Good Practices
8 questions. Each answer is explained.
Question 1 of 8Practice · 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
- 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
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 13: Good Practices
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 8 questions on Good Practices, with answers
Q1Which statement is appropriate when explaining a private fund’s target return to a prospective investor?
Option A. The target becomes certain after the investor signs the application
Why it is wrong: Signing an application does not make future investment performance certain.
Option B. The target is an expectation and actual outcomes may be lower or negative — Correct answer
Option C. The target cannot be missed when the manager has an experienced team
Why it is wrong: Experience can be relevant but does not guarantee a future investment result.
Option D. The target is a fixed payment simply because it appears in the brochure
Why it is wrong: Printing a target in a brochure does not make it a guaranteed payment.
Answer: B. A target return is an expectation and actual outcomes may be lower or negative. It should not be described as a guarantee merely because it is published or repeated. Remember: Describe targets as targets and explain the possibility of loss.
Hint, shown before you answer in practice mode: Separate a forecast used in a pitch from a contractual and legally valid assurance. Common mistake: Turning an expected outcome into an assured outcome while simplifying a pitch.
XIX-A-143easyconceptual
Q2Why should a distributor disclose relevant compensation and incentives to an investor?
Option A. They may influence the distributor’s product presentation or selection — Correct answer
Option B. They allow the distributor to avoid explaining investment risks
Why it is wrong: Compensation disclosure is not a substitute for risk disclosure.
Option C. They prove that the highest-paying fund is the most suitable
Why it is wrong: Higher compensation does not establish suitability for the investor.
Option D. They remove every conflict without any further action
Why it is wrong: Disclosure helps transparency but does not automatically eliminate or manage every conflict.
Answer: A. Compensation and incentives may influence how the distributor presents or selects products. Relevant disclosure helps the investor understand that potential conflict. Remember: Compensation transparency is part of fair distribution conduct.
Hint, shown before you answer in practice mode: Consider whether the distributor benefits differently from different investor choices. Common mistake: Assuming that disclosure alone makes every conflicted action acceptable.
XIX-A-144easyconceptual
Q3Which approach best protects a client’s confidential financial information within a distribution business?
Option A. Share the complete file with every employee for convenience
Why it is wrong: Convenience does not justify unnecessary access to confidential client information.
Option B. Use the file in public marketing because the investment is completed
Why it is wrong: Completing an investment does not authorise public use of private client details.
Option C. Limit access to authorised people who need it for legitimate work — Correct answer
Option D. Send the file to unrelated prospects as an example of a good client
Why it is wrong: Unrelated prospects do not have a legitimate need for that client’s confidential records.
Answer: C. Access should be limited to authorised people with a legitimate need for the information. Confidentiality continues after the initial transaction. Remember: Share client data only for authorised and legitimate purposes.
Hint, shown before you answer in practice mode: Apply a need-to-know test to each person receiving the information. Common mistake: Treating information provided for onboarding as freely reusable for marketing.
XIX-A-145easyconceptual
Q4What should a distributor do when an investor leaves a material section of a subscription form incomplete?
Option A. Copy another investor’s response because the forms look alike
Why it is wrong: Another person’s details do not establish this investor’s information or consent.
Option B. Fill it with a convenient assumption without checking the investor
Why it is wrong: An unsupported assumption can misstate the investor’s circumstances or instructions.
Option C. Leave it blank while claiming that all information has been verified
Why it is wrong: Claiming completion and verification when material information is missing is misleading.
Option D. Obtain the correct information and the required investor confirmation — Correct answer
Answer: D. The distributor should obtain the correct information and any required investor confirmation. Guessing or copying details can create inaccurate records and unauthorised commitments. Remember: Complete records through verification, not assumption.
Hint, shown before you answer in practice mode: Accuracy and informed authorisation matter more than completing the form quickly. Common mistake: Treating a signature as permission to invent missing information.
XIX-A-146easyconceptual
Q5How should a distributor present a performance comparison that uses a manager’s gross return figure?
Option A. Label it as the investor’s net return without checking deductions
Why it is wrong: A gross figure is not the investor’s net return merely because it is used in a pitch.
Option B. Clearly identify the gross basis and explain relevant investor deductions — Correct answer
Option C. Omit the calculation period so that only the headline percentage remains
Why it is wrong: Removing the period makes the comparison harder to interpret accurately.
