Alternative Investment Fund Structuring
15 questions. Each answer is explained.
Question 1 of 10Practice · Series XIX-A — Alternative Investment Funds (Category I and II) Distributors
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 XIX-A
- Overview of Alternative Investments7
- Alternative Investment Funds in India7
- Concepts in Alternative Investment Funds Industry7
- Regulatory Framework – Indian Context15
- Risk and Return – Investor and Fund Perspective15
- Investment Process and Governance of Funds15
- Fund Due Diligence – Investor Perspective23
- Legal Documents and Negotiations – Investor Perspective15
- Fund Monitoring, Reporting and Exit7
- Valuation8
- Taxation – India specific8
- Good Practices8
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 10% · 0.1 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | 10 of 100 marks (10%) |
Source: 19 March 2025 Annexure I, Unit 5: Alternative Investment Fund Structuring
NISM Series XIX-A Alternative Investment Funds (Category I and II) Distributors
Exam rules read on NISM's site on 29 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 29 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 Alternative Investment Fund Structuring, with answers
Q1What is the central idea of pooling capital in an investment fund?
Option A. Combining investors’ contributions under a shared investment mandate — Correct answer
Option B. Maintaining an individually negotiated portfolio for each investor
Why it is wrong: Separately managed portfolios do not express the central idea of a common pooled fund.
Option C. Allowing each investor to select every underlying transaction
Why it is wrong: Pooling normally delegates investments under a common mandate rather than giving each investor transaction control.
Option D. Paying distributions entirely from the manager’s personal savings
Why it is wrong: Pooling concerns investors’ capital and its investments, not the manager’s personal savings.
Answer: A. Pooling combines investors’ contributions for investment under a shared mandate. Investors participate through their fund interests rather than separate personal portfolios. Remember: A pooled fund invests common capital under common governing terms.
Hint, shown before you answer in practice mode: Contrast one common investment pool with separately managed accounts. Common mistake: Assuming that a pooled fund is simply many individually managed accounts.
XIX-A-037easyconceptual
Q2In a trust-form AIF, what do investors generally hold through their fund units?
Option A. Individual legal title to every security held by the trustee
Why it is wrong: The trust structure separates the trustee’s legal holding role from investors’ beneficial interests.
Option B. Beneficial interests governed by the trust and fund documents — Correct answer
Option C. Ownership of the investment manager’s business and office assets
Why it is wrong: Units in the fund are distinct from shares or assets in the management company.
Option D. Direct personal control over every investee company’s bank account
Why it is wrong: Fund units do not give each investor personal control over investee company accounts.
Answer: B. Investors hold beneficial interests governed by the trust and fund documents. Those interests do not give each investor direct control over every underlying asset. Remember: A fund interest is not ownership of the management company.
Hint, shown before you answer in practice mode: Distinguish an interest in the trust from ownership of the manager. Common mistake: Confusing ownership of fund units with ownership of the manager’s business.
XIX-A-038easyconceptual
Q3Which participant is responsible for setting up an AIF rather than distributing, auditing or safeguarding its investments?
Option A. The statutory auditor
Why it is wrong: The auditor examines financial information rather than acting as the fund’s establishing sponsor.
Option B. The sponsor — Correct answer
Option C. The distributor
Why it is wrong: The distributor helps distribute the product but is not the sponsor merely because of that role.
Option D. The custodian
Why it is wrong: The custodian’s safekeeping role does not make it the fund’s sponsor.
Answer: B. The sponsor is the person or persons who set up the AIF. Sponsorship is distinct from distribution, audit and custody roles. Remember: Identify each participant by its actual legal role.
Hint, shown before you answer in practice mode: Recall the participant responsible for setting up the fund. Common mistake: Treating the distributor as the sponsor because the distributor introduced the investment.
XIX-A-039easyconceptual
Q4Which participant ordinarily manages an AIF’s investment portfolio under the investment management agreement?
Option A. The unit transfer service provider
Why it is wrong: A unit transfer service provider maintains ownership-related records rather than selecting investments.
Option B. The securities custodian
Why it is wrong: Safekeeping assets does not make the custodian responsible for choosing the portfolio.
Option C. The investment manager — Correct answer
Option D. The external statutory auditor
Why it is wrong: An external auditor should not be confused with the party responsible for portfolio investment decisions.
Answer: C. The investment manager manages the portfolio under its agreement and the fund’s mandate. Service providers support the fund without automatically taking over investment decisions. Remember: Portfolio management is distinct from record keeping and asset safekeeping.
Hint, shown before you answer in practice mode: Focus on the participant appointed to carry out the investment mandate. Common mistake: Assuming that any institution handling fund assets also selects the investments.
XIX-A-040easyconceptual
Q5Which function is most closely associated with an AIF’s custodian?
Option A. Guaranteeing the sale price of portfolio securities
Why it is wrong: Safekeeping does not guarantee the future sale value of the assets held.
Option B. Negotiating the manager’s carried-interest entitlement
Why it is wrong: Negotiating profit-sharing terms is not the custodian’s central safekeeping function.
Option C. Choosing the investor’s personal asset allocation
Why it is wrong: A custodian does not undertake an investor’s personal asset allocation merely through its custody role.
Option D. Safekeeping the fund’s securities — Correct answer
Answer: D. The custodian is associated with safekeeping the fund’s securities and related custody functions. Custody does not guarantee investment performance. Remember: Custody safeguards holdings but does not insure their market value.
Hint, shown before you answer in practice mode: Think about protecting and maintaining custody records for securities. Common mistake: Treating safekeeping as a guarantee against investment loss.
XIX-A-041easyconceptual
Q6In an ordinary trust-form AIF, excluding special regulatory relief, how does the trustee’s role differ from the manager’s role?
Option A. The trustee replaces every investor’s contractual commitment
Why it is wrong: The trustee’s role does not cancel investors’ agreed capital obligations.
Option B. The trustee must personally originate every portfolio investment
Why it is wrong: Investment origination is normally a management activity rather than the defining trustee responsibility.
Option C. The trustee oversees the trust’s administration and compliance — Correct answer
Option D. The trustee guarantees the manager’s targeted annual return
Why it is wrong: Trustee oversight does not create a return guarantee.
Answer: C. The trustee has oversight responsibilities for the trust while the manager carries out investment management. The precise duties must be read with the trust documents and applicable rules. Remember: Oversight and investment execution are different responsibilities.
Hint, shown before you answer in practice mode: Separate oversight of the trust from day-to-day investment selection. Common mistake: Assuming that oversight means the trustee selects every investment.
XIX-A-042mediumconceptual
Q7What is the usual role of a feeder fund in a master-feeder investment structure?
Option A. Collecting capital to invest into the master fund — Correct answer
Option B. Replacing the master fund’s entire investment mandate
Why it is wrong: The feeder generally channels capital into the master rather than replacing its mandate.
Option C. Eliminating the need to examine any underlying investments
Why it is wrong: A feeder structure adds a layer and does not remove look-through due diligence.
Option D. Providing a daily trading market for every master-fund asset
Why it is wrong: A feeder structure does not automatically create daily liquidity for underlying assets.
Answer: A. A feeder fund collects investor capital and invests it into the master fund. Investors should understand both layers and their applicable terms and costs. Remember: A feeder is a route into the underlying master investment pool.
Hint, shown before you answer in practice mode: Follow the path of investor money through the two fund layers. Common mistake: Reviewing only the feeder while ignoring the master fund.
XIX-A-043mediumconceptual
Q8What characterises a unified domestic AIF structure accepting eligible Indian and overseas investors?
Option A. Every investor receives identical personal tax treatment
Why it is wrong: A common investment pool does not make every investor’s tax circumstances identical.
Option B. Each investor automatically owns a separate offshore portfolio
Why it is wrong: A unified domestic pool is not the same as separately owned offshore portfolios.
Option C. Their eligible capital enters a common Indian investment pool — Correct answer
Option D. Overseas participation removes Indian regulatory requirements
Why it is wrong: Foreign participation does not displace the applicable Indian requirements.
Answer: C. A unified domestic structure brings eligible Indian and overseas capital into a common Indian pool. Investor eligibility and tax treatment still require separate analysis. Remember: A common fund structure does not mean identical investor-level tax treatment.
