NISM Series XB: Investment Adviser (Level 2) Certification Examination

Sample Questions
Chapter 1:

1. The proportion of a public issue of shares allocated to various categories of investors is

decided by
a. SEBI
b. Issuer
c. Stock exchange
d. Registrar and Transfer agent

2. In a leveraged investment in an IPO, the profits to the investor depends upon

a. Issue price & listing price
b. Cost of borrowing and period of borrowing
c. Shares allotted and listing premium
d. Interest paid and issue price

3. A high turnover in a stock is an indicator of which of the following

a. Higher price
b. Higher liquidity
c. Lower volatility
d. Lower returns

4. Read the following caselet and answer the questions that follow:

Mr. A is a conservative investor who is looking to invest in equity markets. He is evaluating

shares of VKP Ltd. with a PE ratio of 22, PEG ratio of 0.98, dividend yield of 3.5.
a. Which of the following may make VKP Ltd unsuitable for Mr. A as a conservative
investor?
i. PEG ratio lower than 1
ii. A dividend yield lower than the risk free rate of interest
iii. PE ratio higher than peer average
iv. Dividend yield higher than dividend yield of index

b. The PEG ratio of the company classifies it as

i. Overvalued
 ii. Undervalued
iii. Low growth stock
iv. High growth stock

c. Mr. A is attracted by the high dividend yield of the stock. Which of the following is a
likely feature of the investment going forward?
i. High growth in EPS
ii. Low dividend payout
iii. High capital appreciation
iv. Low earnings growth

5. A decrease in interest rates is likely to see a greater impact on the price of which bond?
a. AAA rated 5 year bond
b. 15 year Government security
c. 30 year bond with 2 years to maturity
d. Commercial paper of company
Chapter: 2

1. A nomination made in a mutual fund folio

a. Can be changed by the PoA
b. Cannot be cancelled
c. Can be cancelled by the first holder in a jointly held account
d. Can be changed by all the holders signing for the change

2. In a jointly held folio, the PAN and KYC process has to be complied with by
a. All the joint holders
b. The first holder only
c. Any one of the joint holders
d. The joint holders depending upon mode of operation

3. An NRI returning to India and becoming a Resident Indian has to do which of the following
with respect to holdings in demat account?
a. Operate the existing demat account
b. Open a new demat account and transfer holdings
c. Change the existing account status to resident
d. Open a new account for future investment and maintain current account for existing
investments.
4. Mr. D holds investments in UPP equity scheme. He makes an investment in an MIP of the
same mutual fund. Will it be held under the same folio?
a. No, since the scheme is different
b. Can be held in either the same folio or different folio
c. Can be held only under the same folio
d. Will depend upon the mutual fund policy

5. A request for dematerialization of securities may be rejected if

a. Securities are not dematerialised at the time of listing
b. Securities are not dematerialized within the period specified by SEBI
c. Dematerialization request is not accompanied by R&T verification of signature.
d. Delay of more than 15 days in the receipt of physical securities from the day of
electronic request.

6. Ms. L takes a loan against her mutual fund holdings. Only a portion of her units are
required as security. How will she give effect to this?
a. Transfer the required portion to a new folio and mark a lien on it
b. Mark lien on the entire holdings, irrespective of the requirement
c. Mark lien only on the portion required in the existing folio
d. Transfer the required portion to a new folio and make the lender the joint holder
Chapter: 3

1. Which of the following is an indication of indebtedness?

a. Expenses Ratio
b. Leverage Ratio
c. Solvency Ratio
d. Net Worth

2. Current cost is translated into a cost in future using which of the following formulae?
a. P X (1 + i)n
b. P ÷ (1 + i)n
c. P X (1 - i)n
d. P ÷ (1 - i)n

3. Read the following caselet and answer the questions that follow:

Mr. P earns a gross salary of Rs 50,000, including company’s contribution to PF of Rs 5,000; an

equal contribution is made by Mr. P. Deductions are made towards loan repayments of Rs
4,000 and investments of Rs 1,000. Mr. P receives Rs 3,000 towards income from past
investments. He spends Rs 7,000 on rent, Rs 11,000 on grocery and Rs 15,000 on other
expenses.
a. What is the net take home salary of Mr. P?
i. Rs 40,000
ii. Rs 35,000
iii. Rs 45,000
iv. Rs 5,000

b. What is the monthly surplus of Mr. P?

