Regulatory Framework – Indian Context
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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
- 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 | 10 of 100 marks (10%) |
Source: 19 March 2025 Annexure I, Unit 4: Regulatory Framework – Indian Context
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Regulatory Framework – Indian Context, with answers
Q1What is the general minimum scheme corpus for an ordinary Category II AIF under regulation 10(b)?
Option A. ₹10 crore
Why it is wrong: ₹10 crore is below the general minimum specified for this ordinary Category II scheme.
Option B. ₹25 crore
Why it is wrong: ₹25 crore exceeds the general minimum and is not the threshold specified in regulation 10(b).
Option C. ₹20 crore — Correct answer
Option D. ₹5 crore
Why it is wrong: ₹5 crore is a special minimum for social impact funds, not the ordinary Category II scheme in this question.
Answer: C. The general minimum corpus for an ordinary Category II scheme is ₹20 crore. Special rules for other specified fund types should not be applied to this scheme. Remember: Read a minimum corpus rule at scheme level, not investor level.
Hint, shown before you answer in practice mode: Distinguish a scheme’s total committed corpus from one investor’s subscription. Common mistake: Using a special fund-category exception for an ordinary Category II scheme.
XIX-A-022easyregulatory
Q2For an ordinary Category II scheme, what is the minimum investment by a non-accredited individual with no employee or director exception?
Option A. ₹50 lakh
Why it is wrong: ₹50 lakh does not meet the general investor minimum in this case.
Option B. ₹1 crore — Correct answer
Option C. ₹25 lakh
Why it is wrong: ₹25 lakh is the employee or director exception, which the question excludes.
Option D. ₹2 crore
Why it is wrong: ₹2 crore is above, rather than equal to, the general investor minimum.
Answer: B. The general minimum investment is ₹1 crore for the investor described. Accredited investors and specified employees or directors are treated differently under the regulations. Remember: Investor minimums depend on the investor’s applicable status and exceptions.
Hint, shown before you answer in practice mode: Apply the ordinary investor rule after excluding the named exceptions. Common mistake: Applying an employee or accredited-investor exception to an ordinary investor.
XIX-A-023easyregulatory
Q3What minimum investment applies to a non-accredited employee of the manager investing in an ordinary Category II AIF?
Option A. ₹1 crore
Why it is wrong: ₹1 crore is the ordinary investor minimum rather than the lower specified employee minimum.
Option B. ₹25 lakh — Correct answer
Option C. ₹10 lakh
Why it is wrong: ₹10 lakh does not satisfy the specified employee minimum.
Option D. ₹50 lakh
Why it is wrong: ₹50 lakh is not the minimum specified for this employee exception.
Answer: B. A qualifying employee of the manager has a minimum investment requirement of ₹25 lakh. The question excludes accredited status and concerns the specific employee exception. Remember: A manager’s qualifying employee may use the specified employee minimum.
Hint, shown before you answer in practice mode: Recall that certain fund and manager employees have a separate subscription threshold. Common mistake: Assuming that every investor has the same minimum subscription.
XIX-A-024easyregulatory
Q4What is the minimum tenure specified for a Category I or Category II AIF scheme?
Option A. Five years
Why it is wrong: Five years may be a chosen fund term, but it is not the specified general minimum.
Option B. One year
Why it is wrong: One year is shorter than the minimum tenure specified for these categories.
Option C. Two years
Why it is wrong: Two years can be relevant to an ordinary extension limit, not the minimum original tenure.
Option D. Three years — Correct answer
Answer: D. A Category I or Category II scheme must have a minimum tenure of three years. Its disclosed actual tenure may be longer. Remember: A minimum tenure is not a promise that every scheme ends at that minimum.
Hint, shown before you answer in practice mode: Separate the original minimum term from any later extension period. Common mistake: Confusing the minimum original tenure with an extension limit.
XIX-A-025easyregulatory
Q5A material alteration to an AIF’s fund strategy requires consent from at least which proportion of unit holders?