Hint, shown before you answer in practice mode: Focus on where the eligible capital is pooled, not on assuming equal tax outcomes. Common mistake: Assuming that pooling money also standardises every investor’s legal position.
XIX-A-044mediumconceptual
Q9What issue needs clear rules when two parallel funds invest alongside each other?
Option A. Allocation of investment opportunities and shared expenses — Correct answer
Option B. Removal of the investment limits applicable to each fund
Why it is wrong: Parallel investing does not remove each vehicle’s own investment restrictions.
Option C. Elimination of all reporting to either investor group
Why it is wrong: Parallel structures still require reporting under their applicable terms and rules.
Option D. Automatic conversion of both funds into one legal entity
Why it is wrong: Investing alongside each other does not automatically merge the funds.
Answer: A. Parallel funds need clear rules for allocating investment opportunities and shared expenses. Common management should not lead to arbitrary treatment of either pool. Remember: Separate pools require clear and fair allocation arrangements.
Hint, shown before you answer in practice mode: Consider how a manager treats separate pools fairly in the same transaction. Common mistake: Assuming that identical management makes allocation policies unnecessary.
XIX-A-045mediumconceptual
Q10Why might a fund use a special purpose vehicle for a particular investment?
Option A. To organise ownership and isolate specified transaction risks — Correct answer
Option B. To exempt every payment from all applicable taxes
Why it is wrong: A separate vehicle does not automatically create a tax exemption.
Option C. To give every investor an unrestricted daily exit right
Why it is wrong: A holding vehicle does not by itself create redemption rights or a liquid market.
Option D. To guarantee that the underlying asset will never lose value
Why it is wrong: A special purpose vehicle does not eliminate the underlying asset’s economic risks.
Answer: A. A special purpose vehicle can organise ownership and isolate specified transaction risks. Its protection depends on the actual legal arrangements and does not guarantee performance. Remember: Legal separation can manage certain risks without removing investment risk.
Hint, shown before you answer in practice mode: Think about separating a transaction’s ownership and obligations from other activities. Common mistake: Treating a special purpose vehicle as complete protection against all losses.
XIX-A-046mediumconceptual
Q11What cost issue should an investor examine in a fund that invests through other funds?
Option A. Only the underlying fund’s historical gross return
Why it is wrong: Gross performance does not disclose all costs at both levels.
Option B. Only the investor’s bank transfer charge on subscription
Why it is wrong: A transfer charge is not a substitute for examining recurring and performance fees.
Option C. Charges at both the investing fund and underlying fund levels — Correct answer
Option D. Only the investing fund’s name and marketing expenditure
Why it is wrong: The name and marketing budget do not capture the investor’s multiple layers of charges.
Answer: C. The investor should examine charges at both the investing fund and underlying fund levels. Multiple layers can reduce the net return even when each charge is separately disclosed. Remember: Review total costs through the whole investment structure.
Hint, shown before you answer in practice mode: Trace each layer between the investor and the underlying portfolio. Common mistake: Counting only the fee charged by the vehicle the investor directly subscribes to.
XIX-A-047mediumconceptual
Q12Before charging a management-company expense to the AIF, what should be checked first?
Option A. Whether another unrelated fund once paid a similar expense
Why it is wrong: An unrelated arrangement does not establish permission under this fund’s documents.
Option B. Whether the manager can describe the expense as important
Why it is wrong: The manager’s description does not create a contractual right to charge the fund.
Option C. Whether the expense would reduce the manager’s own profit
Why it is wrong: A cost to the manager is not automatically a cost that investors must bear.
Option D. Whether the fund documents permit that expense allocation — Correct answer
Answer: D. The fund documents must support charging the expense to the AIF. An expense does not become a fund liability merely because the manager incurred it. Remember: Expense allocation requires a documented basis.
Hint, shown before you answer in practice mode: Distinguish a cost of running the manager from a permitted fund expense. Common mistake: Assuming that every cost connected with the manager belongs to the fund.
XIX-A-048mediumconceptual
Q13A manager runs two schemes under one AIF. To simplify operations, it proposes mixing their cash and liabilities in one undivided account. What should govern the arrangement?