i. Rs 5,000
ii. Rs 10,000
iii. Rs 15,000
iv. Rs 16,000

c. What is the monthly savings of Mr. P?

i. Rs 5,000
ii. Rs 10,000
iii. Rs 15,000
iv. Rs 16,000

d. What is the savings ratio of Mr. P?

i. 42.1%
ii. 11.3%
iii. 30.2%
iv. 20.8%
Chapter:4
1. EMI for a loan can be worked out using the _____ function in MS Excel.
a. PV
b. NPV
c. EMI
d. PMT

2. Which of the following depends on the market?

a. Strategic asset allocation
b. Tactical asset allocation
c. Investor risk profile
d. None of the above

3. Read the following caselet and answer the questions that follow:
Ms. T invests Rs 60,000 in a 10% yielding asset, using leverage of 1.4 times. Borrowing was at
9% p.a.
a. How much own funds did Ms. T invest?
i. Rs 35,000
ii. Rs 25,000
iii. Rs 42,857
iv. Rs 17,143

b. How much interest did Ms. T need to pay?

i. Rs 2,250
ii. Rs 5,400
iii. Rs 3,150
iv. Rs 3,500

c. What was Ms. T’s net return?

i. Rs 6,000
ii. Rs 2,850
iii. Rs 3,750
iv. Rs 2,500

d. What was Ms. T’s return on equity?

i. 1%
ii. 10.4%
iii. 10.9%
iv. 11.4%

Chapter:5

1. Which of the following is NOT considered in the calculation of RoI?

a. Realized capital appreciation
b. Periodic interest
c. Expected dividend
d. Unrealized capital appreciation

2. Which of these investments is most likely to be affected by inflation?

a. Real estate
b. Equity shares
c. Bank deposits
d. Gold
3. Which of these investments is seen as riskiest?
a. Investment with low standard deviation
b. Investment with high credit rating
c. Investment with low market volatility
d. Investment with high beta

4. The benefits of diversification in a portfolio is seen in the form of

a. Eliminating risk
b. Maximising returns
c. Guaranteeing returns
d. Enhancing risk adjusted returns

5. Read the following caselet and answer the questions that follow:

Mr. C is a 45 year single earning member of his family with a good income. He is saving for
different financial goals, some of which are due for funding now. He has a home loan and car
loan that he is servicing.
a. How would you best categorize Mr. C’s risk profile?
i. Conservative
ii. Moderate
iii. Liquidity seeker
iv. Aggressive

b. What are the assets that will be most suitable for Mr. C given his situation?
i. Primarily growth with some income-oriented assets
ii. Primarily liquid assets
iii. Primarily growth assets
iv. Combination of liquid and income-oriented assets

c. Mr C. has to park the funds from fixed deposits that have matured for a short period
till it will be used for his daughter’s education. What will you suggest as a suitable
investment option?
i. Large-cap equity, to capture growth but with lower risk
ii. Current account, to enable liquidity
iii. Alternative investments, to increase the corpus
iv. Short-term fixed deposit, to ensure liquidity and some returns
6. Which of the following will define the risk and return features of a mutual fund scheme?
a. Market cycles and portfolio selection
b. Asset class performance and investment style adopted
c. Investment objective and asset class chosen
d. Economic cycle and fund manager expertise
Chapter:6

1. Which of the following need to compulsorily register as investment adviser with SEBI?
a. Mutual fund distributor
b. Insurance adviser
c. Lawyer
d. None of the above

2. Which of the following can deal with multiple insurance companies?

a. Insurance broker
b. Insurance agent and broker
c. Corporate insurance agent
d. Bank assurance channel

3. Read the following caselet and answer the questions that follow

Mr. X is in the business of mutual fund distribution. He wants to become an insurance

adviser.
a. Which of the following is applicable for Mr. X?
i. Has to register as investment adviser if he sells either product
ii. Can sell either mutual fund or insurance – not both
iii. Can sell both mutual fund and insurance if he registers as investment adviser
iv. There is no bar on Mr. X selling both products

b. Mr. X wants to pay back to clients, part of the moneys he collects from them?
i. He is permitted to rebate only in case of mutual funds
ii. He is permitted to rebate only in case of insurance
iii. He is not permitted to rebate in either mutual funds or insurance
iv. He is free to rebate in both mutual funds and insurance

c. Mr. X wants to focus on a business where there is no requirement of complying with a

