Equity Portfolio Management Strategies
14 questions. Each answer is explained.
Question 1 of 10Practice · Series XXI-B — Portfolio Managers
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Learn these topics
More units in NISM Series XXI-B
- Investment Landscape and Required Return4
- Introduction to Securities Markets and Participants3
- Investing in Stocks and Equity Research7
- Investing in Fixed Income Securities and Bond Valuation6
- Derivatives in Portfolio Management6
- Mutual Fund6
- Role of Portfolio Managers in India8
- Operational Aspects of Portfolio Managers (Onboarding and Fees)8
- Portfolio Management Process and Asset Allocation8
- Taxation6
- Regulatory, Governance and Ethical Aspects of Portfolio Managers8
- Introduction to Indices6
- Concept of Informational Efficiency6
- Behavioral Finance6
- Introduction to Modern Portfolio Theory6
- Introduction to Capital Market Theory6
- Risk8
- Fixed Income Portfolio Management Strategies14
- Performance measurement and evaluation of Portfolio Managers8
- Portfolio Rebalancing6
Exam format
| Questions | 120 · 1 or 2 marks each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 25% · 0.25 or 0.5 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-B Portfolio Managers
Exam rules read on NISM's site on 30 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 30 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 14 questions on Equity Portfolio Management Strategies, with answers
Q1What is the primary objective of a portfolio designed for index tracking?
Option A. To closely match the selected index’s performance — Correct answer
Option B. To remove all losses caused by falling markets
Why it is wrong: A tracking portfolio remains exposed to the index’s market movements.
Option C. To outperform every active manager in every year
Why it is wrong: Index tracking does not promise superiority over every active manager.
Option D. To hold only securities outside the selected index
Why it is wrong: That would not normally implement the stated index-tracking objective.
Answer: A. Index tracking aims to closely match the selected index’s performance. Implementation costs and practical differences can still create a return gap. Remember: A passive objective is benchmark matching rather than guaranteed outperformance.
Hint, shown before you answer in practice mode: Distinguish matching a benchmark from making an active forecast. Common mistake: Assuming passive management removes the market risk of the chosen index.
XXI-B-109easyconceptual
Q2What does a value-investing approach primarily seek when selecting an equity security?
Option A. A market price below a reasoned estimate of value — Correct answer
Option B. The highest recent price increase regardless of valuation
Why it is wrong: That focuses on recent momentum rather than a value comparison.
Option C. The largest number of outstanding shares regardless of earnings
Why it is wrong: Share count alone says little about whether the market price is attractive relative to value.
Option D. The lowest absolute share price in the entire market
Why it is wrong: A low rupee price alone does not establish that a share is undervalued.
Answer: A. Value investing seeks a price below a reasoned estimate of value. The estimate can be wrong, and a low price alone is not sufficient evidence. Remember: Cheap in absolute rupees and undervalued are different ideas.
Hint, shown before you answer in practice mode: Compare price with an economic assessment rather than with other rupee prices. Common mistake: Calling every low-priced share a value investment.
XXI-B-110easyconceptual
Q3Which selection rule most directly represents an equity momentum approach?
Option A. Favouring securities solely because their book value is high
Why it is wrong: Book value alone describes a different selection basis.
Option B. Favouring securities with stronger recent relative price performance — Correct answer
Option C. Favouring securities solely because their market price is low
Why it is wrong: A low absolute price does not identify recent relative momentum.
Option D. Favouring securities solely because their coupon is fixed
Why it is wrong: Ordinary equities do not have a fixed bond coupon and this is not a momentum rule.
Answer: B. A momentum approach favours securities with stronger recent relative performance under its specified rule. Past momentum can reverse and does not assure a future gain. Remember: Momentum and value use different reasons for selecting securities.
Hint, shown before you answer in practice mode: Consider a strategy that studies persistence in relative market performance. Common mistake: Treating recent outperformance as a certainty that prices will keep rising.
XXI-B-111easyconceptual
Q4What does an active sector-rotation strategy intentionally change over time?
