Correct Answer 14 Growth Stocks

Answer Beta measures the risk in a stock by measuring the volatility in its price in

Explanation reaction the movements of overall market.

A high beta is associated with riskier growth stocks ie. stocks that move up

quickly when the economy is doing well and decline rapidly during periods of

low economic growth.

A low beta is associated with defensive stocks like Pharma and Consumer

goods companies.
 Question 15 A high turnover (volume) in a stock indicates .

(a) Lower volatility

(b) Higher Price

(c) Higher Liquidity

(d) Higher Returns

Question 16 Of the following statements, which one of them is FALSE with respect to

Monthly Income Plans ?

(a) MIPs assure a guaranteed monthly income

(b) MIPs invest both in Equity and Debt

(c) MIPs can be easily liquidated

(d) MIPs have no upper limits for investments

Correct Answer 15 Higher Liquidity

Answer Higher the volumes in a stock in the stock markets, higher will be the liquidity

Explanation - it will be easier to buy or sell higher amount of shares easily.

Correct Answer 16 MIPs assure a guaranteed monthly income

Answer In MIPs - monthly income is intended but not guaranteed.

Explanation
 Question 17 When an NRI returns to India and becomes a Resident Indian, he/she has to
do which of the following with respect to holdings in demat account?.

(a) He/She will have to open a new demat account and transfer holdings

(b) He/She can operate the existing demat account

(c) He/She can change the existing account status to resident

(d) He/She will have to open a new account for future investment and
maintain current account for existing investments.

Question 18 Call risk exists in callable debt securities - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 17 He/She will have to open a new demat account and transfer holdings

Answer When a NRI returns to India, a new demat account with ‘Resident’
Explanation status needs to be opened.

All the balances held in the NRI demat account shall be transferred to the new

‘Resident’ demat account. After transfer, the NRI demat account will

get closed.

Correct Answer 18 True

Answer Usually securities are called back when interest rates decline and the issuers

Explanation want to retire high-cost debt and re-issue fresh debt at lower rates. So the

investor who has invested in such securities have to re-invest in lower interest

securities. Thus Call risk exists in callable debt securities.

Question 19 The Pension Account of National Pension System (NPS) is known as .

(a) Tier I

(b) Tier II

(c) Tier III

(d) Asset Class E

Question 20 A person has sold a PUT option ( gone short ) because he believes that .

a) the price of the underlying will not fall below the strike price

b) the price of the underlying will go below the strike price

c) the price of the underlying will not fall below the current market price

d) the price of the underlying will not rise above the strike price

Correct Answer 19 Tier I

Tier I A/c of the National Pension System (NPS) is the Pension account and is
Answer non-withdrawable.

Explanation
Tier II A/c is the Savings account and is withdrawable to meet financial
contingencies. An active Tier I account is a pre-requisite for opening a Tier II
account.

Correct Answer 20 The price of the underlying will not fall below the strike price

When a person sells a PUT option, he is a bullish or sideway movement view.

He is of the belief that the price of the underlying will either rise or not fall
Answer below the strike price.
Explanation
 Question 21 Monthly Income Plans of Mutual Funds have a guaranteed return option

- State True or False ?

(a) True

(b) False

Question 22 In case of Non-Resident Ordinary (NRO) account, which of these options is

True ?

(a) Interest earned in this account can be repatriated

(b) It can be maintained by Indian residents

(c) It can be denominated in foreign currency

(d) It can be used to make repatriative investments

Correct Answer 21 False

Answer In MIPs, monthly dividend pay-out is intended but there is no guarantee from

Explanation the fund house. This basically because MIP invest both in equity and debt and

one can never guarantee a return in equity investments.

Correct Answer 22 Interest earned in this account can be repatriated

Answer The interest earned on NRO Savings Account is repatriable after payment of
taxes applicable in India.
Explanation
 Question 23 The FACT SHEETS of a Mutual Fund are published on a basis.

(a) weekly

(b) monthly

(c) quarterly

(d) half yearly

Question 24 Which amongst these is the costliest form of loan ?

