Legal Documents and Negotiations – Investor Perspective
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Question 1 of 10Practice · 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
- 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 9: Legal Documents and Negotiations – Investor Perspective
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Legal Documents and Negotiations – Investor Perspective, with answers
Q1Which document normally records an investor’s capital commitment and subscription obligations to the fund?
Option A. The agreement appointing a distributor to the fund
Why it is wrong: The distribution agreement governs distribution services rather than the investor’s capital commitment.
Option B. The general trust deed that establishes the fund
Why it is wrong: The trust deed establishes the trust framework rather than replacing the individual subscription agreement.
Option C. The subscription or investor contribution agreement — Correct answer
Option D. The agreement appointing the fund's investment manager
Why it is wrong: That agreement governs the manager’s appointment rather than this investor’s individual subscription obligations.
Answer: C. The subscription or investor contribution agreement normally records the investor’s commitment and related obligations. It should be read together with the other governing fund documents. Remember: Capital obligations should be traced to the signed subscription terms.
Hint, shown before you answer in practice mode: Identify the agreement signed to join the fund as an investor. Common mistake: Relying on a presentation instead of checking the binding contribution agreement.
XIX-A-105easyconceptual
Q2Which document normally sets out the appointment, authority and duties of the fund’s investment manager?
Option A. The investment management agreement — Correct answer
Option B. The securities custody agreement
Why it is wrong: The custody agreement governs safekeeping services rather than the investment manager’s mandate.
Option C. The distributor appointment agreement
Why it is wrong: The distributor agreement governs distribution services rather than portfolio-management authority.
Option D. The fund administration agreement
Why it is wrong: The administration agreement governs agreed operational services rather than the manager’s appointment.
Answer: A. The investment management agreement sets out the manager’s appointment, authority and duties. Those duties must also fit the governing fund documents and applicable law. Remember: Management authority should have a documented contractual basis.
Hint, shown before you answer in practice mode: Match the manager’s delegated responsibilities to its formal appointment document. Common mistake: Assuming that the manager’s marketing description defines its full legal authority.
XIX-A-106easyconceptual
Q3Which constitutional document is associated with an AIF set up as a limited liability partnership?
Option A. The limited liability partnership agreement or deed — Correct answer
Option B. An investment management agreement appointing the manager
Why it is wrong: The management agreement does not replace the LLP’s own constitutional agreement.
Option C. A trust deed creating a trust relationship
Why it is wrong: A trust deed is associated with a trust structure rather than the LLP constitution in the question.
Option D. A company’s memorandum and articles of association
Why it is wrong: Those are constitutional documents for a company rather than an LLP.
Answer: A. An LLP is governed by its limited liability partnership agreement or deed within the applicable legal framework. A trust and a company use different constitutional documents. Remember: The fund’s legal form determines which constitutional documents to review.
Hint, shown before you answer in practice mode: Match the legal form of the vehicle to its governing document. Common mistake: Applying the document requirements of one legal form to another.
XIX-A-107easyconceptual
Q4What is the main disclosure role of an AIF’s private placement memorandum?
Option A. Recording only the manager’s personal employment history
Why it is wrong: Manager background can be relevant, but the memorandum has a much broader material disclosure role.
Option B. Replacing every signed agreement and every applicable regulation
Why it is wrong: A disclosure memorandum does not automatically replace other contracts or mandatory rules.
Option C. Guaranteeing the estimated selling price of every underlying asset
Why it is wrong: The memorandum does not guarantee future portfolio selling prices.
Option D. Explaining material investment strategy, risks, fees and fund terms — Correct answer
Answer: D. The private placement memorandum discloses material information about the strategy, risks, fees and terms. It supports informed assessment rather than guaranteeing results. Remember: Read the material disclosures, not only the summary return target.
Hint, shown before you answer in practice mode: Think about what an investor must understand before making a commitment. Common mistake: Treating the memorandum as a promotional brochure rather than a core disclosure document.
