Ethical Issues
15 questions. Each answer is explained.
Question 1 of 10Practice · Series X-A — Investment Adviser (Level 1)
0 right · 0 wrong · 10 to go
A–D or 1–4 to answer · Enter or → for the next question · ← to go back
Learn these topics
More units in NISM Series X-A
- Introduction to Personal Financial Planning4
- Time Value of Money14
- Evaluating the Financial Position of Clients5
- Debt Management and Loans2
- Introduction to the Indian Financial Markets4
- Securities Market Segments21
- Introduction to Investment5
- Investing in Stocks20
- Investing in Fixed Income Securities25
- Understanding Derivatives25
- Mutual Funds25
- Portfolio Manager10
- Overview of Alternative Investment Funds (AIFs)15
- Introduction to Modern Portfolio Theory14
- Portfolio Construction Process11
- Portfolio Performance Measurement and Evaluation25
- Operational Aspects of Investment Management15
- Key Regulations15
- Grievance Redress Mechanism15
Exam format
| Questions | 135 · 1 or 2 marks each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 or 0.5 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series X-A Investment Adviser (Level 1)
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 15 questions on Ethical Issues, with answers
Q1What does fiduciary responsibility mean for an investment adviser?
Option A. Acting in the client's best interest, ahead of the adviser's own — Correct answer
Option B. Earning the highest fee income the law allows
Why it is wrong: Fee income is the adviser's interest, not the client's.
Option C. Guaranteeing that the client's portfolio never loses money
Why it is wrong: No adviser can guarantee against losses.
Option D. Following every client instruction even when it harms the client
Why it is wrong: A fiduciary explains the harm rather than simply complying.
Answer: A. Fiduciary responsibility means putting the client's interest first. The adviser must act honestly, with care, and without letting its own interests come first. Remember: A fiduciary puts the client's interest first.
Hint, shown before you answer in practice mode: Common mistake: Thinking fiduciary duty means guaranteeing returns.
X-A-256easyconceptual
Q2An adviser's brother runs a company whose shares the adviser plans to recommend. What should the adviser do?
Option A. Disclose the link and make sure the advice still serves the clients — Correct answer
Option B. Recommend the shares without saying anything, since family links are private
Why it is wrong: A family link is a conflict that clients must be told about.
Option C. Recommend the shares only to clients who are friends
Why it is wrong: Choosing friends does not remove the conflict.
Option D. Ask the brother to give clients a small discount
Why it is wrong: A discount does not deal with the conflict.
Answer: A. The adviser must disclose the conflict and keep the advice in the clients' interest. A family link can bias advice, so clients must know about it. Remember: Conflicts must be disclosed and managed so they never bias advice.
Hint, shown before you answer in practice mode: Common mistake: Treating a family link as a private matter.
X-A-257easyapplication
Q3A long-time client insists on moving her whole emergency fund into a small-cap fund, against the adviser's advice. What is the ethical approach?
Option A. Refuse ever to deal with her again
Why it is wrong: Ending the relationship is not required. Clear advice and records are.
Option B. Act on it and record the move as the adviser's own recommendation to her
Why it is wrong: Recording it as a recommendation would misstate the advice.
Option C. Agree, since a client's wishes always override suitability
Why it is wrong: Suitability still guides the advice, even if the client decides otherwise.
Option D. Explain the risks and record both the advice and her own decision — Correct answer
Answer: D. The adviser explains the risks, records the advice given and the client's own decision, and never presents it as a recommendation. The record shows what was advised and what the client chose. Remember: When a client overrides advice, explain the risks and record both the advice and the decision.
Hint, shown before you answer in practice mode: Common mistake: Recording a client's own decision as the adviser's recommendation.
X-A-258mediumapplication
Q4Which of these is part of SEBI's guidance to investors on dealing with investment advisers?
Option A. Pay advisers in cash to save on bank charges
Why it is wrong: Cash payments leave no trail and are discouraged.
Option B. Pay fees only through banking channels and keep the receipts — Correct answer
Option C. Share your trading password with the adviser so trades can be placed fast
Why it is wrong: Passwords and OTPs must never be shared.
Option D. Prefer advisers who promise fixed high returns
Why it is wrong: Promises of assured returns are a warning sign.
Answer: B. Investors should pay advisers only through banking channels and keep the receipts. SEBI also warns investors never to share passwords and to avoid anyone promising assured returns. Remember: Pay advisers only through banking channels and never share passwords.
Hint, shown before you answer in practice mode: Common mistake: Trusting promises of assured returns.
X-A-259mediumconceptual
Q5Before engaging an investment adviser, how should an investor check that the adviser is genuine?
Option A. Count the adviser's followers on social media
Why it is wrong: Follower counts say nothing about registration.
