Concepts in Alternative Investment Funds Industry
7 questions. Each answer is explained.
Question 1 of 7Practice · Series XIX-A — Alternative Investment Funds (Category I and II) Distributors
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Learn these topics
More units in NISM Series XIX-A
- Overview of Alternative Investments7
- Alternative Investment Funds in India7
- 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 3: Concepts in Alternative Investment Funds Industry
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Concepts in Alternative Investment Funds Industry, with answers
Q1What does an investor’s capital commitment to a private capital fund usually represent?
Option A. The amount the investor agrees to provide under the fund terms — Correct answer
Option B. The current market value of the investor’s fund units
Why it is wrong: A unit valuation can change after the investor has made a contractual commitment.
Option C. The amount the fund has already paid back to the investor
Why it is wrong: Money returned to an investor is a distribution rather than a capital commitment.
Option D. The profit the manager promises to earn for the investor
Why it is wrong: A capital commitment is an investor obligation, not a manager’s profit promise.
Answer: A. A capital commitment is the amount the investor agrees to provide under the fund documents. It need not all be paid on the commitment date. Remember: Committed capital and contributed capital are not automatically equal.
Hint, shown before you answer in practice mode: Distinguish an agreement to supply capital from money already invested. Common mistake: Assuming that the entire commitment has already been paid.
XIX-A-015easyconceptual
Q2What is a drawdown notice in a fund that calls capital over time?
Option A. A guarantee that the next distribution will be profitable
Why it is wrong: A capital call does not promise that a later distribution will earn a profit.
Option B. A confirmation that the investor can redeem units immediately
Why it is wrong: A request for committed capital does not create an immediate redemption right.
Option C. A statement that every portfolio asset has lost value
Why it is wrong: A capital drawdown notice is not a measurement of a fall in asset prices.
Option D. A request to pay part of the agreed capital commitment — Correct answer
Answer: D. A drawdown notice asks the investor to pay capital according to the agreed fund terms. Here, drawdown means a capital call rather than a decline from a price peak. Remember: In commitment-based funds, a drawdown is a call for capital.
Hint, shown before you answer in practice mode: Focus on when previously committed money must actually be paid. Common mistake: Confusing a capital drawdown with a fall in investment value.
XIX-A-016easyconceptual
Q3An investor commits ₹5 crore and pays calls of ₹1.2 crore and ₹0.8 crore. Without recalls or adjustments, what remains unfunded?
Option A. ₹5 crore
Why it is wrong: ₹5 crore is the original commitment before deducting the paid calls.
Option B. ₹4.2 crore
Why it is wrong: ₹4.2 crore subtracts only the second capital call and ignores the first.
Option C. ₹3 crore — Correct answer
Option D. ₹2 crore
Why it is wrong: ₹2 crore is the amount already paid, not the amount still unfunded.
Answer: C. The unfunded commitment is ₹3 crore because ₹2 crore has already been paid. Paid capital = ₹1.2 crore + ₹0.8 crore = ₹2 crore. Unfunded commitment = ₹5 crore − ₹2 crore = ₹3 crore. Remember: Unfunded commitment is the remaining contractual capital obligation.
Hint, shown before you answer in practice mode: Separate the original promise from the amounts already contributed. Common mistake: Reporting capital already contributed as capital still to be funded.
XIX-A-017mediumnumerical
Q4A fund charges 1.5% annually on ₹80 crore of commitments. Invested capital is ₹50 crore. What is the full-year fee before taxes?
Option A. ₹1.2 crore — Correct answer
Option B. ₹0.75 crore
Why it is wrong: ₹0.75 crore incorrectly applies the fee to invested capital rather than the stated commitment base.
Option C. ₹0.45 crore
Why it is wrong: ₹0.45 crore applies the fee only to the uninvested difference of ₹30 crore.
Option D. ₹1.95 crore
Why it is wrong: ₹1.95 crore double counts invested capital by adding it to commitments.