XIX-A-108easyconceptual
Q5Why should a fund’s agreement with an external administrator clearly define the service scope?
Option A. To allocate reporting, record-keeping and other agreed responsibilities — Correct answer
Option B. To prevent the manager from reviewing service quality
Why it is wrong: Outsourcing does not justify abandoning oversight of the service provider.
Option C. To transfer every investment decision to the administrator automatically
Why it is wrong: An administrator’s service appointment does not automatically delegate portfolio selection.
Option D. To make every investor’s capital contribution optional
Why it is wrong: An administrator agreement does not cancel the investor’s separate contribution obligations.
Answer: A. The service scope allocates the administrator’s agreed reporting, record-keeping and related tasks. Clear responsibilities help the manager monitor the outsourced service. Remember: Outsourced tasks need defined responsibilities and oversight.
Hint, shown before you answer in practice mode: Consider who must deliver each task and how performance will be checked. Common mistake: Assuming that appointing a service provider removes the need to specify its duties.
XIX-A-109easyconceptual
Q6Which statement about an investor side letter and mandatory law is correct?
Option A. A side letter permits any investor preference without restrictions
Why it is wrong: Differential rights remain subject to the applicable regulatory and contractual constraints.
Option B. A side letter cannot authorise conduct prohibited by mandatory law — Correct answer
Option C. A side letter automatically overrides every SEBI requirement
Why it is wrong: A private agreement cannot generally displace a mandatory regulatory obligation.
Option D. A side letter is always superior to every other fund document
Why it is wrong: Priority between contractual documents depends on the terms and does not override mandatory law.
Answer: B. A side letter cannot authorise conduct prohibited by mandatory law. Preferential arrangements must fit the applicable legal and fund-document framework. Remember: Contractual negotiation cannot waive mandatory investor protections or regulatory restrictions.
Hint, shown before you answer in practice mode: Separate negotiable commercial terms from requirements that parties cannot waive. Common mistake: Assuming that a separately signed letter can override any restriction.
XIX-A-110mediumconceptual
Q7Before changing a material contractual fund term, what should the manager establish?
Option A. Whether the change would raise the manager's fee income as the main basis for approval
Why it is wrong: A benefit to the manager does not establish legal authority to amend the terms.
Option B. Whether silence from investors always amounts to unanimous approval of the proposed change
Why it is wrong: Silence cannot automatically be treated as consent regardless of the contract and applicable rules.
Option C. Whether changing the presentation alone can replace the need for any formal approval
Why it is wrong: A presentation update does not itself satisfy a formal amendment or consent requirement.
Option D. The applicable amendment process and required contractual or regulatory consents — Correct answer
Answer: D. The manager must establish the amendment process and obtain any required consents. A convenient or beneficial change is not automatically authorised. Remember: An amendment needs the process required for that specific term.
Hint, shown before you answer in practice mode: Check who has authority to change the term and which approvals are needed. Common mistake: Using informal communication as a substitute for the agreed amendment procedure.
XIX-A-111mediumconceptual
Q8Where should an investor look to understand consequences of failing to meet a capital call?
Option A. Only the default terms of an unrelated fund
Why it is wrong: Another fund’s terms do not establish this investor’s obligations or remedies.
Option B. The applicable default provisions in the governing fund agreements — Correct answer
Option C. Only the distributor’s informal description of normal practice
Why it is wrong: An informal description cannot replace the investor’s actual contractual default terms.
Option D. Only the manager’s preferred penalty announced after the missed payment
Why it is wrong: A later preference does not create unrestricted authority to impose an unagreed penalty.
Answer: B. The governing agreements specify the relevant default consequences, subject to applicable law. An investor should not assume that every fund uses identical penalties or remedies. Remember: Understand capital-call default terms before making the commitment.
Hint, shown before you answer in practice mode: Locate the agreed obligations and remedies before the payment becomes due. Common mistake: Assuming that a missed call has only a small standard late fee.