(a) Vehicle Loan

(b) Personal Loan

(c) Mortgage Loan

(d) Revolving Credit

Correct Answer 23 monthly

Answer Mutual funds publish fact sheets, which are used as a source of information to

Explanation track the fund performance and portfolios on a monthly basis.

Correct Answer 24 Revolving Credit

Answer Personal Loans and Credit Card loans both are expensive. But Revolving

Explanation Credit in Credit cards is most expensive.

When the credit card user does not pay the entire amount i.e. some amount is

carried over for payment in the following business cycles, it is called

“revolving credit”. If a credit card company charges 3% p.m. as interest, the

compunded cost come to around 42%, which is an exorbitant cost.
Question 25 Qualified Foreign Investors are considered to be .

(a) Institutional Investors

(b) Individual Investors

(c) They are not allowed to invest in India

(d) None of the above

Question 26 Investments in are most likely to be affected by rising inflation ?

(a) Bank deposits

(b) Equity shares

(c) Gold

(d) Property

Correct Answer 25 Individual Investors

Correct Answer 26 Bank deposits

Bank deposits have a fixed rate of interest and if inflation rises, the post
Answer inflation returns on Bank FD’s shrink.

Explanation
 Question 27 In a Discretionary Portfolio Management Service, portfolio manager will provide
advice and information to the investors who will themselves take the
decisions on investment choices and timing of the investment. - State True
or False ?

(a) True

(b) False

Question 28 Who decides the proportion of a public issue of shares allocated to

various categories of investors ?

(a) The issuing company

(b) The Stock Exchange

(c) SEBI

(d) Registrar

Correct Answer 27 False

Answer In a discretionary PMS, the portfolio manager manages the portfolio in

Explanation alignment with the investor‟ s requirement.

In a non-discretionary PMS the portfolio manager will provide advice

and information to the investor who will themselves take the decisions on

investment choices and timing of the investment.

Correct Answer 28 SEBI

Answer There are three categories of investors in an public issue - Qualified

Explanation institutional buyers (QIBs), High net worth individuals and Retail Investors.

The proportion of the issue that has to be offered to these categories is

stipulated by SEBI regulations.
Question 29 A copy of the Pancard can be attested by .

(a) Broker

(b) Bank Manager

(c) Financial Advisor who is KYD compliant

(d) All of the above

Question 30 Collateralised borrowing and lending obligations (CBLO) are issued with

1 to 14-day tenor - True or False ?

(a) TRUE

(b) FALSE
 Question 1
Reduction in risks of a portfolio strongly depends on the .

(a) Correlation

(b) Variance

(c) Standard Deviation

(d) Delta

Question 2 In investments through , the investor can easily evaluate the

performance over different time horizons.

(a) Mutual Funds

(b) Discretionary Portfolio Management Service

(c) Non Discretionary Portfolio Management Service

(d) FII

Correct Answer 1 Correlation

Answer In addition to the risk of each investment and its weight in the portfolio,
Explanation portfolio risk will also depend on the correlation between the asset classes
included in it.

.
Correct Answer 2 Mutual Funds

Answer In Mutual Funds, investors can easily evaluate how the fund has performed
Explanation over different time horizons.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 3 Which amongst the following are characteristics of Satellite portfolio ?

(a) Its actively managed

(b) Its highly volatile

(c) Its involves high churning of stocks in portfolio

(d) All of the above

Question 4 Which of the following factor is not considered as a description of risk ?

(a) Current Yield

(b) Volatility

(c) Default

(d) Mismatch between actual returns and estimated returns

Correct Answer 3 All of the above

Answer Satellite investments are managed in order to benefit from economic and
Explanation market conditions. They involve regular buying and selling of securities as per
market trends.

Correct Answer 4 Current Yield

Answer Volatility, Default Risk and Return mismatch are risks associated with
Explanation investments.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 5 When a NRI becomes a Resident Indian, which of the following needs to
be changed in the KYC wrt. Mutual Fund investments ?

(a) Only Status

(b) Only Bank Details

(c) Only address

(d) Status, Bank Details and Address

Question 6 Certificates of Deposits are predominantly issued by banks, to meet short-

term requirements of funds. They can be issued for maturities up to
days.

