Fixed Income Portfolio Management Strategies
14 questions. Each answer is explained.
Question 1 of 10Practice · Series XXI-B — Portfolio Managers
0 right · 0 wrong · 10 to go
A–D or 1–4 to answer · Enter or → for the next question · ← to go back
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
- Equity 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Fixed Income Portfolio Management Strategies, with answers
Q1Which bond-portfolio structure spreads maturity dates across several successive periods?
Option A. A barbell structure
Why it is wrong: A barbell concentrates exposure toward shorter and longer maturities rather than a continuous maturity ladder.
Option B. A ladder structure — Correct answer
Option C. A bullet structure
Why it is wrong: A bullet concentrates maturities around a selected period rather than spreading them across successive periods.
Option D. A single-maturity structure
Why it is wrong: A single-maturity holding does not spread maturity dates across periods.
Answer: B. A ladder spreads maturities across successive periods. This creates a schedule of maturing holdings, although reinvestment rates and issuer risks still matter. Remember: A bond ladder staggers maturity dates.
Hint, shown before you answer in practice mode: Picture a series of maturity dates rather than one point or two ends. Common mistake: Assuming staggered maturities eliminate all interest-rate and credit risks.
XXI-B-123easyconceptual
Q2Which maturity structure combines short-term and long-term bonds with relatively little intermediate exposure?
Option A. An overnight-only structure
Why it is wrong: An overnight-only portfolio has no long-term maturity exposure.
Option B. An evenly spaced ladder
Why it is wrong: A ladder spreads maturities through successive periods rather than concentrating at both ends.
Option C. A bullet structure
Why it is wrong: A bullet concentrates around a particular maturity area rather than both ends.
Option D. A barbell structure — Correct answer
Answer: D. A barbell combines shorter and longer maturities with relatively little in the middle. Its risk depends on the amounts, durations and cash flows at both ends. Remember: Barbell describes a maturity distribution, not a promise of lower risk.
Hint, shown before you answer in practice mode: Identify the two ends of the maturity range. Common mistake: Equating the average maturity with the full pattern of interest-rate exposure.
XXI-B-124easyconceptual
Q3Which maturity structure concentrates bond holdings around a particular future maturity date?
Option A. A barbell structure
Why it is wrong: A barbell uses short and long ends rather than one concentrated maturity area.
Option B. An evenly spaced ladder
Why it is wrong: A ladder distributes maturities across successive periods.
Option C. A perpetual-only structure
Why it is wrong: Perpetual securities do not have the selected contractual maturity date described.
Option D. A bullet structure — Correct answer
Answer: D. A bullet structure concentrates maturities around a selected future date. Concentration around that date does not by itself ensure exact liability cash-flow matching. Remember: A bullet and a ladder have different maturity distributions.
Hint, shown before you answer in practice mode: Look for a focused maturity area rather than a spread of maturity dates. Common mistake: Assuming a maturity cluster automatically matches every future payment obligation.
XXI-B-125easyconceptual
Q4What is the main objective of classical bond-portfolio immunisation for a known liability?
Option A. Maximising turnover whenever bond prices change
Why it is wrong: High turnover is not the purpose of liability-focused immunisation.
Option B. Guaranteeing a profit from every credit-risk position
Why it is wrong: Immunisation does not guarantee gains or remove issuer default risk.
Option C. Reducing funding sensitivity to small interest-rate changes — Correct answer
Option D. Eliminating the need to monitor changing portfolio exposures
Why it is wrong: Interest-rate exposure and the liability relationship still require monitoring.
Answer: C. Classical immunisation seeks to reduce the funding position’s sensitivity to small interest-rate changes under its assumptions. It does not eliminate credit risk, large-shock risk or every yield-curve risk. Remember: Immunisation is a defined interest-rate-risk technique rather than a universal guarantee.
Hint, shown before you answer in practice mode: Think about the relationship between asset cash flows and a future obligation. Common mistake: Interpreting an immunised portfolio as immune to every possible loss.
XXI-B-126easyconceptual
Q5A borrower pays floating interest and wants to reduce exposure to rising rates through a matching swap. Which swap direction fits?
Option A. Pay floating on both swap legs
Why it is wrong: This does not provide the fixed-versus-floating offset required by the question.
Option B. Pay fixed and receive floating — Correct answer
Option C. Receive fixed on both swap legs
Why it is wrong: That is not the usual matching fixed-for-floating swap structure described.
Option D. Pay floating and receive fixed
Why it is wrong: This adds another floating-rate payment exposure instead of offsetting the original one.
Answer: B. Paying fixed and receiving matching floating interest can offset the original floating-rate borrowing cost. Differences in reference rates, reset dates or notionals can still leave basis risk. Remember: A matching swap can change the form of interest-rate exposure.
Hint, shown before you answer in practice mode: Offset the original floating payment before considering the remaining net payment. Common mistake: Choosing a swap side that adds to the liability’s existing floating-rate exposure.
XXI-B-127mediumapplication
Q6A bond manager expects market yields to rise and wants less price sensitivity, with credit quality unchanged. Which change fits that aim?
Option A. Ignore duration and compare only coupon amounts
Why it is wrong: Coupon alone is not a complete measure of the portfolio’s price sensitivity.
Option B. Keep duration unchanged and expect sensitivity to disappear
Why it is wrong: Unchanged duration does not remove interest-rate sensitivity.
Option C. Increase portfolio duration
Why it is wrong: Higher duration generally increases sensitivity to the stated yield rise.
Option D. Reduce portfolio duration — Correct answer
Answer: D. Reducing duration reduces approximate price sensitivity to a yield rise, other things equal. It expresses the manager’s stated objective rather than guaranteeing a profitable forecast. Remember: Duration is central to expressing an interest-rate view through bond exposure.
Hint, shown before you answer in practice mode: Relate duration to the approximate price response to a yield change. Common mistake: Confusing a higher coupon with a complete description of interest-rate risk.
XXI-B-128mediumapplication
Q7A corporate bond’s credit spread narrows while the government yield curve and expected cash flows remain unchanged. What is the usual price effect?
Option A. The bond’s price rises — Correct answer
Option B. The bond’s price falls
Why it is wrong: A narrower spread reduces the required yield rather than increasing it.
Option C. The bond’s price must remain unchanged
Why it is wrong: Changing the required spread changes the discount rate for the same cash flows.
Option D. The bond’s coupon automatically increases
Why it is wrong: A market spread change does not rewrite a fixed contractual coupon.
Answer: A. The bond’s price usually rises because a narrower credit spread lowers the required yield for unchanged cash flows. The contractual coupon need not change. Remember: Credit-spread movements can change bond values even with a stable government yield curve.
Hint, shown before you answer in practice mode: Trace the spread change through the required yield used to discount cash flows. Common mistake: Attributing every bond-price move solely to the risk-free yield curve.
XXI-B-129mediumapplication
Q8What does cash-flow matching target more directly than aggregate duration matching?
Option A. The highest available yield regardless of payment timing
Why it is wrong: Yield alone does not ensure that money is available when liabilities fall due.
Option B. Asset payments matching liability dates and amounts — Correct answer
Option C. Identical coupon rates on every asset held
Why it is wrong: Matching payment needs does not require every bond to have the same coupon rate.
Option D. Identical market prices for assets and individual liabilities
Why it is wrong: The target is the payment schedule rather than identical unit prices.
Answer: B. Cash-flow matching targets asset payments corresponding to liability dates and amounts. Aggregate duration matching aligns a sensitivity measure but does not necessarily reproduce that schedule. Remember: Matching duration and matching cash flows are different levels of alignment.
Hint, shown before you answer in practice mode: Compare matching a whole schedule with matching a summary sensitivity measure. Common mistake: Assuming equal duration means every liability payment is exactly covered when due.
XXI-B-130mediumconceptual
Q9A liability-matching bond portfolio initially matches present value and duration. Why should the match still be reviewed as time passes and cash flows occur?
Option A. Initial present-value equality eliminates all reinvestment decisions
Why it is wrong: Coupons and maturities may create later reinvestment decisions.
Option B. Review is required only when a bond issuer defaults
Why it is wrong: The interest-rate and timing relationship can change without any default.
Option C. Initial duration equality fixes every future duration automatically
Why it is wrong: Duration equality at one date does not guarantee equality after time and cash-flow changes.
Option D. Asset and liability sensitivities can evolve differently — Correct answer
Answer: D. The match needs review because the assets’ and liability’s sensitivities can evolve differently as time passes and payments occur. Rebalancing may be needed even without a credit event. Remember: Immunisation is a monitored process rather than a permanent label.
Hint, shown before you answer in practice mode: A match is measured at a point in time rather than permanently attached to the holdings. Common mistake: Treating the initial duration match as a set-and-forget solution.
XXI-B-131hardapplication
Q10A plan must pay ₹1.21 crore exactly two years from now. For this case, the appropriate risk-free discount rate is 10% with annual compounding and no other liabilities. What present asset value funds the liability?
Option A. ₹1.00 crore — Correct answer
Option B. ₹1.21 crore
Why it is wrong: This uses the future amount without discounting.
Option C. ₹1.10 crore
Why it is wrong: This discounts the two-year payment for only one year.
Option D. ₹1.0083 crore
Why it is wrong: This uses simple interest over two years rather than annual compounding.
Answer: A. The required present value is ₹1 crore because ₹1 crore grows to ₹1.21 crore in two years at 10%. Present value = ₹1.21 crore ÷ 1.10² = ₹1.21 crore ÷ 1.21 = ₹1 crore. Remember: Funding begins by valuing the liability on an appropriate present-value basis.
Hint, shown before you answer in practice mode: Bring the future liability back through both annual discount periods. Common mistake: Comparing today’s asset value directly with an undiscounted future obligation.
XXI-B-132mediumapplication
Q11The plan’s liability has a two-year Macaulay duration. Available zero-coupon assets have one-year and three-year durations. What market-value weight in the one-year asset matches the liability’s duration?
Option A. 75%
Why it is wrong: This gives a portfolio duration of 1.5 years rather than two years.
Option B. 25%
Why it is wrong: This gives a portfolio duration of 2.5 years rather than two years.
Option C. 100%
Why it is wrong: This leaves the portfolio duration at one year.
Option D. 50% — Correct answer
Answer: D. A 50% weight in the one-year asset gives a two-year portfolio duration. Set 1w + 3(1 − w) = 2. Then 3 − 2w = 2 and w = 0.50. The remaining 50% is in the three-year asset. Remember: Portfolio duration weights use market values rather than bond face values.
Hint, shown before you answer in practice mode: Make the weighted asset duration equal to the liability’s duration. Common mistake: Using equal face amounts as though they necessarily gave equal market-value weights.
XXI-B-133mediumapplication
Q12The plan’s asset portfolio is worth ₹1 crore and has a two-year Macaulay duration at a 10% annually compounded yield. Consider a separate parallel yield rise of one percentage point. Ignoring convexity, what is the approximate fall in asset value?
Option A. ₹18.18 lakh
Why it is wrong: This overstates the yield change by a factor of ten.
Option B. ₹2.00 lakh
Why it is wrong: This uses Macaulay duration directly instead of converting to modified duration.
Option C. ₹1.82 lakh — Correct answer
Option D. ₹0.18 lakh
Why it is wrong: This understates the one-percentage-point yield change by a factor of ten.
Answer: C. The approximate fall is ₹1.82 lakh because modified duration is 1.8182. Modified duration = 2 ÷ 1.10 = 1.8182. Approximate percentage price change = −1.8182 × 0.01 = −1.8182%. Monetary fall = ₹100 lakh × 1.8182% = ₹1.8182 lakh. Remember: Convert Macaulay duration to modified duration before estimating a price change.
Hint, shown before you answer in practice mode: Use the price-sensitivity version of duration and keep the yield change in decimals. Common mistake: Using percentage points as whole numbers in the duration approximation.
XXI-B-134hardapplication
Q13In the plan, one zero-coupon asset matures after one year but the liability is due after two years. The first maturity proceeds must be invested for the remaining year. What risk arises if the rate available then is lower than expected?
Option A. A failure to calculate the original market-value weight
Why it is wrong: The risk concerns the future return on proceeds, not the original weighting arithmetic.
Option B. A contractual coupon being missed by that matured asset
Why it is wrong: The described issue occurs after receiving maturity proceeds, not from a missed coupon.
Option C. A change in the liability’s stated payment date
Why it is wrong: The liability date stays fixed in the scenario.
Option D. Reinvestment risk — Correct answer
Answer: D. This is reinvestment risk because the maturity proceeds may earn less than expected during the remaining year. Early receipt of cash does not lock in its later reinvestment return. Remember: Asset maturity before a liability date can create a reinvestment gap.
Hint, shown before you answer in practice mode: Focus on the rate earned between receiving the money and needing to pay it out. Common mistake: Assuming receiving cash early automatically removes all funding risk.
XXI-B-135mediumapplication
Q14An initially fully funded plan holds ₹50 lakh each in one-year and three-year zero-coupon bonds yielding 10% annually. Its two-year liability initially has ₹100 lakh present value. In a separate shock, the one-year yield falls two percentage points, the three-year yield rises one point, and the two-year yield is unchanged. Ignoring convexity, what funding change results?
Option A. Approximately ₹90,909 surplus
Why it is wrong: This includes the one-year bond gain but omits the three-year bond loss.
Option B. No surplus or deficit
Why it is wrong: Matching aggregate duration does not neutralise this non-parallel yield-curve movement.
Option C. Approximately ₹1,36,364 deficit
Why it is wrong: This includes the three-year bond loss but omits the one-year bond gain.
Option D. Approximately ₹45,455 deficit — Correct answer
Answer: D. The shock creates an approximate ₹45,455 deficit because the longer-bond loss exceeds the shorter-bond gain while liability value is unchanged. One-year modified duration = 1 ÷ 1.10 = 0.9091. Its gain = −0.9091 × (−0.02) × ₹50,00,000 = ₹90,909. Three-year modified duration = 3 ÷ 1.10 = 2.7273. Its loss = −2.7273 × 0.01 × ₹50,00,000 = −₹1,36,364. Net asset change = ₹90,909 − ₹1,36,364 = −₹45,455. The two-year liability discount rate is unchanged, so the same deficit appears in funding. Remember: An aggregate duration match may not protect against non-parallel yield-curve changes.
Hint, shown before you answer in practice mode: Estimate each maturity bucket separately, then compare the asset change with the unchanged liability value. Common mistake: Applying a single parallel-shift hedge conclusion to different changes at different maturities.
XXI-B-136hardapplication
Fixed Income Portfolio Management Strategies: common questions
How many practice questions are there on Fixed Income 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 Fixed Income 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.
Performance measurement and evaluation of Portfolio Managers
8 questions on Performance measurement and evaluation of Portfolio Managers. Its quiz opens on that unit.
Open Performance measurement and evaluation of Portfolio ManagersPaper Trading Try it on the practice trading desk