Option A. Only the accounting date on the client report
Why it is wrong: Changing a reporting date does not implement an investment strategy.
Option B. Only the reporting currency of an unchanged portfolio
Why it is wrong: Reporting-currency changes do not themselves change sector holdings.
Option C. Only the legal owner of unchanged securities
Why it is wrong: Changing legal ownership alone does not rotate economic sector exposure.
Option D. The portfolio’s relative exposure to different industries — Correct answer
Answer: D. Sector rotation changes relative industry exposures based on the manager’s outlook. It can create active risk relative to the benchmark’s sector mix. Remember: Sector rotation expresses views through industry overweights and underweights.
Hint, shown before you answer in practice mode: Identify the portfolio choice linked to expectations for different parts of the economy. Common mistake: Confusing a reporting change with a change in economic exposure.
XXI-B-112easyconceptual
Q5An index contains many small, difficult-to-trade holdings. Which tracking method may use a representative subset instead of buying every constituent?
Option A. Pure market timing
Why it is wrong: Market timing changes exposure based on a forecast rather than constructing a representative subset.
Option B. Full replication
Why it is wrong: Full replication aims to hold the index constituents rather than a selected representative subset.
Option C. Unrestricted sector rotation
Why it is wrong: Sector rotation expresses industry views and does not itself target representative index coverage.
Option D. Sampling — Correct answer
Answer: D. Sampling uses a representative subset to approximate the index’s characteristics. It may reduce implementation burdens but can introduce tracking differences. Remember: Sampling trades exact constituent replication for a practical approximation.
Hint, shown before you answer in practice mode: Distinguish a representative portfolio from an exact constituent copy. Common mistake: Assuming a sampled index portfolio must hold every index constituent.
XXI-B-113mediumapplication
Q6A portfolio uses a broad passive allocation for most assets and smaller specialist active allocations. Which management structure is this?
Option A. Core and satellite — Correct answer
Option B. Unhedged currency speculation
Why it is wrong: The structure does not describe a currency-only speculative position.
Option C. Pure cash-flow matching
Why it is wrong: Cash-flow matching aligns asset payments with liabilities rather than combining broad and specialist equity allocations.
Option D. Single-security concentration
Why it is wrong: The portfolio has a broad core and multiple smaller allocations rather than one concentrated security.
Answer: A. This is a core-and-satellite structure because a broad central allocation is complemented by smaller specialist positions. The satellites can alter active risk and total costs. Remember: Core and satellite combines broad exposure with selected active or specialist allocations.
Hint, shown before you answer in practice mode: Think about a stable central allocation complemented by smaller specialised parts. Common mistake: Assuming the passive core makes the entire portfolio passive or risk-free.
XXI-B-114mediumapplication
Q7Which description best fits a rules-based smart-beta equity strategy?
Option A. A requirement to avoid every published selection or weighting rule
Why it is wrong: Smart-beta strategies generally use explicit systematic rules.
Option B. Systematic exposure to selected factors using a stated weighting rule — Correct answer
Option C. A promise to outperform market-cap indices in every single year
Why it is wrong: A factor-weighting rule does not guarantee annual outperformance.
Option D. A guarantee that the portfolio carries no systematic market risk
Why it is wrong: Factor-oriented portfolios retain systematic exposures and can lose value.
Answer: B. Smart-beta strategies use systematic rules to obtain selected factor exposures or alternative weights. Their performance depends on those exposures and implementation, not a guarantee. Remember: Rules-based factor investing is not the same as guaranteed alpha.
Hint, shown before you answer in practice mode: Separate the portfolio-construction rule from any claim about future performance. Common mistake: Interpreting a smart-beta label as evidence that the strategy always beats a broad index.
XXI-B-115mediumconceptual
Q8A two-stock portfolio has weights 70% and 30%, against benchmark weights 40% and 60%. What is its active share?
Option A. 60%
Why it is wrong: This adds absolute deviations but omits the one-half adjustment.
Option B. 0%
Why it is wrong: Opposite signed deviations cancel only before taking their absolute values.
Option C. 30% — Correct answer
Option D. 15%
Why it is wrong: This applies the one-half adjustment twice.
Answer: C. Active share is 30% because it is half the sum of absolute weight differences. Differences are |70% − 40%| = 30% and |30% − 60%| = 30%. Active share = (30% + 30%) ÷ 2 = 30%. Remember: Active share measures holdings differences, not realised excess return.
Hint, shown before you answer in practice mode: Measure the unmatched holdings without counting each active shift twice. Common mistake: Cancelling signed deviations or forgetting the one-half adjustment.
XXI-B-116mediumnumerical
Q9A manager’s information coefficient doubles while independent breadth falls by 75%. Under the fundamental law, what happens to the predicted information ratio?
Option A. It quadruples
Why it is wrong: This incorrectly treats the two changes as compounding increases.
Option B. It is unchanged — Correct answer
Option C. It halves
Why it is wrong: This ignores the doubling of the information coefficient.
Option D. It doubles
Why it is wrong: This considers the improvement in skill but ignores the decline in independent breadth.
Answer: B. The predicted information ratio is unchanged because higher forecasting skill offsets fewer independent investment decisions. The information coefficient measures forecasting skill, and breadth counts independent decisions. The fundamental law uses information ratio ≈ information coefficient × √breadth. Doubling the coefficient multiplies the result by 2. Reducing breadth to 25% multiplies its square root by 0.5. Combined effect = 2 × 0.5 = 1. Remember: The fundamental law depends on independent breadth and its square root.
Hint, shown before you answer in practice mode: Consider how breadth enters the fundamental law rather than counting decisions linearly. Common mistake: Equating more correlated trades with proportionately greater independent investment breadth.
XXI-B-117hardnumerical
Q10An equity desk reviews an unhedged foreign sleeve. Its shares gain 10% in local currency while that currency loses 5% against the rupee, with no distributions or costs. What is the sleeve’s rupee return?
Option A. 15.00%
Why it is wrong: This treats foreign-currency depreciation as an additional gain.
Option B. 5.00%
Why it is wrong: This simply subtracts the two percentage changes and misses their interaction.
Option C. 4.50% — Correct answer
Option D. −5.00%
Why it is wrong: This uses only the currency movement and ignores the share return.
Answer: C. The rupee return is 4.50% because asset and currency growth factors multiply. Working: (1 + 0.10) × (1 − 0.05) − 1 = 1.10 × 0.95 − 1 = 0.045, or 4.50%. Remember: Unhedged foreign-equity returns combine asset performance and currency movement.
Hint, shown before you answer in practice mode: Translate the changed foreign asset value at the changed exchange rate. Common mistake: Adding percentage returns when both changes act on the same investment value.
XXI-B-118mediumapplication
Q11For a domestic sleeve, the equity desk buys 1,000 shares at ₹200 and matching puts with strike ₹190 for ₹5 per share. At expiry the share price is ₹160, and all positions are settled with no other costs. What is the combined result?
Option A. ₹15,000 loss — Correct answer
Option B. ₹40,000 loss
Why it is wrong: This ignores the put’s ₹30 per-share payoff.
Option C. ₹25,000 profit
Why it is wrong: This counts the put result but ignores the loss on the shares.
Option D. ₹10,000 loss
Why it is wrong: This ignores the ₹5 per-share put premium.
Answer: A. The combined result is a ₹15,000 loss because the put offsets part of the share-price fall. Share loss = (₹160 − ₹200) × 1,000 = −₹40,000. Put payoff = (₹190 − ₹160) × 1,000 = ₹30,000. Premium = ₹5 × 1,000 = ₹5,000. Total = −₹40,000 + ₹30,000 − ₹5,000 = −₹15,000. Remember: A protective put can limit a defined downside but its premium is a real cost.
Hint, shown before you answer in practice mode: Combine the share result with the option result after its premium. Common mistake: Ignoring the premium when calculating the protected position’s result.
XXI-B-119mediumapplication
Q12As a separate alternative, the equity desk buys a share at ₹200 and writes a matching call with strike ₹220 for a ₹4 premium. At expiry the share is ₹250 and the call is settled, with no other costs. What is the covered-call profit per share?
Option A. ₹4
Why it is wrong: This includes only the premium and ignores the net share-and-call price result.
Option B. ₹20
Why it is wrong: This omits the premium received from writing the call.
Option C. ₹54
Why it is wrong: This includes the share gain and premium but ignores the written call’s loss.
Option D. ₹24 — Correct answer
Answer: D. Covered-call profit is ₹24 per share because gains above ₹220 are offset by the call obligation. Share gain = ₹250 − ₹200 = ₹50. Call loss = ₹250 − ₹220 = ₹30. Add the ₹4 premium: ₹50 − ₹30 + ₹4 = ₹24. Remember: A covered call earns premium while capping part of the share position’s upside.
Hint, shown before you answer in practice mode: A written call offsets the share’s gains above the strike. Common mistake: Keeping the share’s full upside while forgetting the matching short-call obligation.
XXI-B-120mediumapplication
Q13The equity desk manages a ₹2 crore portfolio with beta 1.2 and wants beta 0.3 without selling its shares. Assume each hypothetical index futures contract has ₹12 lakh notional value, unit beta and a matching market exposure. How many contracts should it sell?
Option A. 5 contracts
Why it is wrong: This uses the target exposure rather than the amount that must be removed.
Option B. 25 contracts
Why it is wrong: This adds the current and target betas rather than reducing one to the other.
Option C. 15 contracts — Correct answer
Option D. 20 contracts
Why it is wrong: This removes all of the original beta exposure instead of leaving the target beta.
Answer: C. The desk should sell 15 hypothetical contracts to reduce beta exposure by 0.9. Exposure to remove = (1.2 − 0.3) × ₹200 lakh = ₹180 lakh. Contracts = ₹180 lakh ÷ ₹12 lakh = 15. This calculation assumes the stated hedge relationship and ignores basis risk and costs. Remember: A beta hedge targets the difference between current and desired market exposure.
Hint, shown before you answer in practice mode: Hedge the unwanted beta exposure, not the entire portfolio value. Common mistake: Hedging the full beta when a nonzero target beta is intended.
XXI-B-121hardapplication
Q14The equity desk reports 4 percentage points of return above a broad benchmark before fees. A matched size-and-value analysis attributes 3 percentage points of that excess to factor exposure, and fees reduce return by 1 percentage point. What unexplained excess return remains after both adjustments?
Option A. 3 percentage points
Why it is wrong: This deducts fees but ignores the return explained by factor exposure.
Option B. 4 percentage points
Why it is wrong: This reports the original gross excess before either adjustment.
Option C. 0 percentage points — Correct answer
Option D. 1 percentage point
Why it is wrong: This deducts factor exposure but ignores the stated fee drag.
Answer: C. No unexplained excess remains after the two stated adjustments. Gross excess = 4 percentage points. Deduct 3 percentage points explained by factors and 1 percentage point of fee drag. Remaining excess = 4 − 3 − 1 = 0 percentage points. Remember: Broad-benchmark outperformance need not represent skill after factor and cost adjustments.
Hint, shown before you answer in practice mode: Separate explained systematic exposure and costs from unexplained performance. Common mistake: Calling every gross benchmark difference alpha attributable to manager skill.
XXI-B-122hardapplication
Equity Portfolio Management Strategies: common questions
How many practice questions are there on Equity Portfolio Management Strategies?
14 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 21 practice topics for NISM Series XXI-B, which has 150 questions in total.
Are these real NISM Series XXI-B questions on Equity Portfolio Management Strategies?
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-B?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1 or 2-mark question that is 0.25 or 0.5 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.
Fixed Income Portfolio Management Strategies
14 questions on Fixed Income Portfolio Management Strategies. Its quiz opens on that unit.
Open Fixed Income Portfolio Management StrategiesPaper Trading Try it on the practice trading desk