Option A. Three-fourths by number of unit holders
Why it is wrong: A headcount test is not the investment-value test specified for a material strategy alteration.
Option B. Two-thirds by value of their investment — Correct answer
Option C. One-half by value of their investment
Why it is wrong: A simple half by value is below the specified consent threshold.
Option D. Two-thirds by number of unit holders
Why it is wrong: The regulation measures the consent by investment value rather than by headcount.
Answer: B. A material strategy alteration requires consent of at least two-thirds of unit holders by investment value. Counting only the number of investors can produce the wrong result. Remember: A regulatory consent threshold includes both its percentage and its voting basis.
Hint, shown before you answer in practice mode: Check both the fraction and how investors’ votes are weighted. Common mistake: Using the correct fraction with the wrong voting denominator.
XIX-A-026mediumregulatory
Q6An ordinary Category II scheme has a ₹120 crore corpus. What minimum continuing interest must its manager or sponsor maintain?
Option A. ₹3 crore — Correct answer
Option B. ₹6 crore
Why it is wrong: ₹6 crore uses 5% and does not apply the Category II continuing-interest rule.
Option C. ₹5 crore
Why it is wrong: ₹5 crore is the cap used in the comparison, but the lower amount applies here.
Option D. ₹2.4 crore
Why it is wrong: ₹2.4 crore uses 2% rather than the specified 2.5% of corpus.
Answer: A. The required continuing interest is ₹3 crore because the lower of 2.5% of corpus and ₹5 crore applies. Percentage amount = 2.5% × ₹120 crore = ₹3 crore. Lower of ₹3 crore and ₹5 crore = ₹3 crore. Remember: Apply both parts of a lower-of rule before choosing the result.
Hint, shown before you answer in practice mode: Calculate the percentage amount and compare it with the rupee cap. Common mistake: Using the rupee cap as a flat requirement for every corpus size.
XIX-A-027mediumnumerical
Q7Which method is NOT allowed for meeting the manager or sponsor’s required continuing interest in a Category II AIF?
Option A. Making the required investment as manager capital
Why it is wrong: A qualifying manager investment can satisfy the continuing-interest requirement.
Option B. Keeping a qualifying capital investment in the fund
Why it is wrong: Maintaining a qualifying investment is consistent with the continuing-interest requirement.
Option C. Waiving the management fee instead of investing — Correct answer
Option D. Making the required investment as sponsor capital
Why it is wrong: A qualifying sponsor investment can satisfy the continuing-interest requirement.
Answer: C. A management fee waiver cannot substitute for the required continuing interest. The rule requires an investment in the AIF rather than that form of fee waiver. Remember: Fee concessions are not a substitute for required continuing capital.
Hint, shown before you answer in practice mode: Distinguish actual capital at risk from a charge that is simply not collected. Common mistake: Counting forgone fees as if the sponsor had invested the same amount.
XIX-A-028mediumregulatory
Q8A Category II scheme constituted as a trust has 970 non-accredited investors and 80 accredited investors. It is not an angel fund, and only regulation 10(f)’s investor-number test is being checked. What is the result under the current rule?
Option A. It fails because all 1,050 investors count towards the limit
Why it is wrong: The current regulation excludes accredited investors from this count.
Option B. It passes because 970 investors count towards the 1,000 limit — Correct answer
Option C. It passes because only the 80 accredited investors are counted
Why it is wrong: The rule excludes accredited investors, not non-accredited investors.
Option D. It fails because a trust has a 200-investor limit under this rule
Why it is wrong: Regulation 10(f) does not set the stated 200-investor limit for this trust scheme.
Answer: B. The scheme passes this test because 970 investors count towards the 1,000 limit. The current rule excludes accredited investors from the count, and this answer does not assess other compliance conditions. Remember: Apply the current exclusions before testing an investor-number ceiling.