Answer: A. The full-year management fee is ₹1.2 crore because the stated base is committed capital. Fee = ₹80 crore × 1.5% = ₹1.2 crore. The ₹50 crore invested amount does not change that contractual base. Remember: The fee percentage alone is insufficient without knowing its base.
Hint, shown before you answer in practice mode: Read the fee base before using the percentage. Common mistake: Applying a fee to invested capital when the documents specify commitments.
XIX-A-018mediumnumerical
Q5What does a preferred return in a private fund’s distribution terms normally establish?
Option A. A legal right to redeem the fund’s units on any day
Why it is wrong: A preferred return does not create daily liquidity or an unrestricted redemption right.
Option B. A deposit-like promise payable even when assets lose money
Why it is wrong: A preferred return does not by itself turn fund proceeds into a guaranteed deposit payment.
Option C. An agreed priority for allocating available investment proceeds — Correct answer
Option D. A restriction preventing any investment from declining in value
Why it is wrong: A distribution priority cannot prevent portfolio investments from losing value.
Answer: C. A preferred return establishes a priority in the distribution of available proceeds under the agreed terms. It is not automatically a guaranteed return. Remember: A distribution priority is different from a return guarantee.
Hint, shown before you answer in practice mode: Think about the order in which available proceeds are shared. Common mistake: Presenting a hurdle or preferred return as an assured annual payment.
XIX-A-019mediumconceptual
Q6What generally distinguishes the first close from the final close of a private fund?
Option A. The first guarantees liquidity, while the final guarantees returns
Why it is wrong: Neither fundraising milestone creates a liquidity or return guarantee.
Option B. The first sells every asset, while the final begins investing
Why it is wrong: Fundraising closes are different from selling the entire investment portfolio.
Option C. The first pays all profits, while the final settles investor taxes
Why it is wrong: Closes concern accepting commitments, not completing profits or tax settlements.
Option D. The first admits initial commitments, while the final ends fundraising — Correct answer
Answer: D. The first close admits initial commitments, while the final close normally ends the fundraising period under the fund terms. Further investors may be admitted between those milestones where permitted. Remember: Fundraising closes are not the same as investment exits.
Hint, shown before you answer in practice mode: Place both events on the fundraising timeline rather than the exit timeline. Common mistake: Interpreting a fund’s final close as the winding up of its portfolio.
XIX-A-020mediumconceptual
Q7A fund has ₹140 crore to distribute. Its terms first return ₹100 crore of investor capital and then pay investors ₹10 crore as their full preferred return. The remaining amount is split 80% to investors and 20% to the manager, with no catch-up or other costs. What does the manager receive?
Option A. ₹28 crore
Why it is wrong: ₹28 crore incorrectly applies the manager’s share to the entire distribution including returned capital.
Option B. ₹6 crore — Correct answer
Option C. ₹8 crore
Why it is wrong: ₹8 crore applies 20% to the ₹40 crore gain without first allocating the stated preferred return.
Option D. ₹10 crore
Why it is wrong: ₹10 crore is the investors’ preferred return, not the manager’s share.
Answer: B. The manager receives ₹6 crore because only ₹30 crore remains for the final split. Residual proceeds = ₹140 crore − ₹100 crore − ₹10 crore = ₹30 crore. Manager’s share = 20% × ₹30 crore = ₹6 crore. Remember: Apply a distribution waterfall in its stated order.
Hint, shown before you answer in practice mode: Follow each distribution priority before applying the final split. Common mistake: Charging carried interest on returned capital or on amounts allocated to a prior hurdle.
XIX-A-021hardapplication
Concepts in Alternative Investment Funds Industry: common questions
How many practice questions are there on Concepts in Alternative Investment Funds Industry?
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 Concepts in Alternative Investment Funds Industry?
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 Concepts in Alternative Investment Funds Industry?
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 3: Concepts in Alternative Investment Funds Industry
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.
Regulatory Framework – Indian Context
15 questions on Regulatory Framework – Indian Context. Its quiz opens on that unit.
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