Alternative Investment Funds in India
7 questions. Each answer is explained.
Question 1 of 7Practice · Series XIX-A — Alternative Investment Funds (Category I and II) Distributors
0 right · 0 wrong · 7 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
- Concepts in Alternative Investment Funds Industry7
- Regulatory Framework – Indian Context15
- Alternative Investment Fund Structuring15
- 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 | 5 of 100 marks (5%) |
Source: 19 March 2025 Annexure I, Unit 2: Alternative Investment Funds in India
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 7 questions on Alternative Investment Funds in India, with answers
Q1Which regulator registers an Indian alternative investment fund under the SEBI AIF Regulations?
Option A. Reserve Bank of India
Why it is wrong: The Reserve Bank of India has other financial and foreign-exchange responsibilities, not registration under these SEBI regulations.
Option B. Insurance Regulatory and Development Authority of India
Why it is wrong: The insurance regulator does not grant registration under the SEBI AIF Regulations.
Option C. Pension Fund Regulatory and Development Authority
Why it is wrong: The pension regulator does not grant registration under the SEBI AIF Regulations.
Option D. Securities and Exchange Board of India — Correct answer
Answer: D. The Securities and Exchange Board of India registers AIFs under the SEBI AIF Regulations. Other authorities may still matter for separate legal requirements. Remember: Use the regulator named in the applicable AIF registration framework.
Hint, shown before you answer in practice mode: Identify the authority responsible for the specified securities-market regulations. Common mistake: Assuming that one financial regulator controls every type of financial institution.
XIX-A-008easyregulatory
Q2An infrastructure fund meeting the relevant AIF definition falls within which regulatory category?
Option A. Category II
Why it is wrong: Infrastructure funds are specifically included within Category I under the regulations.
Option B. Category IV
Why it is wrong: The SEBI AIF Regulations do not establish a Category IV classification.
Option C. Category I — Correct answer
Option D. Category III
Why it is wrong: Category III is associated with diverse or complex trading strategies rather than this named Category I type.
Answer: C. An infrastructure fund meeting the regulatory definition belongs to Category I. The category includes specifically identified types such as infrastructure funds. Remember: A qualifying infrastructure fund is a Category I AIF.
Hint, shown before you answer in practice mode: Recall the category covering specifically identified sectors considered economically desirable. Common mistake: Classifying every privately managed fund as Category II.
XIX-A-009easyregulatory
Q3Which category generally covers a private equity AIF that is neither Category I nor Category III?
Option A. Category IV
Why it is wrong: There is no Category IV under the SEBI AIF classification.
Option B. Category I
Why it is wrong: The question excludes the specific Category I conditions.
Option C. Category II — Correct answer
Option D. Category III
Why it is wrong: The question excludes Category III and its relevant strategy conditions.
Answer: C. Category II covers AIFs that are neither Category I nor Category III and meet its other conditions. Ordinary private equity funds are a typical example. Remember: Category II is not another name for every type of AIF.
Hint, shown before you answer in practice mode: Look for the category defined by exclusion from the other two. Common mistake: Using the words private equity without checking the fund’s regulatory category.
XIX-A-010easyregulatory
Q4Which AIF category permits diverse or complex trading strategies that may employ leverage, subject to its applicable rules?
Option A. Category I only
Why it is wrong: Category I is not the category defined by complex trading strategies that may employ leverage.
Option B. Category II only
Why it is wrong: Category II cannot generally use leverage outside specifically permitted borrowing arrangements.
Option C. Every category equally
Why it is wrong: The three categories do not have identical leverage and strategy permissions.
Option D. Category III — Correct answer
Answer: D. Category III is the category defined to include diverse or complex trading strategies that may employ leverage. This does not remove the category’s applicable safeguards and limits. Remember: AIF categories have different strategy and leverage rules.
Hint, shown before you answer in practice mode: Distinguish trading-oriented strategies from ordinary private capital strategies. Common mistake: Assuming that a rule available to one AIF category applies to the others.
XIX-A-011mediumregulatory
Q5Which feature is most relevant when distinguishing the regulatory category of an AIF?
Option A. Its number of distributors and individual unit holders
Why it is wrong: Distribution reach and investor count do not define the fund’s investment category.
Option B. Its legal form as a trust, company or partnership
Why it is wrong: A legal form does not by itself determine which investment category the fund belongs to.
Option C. Its chosen valuation frequency and reporting format
Why it is wrong: Reporting arrangements do not replace the investment conditions defining the category.
Option D. Its investment strategy and applicable category conditions — Correct answer
Answer: D. The fund’s investment strategy and category conditions are central to its AIF classification. Marketing labels cannot replace those conditions. Remember: Classify the fund by its mandate and rules, not by its marketing.
Hint, shown before you answer in practice mode: Focus on what the fund is established to do with investors’ money. Common mistake: Treating a marketing label as the complete regulatory classification.
XIX-A-012mediumconceptual
Q6Which business need helps explain demand for private capital funds in India?
Option A. Daily redemption facilities for short-term savings balances
Why it is wrong: A private capital fund is not primarily a daily-access savings arrangement.
Option B. Long-term funding for businesses outside public equity markets — Correct answer
Option C. Routine payment processing between merchants and their customers
Why it is wrong: Payment processing is a different financial service from financing business ownership and growth.
Option D. Standardised clearing of trades in listed securities
Why it is wrong: Trade clearing supports market settlement rather than providing long-term private business capital.
Answer: B. Businesses outside public equity markets may need long-term capital that private capital funds can provide. This is a financing role, not a promise of investment success. Remember: Private capital can address financing needs that public markets do not meet.
Hint, shown before you answer in practice mode: Think about businesses that need patient capital but cannot readily issue listed shares. Common mistake: Confusing the economic purpose of private capital with assured investor returns.
XIX-A-013mediumconceptual
Q7An investor meets a fund’s minimum investment requirement. The investor needs the same money for a fixed payment in six months, while the fund has a seven-year term and no assured early exit. What matters most?
Option A. The seven-year term ensures the money is available in six months
Why it is wrong: A long fund term does not promise access when a short-term payment becomes due.
Option B. A higher target return removes the six-month cash requirement
Why it is wrong: A target return cannot remove an investor’s fixed payment obligation.
Option C. The investor’s cash requirement conflicts with the fund’s liquidity — Correct answer
Option D. Meeting the minimum investment establishes complete suitability
Why it is wrong: Financial eligibility does not establish that the investor’s time horizon matches the fund.
Answer: C. The investor’s near-term cash requirement conflicts with the fund’s limited liquidity. Meeting the minimum investment amount does not resolve this mismatch. Remember: Eligibility and suitability are separate checks.
Hint, shown before you answer in practice mode: Separate eligibility to enter the fund from the timing of the investor’s needs. Common mistake: Treating the ability to meet a subscription threshold as proof of suitability.
XIX-A-014hardapplication
Alternative Investment Funds in India: common questions
How many practice questions are there on Alternative Investment Funds in India?
7 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 Funds in India?
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 Funds in India?
NISM's published syllabus outline gives it 5 of the paper's 100 marks, or 5% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: 19 March 2025 Annexure I, Unit 2: Alternative Investment Funds in India
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.
Concepts in Alternative Investment Funds Industry
7 questions on Concepts in Alternative Investment Funds Industry. Its quiz opens on that unit.
Open Concepts in Alternative Investment Funds IndustryPaper Trading Try it on the practice trading desk