Hint, shown before you answer in practice mode: Identify which investor class the current rule excludes before counting. Common mistake: Using a total headcount without checking the accredited-investor exclusion.
XIX-A-029mediumapplication
Q9An ordinary Category II scheme has ₹200 crore corpus and ₹40 crore estimated management and administration expenses. What is its single-investee limit, excluding large-value-fund exceptions?
Option A. ₹10 crore
Why it is wrong: ₹10 crore applies 25% to expenses rather than to investable funds.
Option B. ₹50 crore
Why it is wrong: ₹50 crore applies 25% to the corpus without first deducting the stated estimated expenses.
Option C. ₹80 crore
Why it is wrong: ₹80 crore applies a 50% limit to investable funds, but the question excludes that exception.
Option D. ₹40 crore — Correct answer
Answer: D. The single-investee limit is ₹40 crore because the ordinary limit is 25% of investable funds. Investable funds = ₹200 crore − ₹40 crore = ₹160 crore. Limit = 25% × ₹160 crore = ₹40 crore. Remember: For this concentration rule, investable funds are not the same as corpus.
Hint, shown before you answer in practice mode: Identify the investment base before applying the concentration percentage. Common mistake: Applying the correct percentage to corpus rather than investable funds.
XIX-A-030hardnumerical
Q10With the required consent, how far may an ordinary closed-ended AIF extend its tenure, excluding the accredited-investors-only fund exception?
Option A. Up to three years
Why it is wrong: Three years exceeds the ordinary extension limit stated in the provision.
Option B. Up to one year
Why it is wrong: One year is shorter than the maximum ordinary extension allowed by this provision.
Option C. Up to two years — Correct answer
Option D. Up to five years
Why it is wrong: The five-year allowance relates to the accredited-investors-only exception excluded by the question.
Answer: C. The ordinary extension is up to two years with approval from two-thirds of unit holders by investment value. The question excludes the separate accredited-investors-only exception. Remember: Distinguish an ordinary scheme’s extension limit from special-category relief.
Hint, shown before you answer in practice mode: Apply the ordinary extension rule rather than a special investor-class exception. Common mistake: Applying an exceptional extension period to a scheme that does not qualify.
XIX-A-031mediumregulatory
Q11Why is SEBI registration alone insufficient to establish that an overseas subscription in an Indian AIF is permitted?
Option A. A common fund structure makes the investor’s residence irrelevant
Why it is wrong: The foreign-exchange analysis cannot simply disregard the investor’s relevant status.
Option B. The manager may choose between securities law and foreign-exchange law
Why it is wrong: One applicable framework does not become optional merely because another also applies.
Option C. The investor may replace every foreign-exchange condition with a risk declaration
Why it is wrong: A risk declaration does not replace the applicable foreign-exchange framework.
Option D. Foreign-exchange eligibility and applicable conditions must also be satisfied — Correct answer
Answer: D. Applicable foreign-exchange eligibility and conditions must also be satisfied. Securities registration alone does not establish permission for every cross-border subscription. Remember: Cross-border participation must be assessed under each applicable legal framework.
Hint, shown before you answer in practice mode: Consider whether one regulatory approval replaces every other applicable legal framework. Common mistake: Assuming that SEBI registration automatically satisfies foreign-exchange requirements.
XIX-A-032mediumconceptual
Q12Under regulation 10(aa), AIF units must be issued in which form, subject to SEBI’s specified conditions?
Option A. Physical certificates as the ordinary default
Why it is wrong: The stated provision requires dematerialised issuance subject to SEBI’s conditions, not a general paper default.
Option B. Dematerialised form — Correct answer
Option C. Physical certificates unless every investor requests electronic units
Why it is wrong: The prescribed framework is not merely conditional on unanimous investor requests for electronic units.
Option D. Either physical or electronic form at the manager’s unrestricted choice
Why it is wrong: The manager does not have an unrestricted choice that overrides the prescribed form.
Answer: B. Regulation 10(aa) requires AIF units to be issued in dematerialised form subject to SEBI’s conditions. A receipt or informal confirmation is not a substitute for the prescribed unit form. Remember: Unit issuance must follow the prescribed electronic holding framework.
Hint, shown before you answer in practice mode: Recall how securities are held as electronic records rather than paper certificates. Common mistake: Treating a subscription payment receipt as the complete record of unit ownership.
XIX-A-033mediumregulatory
Q13A distributor tells a client that registration means SEBI has approved the fund’s expected return. The fund’s materials contain investment risks and no return guarantee. Which correction is appropriate?
Option A. Registration is not approval of an expected investment return — Correct answer
Option B. Registration removes the need to disclose material investment risks
Why it is wrong: A registered fund must still provide material disclosures and cannot hide investment risks.
Option C. Registration transfers portfolio losses to the securities regulator
Why it is wrong: Investors do not obtain a claim against SEBI for ordinary portfolio investment losses.
Option D. Registration converts the target return into a regulator-backed payment
Why it is wrong: A regulatory registration does not convert a projected return into a guaranteed payment.
Answer: A. Registration does not mean the regulator has approved or guaranteed the expected investment return. Risk disclosures and independent assessment remain necessary. Remember: Regulatory registration is not an investment merit certificate.
Hint, shown before you answer in practice mode: Separate permission to operate from a judgment about investment outcomes. Common mistake: Presenting a registration number as evidence of assured performance.
XIX-A-034mediumapplication
Q14For a newly registered angel fund under the current framework, which investors may subscribe outside the specific key-management-personnel exception?
Option A. Any investor making a written risk declaration
Why it is wrong: A risk declaration alone does not satisfy the accredited-investor requirement.
Option B. Any investor introduced by a registered distributor
Why it is wrong: A distributor’s introduction does not itself establish accredited-investor eligibility.
Option C. Any investor subscribing at least ₹25 lakh
Why it is wrong: The former minimum-investment approach does not replace the current accredited-investor condition.
Option D. Accredited investors — Correct answer
Answer: D. A newly registered angel fund generally raises funds from accredited investors under the current rule. The question excludes the specific exception for key management personnel of the fund or its manager. Remember: Do not use an older angel-fund subscription threshold as a substitute for current eligibility rules.
Hint, shown before you answer in practice mode: Check the current eligibility category rather than relying on an older rupee threshold. Common mistake: Repeating an old angel-fund minimum without checking later amendments.
XIX-A-035hardregulatory
Q15A Category II fund wants independent portfolio valuations annually instead of every six months. Investors holding 76% by investment value approve the change. The manager also proposes removing the independent valuer. Which proposal is consistent with regulation 23(2)?
Option A. Annual valuation requires approval from 76% of investors by headcount
Why it is wrong: The approval threshold is based on investment value, not the number of investors.
Option B. Annual valuation is permitted, but an independent valuer is still needed — Correct answer
Option C. Neither proposal is permitted even with approval above 75% by value
Why it is wrong: The provision allows the frequency to become annual with the required investor approval.
Option D. Both annual valuation and removal of the independent valuer are permitted
Why it is wrong: Investor approval changes the permitted frequency, not the requirement for independent valuation.
Answer: B. Annual valuation is permitted with approval from at least 75% by investment value, but an independent valuer is still needed. The 76% approval satisfies the frequency condition only. Remember: An exemption from one requirement does not automatically waive a separate requirement.
Hint, shown before you answer in practice mode: Separate consent to change valuation frequency from the requirement for independence. Common mistake: Treating consent to less frequent valuation as consent to self-valuation.
XIX-A-036hardapplication
Regulatory Framework – Indian Context: common questions
How many practice questions are there on Regulatory Framework – Indian Context?
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 Regulatory Framework – Indian Context?
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 Regulatory Framework – Indian Context?
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 4: Regulatory Framework – Indian Context
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.
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