XIX-A-112mediumconceptual
Q9What should a fund’s confidentiality provision clarify about sharing protected information?
Option A. Permitted recipients, purposes and any required disclosure exceptions — Correct answer
Option B. That mandatory regulatory reporting is always prohibited
Why it is wrong: A private confidentiality clause cannot simply prohibit disclosures required by law.
Option C. That confidentiality ends whenever a document appears useful
Why it is wrong: Usefulness does not establish permission to disclose protected information.
Option D. That every investor can forward every document without restriction
Why it is wrong: Confidentiality provisions normally define restrictions rather than allowing unlimited circulation.
Answer: A. A confidentiality provision should identify permitted recipients, purposes and required disclosure exceptions. Confidentiality is not a blanket excuse to avoid legal reporting obligations. Remember: Read confidentiality restrictions together with their lawful exceptions.
Hint, shown before you answer in practice mode: Look for both the restriction and the circumstances in which disclosure is permitted or required. Common mistake: Assuming that confidentiality either permits everything or prevents every disclosure.
XIX-A-113mediumconceptual
Q10Why should the authority of a person signing a subscription agreement for an entity be checked?
Option A. To make the signatory personally own every underlying asset
Why it is wrong: Signing for an entity does not automatically transfer fund assets into the signatory’s personal ownership.
Option B. To establish that the entity’s investment cannot lose money
Why it is wrong: Signing authority does not establish investment performance or remove financial risk.
Option C. To avoid reading the entity’s actual capital commitment
Why it is wrong: Valid authority does not remove the need to review the obligations being accepted.
Option D. To confirm that the person can validly commit the entity — Correct answer
Answer: D. Authority should be checked so the signatory can validly commit the entity to the agreement. Position titles or access to documents are not always sufficient evidence. Remember: The investor’s commitment must be signed by an appropriately authorised person.
Hint, shown before you answer in practice mode: Separate having access to the paperwork from having power to bind the investor. Common mistake: Assuming that any employee who submits documents can bind the investor.
XIX-A-114mediumconceptual
Q11A distributor verbally promises that an investor may exit after one year. The signed fund terms provide no such right, and the distributor has no authority to amend them. What should be resolved before the investor relies on the promise?
Option A. Obtain an authorised written clarification consistent with the governing terms — Correct answer
Option B. Treat the verbal promise as automatically overriding the signed agreement
Why it is wrong: The unauthorised oral promise does not automatically amend the fund’s binding exit terms.
Option C. Assume a signature makes the promised exit unnecessary to verify
Why it is wrong: Signing documents does not resolve a material inconsistency about liquidity.
Option D. Wait until one year has passed before checking the fund’s exit rights
Why it is wrong: The uncertainty should be resolved before reliance, not after the investor needs an exit.
Answer: A. The investor needs an authorised written clarification consistent with the governing terms before relying on the exit claim. An unauthorised verbal assurance is not a dependable amendment. Remember: Resolve material oral-versus-written inconsistencies before commitment.
Hint, shown before you answer in practice mode: Check both the wording and the authority of the person making the promise. Common mistake: Treating the distributor’s reassurance as a contractual exit right.
XIX-A-115mediumapplication
Q12What determines which rights an investor can elect under a most-favoured-nation side-letter clause?
Option A. Every future law change without any contractual limitation
Why it is wrong: The clause does not automatically create rights unrelated to its agreed scope.
Option B. The clause’s defined scope, conditions and exclusions — Correct answer
Option C. Every term ever offered to any investor in any fund
Why it is wrong: Such a clause does not automatically extend to all terms across unrelated funds.
Option D. Only the investor’s expectation of equal treatment
Why it is wrong: An expectation is not a substitute for the actual negotiated wording.
Answer: B. The defined scope, conditions and exclusions determine what the investor can elect. A most-favoured-nation label does not automatically import every other investor’s bespoke term. Remember: A contractual label does not replace the detailed conditions beneath it.
Hint, shown before you answer in practice mode: Read what the clause actually covers rather than relying on its label. Common mistake: Assuming that a most-favoured-nation clause grants every preferential term automatically.
XIX-A-116mediumconceptual
Q13An investor signs separate fund and co-investment commitments. Without an express offset right, how should their payment obligations be treated?
Option A. As optional payments whenever both investments share a manager
Why it is wrong: Common management does not make signed capital obligations optional.
Option B. As separate obligations under their respective agreements — Correct answer
Option C. As one obligation equal only to the larger commitment
Why it is wrong: Separate commitments do not automatically collapse into the larger single amount.
Option D. As obligations that cancel each other when calls coincide
Why it is wrong: Coinciding payment dates do not create an offset right.
Answer: B. The commitments should be treated as separate obligations unless an express applicable arrangement allows an offset. Related investments do not automatically permit netting of capital calls. Remember: Related investments can still create separate funding obligations.
Hint, shown before you answer in practice mode: Look for an actual contractual link before combining or netting obligations. Common mistake: Assuming that money paid into one investment automatically satisfies another commitment.
XIX-A-117mediumconceptual
Q14A prospective investor requires a pause on new investments if two named professionals leave. The draft agreement merely allows the manager to hire replacements without any pause, and the distributor says the requested protection is understood. What remains necessary?
Option A. Rely on the professionals’ reputations rather than the actual wording
Why it is wrong: Reputation does not create the contractual pause the investor requires.
Option B. Treat the distributor’s understanding as the missing contractual clause
Why it is wrong: An informal understanding does not supply the absent authorised protection.
Option C. Assume that every key-person provision automatically pauses investments
Why it is wrong: Key-person provisions can have different consequences and should not be treated as identical.
Option D. Formally agree and document the specific protection before relying on it — Correct answer
Answer: D. The specific protection must be formally agreed and documented before the investor relies on it. A replacement process is not necessarily the same as a pause on new investments. Remember: Negotiate the required consequence, not merely a clause with a familiar name.
Hint, shown before you answer in practice mode: Compare the exact requested trigger and consequence with the draft text. Common mistake: Assuming that any key-person wording provides the particular protection the investor expects.
XIX-A-118hardapplication
Q15A placement memorandum describes fees on invested capital, but a draft contribution agreement describes fees on commitments. The documents’ priority and the reason for the difference are unclear. What should happen before signing?
Option A. Resolve the inconsistency and establish the authorised applicable fee basis — Correct answer
Option B. Automatically accept whichever document the salesperson prefers
Why it is wrong: A salesperson’s preference does not establish document priority or amendment authority.
Option C. Automatically choose the lower charge without resolving the documents
Why it is wrong: An investor cannot safely assume that an unresolved inconsistency grants the cheaper interpretation.
Option D. Ignore the difference because both documents state the same percentage
Why it is wrong: The same percentage can produce different charges when applied to different fee bases.
Answer: A. The inconsistency must be resolved so the authorised applicable fee basis is clear before signing. Matching percentages do not make different capital bases equivalent. Remember: A fee’s base and the controlling documents matter as much as its percentage.
Hint, shown before you answer in practice mode: Check the base, document priority and any authorised clarification together. Common mistake: Assuming that identical percentages mean identical contractual charges.
XIX-A-119hardapplication
Legal Documents and Negotiations – Investor Perspective: common questions
How many practice questions are there on Legal Documents and Negotiations – Investor Perspective?
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 Legal Documents and Negotiations – Investor Perspective?
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 Legal Documents and Negotiations – Investor Perspective?
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 9: Legal Documents and Negotiations – Investor Perspective
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.
Fund Monitoring, Reporting and Exit
7 questions on Fund Monitoring, Reporting and Exit. Its quiz opens on that unit.
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