Option B. Look up the adviser's registration on SEBI's website — Correct answer
Option C. Check whether the adviser offers a trial period
Why it is wrong: A trial offer does not prove registration.
Option D. Rely on the client reviews the adviser has chosen to publish online
Why it is wrong: Hand-picked reviews cannot confirm that an adviser is registered.
Answer: B. The investor should confirm the registration on SEBI's website. The official register is the only reliable check that an adviser is registered. Remember: Always verify an adviser's registration on SEBI's website.
Hint, shown before you answer in practice mode: Common mistake: Judging an adviser by popularity instead of registration.
X-A-260mediumapplication
Q6An adviser's yearly compliance audit finds that several clients' risk profiles were incomplete. What is the right response?
Option A. Note the finding and change nothing until next year's audit comes around
Why it is wrong: Audit findings need action now, not a year later.
Option B. Delete the incomplete profiles to avoid further questions
Why it is wrong: Deleting records breaks the record-keeping rules.
Option C. Ask the auditor to remove the observation from the report
Why it is wrong: The aim is to fix the gap, not hide it.
Option D. Complete the profiles and review any advice that relied on them — Correct answer
Answer: D. The adviser fixes the gaps and reviews the advice built on the weak profiles. An audit observation calls for corrective action, and advice may need to change once profiles are complete. Remember: Audit findings need corrective action, including a review of advice built on the flawed records.
Hint, shown before you answer in practice mode: Common mistake: Treating an audit observation as a formality.
X-A-261mediumapplication
Q7An adviser often tells clients to switch funds, though the switches add costs and do not improve their plans. What is the ethical problem?
Option A. The switching serves activity rather than the clients' interests — Correct answer
Option B. None, because frequent switching always captures the most recent winners
Why it is wrong: Chasing recent winners does not make a switch good for the client.
Option C. None, as long as every switch is legal
Why it is wrong: Advice can be legal and still fail the client.
Option D. Only that the switches create extra paperwork
Why it is wrong: The harm is the cost to clients, not the paperwork.
Answer: A. Needless switching serves activity, not the client. Each switch adds cost without improving the plan, so the advice fails the client's interest. Remember: Advice must benefit the client, not just create activity.
Hint, shown before you answer in practice mode: Common mistake: Judging a recommendation only by whether it is legal.
X-A-262hardapplication
Q8A journalist asks an adviser which well-known investors are clients. What should the adviser do?
Option A. Decline, as client details stay confidential unless law requires disclosure — Correct answer
Option B. Share the names only, as names are not sensitive
Why it is wrong: Even the fact that someone is a client is confidential.
Option C. Share details because the clients are famous
Why it is wrong: Fame does not remove the duty of confidentiality.
Option D. Share portfolio values without client names, but list the holdings in full
Why it is wrong: Holdings can identify clients and are confidential too.
Answer: A. The adviser declines. Client information is confidential unless the client agrees or the law requires disclosure. Remember: Client information stays confidential unless the client agrees or the law requires disclosure.
Hint, shown before you answer in practice mode: Common mistake: Assuming famous clients' details are public.
X-A-263hardapplication
Q9An adviser charges much more to a client who seems less financially aware, for the same service others get. Which principle is broken?
Option A. None, because fees are a private agreement
Why it is wrong: The code of conduct requires fair and reasonable fees.
Option B. Only the rule on keeping records
Why it is wrong: The problem is the unfair fee, not the records.
Option C. Fairness, as fees must be reasonable and must not exploit clients — Correct answer
Option D. Confidentiality, because other clients' fees must always stay private
Why it is wrong: No client data was shared. The fee itself is the problem.
Answer: C. Charging a less aware client more for the same service breaks fairness. SEBI's code of conduct for advisers requires fair and reasonable fees. Remember: Fees must be fair and reasonable, never set by how much a client knows.
Hint, shown before you answer in practice mode: Common mistake: Treating fees as a purely private bargain.
X-A-264hardapplication
Q10In the United States, which law governs investment advisers and underpins their fiduciary duty?
Option A. The Securities Exchange Act of 1934 alone
Why it is wrong: The 1934 Act mainly covers exchanges and broker-dealers.
Option B. The Investment Advisers Act of 1940 — Correct answer
Option C. The Sarbanes-Oxley Act of 2002
Why it is wrong: Sarbanes-Oxley deals with corporate governance and audits.
Option D. The Dodd-Frank Act of 2010
Why it is wrong: Dodd-Frank reformed financial regulation broadly. It is not the advisers' law.
Answer: B. US investment advisers are governed by the Investment Advisers Act of 1940, administered by the SEC. Their fiduciary duty includes a duty of care and a duty of loyalty. Remember: US advisers are governed by the Investment Advisers Act of 1940, which carries a fiduciary duty.