(a) 90 days

(b) 182 days

(c) 1 to 14 days

(d) 364 days

Correct Answer 5 Status, Bank Details and Address

Correct Answer 6 364 days

Answer CDs are predominantly issued by banks, to meet short-term requirements of

Explanation funds. They can be issued for maturities up to 364 days.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 7 is actually a consumption expenditure but can prove to be a

smart investment.

(a) Buying the latest model of a car

(b) Going on a foreign vacation

(c) Buying a hi end music system

(d) Education

Question 8 In the National Pension Scheme (NPS), the Government offers an assured
return as per the prevailing interest rates - State True or False ?

(a) TRUE

(b) FALSE

Correct Answer 7 Education

Correct Answer 8 False

Answer The NPS invests some portion in equities and thus cannot offer an assured rate
Explanation of return.

.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 9 Investment with is the riskiest.

(a) high credit rating

(b) low standard deviation

(c) low market volatility

(d) high beta

Question 10 Foreign Exchange exposures can be managed in in India

(a) Only in OTC Markets

(b) Only in Exchange Traded Markets

(c) Exchange Traded Markets and OTC Markets

(d) Call Money Markets

Correct high beta

Answer 9

Answer Beta measures the systematic risk in a stock by measuring the volatility in the price of a
Explanation stock relative to the overall market.

A high beta is associated with riskier growth stocks. Equity stocks that move up quickly
when the economy is doing well and decline rapidly during periods of low economic growth
are high beta stocks.

Correct Exchange Traded Markets and OTC Markets

Answer 10

Answer The Indian foreign exchange market has an OTC derivatives market as well as an exchange
Explanation traded derivatives market.

OTC markets are basically trade between registered entities like Banks, Importers, Exporters
etc. Exchange traded markets are basically trades executed on recognised stock / currency
exchanges.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 11 as an asset class generally gives the best return during phases of
high growth.

(a) Gold

(b) Debt

(c) Real Estate

(d) Equity

Question 12 A state of inaction is caused by which of the following bias or biases ?

(a) Only Recency bias

(b) Only Herd Mentality bias

(c) Only Loss Aversion bias

(d) Both Loss Aversion and Choice Paralysis biases

Correct Equity
Answer 11

Answer Equity markets tends to perform the best during phases of high growth,
Explanation

Correct Both Loss Aversion and Choice Paralysis biases

Answer 12

Answer Loss Aversion Bias : The fear of losses leads to inaction.

Explanation

Choice Paralysis: The availability of too many options for investment can lead to a situation of
not wanting to evaluate and make the decision and thus lead to inaction.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 13 Schemes of different Mutual Funds give different returns and this can be
mainly due to .

(a) The Investment Strategy and Portfolio composition of the scheme

(b) The brokerage charged by different brokers thro' whom the MF trade

(c) SEBI charges applied on various stock exchanges

(d) The cost of administration in the Mutual Fund

Question 14 is an Individual Investor.

(a) Hindu Undivided Family

(b) Non Resident Indians

(c) Qualified Foreign Investors

(d) All of the above

Correct Answer 13 The Investment Strategy and Portfolio composition of the scheme

Correct Answer 14 All of the above

Answer Individual investors include resident investors who are competent to contract,
Explanation Minors, Hindu undivided family, Non-resident Indians and Qualified Foreign
Investors.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 15 Option means an option to BUY the security.

(a) Put Option

(b) Call Option

(c) Arbitrage Option

(d) Swap Option

Question 16 offers benefit under Sec 80 C of the Income Tax Act and
also has scope of good appreciation.

(a) Bank Deposits in Nationalised Banks

(b) Public Provident Fund

(c) Equity Linked Saving Schemes

(d) Kisan Vikas Patra

Correct Call Option

Answer 15

Answer An option to buy a security is called a call option; an option to sell a security is called
Explanation a put option.

The seller of the option is also called the writer of the option. The buyer is the investor in the
option.