Option D. Show only profitable investments and call the figure the complete record
Why it is wrong: Selective examples should not be misrepresented as the complete fund track record.
Answer: B. The distributor should identify the gross basis and explain the relevant deductions and comparison limits. A presentation should not cause the investor to mistake gross performance for personal net proceeds. Remember: State what a performance figure includes and excludes.
Hint, shown before you answer in practice mode: Ask what a reader might wrongly assume about the percentage being shown. Common mistake: Using a technically correct number in a way that creates a misleading impression.
XIX-A-147mediumconceptual
Q6Which activity is a suitable part of agreed post-investment distribution support?
Option A. Helping the investor access fund communications and understand capital-call notices — Correct answer
Option B. Make up a substitute value for the portfolio when the fund's official report is delayed
Why it is wrong: A distributor should not create unsupported values to fill a reporting gap.
Option C. Alter the amount of the investor's commitment without first obtaining documented authority
Why it is wrong: Post-investment support does not create authority to alter commitments unilaterally.
Option D. Assure the investor that money can be withdrawn immediately whenever they request it
Why it is wrong: Support cannot create an exit right that the fund terms do not provide.
Answer: A. Post-investment support can help investors access communications and understand notices within the agreed service scope. It does not permit invented information or unauthorised changes to obligations. Remember: Support continues after subscription but must stay within its authority.
Hint, shown before you answer in practice mode: Distinguish helping with communication from taking unauthorised management decisions. Common mistake: Assuming that a service role allows the distributor to change the fund’s terms.
XIX-A-148mediumconceptual
Q7A distributor knows that a client believes a fund allows monthly withdrawals. The actual restrictions are stated deep in the documents, and the client has signed a receipt confirming delivery. What should the distributor do?
Option A. Allow the client to assume monthly access until the first withdrawal request
Why it is wrong: The known misunderstanding should be addressed before the investor relies on it.
Option B. Repeat only the return target because liquidity details may discourage the client
Why it is wrong: Avoiding a material limitation to preserve interest in the product is misleading.
Option C. Rely only on the receipt because document delivery resolves every misunderstanding
Why it is wrong: Delivery evidence does not justify ignoring a known material misunderstanding.
Option D. Clearly correct the misunderstanding and explain the material withdrawal restrictions — Correct answer
Answer: D. The distributor should clearly correct the known misunderstanding and explain the material restrictions. A signed receipt is not a reason to leave a client with a false impression. Remember: Material disclosure must not be hidden behind evidence that documents were merely delivered.
Hint, shown before you answer in practice mode: Consider whether formal delivery has actually produced an informed understanding. Common mistake: Treating a document-delivery signature as a substitute for addressing a known misunderstanding.
XIX-A-149hardapplication
Q8An investor complains that a fee was described incorrectly before subscription. The distributor finds an old message supporting the complaint and has no authority to award compensation. What is the appropriate response?
Option A. Remove the old message so that there is no longer a record of the conflicting fee explanation
Why it is wrong: Deleting relevant evidence conceals the issue rather than resolving it fairly.
Option B. Preserve the evidence, correct the explanation and escalate through the proper process — Correct answer
Option C. Offer to pay whatever compensation the investor asks for without seeking any authority
Why it is wrong: The distributor should not make commitments outside its authority.
Option D. Reject the complaint on the grounds that the investor has already paid the commitment
Why it is wrong: Payment does not remove the need to address a supported complaint.
Answer: B. The distributor should preserve the evidence, correct the information and escalate the complaint appropriately. It should neither conceal the problem nor promise an unauthorised remedy. Remember: A fair complaint response combines accurate records, correction and proper escalation.
Hint, shown before you answer in practice mode: Protect the evidence and stay within the authorised complaint-handling process. Common mistake: Trying to make the complaint disappear instead of investigating and resolving it.
XIX-A-150hardapplication
Good Practices: common questions
How many practice questions are there on Good Practices?
8 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 Good Practices?
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 Good Practices?
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 13: Good Practices
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.
Try a paper on all of NISM Series XIX-A
This is the last unit of Alternative Investment Funds (Category I and II) Distributors. The series page runs one quiz across every unit.
Open the NISM Series XIX-A practice pagePaper Trading Try it on the practice trading desk