Option A. A year-end spreadsheet can replace separate records of each scheme's cash and liabilities
Why it is wrong: A spreadsheet alone does not replace the scheme-level account segregation required by the rule.
Option B. Common management allows the cash, assets and liabilities of both schemes to be freely mixed
Why it is wrong: Common management does not remove the requirement to keep scheme assets and liabilities separate.
Option C. Each scheme’s assets, liabilities and prescribed accounts must be segregated — Correct answer
Option D. Separate scheme records are needed only after one scheme has reported a financial loss
Why it is wrong: The obligation does not begin only after a loss has been reported.
Answer: C. Each scheme’s assets, liabilities and prescribed bank and securities accounts must be segregated. Sharing a manager does not remove the regulatory separation requirement. Remember: Scheme-level separation protects the distinction between investor pools.
Hint, shown before you answer in practice mode: Consider whether one scheme’s investors should bear another scheme’s obligations. Common mistake: Treating separate schemes as one undivided pool because they have the same manager.
XIX-A-049mediumapplication
Q14A proposed offshore feeder has a lower headline tax rate than an alternative structure. Its investors have different tax residences, and the feeder adds costs and regulatory conditions. How should the structures be compared?
Option A. Choose solely by the jurisdiction’s lowest headline tax rate
Why it is wrong: A headline rate ignores investor treatment, eligibility, costs and applicable anti-avoidance rules.
Option B. Ignore the feeder’s costs because the underlying assets are unchanged
Why it is wrong: Additional structural costs can change investor outcomes even with the same assets.
Option C. Compare lawful after-tax outcomes, eligibility, costs and governance — Correct answer
Option D. Assume that all investors obtain the feeder jurisdiction’s rate
Why it is wrong: Investors do not automatically receive identical treatment merely because a feeder is established there.
Answer: C. The comparison should assess lawful after-tax outcomes together with eligibility, costs and governance. A low headline rate alone does not establish the better or compliant structure. Remember: Structure selection requires more than a tax-rate comparison.
Hint, shown before you answer in practice mode: Follow both the legal conditions and the cash flows through the entire structure. Common mistake: Treating the lowest advertised tax rate as the actual investor outcome.
XIX-A-050hardapplication
Q15A feeder’s attributable master-fund payout is ₹20 lakh before ₹4 lakh master-level charges. Feeder charges are ₹1 lakh. What reaches investors before tax?
Option A. ₹16 lakh
Why it is wrong: ₹16 lakh deducts the master-level charges but ignores the feeder charges.
Option B. ₹19 lakh
Why it is wrong: ₹19 lakh deducts only the feeder charges and ignores the master-level charges.
Option C. ₹24 lakh
Why it is wrong: ₹24 lakh incorrectly adds the master charges rather than deducting the stated costs.
Option D. ₹15 lakh — Correct answer
Answer: D. Investors receive ₹15 lakh before tax after both stated layers of charges. Master-level net payout = ₹20 lakh − ₹4 lakh = ₹16 lakh. Investor payout = ₹16 lakh − ₹1 lakh = ₹15 lakh. Remember: Calculate investor cash after every applicable structural layer.
Hint, shown before you answer in practice mode: Account for each stated charge once, at the layer where it arises. Common mistake: Stopping the calculation at the master fund’s net payout.
XIX-A-051hardnumerical
Alternative Investment Fund Structuring: common questions
How many practice questions are there on Alternative Investment Fund Structuring?
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 13 practice topics for NISM Series XIX-A, which has 150 questions in total.
Are these real NISM Series XIX-A questions on Alternative Investment Fund Structuring?
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.
How much of the NISM Series XIX-A exam is Alternative Investment Fund Structuring?
NISM's published syllabus outline gives it 10 of the paper's 100 marks, or 10% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: 19 March 2025 Annexure I, Unit 5: Alternative Investment Fund Structuring
Does negative marking apply to NISM Series XIX-A?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 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.
Risk and Return – Investor and Fund Perspective
15 questions on Risk and Return – Investor and Fund Perspective. Its quiz opens on that unit.
Open Risk and Return – Investor and Fund PerspectivePaper Trading Try it on the practice trading desk