Correct Equity Linked Saving Schemes

Answer 16

Answer Equity Linked Savings Schemes (ELSS) is a special category of diversified equity funds.
Explanation Investment in ELSS to the extent of Rs. 1.5 lakh in a year enjoys a tax deduction under Section
80C of the Income Tax Act.

Since ELSS invest in Equity, there is a good scope of apprecaition.

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 17 The National Securities Clearing Corporation Ltd (NSCCL) is a counter

party to both sides of a Collateralised borrowing and lending obligations
(CBLO) transaction - True or False ?

(a) TRUE

(b) FALSE

Question 18 When a folio is held jointly, the PAN and KYC process has to be complied
with by .

(a) Only the first holder

(b) Any one of the joint holders

(c) The joint holders depending upon mode of operation

(d) All the joint holders

Correct Answer 17 False

Answer The Clearing Corporation of India (CCIL) acts as counterparty to both sides
Explanation on a CBLO deal and its system matches borrowing and lending orders.

Correct Answer 18 All the joint holders

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 19 stocks are generally the first to rise in a bull run.

(a) Large Cap

(b) Mid Cap

(c) Small Cap

(d) Pharma

Question 20 Which of these is TRUE ?

(a) informing about family's medical history is a breach of good faith

after receiving the insurance policy, the insured need not disclose the facts he
(b) had concealed

insurable interest is of no significance in life insurance contracts but has a lot

(c) of importance in Non life insurance

Any information which can influence the insurer risk perception of the insured
(d)
is important

Correct Answer 19 Large Cap

Answer A bull run in the equity markets starts off with large cap stocks and then
Explanation moves on to mid and small caps.

Correct Answer 20 Any information which can influence the insurer risk perception of the insured
is important
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 21 Correlation between two asset class return series ranges from .

(a) -10 to + 10

(b) -1 to + 1

(c) -1 to zero

(d) -Infinity to + Infinity

Question 22 Health insurance and motor insurance are examples of .

(a) Income replacement need

(b) Income protection need

(c) Asset protection needs

(d) None of the above

Correct -1 to + 1
Answer 21

Answer Correlation between two asset class return series ranges from -1 to +1.
Explanation
- A correlation of -1 means that they move exactly in opposite directions.
- A correlation of +1 means that they move exactly in the same directions.

Correct Answer 22 Income protection need

Answer Income protection need is the need to protect the available income from an
Explanation unexpected charge. Health insurance and motor insurance are examples of
insurance products that cover such risks.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 23 The is the average deviation of actual returns from the average
return over a time period and is computed using a statistical formula.

(a) Variance

(b) Beta

(c) Delta

(d) Standard Deviation

Question 24 In case of a PASS THROUGH CERTIFICATE, which amongst the

following is FALSE ?

(a) Low liquidity

(b) Issued by Government of India

(c) Can be Listed

(d) Credit Rating is compulsary

Correct Answer 23 Standard Deviation

Correct Answer 24 Issued by Government of India

Answer Pass Through Certificates can be issued by Private Companies also.

Explanation
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 25 Risk appetite is higher when life expectancy is .

(a) shorter

(b) longer

(c) Life expectancy does not have an effect on risk appetite

(d) None of the above

Question 26 A new bond maturing in 10 years is issued at Rs 100, coupon of 9%

payable annually. If the interest rates fall to 8% after a year, the investors
will face a .

(a) Credit Risk

(b) Default Risk

(c) Reinvestment Risk

(d) Repricing Risk

Correct Longer
Answer 25

Answer Life expectancy has a positive relationship with risk appetite.

Explanation
Longer the expected life, higher the risk appetite.

Correct Answer 26 Reinvestment Risk

Answer If the investors cannot reinvest the money at the same or higher rate of
Explanation interest, they face a reinvestment risk.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 27 Which among the following statements is FALSE with respect to a minor
investing in a Mutual Fund ?

(a) Minor can be a single holder

(b) Minor can be a joint holder along with gaurdians

(c) Minor can be joint holders along with any other person

(d) Minor can be a joint holder along with parents

Question 28 The risk and return features of a mutual fund scheme will be defined by
.

