Overview of Alternative Investments
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
- 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
- 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 1: Overview of Alternative Investments
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Overview of Alternative Investments, with answers
Q1Which alternative investment typically provides equity funding to an unlisted business at an early stage?
Option A. Treasury bills
Why it is wrong: Treasury bills are short-term government borrowing instruments, not equity in young businesses.
Option B. Government bonds
Why it is wrong: Government bonds finance government borrowing rather than provide equity to an unlisted business.
Option C. Venture capital — Correct answer
Option D. Bank deposits
Why it is wrong: Bank deposits are claims on a bank, not ownership funding for an early-stage business.
Answer: C. Venture capital provides risk-bearing equity funding to young businesses with growth potential. Such investments can also lose substantial capital. Remember: Venture capital is associated with early-stage business funding.
Hint, shown before you answer in practice mode: Recall the funding route used by young businesses that cannot yet access public equity markets. Common mistake: Confusing business equity funding with a fixed-income savings instrument.
XIX-A-001easyconceptual
Q2What does beta primarily describe when analysing an investment against a market benchmark?
Option A. Cash received from distributions
Why it is wrong: Cash distributions measure payments to investors, not sensitivity to market movements.
Option B. Time required to sell assets
Why it is wrong: The time needed to sell an asset concerns liquidity rather than beta.
Option C. Sensitivity to market movements — Correct answer
Option D. Skill beyond market exposure
Why it is wrong: Skill-related performance beyond market exposure is associated with alpha, not beta.
Answer: C. Beta describes an investment’s sensitivity to movements in its market benchmark. It does not measure every source of investment risk. Remember: Beta measures market sensitivity, not the manager’s skill.
Hint, shown before you answer in practice mode: Consider what happens to the investment when the wider market moves. Common mistake: Treating beta as a complete measure of all investment risks.
XIX-A-002easyconceptual
Q3Which description best explains alpha in an investment performance assessment that adjusts for market exposure?
Option A. Return beyond the model’s expected return — Correct answer
Option B. Return caused entirely by market exposure
Why it is wrong: Performance explained by market exposure is not the excess measured by alpha.
Option C. Return equal to the total cash distributed
Why it is wrong: Total cash distributed is a payment amount rather than risk-adjusted excess performance.
Option D. Return before any expense is deducted
Why it is wrong: A gross return is before expenses, but that alone does not make it alpha.
Answer: A. Alpha is the return beyond what the chosen model expects for the investment’s market exposure. A positive total return can still have negative alpha. Remember: Positive returns and positive alpha are different claims.
Hint, shown before you answer in practice mode: Separate the return expected for the risk taken from any additional performance. Common mistake: Calling every profitable investment an example of positive alpha.
XIX-A-003easyconceptual
Q4How can an alternative asset help diversify a portfolio of listed shares?
Option A. Its returns may move differently from those shares — Correct answer
Option B. Its purchase removes the need to review other holdings
Why it is wrong: Diversification still requires reviewing how all holdings interact.
Option C. Its returns must be positive during every market fall
Why it is wrong: Different return behaviour does not require a gain in every falling market.
Option D. Its unlisted status makes its economic risk disappear
Why it is wrong: Being unlisted changes trading access, not the existence of economic risk.
Answer: A. An alternative asset may diversify listed shares when their returns do not move perfectly together. This can reduce some portfolio risk without eliminating losses. Remember: Diversification depends on return relationships, not just different asset labels.
Hint, shown before you answer in practice mode: Think about how the returns of different assets move together. Common mistake: Assuming that adding any alternative asset must make a portfolio safer.
XIX-A-004mediumconceptual
Q5Why might an investor demand a higher expected return from an otherwise comparable investment that is difficult to sell?
Option A. To guarantee a buyer whenever cash is needed
Why it is wrong: Demanding compensation for illiquidity does not create a willing buyer.
Option B. To compensate for limited access to invested money — Correct answer
Option C. To replace the need to assess the investment’s risk
Why it is wrong: A higher required return does not replace the need for risk assessment.
Option D. To ensure the investment’s price cannot fall
Why it is wrong: An expected return requirement does not prevent a fall in value.
Answer: B. An investor may require an illiquidity premium as compensation for limited access to money. A required or expected premium is not a guaranteed realised return. Remember: Illiquidity can justify demanding compensation, not assuming it will be earned.
Hint, shown before you answer in practice mode: Consider the cost of being unable to use the money at short notice. Common mistake: Treating an illiquidity premium as a promised payment.
XIX-A-005mediumconceptual
Q6Which investment most directly exposes an investor to commercial property rents and the property’s eventual sale value?
Option A. Ownership of a fixed-rate government bond
Why it is wrong: Government bond payments depend on debt terms rather than property rents and sale proceeds.
Option B. Ownership of an unsecured personal loan
Why it is wrong: A personal loan creates borrower credit exposure, not direct commercial property ownership.
Option C. Ownership of a short-term bank deposit
Why it is wrong: A bank deposit pays according to its deposit terms rather than a building’s performance.
Option D. Ownership of a leased commercial building — Correct answer
Answer: D. A leased commercial building directly produces exposure to rental income and property sale value. These cash flows also depend on occupancy, costs and market conditions. Remember: Identify an alternative asset through its underlying economic cash flows.
Hint, shown before you answer in practice mode: Match the investment with the source of its cash flows. Common mistake: Classifying every income-paying asset as the same type of investment.
XIX-A-006mediumconceptual
Q7An unlisted fund updates its asset values once a year. A listed equity fund is priced daily, and its reported returns fluctuate more. What is the sound conclusion?
Option A. The unlisted fund must have less underlying investment risk
Why it is wrong: Fewer reported price changes do not prove that the underlying businesses face less risk.
Option B. Different valuation frequencies can distort the risk comparison — Correct answer
Option C. The unlisted fund’s annual return measures only realised gains
Why it is wrong: An annual reported return may include estimated values of assets that have not been sold.
Option D. The listed fund must deliver a lower long-term return
Why it is wrong: Observed short-term fluctuations do not determine which fund will earn a higher future return.
Answer: B. Different valuation frequencies can distort a comparison based on reported volatility. Infrequent valuations may hide economic changes between valuation dates. Remember: A smoother reported value is not proof of a safer underlying investment.
Hint, shown before you answer in practice mode: Check how often each investment’s reported value is allowed to change. Common mistake: Comparing reported volatility without considering valuation frequency.
XIX-A-007hardapplication
Overview of Alternative Investments: common questions
How many practice questions are there on Overview of Alternative Investments?
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 Overview of Alternative Investments?
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 Overview of Alternative Investments?
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 1: Overview of Alternative Investments
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.
Alternative Investment Funds in India
7 questions on Alternative Investment Funds in India. Its quiz opens on that unit.
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