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Series X-A · Practice Set 1

NISM Series X-A: Investment Adviser Level 1 Certification — Practice Set 1 Practice Questions

Original practice set for NISM Series X-A: Investment Adviser Level 1 Certification. Every question below shows the correct answer and a full explanation, so you can read through this set as a study page or attempt it as a timed mock test.

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Practice questions

All 40 questions in Practice Set 1

Read each question, think through your answer, then expand it to check the correct option and explanation.

Regulations

Q1. A person providing investment advice for consideration must register with:

  1. A. RBI
  2. B. AMFI
  3. C. SEBI under SEBI (Investment Advisers) Regulations, 2013
  4. D. Ministry of Finance
Show correct answer & explanation

Correct answer: C. SEBI under SEBI (Investment Advisers) Regulations, 2013

Anyone providing investment advice for consideration (fee or commission) must register with SEBI under SEBI (Investment Advisers) Regulations, 2013. Unregistered advice for a fee is illegal.
Regulations

Q2. The primary regulatory framework for Investment Advisers in India is:

  1. A. SEBI (Brokers) Regulations, 1992
  2. B. SEBI (Investment Advisers) Regulations, 2013
  3. C. RBI Investment Guidelines
  4. D. IRDAI Investment Regulations
Show correct answer & explanation

Correct answer: B. SEBI (Investment Advisers) Regulations, 2013

SEBI (Investment Advisers) Regulations, 2013 is the primary regulatory framework governing investment advisers in India. It defines who is an investment adviser, eligibility criteria, code of conduct, and obligations.
Regulations

Q3. An investment adviser registered with SEBI must follow which fee model?

  1. A. Commission-based model
  2. B. Fee-only model — cannot receive commission from product manufacturers for advised products
  3. C. Either commission or fee
  4. D. A combination of both always
Show correct answer & explanation

Correct answer: B. Fee-only model — cannot receive commission from product manufacturers for advised products

SEBI-registered investment advisers (IAs) must follow a fee-only model. They cannot receive any commission, referral fees, or other remuneration from product manufacturers for products recommended to advised clients. This eliminates conflict of interest.
Financial Planning

Q4. The six steps of the financial planning process in order are:

  1. A. Invest → Plan → Review → Goal → Assess → Implement
  2. B. Establish relationship → Gather data → Analyze → Develop plan → Implement → Monitor and review
  3. C. Review → Implement → Gather data → Analyze → Invest → Monitor
  4. D. Monitor → Analyze → Invest → Review → Gather → Plan
Show correct answer & explanation

Correct answer: B. Establish relationship → Gather data → Analyze → Develop plan → Implement → Monitor and review

The 6-step financial planning process: (1) Establish client-adviser relationship, (2) Gather client data and goals, (3) Analyze financial situation, (4) Develop financial plan, (5) Implement recommendations, (6) Monitor and review the plan periodically.
Financial Planning

Q5. Net Worth of a client is calculated as:

  1. A. Annual income minus annual expenses
  2. B. Total Assets minus Total Liabilities
  3. C. Total savings minus total investments
  4. D. Monthly income multiplied by 12
Show correct answer & explanation

Correct answer: B. Total Assets minus Total Liabilities

Net Worth = Total Assets (cash, investments, real estate, vehicles, valuables) minus Total Liabilities (loans, credit card debt, mortgages). Net worth represents an individual's financial standing at a point in time.
Risk Profiling

Q6. Risk profiling of a client assesses:

  1. A. Client's age only
  2. B. Client's ability to take risk (financial capacity) and willingness to take risk (psychological tolerance) — to determine appropriate portfolio
  3. C. Client's income only
  4. D. Client's investment experience only
Show correct answer & explanation

Correct answer: B. Client's ability to take risk (financial capacity) and willingness to take risk (psychological tolerance) — to determine appropriate portfolio

Risk profiling assesses two dimensions: (1) Risk Capacity — the financial ability to absorb losses without impacting goals, and (2) Risk Tolerance — psychological comfort with volatility. Both determine the appropriate asset allocation.
Risk Profiling

Q7. A client who panics and wants to sell all investments when markets fall 10% has:

  1. A. High risk tolerance
  2. B. Low risk tolerance — psychological discomfort with market volatility
  3. C. Moderate risk capacity
  4. D. High risk capacity
Show correct answer & explanation

Correct answer: B. Low risk tolerance — psychological discomfort with market volatility

A client who wants to sell when markets decline 10% demonstrates low risk tolerance — low psychological comfort with market volatility. Regardless of their financial capacity, their asset allocation must respect their low emotional tolerance for loss.
Investment Products

Q8. The National Pension System (NPS) is regulated by:

  1. A. SEBI
  2. B. IRDA
  3. C. PFRDA (Pension Fund Regulatory and Development Authority)
  4. D. Ministry of Labour
Show correct answer & explanation

Correct answer: C. PFRDA (Pension Fund Regulatory and Development Authority)

NPS (National Pension System) is regulated by PFRDA (Pension Fund Regulatory and Development Authority) under the PFRDA Act, 2013. PFRDA oversees all pension fund managers and NPS-related intermediaries.
Investment Products

Q9. In NPS, the equity allocation under the Active Choice for subscribers below 50 years can be up to:

  1. A. 25%
  2. B. 50%
  3. C. 75%
  4. D. 100%
Show correct answer & explanation

Correct answer: C. 75%

Under NPS Active Choice (where subscribers choose their asset allocation), the maximum equity exposure for subscribers below 50 years of age is 75% of the corpus. After 50, the equity cap reduces by 2.5% each year.
Investment Products

Q10. Public Provident Fund (PPF) has a lock-in period of:

  1. A. 5 years
  2. B. 10 years
  3. C. 15 years
  4. D. 20 years
Show correct answer & explanation

Correct answer: C. 15 years

PPF (Public Provident Fund) has a mandatory lock-in of 15 years (maturity). Partial withdrawals are allowed from the 7th year. After maturity, the account can be extended in blocks of 5 years.
Investment Products

Q11. Term insurance provides:

  1. A. Guaranteed returns plus life cover
  2. B. Pure life cover for a specified term — no maturity benefit if the insured survives
  3. C. Investment-linked returns
  4. D. Returns linked to equity markets
Show correct answer & explanation

Correct answer: B. Pure life cover for a specified term — no maturity benefit if the insured survives

Term insurance is pure life insurance — it pays the death benefit to nominees if the insured dies during the policy term. There is no maturity benefit if the insured survives the term. It offers the highest life cover at the lowest premium.
Investment Products

Q12. ULIP (Unit Linked Insurance Plan) combines:

  1. A. Fixed deposit and insurance
  2. B. Investment in market-linked funds and life insurance cover in a single product
  3. C. Only pure insurance
  4. D. Only mutual fund investment
Show correct answer & explanation

Correct answer: B. Investment in market-linked funds and life insurance cover in a single product

ULIP combines investment (in market-linked funds like equity, debt, or balanced) and life insurance cover in a single integrated product. Premium paid is split between insurance charges and investment in chosen funds.
Financial Planning

Q13. Human Life Value (HLV) approach to calculate insurance need estimates:

  1. A. The insured's age squared
  2. B. Present value of the insured's future income stream that would be lost due to premature death — the minimum insurance coverage needed
  3. C. The sum of all assets
  4. D. The annual expense multiplied by 10
Show correct answer & explanation

Correct answer: B. Present value of the insured's future income stream that would be lost due to premature death — the minimum insurance coverage needed

HLV (Human Life Value) method estimates the present value of all future income the insured would have earned had they lived. This represents the minimum life insurance cover needed to replace the income for dependants.
Financial Planning

Q14. Emergency fund is typically recommended to cover:

  1. A. 1 month of expenses
  2. B. 3 to 6 months of monthly expenses in liquid assets
  3. C. 1 year of expenses
  4. D. All outstanding loans
Show correct answer & explanation

Correct answer: B. 3 to 6 months of monthly expenses in liquid assets

Financial planning best practice recommends maintaining an emergency fund of 3 to 6 months of monthly household expenses in highly liquid instruments (savings account, liquid funds). It covers unexpected expenses or income disruption.
Investment Products

Q15. Real estate as an investment asset class is characterised by:

  1. A. High liquidity and low ticket size
  2. B. Low liquidity, high ticket size, long gestation period, and need for active management
  3. C. Guaranteed returns like FD
  4. D. No maintenance cost
Show correct answer & explanation

Correct answer: B. Low liquidity, high ticket size, long gestation period, and need for active management

Real estate is illiquid (cannot be quickly converted to cash without significant discount), requires large capital (high ticket size), takes time for appreciation, needs active management, and involves ongoing costs (maintenance, taxes, registration).
Client Advisory Process

Q16. Suitability assessment by an investment adviser requires:

  1. A. Only the client's age
  2. B. Understanding the client's financial situation, investment objectives, risk appetite, investment horizon, and liquidity needs before making recommendations
  3. C. Only the client's income
  4. D. Only the client's existing investments
Show correct answer & explanation

Correct answer: B. Understanding the client's financial situation, investment objectives, risk appetite, investment horizon, and liquidity needs before making recommendations

Suitability assessment involves gathering comprehensive information about the client: financial situation (income, expenses, assets, liabilities), investment objectives (growth, income, capital preservation), risk profile, time horizon, and liquidity requirements.
Ethics

Q17. Fiduciary duty of an investment adviser means:

  1. A. Adviser must maximise their own commission income
  2. B. Adviser must act in the best interests of the client at all times — putting client's interests above their own
  3. C. Adviser must recommend only government securities
  4. D. Adviser must guarantee returns
Show correct answer & explanation

Correct answer: B. Adviser must act in the best interests of the client at all times — putting client's interests above their own

Fiduciary duty is the highest standard of care — the investment adviser must always act in the best interests of the client, disclose all conflicts of interest, maintain confidentiality, and not allow personal gain to influence advice.
Regulations

Q18. Investment advisers are prohibited from:

  1. A. Recommending mutual funds
  2. B. Receiving commissions from product manufacturers for advice provided to clients
  3. C. Charging advisory fees to clients
  4. D. Investing in equity markets themselves
Show correct answer & explanation

Correct answer: B. Receiving commissions from product manufacturers for advice provided to clients

SEBI IA Regulations prohibit investment advisers from receiving any commission, trail fees, or other payment from product manufacturers for advice given to clients. This separation prevents conflict of interest. Advisers can only charge transparent fees from clients.
Investment Products

Q19. Sovereign Gold Bonds (SGBs) are issued by:

  1. A. Private gold companies
  2. B. Government of India through RBI — they represent gold in paper/digital form and pay 2.5% annual interest
  3. C. SEBI
  4. D. Gold ETF fund houses
Show correct answer & explanation

Correct answer: B. Government of India through RBI — they represent gold in paper/digital form and pay 2.5% annual interest

Sovereign Gold Bonds (SGBs) are government securities denominated in grams of gold, issued by the Government of India through RBI. They pay 2.5% annual interest on the issue price and are redeemable at market gold price at maturity.
Financial Planning

Q20. Asset allocation is primarily determined by:

  1. A. Fund manager's preference
  2. B. Client's financial goals, risk tolerance, investment horizon, and liquidity needs
  3. C. The current market conditions only
  4. D. The tax bracket of the client only
Show correct answer & explanation

Correct answer: B. Client's financial goals, risk tolerance, investment horizon, and liquidity needs

Asset allocation — how to divide portfolio among equity, debt, gold, real estate, etc. — is primarily determined by the client's specific financial goals, risk tolerance (both capacity and appetite), investment time horizon, and liquidity needs.
Investment Products

Q21. Sukanya Samriddhi Yojana (SSY) is specifically designed for:

  1. A. Senior citizens
  2. B. Girl child — parents can open this account for their daughter for education and marriage needs
  3. C. Any child below 18
  4. D. Only government employees
Show correct answer & explanation

Correct answer: B. Girl child — parents can open this account for their daughter for education and marriage needs

Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme for parents of a girl child (below 10 years). It offers high interest rates, tax benefits under Section 80C, and is meant to fund the girl child's education and marriage.
Financial Planning

Q22. Retirement corpus requirement is estimated using:

  1. A. Current monthly expenses only
  2. B. Future monthly expenses (inflation-adjusted) × months in retirement ÷ expected post-retirement return — discounted to present value
  3. C. Annual income × number of retirement years
  4. D. Fixed amount regardless of expenses
Show correct answer & explanation

Correct answer: B. Future monthly expenses (inflation-adjusted) × months in retirement ÷ expected post-retirement return — discounted to present value

Retirement corpus calculation involves estimating future monthly expenses (current expenses adjusted for inflation), multiplying by expected retirement duration, and discounting back to present using expected investment returns — accounting for inflation eroding purchasing power.
Regulations

Q23. The Investment Adviser must provide clients with:

  1. A. Only verbal advice
  2. B. A written investment advice document including rationale, risks, and suitability — and maintain records for 5 years
  3. C. Only past performance data
  4. D. Only the recommended product name
Show correct answer & explanation

Correct answer: B. A written investment advice document including rationale, risks, and suitability — and maintain records for 5 years

SEBI IA Regulations require IAs to provide written investment advice, document the rationale for each recommendation, explain risks, demonstrate suitability for the specific client, and maintain all records for a minimum of 5 years.
Investment Products

Q24. Section 80C deduction under Income Tax Act covers:

  1. A. Only PPF investments
  2. B. Multiple investments including ELSS, PPF, EPF, NSC, life insurance premiums, home loan principal, SSY — up to Rs. 1.5 lakh per year
  3. C. Only life insurance premium
  4. D. Only home loan principal
Show correct answer & explanation

Correct answer: B. Multiple investments including ELSS, PPF, EPF, NSC, life insurance premiums, home loan principal, SSY — up to Rs. 1.5 lakh per year

Section 80C allows a deduction of up to Rs. 1.5 lakh per year for investments/payments including ELSS, PPF, EPF, NSC, 5-year bank FD, life insurance premiums, SSY, SCSS, home loan principal repayment, and children's school fees.
Client Advisory Process

Q25. A financial plan must be reviewed:

  1. A. Once at the time of creation only
  2. B. Periodically (at least annually) and whenever there is a significant life event (marriage, child, job change, inheritance)
  3. C. Only when the market falls
  4. D. Only when the client requests
Show correct answer & explanation

Correct answer: B. Periodically (at least annually) and whenever there is a significant life event (marriage, child, job change, inheritance)

Financial plans must be reviewed at least annually and whenever significant life events occur (marriage, birth of child, job change, salary hike, inheritance, health emergency). Goals, risk profile, and asset allocation may need adjustment.
Ethics

Q26. Conflict of interest for an investment adviser arises when:

  1. A. Client's goals differ from market performance
  2. B. Adviser's personal financial interest may influence the advice given — must be fully disclosed and managed
  3. C. Two clients have opposite views
  4. D. Adviser is also a fund manager
Show correct answer & explanation

Correct answer: B. Adviser's personal financial interest may influence the advice given — must be fully disclosed and managed

Conflict of interest occurs when the adviser's personal financial interests could influence their advice to the client's detriment. SEBI requires IAs to identify, disclose, and appropriately manage all conflicts of interest.
Investment Products

Q27. Senior Citizens Savings Scheme (SCSS) is:

  1. A. A mutual fund for senior citizens
  2. B. A government-backed savings scheme for citizens above 60 years offering higher interest rates and quarterly payouts
  3. C. A life insurance scheme
  4. D. An NPS sub-category
Show correct answer & explanation

Correct answer: B. A government-backed savings scheme for citizens above 60 years offering higher interest rates and quarterly payouts

SCSS (Senior Citizens Savings Scheme) is a government-backed savings scheme for individuals aged 60+ (55+ for VRS retirees). It offers attractive interest rates (revised quarterly), quarterly payouts, and Section 80C tax benefit on investment up to Rs. 30 lakh.
Financial Planning

Q28. Inflation-adjusted return (real return) is calculated as:

  1. A. Nominal return + Inflation rate
  2. B. Nominal return - Inflation rate (approximately)
  3. C. Nominal return × Inflation rate
  4. D. Nominal return ÷ Inflation rate
Show correct answer & explanation

Correct answer: B. Nominal return - Inflation rate (approximately)

Real Return ≈ Nominal Return - Inflation Rate. More precisely: (1 + Nominal Return) / (1 + Inflation Rate) - 1. If nominal return is 10% and inflation is 6%, real return ≈ 4%. It represents the actual increase in purchasing power.
Regulations

Q29. An investment adviser's SEBI registration must be renewed:

  1. A. Every year
  2. B. Every 3 years
  3. C. Every 5 years
  4. D. It is a one-time permanent registration
Show correct answer & explanation

Correct answer: B. Every 3 years

SEBI registration for Investment Advisers is valid for 3 years and must be renewed before expiry. The IA must continue to meet eligibility criteria (qualification, certification, net worth) at the time of renewal.
Investment Products

Q30. A Fixed Maturity Plan (FMP) is a type of:

  1. A. Open-ended equity fund
  2. B. Close-ended debt mutual fund with fixed maturity — invests in debt instruments maturing around the plan's maturity date
  3. C. Hybrid fund
  4. D. International fund
Show correct answer & explanation

Correct answer: B. Close-ended debt mutual fund with fixed maturity — invests in debt instruments maturing around the plan's maturity date

An FMP (Fixed Maturity Plan) is a close-ended debt mutual fund with a fixed maturity date. It invests in debt instruments (bonds, CDs, CPs) that mature around the same time as the plan, providing relatively predictable returns with lower interest rate risk.
Client Advisory Process

Q31. Goals-based investing means:

  1. A. Investing only in gold-related instruments
  2. B. Linking each investment to a specific financial goal with defined amount, timeline, and priority — creating separate portfolios for each goal
  3. C. Investing for the highest possible return only
  4. D. Investing based on expert market predictions
Show correct answer & explanation

Correct answer: B. Linking each investment to a specific financial goal with defined amount, timeline, and priority — creating separate portfolios for each goal

Goals-based investing links each investment portfolio to a specific financial goal (child's education, retirement, home purchase) with a defined target amount, timeline, and priority. Different goals may require different asset allocations and strategies.
Investment Products

Q32. Bonds and debentures differ in that:

  1. A. Bonds give equity ownership while debentures give debt rights
  2. B. Bonds are generally issued by government/PSUs while debentures are issued by private companies — both are debt instruments
  3. C. Bonds never pay interest while debentures always do
  4. D. Bonds are riskier than debentures always
Show correct answer & explanation

Correct answer: B. Bonds are generally issued by government/PSUs while debentures are issued by private companies — both are debt instruments

Bonds are typically issued by governments, public sector undertakings, and financial institutions, while debentures are typically issued by private companies. Both are debt instruments promising periodic interest and principal repayment.
Regulations

Q33. Qualifying criteria for individual investment advisers (non-corporate) include:

  1. A. No qualification required
  2. B. Post-graduation or graduation with 5 years' experience in finance, plus NISM Series X-A certification, and net worth of Rs. 5 lakh
  3. C. Only age above 25 years
  4. D. Only NISM certification without any qualification
Show correct answer & explanation

Correct answer: B. Post-graduation or graduation with 5 years' experience in finance, plus NISM Series X-A certification, and net worth of Rs. 5 lakh

Individual IAs must have at minimum a graduate degree with 5 years' relevant experience (or post-graduation), hold the NISM Series X-A certification, maintain a net worth of Rs. 5 lakh, and have no disqualification under SEBI regulations.
Financial Planning

Q34. Dollar cost averaging (DCA) in investing refers to:

  1. A. Investing only in US dollar-denominated assets
  2. B. Investing a fixed amount at regular intervals regardless of market level — similar to SIP in mutual funds
  3. C. Averaging down by buying more only when markets fall
  4. D. Converting INR investments to USD regularly
Show correct answer & explanation

Correct answer: B. Investing a fixed amount at regular intervals regardless of market level — similar to SIP in mutual funds

Dollar Cost Averaging (DCA) means investing a fixed amount at regular intervals irrespective of market price. When prices are high, fewer units are bought; when prices are low, more units are bought — reducing the average cost per unit over time (same as SIP concept).
Ethics

Q35. Client confidentiality requires investment advisers to:

  1. A. Share client details with product manufacturers for better service
  2. B. Not disclose any client information to third parties without the client's explicit consent, except as required by law
  3. C. Share all information with AMFI
  4. D. Publish client portfolio details for transparency
Show correct answer & explanation

Correct answer: B. Not disclose any client information to third parties without the client's explicit consent, except as required by law

Investment advisers must maintain strict confidentiality of all client information — financial details, goals, family situation — and cannot share it with third parties without the client's explicit written consent, except when legally mandated (e.g., AML reporting).
Investment Products

Q36. REITs (Real Estate Investment Trusts) in India allow investors to:

  1. A. Buy entire commercial properties
  2. B. Invest in income-generating real estate assets through a listed trust, earning rental income distributions without direct property ownership
  3. C. Build their own office buildings
  4. D. Buy residential properties only
Show correct answer & explanation

Correct answer: B. Invest in income-generating real estate assets through a listed trust, earning rental income distributions without direct property ownership

REITs are listed trusts that own income-generating commercial real estate assets (offices, malls, warehouses). Investors buy units on the stock exchange and receive regular distributions from rental income. SEBI regulates REITs in India.
Financial Planning

Q37. Liquidity in a financial plan means:

  1. A. Having all money in equity for high returns
  2. B. Maintaining adequate easily accessible funds to meet unexpected short-term needs without selling long-term investments
  3. C. Investing all money in liquid funds
  4. D. Having no debt
Show correct answer & explanation

Correct answer: B. Maintaining adequate easily accessible funds to meet unexpected short-term needs without selling long-term investments

Liquidity planning ensures adequate funds are available in easily accessible instruments (savings account, liquid funds) to meet short-term and emergency needs, without disrupting long-term investments.
Regulations

Q38. Investment advisers must maintain records for:

  1. A. 1 year
  2. B. 3 years
  3. C. 5 years
  4. D. 10 years
Show correct answer & explanation

Correct answer: C. 5 years

SEBI IA Regulations require investment advisers to maintain all records including client agreements, KYC documents, risk profiling, investment advice given, and rationale for a minimum of 5 years. This enables regulatory inspection and dispute resolution.
Investment Products

Q39. EPF (Employee Provident Fund) contributions are:

  1. A. Optional for all employees
  2. B. Mandatory for employees with salary below Rs. 15,000 in establishments with 20+ employees — employer also contributes equally
  3. C. Only for government employees
  4. D. Voluntary for all salaried employees
Show correct answer & explanation

Correct answer: B. Mandatory for employees with salary below Rs. 15,000 in establishments with 20+ employees — employer also contributes equally

EPF is mandatory for employees earning up to Rs. 15,000 basic salary in organisations with 20 or more employees. Both employee and employer contribute 12% of basic salary each. Employees earning more can also voluntarily contribute via VPF.
Client Advisory Process

Q40. Before giving investment advice, an IA must get a signed agreement from the client that includes:

  1. A. Only the adviser's fee
  2. B. Scope of services, fees and charges, risk disclosures, client obligations, and the IA's SEBI registration details
  3. C. Only the products to be recommended
  4. D. Only the IA's qualifications
Show correct answer & explanation

Correct answer: B. Scope of services, fees and charges, risk disclosures, client obligations, and the IA's SEBI registration details

Before commencing advisory services, SEBI IA Regulations require a written client-adviser agreement covering: scope of services, fees and billing, risk disclosures, client's rights and obligations, IA's SEBI registration number, and grievance redressal process.

How to use this set

Work through the questions in order without expanding the answers first, exactly as you would in the real Series X-A exam. Once you have picked an option, expand the answer to confirm whether you were right and read the explanation, even for questions you answered correctly, since the reasoning behind each option is where most of the learning happens.

If you get a question wrong, note the topic tag above the question and revisit that topic in the Series X-A exam page before your next attempt. When you are ready for exam-condition practice, use the timed mock test above; it shuffles these questions, applies the negative marking rule, and gives you a scored review at the end.