(a) Investment objective and asset class chosen

(b) Asset class performance and investment style adopted

(c) Market cycles and portfolio selection

(d) Economic cycle and fund manager expertise

Correct Answer 27 Minor can be joint holders along with any other person

Answer An investment on behalf of a minor cannot have joint holders. Thus

Explanation investments can be held solely by the minor or jointly with the guardians, as
allowed by the terms of the investment product.

Correct Investment objective and asset class chosen

Answer 28

Answer The investment objective of a fund describes what the fund seeks to achieve.
Explanation

In order to decide suitability of a fund to investors, information about how the money
would be invested by the fund is important. This is defined by the investment objective of a
fund.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 2

Question 29 Generally more number of Initial Public Offers (IPO's) are made during
.

(a) phases of low economic growth

(b) bullish market conditions

(c) bearish market conditions

(d) range bound market conditions

Question 30 Investors who undergo a change in status from resident to non-resident

or vice versa have to .

(a) change their Status with the respective financial service providers

(b) change the details of address

(c) change the details in their bank accounts

(d) all of the above

Correct Answer 29 bullish market conditions

Answer In bullish markets the investor confidence in the markets is high and during
Explanation these phases, the IPOs get good response and get subscribed. So we generally
see more numbar of IPOs during bullish market conditions.

Correct Answer 30 all of the above

pRACTICE TEST NO. 3

Question 1 Longer time to expiry in a forex derivative .

(a) increases the premium on Call Options but reduces the premium on Put
Options

(b) increases the premium on Put Options but reduces the premium on Call
Options

(c) increases the premium on both Call and Put Options

(d) decreases the premium on both Call and Put Options

Question 2 Category Alternative Investment Fund may use leverage for

trading as per the SEBI (Alternate Investment Funds) Regulations, 2012.

(a) I

(b) II

(c) III

(d) IV

Correct Answer 1 increases the premium on both Call and Put Options

Answer Option price consists of Intrinsic Value and Time Value.

Explanation
As the time progress ie. expiry draws closer, the time value decreases.

So longer the time to expiry will mean increase in the premium of both
Call and Put options.

.
Correct Answer 2 III

Answer As per the SEBI (Alternate Investment Funds) Regulations,

Explanation 2012.“Category III Alternative Investment Fund” which employs diverse
or complex trading strategies and may employ leverage including through
investment in listed or unlisted derivatives.

.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 3 In , the investor takes the investment decisions.

(a) direct investment approach

(b) discretionary portfolio management approach

(c) non-discretionary portfolio management approach

(d) direct investment and non-discretionary portfolio management approach

Question 4 Which among the following affect the option premiums in Currency or
Equity Derivatives ?

(a) The Spot ( Market ) Price

(b) The Strike Price

(c) Changes in interest rates

(d) All of the above

Correct direct investment and non-discretionary portfolio management approach

Answer 3

Answer In Discretionary portfolio management services. the portfolio manager manages the portfolio
Explantion in alignment with the investor’s requirement.

In Non-discretionary management services, the portfolio manager will provide advice and
information to the investor who will themselves take the decisions on investment choices and
timing of the investment. The portfolio manager will execute the decisions taken by the
investor.

In Direct Investment, there is no portfolio manager involved and the research and evaluation
is done by the investor who decides on what to invest in and the timing for entry and exit.
Correct All of the above
Answer 4

Answer The option premium is a function of the spot price, strike price, volatility , time to maturity and
Explantion the risk free interest rate etc.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 5 The contract size for JPYINR in the Indian currency futures market is
.

(a) 1000

(b) 10000

(c) 100000

(d) 1000000

Question 6 If the nominal rate of interest is 9% and the rate of inflation is 3%, what
is the real rate of interest?

(a) 6%

(b) 12%

(c) 6.27%

(d) 5.83%

Correct 100000
Answer 5

Answer In case of JPYINR it is JPY 100,000.

Explantion

In the case of USDINR it is USD 1000; EURINR it is EUR 1000; GBPINR it is GBP 1000

Correct 5.83%
Answer 6

Answer The Formula is : ( 1+Nominal Rate)= (1+Real Rate)*(1+Inflation Rate)

Explantion
Therefore 1 +Real Rate = (1 + Nominal Rate) / (1 + Inflation Rate)

1 +Real Rate = 1 + .09 / 1 + .03

1 +Real Rate = 1.09 / 1.03

1 +Real Rate = 1.0583

Real Rate = 1.0583 - 1 = .0583 = 5.83%

 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3
.

Question 7 GDP computation values goods and services at their .

(a) Cost Prices

(b) Market Prices

(c) Depreciated Prices

(d) None of the above

Question 8 If an investor invests in an IPO by leveraging, his profits will depend on

.

(a) The Interest he has paid and issue price

(b) Shares allotted to him and the listing premium

(c) Issue price & listing price

(d) Cost of borrowing and period of borrowing

Correct Answer 7 Market Prices

Correct Answer 8 Shares allotted to him and the listing premium

Answer When an investor invests in an IPO by using borrowed funds, he has to

Explanation get a better allotment and good listing price to cover his interest costs.

.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

The Mutual Fund Fact Sheets show each of the following except -
Question 9
(a) Sector Profile of the securities invested in.

(b) The maturity date of the instruments invested in

(c) The Style Box

(d) The Rating profile of the instruments invested in

Question 10 is not disclosed in a Mutual Fund factsheet.

(a) The portfolio of the scheme

(b) Time and price at which the shares were acquired

(c) Comparison with benchmark returns

(d) Sector wise allocation

Correct The maturity date of the instruments invested in

Answer 9

Answer Mutual Funds may not disclose details such as the date of acquisition of securities or the
Explanation residual maturity in the Fact Sheets.

Correct
Answer 10
Time and price at which the shares were acquired

Answer Mutual Fund factsheets do not disclose at which price and when the shares were
Explanation purchased or sold.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 11 When a MINOR turns into a MAJOR, which of the following

activity/activities need to be done ?

(a) A new Demat A/c needs to be opened

(b) A new PAN CARD needs to be issued

(c) Change in the Bank A/c operating instructions

(d) All of the above

Question 12 invests in start-up or early stage ventures or social ventures

or SMEs etc, as per the SEBI (Alternate Investment Funds) Regulations,
2012.

(a) Category I Alternative Investment Fund

(b) Category II Alternative Investment Fund

(c) Category III Alternative Investment Fund

(d) All of the above

Correct All of the above

Answer
11
Answer Once the minor become major, financial transactions are disallowed in their account.
Explantn
A minor cannot sign in a Bank account, but a major can - so the operating instructions will
have to change.

The PAN issued to a minor will have to be resubmitted to the Income Tax
authorities, for issuance of a new card, with the same number, but the new signature of
the minor-turned-major.

Since demat accounts of minors can be held only on single-name basis, the account opening
process has to be redone for a minor-turned-major. Securities held in the old demat account
with minor status are transferred to the new demat account.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Correct
Answer
12 Category I Alternative Investment Fund

Answer Category I AIF invests in start-up or early stage ventures or social ventures or SMEs or
Expln infastructure or other sectors or areas which the government or regulators consider as socially
or economically desirable.

Category II AIF which does not fall in Category I and III and which does not undertake
leverage or borrowing other than to meet day today oerational requirements.

Category III AIF which employs diverse or complex trading strategies and may employ
leverage including through investment in listed or unlisted
derivatives
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 13 If a person wishes to take a loan against some portion of his Mutual Fund
holdings, he will have to .

(a) Mark lien on the entire holdings, irrespective of the requirement

(b) Transfer the required portion to a new folio and mark a lien on it

(c) Transfer the required portion to a new folio and make the lender the joint
holder

(d) Mark lien only on the portion required in the existing folio

Question 14 A bull spread can be created by .

(a) Buying a CALL option and Selling a CALL Option at Same Strike Price

(b) Buying a CALL option and Selling a CALL Option at Different Strike Price

(c) Buying a CALL option and Selling a PUT Option at Same Strike Price

(d) Buying a CALL option and Selling a PUT Option at Different Strike Price

Correct Mark lien only on the portion required in the existing folio
Answer 13

Answer A lien is marked on the portion required in the same folio. There is no need to open a new
Explantion account etc.

Correct Buying a CALL option and Selling a CALL Option at Different Strike Price
Answer 14

Answer The bull spread is in which options with a lower striking price are purchased and options
Explantion with a higher striking price sold.

A bull spread option strategy is used by the option trader who is looking to profit from an
expected rise in the price of the underlying security.
.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 15
The test of insurable interest is that .

(a) the insured should be better off if the risk does not materialise, but will be
adversely affected if the risk materialises

(b) the insured should be worse off if the risk does not materialise, but will be
gain if the risk materialises

(c) the insured should be better off if the risk does not materialise, but will be
benefit if the risk materialises

(d) the insured should be worse off if the risk does not materialise, but will be
adversely affected if the risk materialises

Question 16 Of the following investment options, which is/are most likely to be

unsecured?

(a) CBLO - Collateralised borrowing and lending obligations

(b) Corporate Fixed Deposits

(c) Treasury Bonds

(d) Corporate Fixed Deposits and CBLO

Correct the insured should be better off if the risk does not materialise, but will be adversely affected if
Answer 15 the risk materialises

Answer The insurer will cover the risk only if the insured has an insurable interest in the subject
Explanation matter of insurance. The test of insurable interest is that the insured should be better off
if the risk does not materialise, but will be adversely affected if the risk materialises.

For example, a factory owner has insurable interest on the stocks he has in his factory.

Correct Corporate Fixed Deposits

Answer 16

Answer
Explanation CBLO and Treasury bonds are secured.

Corporate Fixed Deposits are mostly unsecure & that is why they pay higher
rates than secured bonds.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 17 With respect to the National Pension Scheme (NPS), which of the
following is true regarding TIER 1 A/c.

(a) Withdrawals can be made any time

(b) Withdrawals can be made only after the death of the account holder

(c) Withdrawals can be made in case of an emergency

(d) Withdrawals cannot be made

Question 18 form a major portion of investments in a Retirement Plan.

(a) Super annuation

(b) Gratuity

(c) Provident Fund

(d) All of the above

Correct Withdrawals cannot be made

Answer 17
Answer There are two types of accounts that the NPS offers - Tier I account where the contribution
Explantion
cannot be withdrawn and a Tier II account where the contribution can be withdrawn at
anytime.

To have a Tier II account the individual must have a Tier I account.

Correct All of the above

Answer 18
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 19 The face value of a company's share is Rs 5 and the current market price
is Rs 60. The EPS is Rs 12. The company declares a dividend of 20%.
What is the dividend yield ?

(a) 12%

(b) 5%

(c) 2.41%

(d) 1.67%

Question 20 is considered as a form of mortgage.

(a) Personal Loan

(b) Housing Loan

(c) Loan given by Banks

(d)
Loan which are taken by companies

Correct 1.67%
Answer 19

Answer Dividend is declared on facevalue. So 20% of Rs 5 (face value) is Rs 1.

Explanation
Dividend Yield is on the Market Price ie. dividend per share divided by the current market
price of the stock

So Rs 1 as a percentage of Rs 60 (Market Price) = 1.67% ( 1 x 100 / 60 )

.
Correct Housing Loan
Answer 20

Answer Mortgage is a debt instrument, secured by the collateral of specified real estate property, The
Explanation loan is "secured" on the borrower's property.

Mortgages are used by individuals and businesses to make real estate purchases without
paying the entire value of the purchase up front.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

A foreign company has a manufacturing unit in India. The production of

this unit will be considered in the Gross Domestic Production (GDP) of
Question 21 which country ?

(a) India

(b) The foreign country

(c) In India only if this company is listed on Indian Stock Exchnages

(d) Of both the countries

Question 22 Share of sector is the highest in the GDP of India.

(a) Agricultural

(b) Industrial

(c) Service

(d) Software

Correct India
Answer 21

Answer GDP refers to output produced in the country, irrespective of the ownership of the
Explanation factors of production. So the production of a foreign unit in India is included in
India’s GDP.

Correct Service
Answer 22

Answer In India the service sector has been growing at a high rate in the last ten years, and its share in
Explantion the GDP has also moved up.

The contribution of services to GDP is now about 58%, while the share of agriculture and
industry has gone down.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 23 In which of the following techniques of analysis, the Company is the

primary factor determining portfolio decisions ?

(a) Top Down approach

(b) Bottom Up approach

(c) Macro Economic Analysis

(d) All of the above

Question 24 When does Re-Investment risk increases ?

(a) In a rising interest rate scenario

(b) In a constant interest rate scenario

(c) In a falling interest rate scenario

(d) In a high inflation scenario

Correct Bottom Up approach

Answer 23
Answer In Bottom Up approach, the analyst begins by looking at company-specific factors and then
Explantion moving up to the macro factors that impact the performance of the company.

Scanning the macro economic scenario and then identifying industries to choose from and
zeroing in on companies, is the Top-Down approach.

Correct In a falling interest rate scenario

Answer 24

Answer Re-investment risk is the risk of fall in the returns when cash flows from investments are
Explantion reinvested.

If the interst rates are declining, then the cash flow from matured investment may have to be
reinvested at a lower interest rate.
.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 25 As per SEBI (Alternate Investment Funds) Regulations, 2012. which fund
can invests in infrastructure or other sectors or areas which the
government or regulators consider as socially or economically desirable ?

(a) Category I Alternative Investment Fund

(b) Category II Alternative Investment Fund

(c) Category III Alternative Investment Fund

(d) All of the above

Question 26 Lower the economic activity, more the number of Initial Public Offers
(IPOs) - State True or False ?

(a) TRUE

(b) FALSE

Correct Category I Alternative Investment Fund

Answer 25

Answer Category I Alternative Investment Fund can invests in start-up or early stage ventures
Explanation or social ventures or SMEs or infrastructure or other sectors or areas which the
government or regulators consider as socially or economically desirable and shall include
venture capital funds, SME Funds, social venture funds, infrastructure funds and such
other Alternative Investment Funds as may be specified.

Correct Answer 26 FALSE

Answer More IPOs are likely to be made when there is a good economic growth
Explanation and the stock markets are bullish.
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 27 Which of these fund seeks to beat the performance of its benchmark
index returns.

(a) Index Funds

(b) Active Funds

(c) All New Fund offers

(d) Equity Funds

Question 28 The National Pension Scheme (NPS) is regulated by-

(a) PFRDA

(b) RBI

(c) IRDA

(d) SEBI

Correct Active Funds

Answer 27

Answer Index fund seeks to match the performance of the benchmark index.
Explanatio
n
Equity Funds and NFOs can include passive funds which seek to match the performance of its
benchmark.

Active funds are those funds which are agressively managed and seek to beat the returns of
benchmark index.

Correct PFRDA
Answer 28

Answer The National Pension Scheme (NPS) is regulated by PFRDA (Pension Funds Regulation
Explanation and Development Authority).
 NISM SERIES X B : INVESTMENT ADVISER (LEVEL 2)
CERTIFICATION EXAM – PRACTICE TEST NO. 3

Question 29
need to compulsorily register as investment adviser with SEBI.

(a) Insurance Adviser

(b) Mutual Fund Distributor

(c) Pension products adviser

(d) None of the above

Question 30 In Debt Instruemnts, which of the following does not change on a

everyday basis?

(a) The Coupon rate

(b) The time to maturity

(c) The Yield

(d) The Price

Correct Answer None of the above

29

Answer As per SEBI rules, some persons are granted exemptions from registration
Explanation subject to the fulfilment of the conditions and they include insurance
agent, pension advisor, distributor of mutual funds, advocate,
solicitor, member of Institute of Chartered Accountants of India, stock
broker or sub-broker registered under SEBI etc.

Correct The Coupon rate

Answer 30

Answer The coupon rate is the interest rate at which the instrument is issued and it remains constant
Explantion through out the life of the instrument.

The yield and price keep on changing everyday as the time to maturity shortens or there are
changes in RBI interest rates etc.