Portfolio Rebalancing
6 questions. Each answer is explained.
Question 1 of 6Practice · 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
- Equity Portfolio Management Strategies14
- Fixed Income Portfolio Management Strategies14
- Performance measurement and evaluation of Portfolio Managers8
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 6 questions on Portfolio Rebalancing, with answers
Q1Under a simple buy-and-hold strategy with no cash flows, what happens when one asset outperforms the other holdings?
Option A. All other assets must earn the same return
Why it is wrong: Different asset returns are allowed under a buy-and-hold strategy.
Option B. Its weight must remain at the original percentage
Why it is wrong: Weights drift when asset values change at different rates.
Option C. Its portfolio weight can increase without any purchase — Correct answer
Option D. The investor must immediately sell it back to target
Why it is wrong: That describes a rebalancing action rather than simple buy-and-hold.
Answer: C. The outperforming asset’s weight can rise because its value grows faster than the rest of the portfolio. Buy-and-hold does not automatically restore starting weights. Remember: Portfolio weights can change even when no trades occur.
Hint, shown before you answer in practice mode: A holding’s percentage depends on relative market values, not just trading activity. Common mistake: Assuming unchanged unit holdings imply unchanged asset-allocation percentages.
XXI-B-145easyconceptual
Q2How does constant-mix rebalancing typically respond when equities fall relative to bonds?
Option A. Leave every holding unchanged regardless of the drift
Why it is wrong: That describes buy-and-hold rather than restoring a constant mix.
Option B. Buy equities and sell bonds to restore target weights — Correct answer
Option C. Sell equities and buy bonds to increase the drift
Why it is wrong: That moves the portfolio further from its fixed target equity weight.
Option D. Raise the target equity weight to match the new market value
Why it is wrong: Constant mix restores the specified target rather than redefining it after the move.
Answer: B. Constant mix buys the relatively underweight equities and sells bonds to restore the target proportions. This is a rebalancing rule rather than a guarantee that the next price move will reverse. Remember: Constant mix generally trades against relative price movements.
Hint, shown before you answer in practice mode: Identify which asset has become underweight relative to the existing policy. Common mistake: Confusing a fixed allocation rule with a prediction that falling assets must recover.
XXI-B-146easyconceptual
Q3A 60% equity target allows a five-percentage-point drift in either direction, including the boundaries. Which equity weight breaches that band?
Option A. 54% — Correct answer
Option B. 60%
Why it is wrong: The target weight is inside the permitted band.
Option C. 65%
Why it is wrong: The upper boundary is explicitly permitted by the question.
Option D. 55%
Why it is wrong: The lower boundary is explicitly permitted by the question.
Answer: A. A 54% equity weight breaches the band because the permitted range is 55% to 65%, including both ends. Lower limit = 60% − 5 percentage points = 55%. Upper limit = 60% + 5 percentage points = 65%. Remember: A threshold rule must specify its limits and whether boundaries trigger a trade.
Hint, shown before you answer in practice mode: Convert the allowed drift into both lower and upper limits. Common mistake: Treating five percentage points as 5% of the original target weight.
XXI-B-147mediumnumerical
Q4Equities are ₹70 lakh and bonds ₹30 lakh. After a ₹10 lakh cash contribution, what equity sale restores a 60% equity target?
Option A. ₹0 lakh
Why it is wrong: Using only the new cash for bonds still leaves equities above the 60% target.
Option B. ₹4 lakh — Correct answer
Option C. ₹6 lakh
Why it is wrong: This does not compare existing equity value with 60% of the new ₹110 lakh total.
Option D. ₹10 lakh
Why it is wrong: This rebalances to 60% of the old portfolio value and ignores the contribution.
Answer: B. An equity sale of ₹4 lakh is needed because the new target equity amount is ₹66 lakh. New total = ₹70 + ₹30 + ₹10 = ₹110 lakh. Equity target = 60% × ₹110 lakh = ₹66 lakh. Sale = ₹70 lakh − ₹66 lakh = ₹4 lakh. The cash contribution and sale proceeds can together increase bonds to ₹44 lakh, ignoring costs. Remember: New contributions can reduce, but need not eliminate, required rebalancing trades.
Hint, shown before you answer in practice mode: Include the new cash in total wealth before calculating the new target holding. Common mistake: Calculating target holdings using the portfolio value before the external cash flow.
XXI-B-148mediumnumerical
Q5A constant proportion portfolio insurance strategy has ₹100 lakh wealth, an ₹80 lakh floor and multiplier 3. What is its uncapped risky allocation?
Option A. ₹300 lakh
Why it is wrong: This applies the multiplier to total wealth instead of the cushion.
Option B. ₹60 lakh — Correct answer
Option C. ₹20 lakh
Why it is wrong: This is the cushion above the floor before applying the multiplier.
Option D. ₹80 lakh
Why it is wrong: This is the floor rather than the risky-asset allocation.
Answer: B. The risky allocation is ₹60 lakh because the multiplier applies to the ₹20 lakh cushion. Cushion = ₹100 lakh − ₹80 lakh = ₹20 lakh. Risky allocation = 3 × ₹20 lakh = ₹60 lakh. The remaining ₹40 lakh is allocated to the safe asset under the stated simple model. Remember: Constant proportion portfolio insurance scales risky exposure to the cushion, not total wealth.
Hint, shown before you answer in practice mode: Identify the cushion above the floor before applying the strategy’s multiplier. Common mistake: Treating the floor as the amount that must always be held in the safe asset.
XXI-B-149mediumnumerical
Q6Equities of ₹60 lakh suddenly fall 40% before rebalancing, while ₹40 lakh cash stays unchanged. What shortfall arises against an ₹80 lakh floor?
Option A. ₹4 lakh — Correct answer
Option B. ₹24 lakh
Why it is wrong: This is the equity loss, not the amount by which the portfolio falls below its floor.
Option C. ₹16 lakh
Why it is wrong: This does not compare the new ₹76 lakh portfolio value with the ₹80 lakh floor.
Option D. ₹0 lakh
Why it is wrong: The strategy cannot guarantee its floor when a large price gap occurs before rebalancing.
Answer: A. The portfolio is ₹4 lakh below its floor because the abrupt fall leaves only ₹76 lakh. Equity value = ₹60 lakh × 0.60 = ₹36 lakh. Total wealth = ₹36 lakh + ₹40 lakh = ₹76 lakh. Floor shortfall = ₹80 lakh − ₹76 lakh = ₹4 lakh. This illustrates gap risk when rebalancing cannot occur in time. Remember: A portfolio-insurance rule is not an unconditional guarantee against a sudden market gap.
Hint, shown before you answer in practice mode: Revalue the exposed part first, then compare total remaining wealth with the floor. Common mistake: Assuming the strategy can always rebalance continuously before a floor breach.
XXI-B-150hardapplication
Portfolio Rebalancing: common questions
How many practice questions are there on Portfolio Rebalancing?
6 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 Portfolio Rebalancing?
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.
Try a paper on all of NISM Series XXI-B
This is the last unit of Portfolio Managers. The series page runs one quiz across every unit.
Open the NISM Series XXI-B practice pagePaper Trading Try it on the practice trading desk