Investment Advisor NISM Series-X-A: Investment Adviser (Level 1) 5 — Questions and Answers
Question 1: An investment adviser who provides advice on securities without SEBI registration is liable to:
- A civil warning only
- Monetary penalty and imprisonment under SEBI Act (Correct answer)
- Cancellation of CA/CFA license only
- No action if advice was not fee-based
Correct answer: Monetary penalty and imprisonment under SEBI Act
Providing unregistered investment advisory services violates the SEBI Act, 1992 and is subject to both monetary penalties and criminal prosecution.
Question 2: Duration of a bond is best described as:
- The remaining time to maturity
- The weighted average time to receive the bond's cash flows (Correct answer)
- The coupon payment frequency
- The bond's credit rating tenure
Correct answer: The weighted average time to receive the bond's cash flows
Duration (Macaulay Duration) is the weighted average time to receive cash flows, used to measure interest rate sensitivity.
Question 3: Which investment product offers guaranteed returns and is regulated by the Insurance Regulatory and Development Authority of India (IRDAI)?
- Fixed Maturity Plans
- Guaranteed Return Insurance Plans (Correct answer)
- Debt Mutual Funds
- Government Securities
Correct answer: Guaranteed Return Insurance Plans
Guaranteed return insurance plans (like traditional endowment or whole life plans) fall under IRDAI regulation and promise contractually guaranteed returns.
Question 4: A client aged 60 with no liabilities and a pension income wants to grow wealth for the next 15 years. The most appropriate equity allocation would be:
- 0% — equities are unsuitable at 60
- 20–30% to reduce risk
- 50–60% given the long horizon and stable income (Correct answer)
- 100% since risk capacity is high
Correct answer: 50–60% given the long horizon and stable income
A 15-year horizon with stable pension income supports moderate-to-aggressive equity exposure; a balanced 50–60% allocation aligns risk capacity with growth objectives.
Question 5: The practice of an investment adviser executing large personal trades in a security just before recommending it to clients is called:
- Churning
- Front running (Correct answer)
- Wash trading
- Window dressing
Correct answer: Front running
Front running involves trading on advance knowledge of client or advisory orders to profit personally before the market reacts.
Question 6: Rebalancing a portfolio means:
- Switching entirely to a new asset class
- Realigning portfolio weights back to the target allocation after market movements (Correct answer)
- Increasing equity allocation when markets rise
- Withdrawing profits at year-end
Correct answer: Realigning portfolio weights back to the target allocation after market movements
Rebalancing restores the original target asset allocation after market movements cause weights to drift, maintaining the intended risk profile.
Question 7: Under SEBI IA Regulations, an individual investment adviser must meet which minimum qualification requirement?
- Any graduate degree
- Post-graduate degree or professional qualification in finance/economics plus NISM certification (Correct answer)
- Chartered Accountant designation only
- 10 years of financial industry experience only
Correct answer: Post-graduate degree or professional qualification in finance/economics plus NISM certification
SEBI requires individual IAs to hold a post-graduate degree or equivalent professional qualification in a relevant field AND pass the NISM-Series-X-A certification.
Investment Advisor NISM Series-X-A: Investment Adviser (Level 1) 5
An investment adviser who provides advice on securities without SEBI registration is liable to: