Unit ko samjho · NISM Series X-A
Overview of Alternative Investment Funds (AIFs)
15 questions is unit mein
Sawaal aur jawaab English mein hain, kyunki NISM ka exam paper bhi English mein hota hai.
Is unit mein kya hai
- A fund’s stated strategy is to provide equity capital to young businesses that are still developing products and may not yet generate profits. Which investment emphasis most closely matches this description?
- A private-equity mandate seeks controlling equity positions in established unlisted companies, with plans to improve operations and later sell the businesses. Which analytical question is most directly connected to that strategy?
- An alternative fund proposes to lend to unlisted companies under agreements requiring interest and principal payments. Which due-diligence finding most directly weakens the expected debt repayment?
- An investor has a non-deferrable payment due in 12 months. A proposed infrastructure fund expressly permits no redemption for seven years, and the investor has no reliable secondary-sale route or other assets for the payment. Which issue is decisive before considering its projected return?
- A hypothetical special-situations investment buys a debt claim with face value ₹1 crore for ₹70 lakh. The final cash recovery is ₹60 lakh, with no interest or other receipts. What is the holding-period return on the purchase cost, rounded to two decimal places?
- An investor holds three alternative funds with different managers. Their disclosed portfolios each allocate most assets to the same five property developers in one city. What should a portfolio review recognise?
- An investment agreement defines a ₹2 crore commitment as the maximum amount the investor promises to contribute through valid future capital calls. Only ₹50 lakh has been called and paid so far. No amount is recallable and the agreement has not changed. Which statement correctly describes the position?
- A long-short fund has investor equity of ₹100 crore, long positions of ₹140 crore and short positions of ₹60 crore. What are its gross and net exposures, as a share of equity?
- Fund P’s unlisted assets are revalued only quarterly using estimates. Fund Q’s listed assets are marked to daily traded prices. P reports a smoother monthly valuation series. Which inference is most defensible from this fact alone?
- A proposed alternative strategy had correlation of 0.10 with a client’s listed portfolio in a historical sample. The adviser’s stress scenario instead assumes correlation of 0.80. What is the appropriate implication for portfolio modelling?
- CASE: An investor commits ₹2 crore to a fund. The fund calls 40% of the commitment, then another 20% of the original commitment. Both calls are paid. How much has the investor paid in?
- CASE: An investor committed ₹2 crore and has paid ₹1.20 crore through capital calls. The fund later paid out ₹20 lakh, which does not restore uncalled commitment. How much is still uncalled?
- CASE: An investor has paid ₹1.20 crore into a fund, received a ₹20 lakh cash distribution and holds a remaining interest valued at ₹1.40 crore that cannot yet be sold. ₹80 lakh of commitment is uncalled. How much cash has the investor received from the fund?
- CASE: An investor paid ₹1.20 crore into a fund out of a ₹2 crore commitment. The investor has received ₹20 lakh back and holds an interest valued at ₹1.40 crore. What is the total economic gain?
- CASE: An investor paid ₹1.20 crore into a fund out of a ₹2 crore commitment. The investor has received ₹20 lakh back and holds an interest valued at ₹1.40 crore. What is the total value to paid-in (TVPI) multiple?
Zaroori ideas
Practice bank se · 1
A fund’s stated strategy is to provide equity capital to young businesses that are still developing products and may not yet generate profits. Which investment emphasis most closely matches this description?
The key features are young companies, development uncertainty and equity funding for potential future growth. Identify the business stage: the investees are young and still developing products. The absence of current profits is explicitly allowed. Identify the instrument: equity capital gives exposure to business success or failure rather than only scheduled loan repayments. Those features fit the venture-capital emphasis. This comparison describes investment strategies. It does not assert a current regulatory registration category, eligibility limit or guaranteed outcome. Remember: Compare business stage and type of investment claim, not just the fund’s marketing name.
Hint Common mistake: Assuming early-stage equity has the same cash-flow predictability as contractual debt.
X-A-161Practice bank se · 2
A private-equity mandate seeks controlling equity positions in established unlisted companies, with plans to improve operations and later sell the businesses. Which analytical question is most directly connected to that strategy?
A controlling ownership strategy depends on business improvement, purchase valuation and the feasibility of realising an exit. The mandate specifies established companies and control positions, separating it from a purely early-stage venture strategy. Operational improvements may support higher future cash flows or exit value, but neither the improvement nor the ability to sell is certain. Fund and investor repayment rights must be read separately from company maturity. An established underlying business does not automatically make a private fund redeemable on demand. Remember: Analyse the path from acquisition through operating performance to realisable exit value.
Hint Common mistake: Treating all private-equity strategies as identical to venture capital.
X-A-162Practice bank se · 3
An alternative fund proposes to lend to unlisted companies under agreements requiring interest and principal payments. Which due-diligence finding most directly weakens the expected debt repayment?
Both the primary repayment source and the assumed recovery support are weak in this scenario. Interest and principal depend on the borrower’s financial resources. Insufficient cash generation directly threatens those promised payments. Collateral matters only to the extent it can be enforced and realised for an adequate amount. A stated value is not the same as recovered cash. An agreed payment schedule and a debt label do not remove credit risk. This question evaluates the stated credit facts, without assuming any particular AIF category or legal recovery outcome. Remember: Distinguish contractual payment promises from the resources available to fulfil them.
Hint Common mistake: Treating collateral or the word debt as proof that principal cannot be lost.
X-A-163Practice bank se · 4
An investor has a non-deferrable payment due in 12 months. A proposed infrastructure fund expressly permits no redemption for seven years, and the investor has no reliable secondary-sale route or other assets for the payment. Which issue is decisive before considering its projected return?
The investor needs spendable money in one year but has no established way to access the proposed investment then. The payment date is fixed at 12 months, whereas the stipulated no-redemption period is seven years. The question also removes alternative funding and a reliable sale route. Therefore the funding mismatch cannot be dismissed by assuming the units can be sold. Expected performance does not cure unavailable liquidity. These horizons are hypothetical contract terms, not a claim that every infrastructure AIF must use a seven-year restriction. Remember: A required payment must be matched with accessible funding, not merely a favourable return projection.
Hint Common mistake: Confusing an investment’s estimated future value with cash available when a liability falls due.
X-A-164Practice bank se · 5
A hypothetical special-situations investment buys a debt claim with face value ₹1 crore for ₹70 lakh. The final cash recovery is ₹60 lakh, with no interest or other receipts. What is the holding-period return on the purchase cost, rounded to two decimal places?
The ₹10 lakh loss is divided by the ₹70 lakh actually invested, producing approximately −14.29%. Cash invested is ₹70 lakh and total cash recovered is ₹60 lakh. The investment therefore loses ₹10 lakh. Holding-period return = (₹60 lakh − ₹70 lakh) / ₹70 lakh × 100 = −14.2857%, rounded to −14.29%. Face value may help describe the contractual claim, but it is neither the investor’s cost nor an assured recovery. No annualisation is possible because a holding duration is not specified. Remember: Calculate distressed-investment returns using acquisition cost and realised recoveries.
Hint Common mistake: Assuming that purchasing at a discount to face value necessarily creates a gain.
X-A-165Practice bank se · 6
An investor holds three alternative funds with different managers. Their disclosed portfolios each allocate most assets to the same five property developers in one city. What should a portfolio review recognise?
The portfolios share issuers, industry and location despite having different managers and fund names. All three funds are exposed to the same small group of developers. Their distinct managers do not change that shared issuer exposure. The common property industry and single city add further sources of correlated outcomes under the facts given. A review should aggregate those exposures before judging diversification. The conclusion does not assert that all alternative funds are concentrated. It follows from these specifically disclosed portfolios. Remember: Count independent sources of risk, not just the number of investment wrappers.
Hint Common mistake: Treating separate managers as sufficient proof of diversified underlying holdings.
X-A-166Practice bank se · 7
An investment agreement defines a ₹2 crore commitment as the maximum amount the investor promises to contribute through valid future capital calls. Only ₹50 lakh has been called and paid so far. No amount is recallable and the agreement has not changed. Which statement correctly describes the position?
Paid-in capital records contributions already made. The remaining contractual commitment has not yet been called. The contractual commitment is ₹2 crore. The portion actually called and paid is ₹50 lakh. Uncalled commitment = ₹2 crore − ₹50 lakh = ₹1.50 crore. It is a potential future cash requirement, not an asset already transferred to the fund. The investor needs to consider that future funding obligation when managing other liquidity. The scenario excludes recycling and recall provisions that could otherwise complicate the reconciliation. Remember: Track future contribution obligations separately from the amount already invested.
Hint Common mistake: Recording the full commitment as paid-in capital before the calls are funded.
X-A-167Practice bank se · 8
A long-short fund has investor equity of ₹100 crore, long positions of ₹140 crore and short positions of ₹60 crore. What are its gross and net exposures, as a share of equity?
Gross exposure adds ₹140 crore and ₹60 crore. Net exposure subtracts ₹60 crore from ₹140 crore. Gross positions = ₹140 crore + ₹60 crore = ₹200 crore. Dividing by ₹100 crore equity gives 200%. Net positions = ₹140 crore − ₹60 crore = ₹80 crore. Dividing by the same equity base gives 80%. Offsetting exposures do not guarantee offsetting profits or losses, because the long and short assets can behave differently. These definitions are an explicit teaching convention, not a calculation of any regulatory leverage ceiling. Remember: Keep signed net exposure separate from the total size of long and short positions.
Hint Common mistake: Assuming low net exposure would eliminate liquidity, financing or mismatch risks.
X-A-168Practice bank se · 9
Fund P’s unlisted assets are revalued only quarterly using estimates. Fund Q’s listed assets are marked to daily traded prices. P reports a smoother monthly valuation series. Which inference is most defensible from this fact alone?
A smooth reported series may reflect infrequent observations rather than genuinely stable underlying asset values. P’s monthly series contains periods without a fresh asset revaluation. That can make intermediate reported values appear unchanged. Q’s series incorporates daily market information, which may reveal fluctuations that P’s reporting process has not yet recorded. The observation therefore warrants reviewing valuation methods and other risks. It does not establish that P is misvalued, that Q is badly managed, or that either fund is suitable for a particular investor. Remember: Examine how the data were produced before interpreting a volatility comparison.
Hint Common mistake: Equating infrequent observed price changes with an absence of investment risk.
X-A-169Practice bank se · 10
A proposed alternative strategy had correlation of 0.10 with a client’s listed portfolio in a historical sample. The adviser’s stress scenario instead assumes correlation of 0.80. What is the appropriate implication for portfolio modelling?
The historical estimate and the explicit stress assumption describe different possible co-movement conditions. The 0.10 sample estimate suggests limited linear co-movement in that sample, but does not guarantee a future relationship. The stress assumption of 0.80 represents substantially more positive co-movement. Its effect should be assessed alongside the chosen weights and volatilities. Neither correlation alone determines expected return or a percentage loss. Comparing outcomes under different plausible inputs is more informative than presenting a single estimated number as permanent. Remember: Test whether diversification benefits survive less favourable co-movement assumptions.
Hint Common mistake: Reading a correlation coefficient as a probability of loss or a guaranteed percentage return.
X-A-170Practice bank se · 11
CASE: An investor commits ₹2 crore to a fund. The fund calls 40% of the commitment, then another 20% of the original commitment. Both calls are paid. How much has the investor paid in?
Calls = 40% + 20% = 60% of ₹2 crore = ₹1.20 crore. Remember: Use the contract’s specified capital-call base and preserve the distinction between paid-in capital and net cash outflow.
Hint Common mistake: Applying later call percentages to the remaining balance when the terms specify original commitment.
X-A-171Practice bank se · 12
CASE: An investor committed ₹2 crore and has paid ₹1.20 crore through capital calls. The fund later paid out ₹20 lakh, which does not restore uncalled commitment. How much is still uncalled?
Uncalled = ₹2 crore − ₹1.20 crore = ₹80 lakh. The distribution does not change it. Remember: Read recall and recycling terms before adjusting uncalled commitments for distributions.
Hint Common mistake: Assuming a cash distribution automatically creates an equal new contribution obligation.
X-A-172Practice bank se · 13
CASE: An investor has paid ₹1.20 crore into a fund, received a ₹20 lakh cash distribution and holds a remaining interest valued at ₹1.40 crore that cannot yet be sold. ₹80 lakh of commitment is uncalled. How much cash has the investor received from the fund?
Only the ₹20 lakh distribution has been received as cash. The ₹1.40 crore is an estimate that cannot yet be turned into cash. Remember: Do not fund an immediate payment with a valuation that cannot currently be realised.
Hint Common mistake: Treating distributed cash, residual investment value and uncalled commitment as interchangeable.
X-A-173Practice bank se · 14
CASE: An investor paid ₹1.20 crore into a fund out of a ₹2 crore commitment. The investor has received ₹20 lakh back and holds an interest valued at ₹1.40 crore. What is the total economic gain?
Gain = ₹20 lakh + ₹1.40 crore − ₹1.20 crore = ₹40 lakh. Remember: Include distributions once and residual value once when reconciling total economic gain.
Hint Common mistake: Subtracting net contributions after already including distributions on the value side.
X-A-174Practice bank se · 15
CASE: An investor paid ₹1.20 crore into a fund out of a ₹2 crore commitment. The investor has received ₹20 lakh back and holds an interest valued at ₹1.40 crore. What is the total value to paid-in (TVPI) multiple?
TVPI = (₹20 lakh + ₹1.40 crore) ÷ ₹1.20 crore = 1.33 times. It is a multiple, not a yearly return. Remember: Use a value multiple for value-versus-capital comparison, not as a substitute for a dated return calculation.
Hint Common mistake: Annualising a value multiple when cash-flow dates and investment duration are unknown.
X-A-175Liquidity describes how easily a given quantity can be traded.
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