Introduction to Securities Markets
7 questions. Each answer is explained.
Question 1 of 7Practice · Series XXI-A — Portfolio Management Services (PMS) Distributors
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Learn these topics
More units in NISM Series XXI-A
- Investments11
- Investing in Stocks15
- Investing in Fixed Income Securities8
- Derivatives7
- Collective Investment Vehicles8
- Role of Portfolio Managers15
- Operational Aspects of Portfolio Managers20
- Portfolio Management Process22
- Performance Measurement and Evaluation of Portfolio Managers15
- Taxation7
- Regulatory, Governance and Ethical Aspects of Portfolio Managers15
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 | Not published by NISM |
NISM Series XXI-A Portfolio Management Services (PMS) Distributors
Exam rules read on NISM's site on 3 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 3 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 Introduction to Securities Markets, with answers
Q1An IPO includes newly issued shares worth ₹300 crore and an offer for sale by an existing shareholder worth ₹120 crore. Ignoring issue costs, which amount goes to the company?
Option A. ₹180 crore
Why it is wrong: The offer-for-sale proceeds are not a deduction from the fresh capital raised.
Option B. ₹300 crore — Correct answer
Option C. ₹420 crore
Why it is wrong: This incorrectly includes the existing shareholder’s sale proceeds as company capital.
Option D. ₹120 crore
Why it is wrong: This is the offer-for-sale amount payable to the selling shareholder.
Answer: B. A fresh issue creates new securities and raises money for the issuer. An offer for sale transfers an existing holder’s securities. Separate the two components instead of treating the entire IPO size as fresh company funding. The company receives ₹300 crore. The selling holder receives the ₹120 crore offer-for-sale proceeds before applicable costs. Remember: Total offer size and fresh capital raised by the issuer need not be equal.
Hint, shown before you answer in practice mode: Common mistake: Assuming that all money collected during an IPO enters the company.
XXI-A-012mediumnumerical
Q2A shareholder owns 500 shares. A rights offer permits 2 new shares for every 5 held at ₹120 per new share. What payment is needed to take up the entire entitlement?
Option A. ₹24,000 — Correct answer
Option B. ₹1,50,000
Why it is wrong: This reverses the entitlement ratio and buys 1,250 shares.
Option C. ₹12,000
Why it is wrong: This counts only one new share for every five existing shares.
Option D. ₹60,000
Why it is wrong: This pays for 500 shares rather than the 200-share entitlement.
Answer: A. A rights ratio determines the number of additional shares offered, while the issue price determines the payment for those shares. Calculate entitled shares: 500 × 2 ÷ 5 = 200. Calculate payment: 200 × ₹120 = ₹24,000. Existing shares are not purchased again. Remember: Calculate the entitlement before applying the rights issue price.
Hint, shown before you answer in practice mode: Common mistake: Multiplying the issue price by the existing holding instead of the new entitlement.
XXI-A-013mediumnumerical
Q3Which service most directly belongs to the depository and depository-participant system rather than to a portfolio manager’s investment-research team?
Option A. Estimating the intrinsic value of a company
Why it is wrong: This is an investment analysis activity rather than the core recordkeeping role of the depository system.
Option B. Choosing an equity allocation for a client’s goal
Why it is wrong: Asset allocation is an investment-management decision.
Option C. Deciding whether an issuer’s earnings justify its market price
Why it is wrong: That comparison is a valuation task performed by an analyst or investor.
Option D. Maintaining electronic records of securities holdings and transfers — Correct answer
Answer: D. Securities infrastructure supports holding and settlement. It does not substitute for investment selection. Identify the activity involving ownership records and transfers rather than forecasting returns. The depository-participant arrangement provides access to the electronic holding system. Research teams decide what to analyse or recommend. Remember: Separate investment decisions from the infrastructure that records their resulting holdings.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a service provider holding records also selects investments.
XXI-A-014easyconceptual
Q4After an exchange trade is executed, which function is most directly associated with the clearing corporation?
Option A. Determining and managing settlement obligations — Correct answer
Option B. Publishing the issuer’s quarterly financial statements
Why it is wrong: Financial statement preparation and disclosure are issuer responsibilities.
Option C. Setting the client’s required retirement return
Why it is wrong: Required-return planning belongs to the investment-planning process.
Option D. Selecting the client’s preferred companies
Why it is wrong: Security selection is not the clearing corporation’s role in the trade lifecycle.
Answer: A. Execution, clearing and settlement are related but distinct parts of the securities transaction process. Execution creates the trade through the trading mechanism. Clearing then establishes what participants owe and receive, with settlement-risk controls. This is different from choosing the investment. Remember: Know which institution handles the transaction process after the trade is matched.
Hint, shown before you answer in practice mode: Common mistake: Treating execution and clearing as the same activity.
XXI-A-015easyconceptual
Q5A wealthy family establishes a dedicated organisation to coordinate its investments, reporting and succession-related financial administration. Which description is most appropriate?
Option A. Family office — Correct answer
Option B. Credit rating agency
Why it is wrong: A rating agency assesses creditworthiness rather than coordinating a family’s investments.
Option C. Clearing corporation
Why it is wrong: A clearing corporation manages market settlement obligations, not one family’s wealth administration.
Option D. Securities depository
Why it is wrong: A depository maintains securities records and transfers, not the broad wealth function described.
Answer: A. Market participants include organisations that invest or oversee capital, as well as institutions that operate market infrastructure. The organisation serves a family’s wealth-management needs across functions. That purpose identifies a family office, whereas the other choices provide different services to market participants. Remember: Classify a participant by its purpose rather than by the amount of money it handles.
Hint, shown before you answer in practice mode: Common mistake: Confusing an institutional investor’s organisation with securities-market infrastructure.
XXI-A-016easyapplication
Q6A buy limit order for 400 shares is entered at ₹250. The lowest available selling price remains ₹253. What follows from the limit instruction alone?
Option A. The order guarantees all 400 shares at ₹250 by market close.
Why it is wrong: Price control is not a guarantee of quantity or execution.
Option B. The order need not execute because available sellers ask more than ₹250. — Correct answer
Option C. The order must execute at ₹253 because that is the best offer.
Why it is wrong: A buy limit does not authorise paying above the limit merely because it is the best available offer.
Option D. The seller must lower the offer to ₹250 when the order arrives.
Why it is wrong: A buyer’s instruction does not compel another participant to change a selling price.
Answer: B. A limit order controls acceptable execution price but can leave some or all of an order unfilled. Compare the ₹250 maximum with the ₹253 available offer. The offered price exceeds the permitted price, so the instruction alone does not produce a trade. Later market changes could alter the outcome. Remember: Price protection and execution certainty are different features.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a limit price is a promised execution price.
XXI-A-017mediumapplication
Q7In a simplified settlement process, a custodian checks that securities are available and a clearing bank transfers the required money. Which interpretation best fits these functions?
Option A. The custodian decides the client’s tax rate because it is the one checking the holdings.
Why it is wrong: Holdings administration does not itself determine the client’s applicable tax treatment.
Option B. The clearing bank chooses which securities to buy because it is the one paying for them.
Why it is wrong: Moving settlement cash does not establish investment-decision authority.
Option C. Once the cash is transferred, nobody needs to check that the securities were delivered.
Why it is wrong: Both legs must be checked. One completed leg does not establish that the other has been completed.
Option D. Securities administration and cash settlement are separate operational responsibilities. — Correct answer
Answer: D. Settlement involves the coordinated movement of securities and money, with defined responsibilities and reconciliations. Identify the securities leg and the funds leg in the stated process. Do not infer investment or tax decision-making powers from a provider’s operational role. Each leg needs appropriate controls. Remember: A completed payment is not by itself proof of completed securities settlement.
Hint, shown before you answer in practice mode: Common mistake: Conflating responsibility for settlement cash with authority to manage investments.
XXI-A-018mediumapplication
Introduction to Securities Markets: common questions
How many practice questions are there on Introduction to Securities Markets?
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 12 practice topics for NISM Series XXI-A, which has 150 questions in total.
Are these real NISM Series XXI-A questions on Introduction to Securities Markets?
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.
Does negative marking apply to NISM Series XXI-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.
Investing in Stocks
15 questions on Investing in Stocks. Its quiz opens on that unit.
Open Investing in Stocks