Hint, shown before you answer in practice mode: Common mistake: Confusing the Advisers Act with laws for brokers or companies.
X-A-265easyconceptual
Q11Under Australia's financial advice rules, how must an adviser act when giving personal advice to a retail client?
Option A. In the interests of the product issuer that pays the adviser's commission
Why it is wrong: The rules put the client first, not the issuer.
Option B. Only so as to avoid false statements, with no wider duty
Why it is wrong: The duty goes beyond avoiding false statements.
Option C. In the client's best interests, with the client's interests put first — Correct answer
Option D. Exactly as the client asks, without assessing needs
Why it is wrong: The adviser must assess the client's needs.
Answer: C. Australian advisers must act in the client's best interests and put the client's interests ahead of their own. This best interests duty is part of Australia's financial advice law. Remember: Australia's rules impose a best interests duty that puts the client first.
Hint, shown before you answer in practice mode: Common mistake: Thinking advisers only need to avoid false statements.
X-A-266hardconceptual
Q12Which statement best describes ethics in financial advice?
Option A. Doing only what the law clearly requires
Why it is wrong: Ethics goes beyond the bare legal minimum.
Option B. Growing the advisory business as fast as the rules and regulations allow
Why it is wrong: Growth is a business goal, not ethics.
Option C. Doing what is right for the client even where no rule demands it — Correct answer
Option D. Agreeing with clients to keep them happy
Why it is wrong: Ethics may mean telling clients what they do not want to hear.
Answer: C. Ethics means doing what is right for the client, beyond the bare legal minimum. Rules set a floor, and ethics guides choices the rules do not cover. Remember: Ethics goes beyond legal minimums to doing right by the client.
Hint, shown before you answer in practice mode: Common mistake: Equating ethics with bare legal compliance.
X-A-267easyconceptual
Q13A fund house offers an adviser an expensive holiday after the adviser's clients invest heavily in its schemes. What should the adviser do?
Option A. Accept it, as advisers may take gifts though not commission
Why it is wrong: A benefit from a product provider is a conflict, like commission.
Option B. Accept it if the trip is shared with a colleague
Why it is wrong: Sharing the benefit does not remove the conflict.
Option C. Accept it once the clients have redeemed their units
Why it is wrong: Timing does not remove the conflict.
Option D. Decline it, as it could bias future advice — Correct answer
Answer: D. The adviser should decline the holiday. A benefit from a product provider can bias advice, and advisers may not receive consideration linked to their clients' products. Remember: Benefits from product providers can bias advice and must be refused.
Hint, shown before you answer in practice mode: Common mistake: Thinking a non-cash benefit is not a conflict.
X-A-268mediumapplication
Q14An elderly client's son asks the adviser to move her savings into a risky business he runs. She seems unsure. What should the adviser do?
Option A. Follow the son's instructions, since family members know her needs best
Why it is wrong: The client, not a relative, is the one being advised.
Option B. Speak with her directly and advise on her own goals and risk capacity — Correct answer
Option C. Move half the savings as a compromise
Why it is wrong: A compromise still ignores whether it suits her.
Option D. Refuse to speak with her until the family agrees
Why it is wrong: The adviser's duty runs to the client, not the family.
Answer: B. The adviser speaks with the client directly and advises on her own needs. A relative's pressure does not change whom the adviser serves. Remember: Advice is for the client's own needs, even when relatives push otherwise.
Hint, shown before you answer in practice mode: Common mistake: Taking instructions from a relative instead of the client.
X-A-269hardapplication
Q15An adviser's profile calls him a 'SEBI-approved expert with guaranteed returns'. What is wrong with this?
Option A. Nothing, as registered advisers may promise returns
Why it is wrong: No adviser may promise assured returns.
Option B. Registration is not SEBI approval, and no adviser can guarantee returns — Correct answer
Option C. Only the word 'expert' needs proof of a qualification
Why it is wrong: The bigger problems are the approval claim and the promise.
Option D. Nothing is wrong, provided the guaranteed returns are shown as past results
Why it is wrong: Past results are not a guarantee of future returns.
Answer: B. Registration does not mean SEBI approves the adviser, and returns cannot be guaranteed. Claims like these mislead investors. Remember: Registration is not approval, and no adviser may promise assured returns.
Hint, shown before you answer in practice mode: Common mistake: Treating registration as a stamp of guaranteed quality.
X-A-270mediumapplication
Ethical Issues: common questions
How many practice questions are there on Ethical Issues?
15 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 20 practice topics for NISM Series X-A, which has 285 questions in total.
Are these real NISM Series X-A questions on Ethical Issues?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series X-A?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1 or 2-mark question that is 0.25 or 0.5 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Grievance Redress Mechanism
15 questions on Grievance Redress Mechanism. Its quiz opens on that unit.
Open Grievance Redress Mechanism