NISM Series II-B practice questions and answers

Chapters I to V: securities and SEBI

1. I. Introduction to Securities

   1. Short-term debt is generally repayable within what period?

   1. A.Less than one year
   2. B.More than ten years
   3. C.Less than three years
   4. D.More than one year but under five years
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   Answer: A. Less than one year

   Short-term debt is repayable in less than one year. Debt repayable after more than a year is long-term and can run to 30 years or more.

2. II. Characteristics of Equity Shares

   2. The maximum equity capital a company may raise, as stated in its Memorandum of Association, is called:

   1. A.Issued capital
   2. B.Authorised capital
   3. C.Paid-up capital
   4. D.Outstanding capital
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   Answer: B. Authorised capital

   Authorised capital is the ceiling in the MoA. Issued capital is the part offered to investors, and paid-up capital is the part of issued capital actually paid.

3. III. Characteristics of Debt Securities

   3. Which term denotes the actual return an investor earns on a bond?

   1. A.Par value
   2. B.Annual coupon rate
   3. C.Yield
   4. D.Face value
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   Answer: C. Yield

   Yield is the return the bondholder actually earns. The coupon rate only sets the periodic interest on face value, and par or face value is the principal, not a return.

4. IV. Characteristics of Other Securities

   4. The number of shares an investor receives for each convertible debenture is called the:

   1. A.Redemption value
   2. B.Coupon rate
   3. C.Conversion price
   4. D.Conversion ratio
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   Answer: D. Conversion ratio

   The conversion ratio is the number of shares per debenture. The conversion price is the price at which those shares are allotted.

5. V. SEBI: Role and Regulations

   5. SEBI was established under which statute?

   1. A.Securities and Exchange Board of India Act, 1992
   2. B.Companies Act
   3. C.Securities Contracts (Regulation) Act
   4. D.Reserve Bank of India Act
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   Answer: A. Securities and Exchange Board of India Act, 1992

   SEBI was set up under the SEBI Act, 1992. The Securities Contracts (Regulation) Act is the law under which stock exchanges are recognised and regulated.

Chapters VI to X: RTAs and mutual funds

1. VI. Basics of Registrars and Transfer Agents

   1. An RTA classified as a Qualified RTA (QRTA) later services fewer than 2 crore folios. How long does it stay a QRTA?

   1. A.The next 5 financial years
   2. B.The next 3 financial years
   3. C.Six months
   4. D.Only until the end of that financial year
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   Answer: B. The next 3 financial years

   Once classified, an RTA remains a QRTA for the next 3 financial years even if its folios fall below 2 crore. This keeps the enhanced monitoring regime stable.

2. VII. RTA Regulations

   2. The RTA inter-operable platform for mutual fund investors is developed by:

   1. A.A single lead RTA
   2. B.The depositories jointly
   3. C.All the RTAs jointly
   4. D.AMFI alone
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   Answer: C. All the RTAs jointly

   All the RTAs develop the platform jointly. It is not the work of one lead RTA, of AMFI or of the depositories.

3. VIII. Basics of Mutual Funds

   3. Under the daily accrual method, a scheme's annual TER of 2% is accrued each day by dividing 2% by:

   1. A.360
   2. B.12
   3. C.252
   4. D.365
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   Answer: D. 365

   Expenses accrue daily, so the annual TER is divided by 365. 252 is roughly the number of trading days, which is not the convention used.

4. IX. Mutual Fund Structure and Constituents

   4. Which function of an AMC cannot be outsourced?

   1. A.Fund management
   2. B.Registrar and transfer agency
   3. C.Fund accounting and scheme valuation
   4. D.Customer service and call centre
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   Answer: A. Fund management

   Fund management is the AMC's core function and stays in-house. Transfer agency, fund accounting and customer service can go to registered service providers.

5. X. Mutual Fund Products

   5. How many risk levels does the mutual fund Risk-o-meter show?

   1. A.Five
   2. B.Six
   3. C.Four
   4. D.Eight
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   Answer: B. Six

   The Risk-o-meter has six levels, from Low to Very High. The earlier version had five, before Very High was added.

Chapters XI to XV: operations and transactions

1. XI. Operational Concepts of Mutual Funds

   1. Which of these is an official point of acceptance for time stamping purposes?

   1. A.An independent financial adviser's branch
   2. B.A distributor's office
   3. C.A designated Investor Service Centre of the mutual fund
   4. D.A bank branch used only for collecting cheques
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   Answer: C. A designated Investor Service Centre of the mutual fund

   Mutual fund offices and designated ISCs are official points of acceptance. A distributor's office is not, and cannot time stamp.

2. XII. Investors in Mutual Funds

   2. How many joint holders can a mutual fund folio have?

   1. A.Up to two
   2. B.Up to five
   3. C.Up to four
   4. D.Up to three
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   Answer: D. Up to three

   An application can have up to three joint holders, who may operate jointly or on an either-or-survivor basis.

3. XIII. Banking Operations in Mutual Funds

   3. A bank accepts a Standing Instruction (direct debit) for a SIP when:

   1. A.The investor and the mutual fund have accounts with the same bank
   2. B.The SIP amount exceeds ₹2 lakh
   3. C.The investor holds a demat account
   4. D.The investor pays by credit card
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   Answer: A. The investor and the mutual fund have accounts with the same bank

   A Standing Instruction works only when the investor and the mutual fund bank with the same bank. Across banks, NACH is used.

4. XIV. Financial Transactions

   4. A mutual fund folio is most comparable to which banking record?

   1. A.A PAN
   2. B.A bank account number
   3. C.A demat account number
   4. D.A credit card number
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   Answer: B. A bank account number

   A folio is the investor's account number with the fund house, like a bank account number. PAN identifies a taxpayer and a demat account sits with a depository.

5. XV. Non-Financial Transactions

   5. How many bank accounts can an individual investor register with a mutual fund?

   1. A.10
   2. B.3
   3. C.5
   4. D.Any number, once verified
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   Answer: C. 5

   An individual can register up to 5 bank accounts and name a default for payouts. A non-individual investor can register up to 10.

What these questions show about the paper

• check_circleChapters I to V test definitions. A careful read of the terms is usually enough.
• check_circleChapters VI and VII test numbers that look alike: 2 crore folios, 3 financial years, 8 years of records. Learn them as pairs with what they apply to.
• check_circleChapters XI to XV test process from the RTA's side: who may stamp, which account gets paid, which document is needed. Answer as the record keeper, not as the investor or distributor.
• check_circleDistractors are often true facts attached to the wrong thing, like 252 trading days or the 10-account limit for non-individuals.

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