code of conduct. He should
i. Do mutual funds, since code of conduct is not compulsory
ii. Do insurance, since code of conduct is not compulsory
iii. Can do either product, because both do not insist on a code of conduct
iv. Re-consider, because both mutual funds and insurance require compliance with
code of conduct
d. Mr. X tells a consultant that he will not register as investment adviser, because he
does not want to appoint a compliance officer. What should the consultant tell Mr. X?
i. Consultant should explain to Mr. X, the benefits of appointing a compliance officer
ii. Consultant should explain to Mr. X that appointment of compliance officer is
compulsory only for non-individuals
iii. Consultant should advise Mr. X not to worry, because SEBI is unlikely to verify
iv. Consultant should advise Mr. X that it is SEBI’s job to give him a compliance officer
Chapter: 7

Case 7.1

Mr. Z, aged 52 years, is working in a leading company. His net savings are Rs 50,000 p.m. Based
on salary growth and other factors, he expects this to rise by 20% p.a. till his retirement at age
60. This does not include monthly contributions of Rs 9,000 (Rs 4000 own contribution; Rs 5000
employer contribution) to various funds towards retirement corpus. These are expected to
grow by 20% p.a. till retirement. The retirement corpus by the end of the year will be Rs 12
lakhs, entirely in debt, which will yield 8% p.a. on average. Besides his own residential house
and the retirement corpus, his savings and investments will amount to Rs 50 lakhs by the end of
the year, 30% of which will be in equity. He has a practice of investing, at the end of each year,
his disposable savings into debt and equity in the ratio of 80:20. In the long run, he expects
equity to yield 15% and debt to yield 8.5%. At the end of age 55, he expects an outflow of funds
amounting to Rs 5 lakhs, which he hopes to meet out of annual savings.

He expects inflation of 10% and post-retirement investment return on his portfolio at 11%. His
current expenses are Rs 40,000 per month.

Assume zero date as the end of age 52. Calculations are to be done on annual basis. Ignore
taxation and interest income on savings and contributions during the year.

1) On retirement, how much will Mr. Z have in his retirement corpus?

a. Rs. 46,65,905
b. Rs. 50,65,910
c. Rs. 44,81,442
d. Rs. 48,65,917

2) At the end of Age 55, what percentage of Mr. Z's portfolio will be in debt (excluding
retirement corpus)?

a. 69.49%
b. 68.29%
c. 66.99%
d. 71.79%

3) If he re-invests the entire retirement corpus in debt, what percentage of Mr. Z's portfolio
will be in debt when he retires?

a. 72.76%
b. 70.51%
c. 74.21%
d. 76.29%

4) What is the corpus requirement to ensure that he is able to sustain the same standard of
living for 15 years after retirement?

a. Rs. 14,496,632
b. Rs. 13,861,919
c. Rs. 15,239,389
d. Rs. 15,254,894

Calculations are shown in the following table:

Case 7.2

Mr. Y, aged 40, has the following goals ahead of him. (1) Son's post-graduate education: Due in
Year 5. Current cost Rs 15,00,000 p.a. to be incurred at the end of each year for 2 years. Likely
Inflation 15% p.a. (2) Daughter's marriage: Scheduled in end of Year 7. Current cost Rs
1,00,00,000. Inflation is assumed to be at 10% p.a. Mr. Y has provided a corpus of Rs
2,00,00,000 towards these two needs. The corpus is invested in a mix of debt and equity
yielding 8% p.a. Ignore taxation.

1) How much money will need to be set apart from the corpus at the end of Year 5, to finance
the son's post-graduate education? Assume the amount set apart will earn 6% interest.

a. Rs. 59,34,184
b. Rs. 62,90,235
c. Rs. 64,12,209
d. Rs. 60,35,259

2) What is the likely outflow on account of daughter's marriage in the year it is planned?

a. Rs. 1,94,87,171
b. Rs. 1,77,15,610
c. Rs. 2,14,35,888
d. Rs. 2,05,10,865

3) How much will be left in the corpus after both goals are fulfilled (assume that he does not
set apart money in the 6% corpus mentioned in Q1)?

a. Rs. 81,24,932
b. Rs. 69,65,820
c. Rs. 75,23,085
d. Rs. 66,42,292

4) How would you describe the investment policy Mr. Y is using for the corpus?

a. A little conservative
b. A little aggressive
c. Very aggressive
d. Very conservative

Calculations as shown in the following table: