Regulatory, Governance and Ethical Aspects of Portfolio Managers
8 questions. Each answer is explained.
Question 1 of 8Practice · 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
- 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
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 8 questions on Regulatory, Governance and Ethical Aspects of Portfolio Managers, with answers
Q1Which practice best supports research objectivity when a manager evaluates an investment?
Option A. Separating the analysis from pressure to favour a business relationship — Correct answer
Option B. Using the desired recommendation to choose the valuation assumptions
Why it is wrong: Selecting assumptions to force a conclusion reverses an evidence-based research process.
Option C. Hiding contrary evidence from the investment committee before it decides
Why it is wrong: Excluding relevant adverse evidence makes the research less objective.
Option D. Changing the conclusions to protect an existing issuer relationship
Why it is wrong: Commercial pressure can compromise the independence of the analysis.
Answer: A. Separating research from pressure to favour a relationship supports an evidence-based conclusion. Relevant contrary evidence should be considered rather than concealed. Remember: Research should follow evidence rather than a desired commercial outcome.
Hint, shown before you answer in practice mode: Ask whether the evidence or a commercial interest drives the conclusion. Common mistake: Treating disclosure alone as a substitute for genuinely independent analysis.
XXI-B-063easyconceptual
Q2Why does client due diligence seek to identify a beneficial owner behind a legal entity?
Option A. To identify the analyst who selects the entity’s investments
Why it is wrong: The investment analyst need not be the entity’s ultimate owner or controller.
Option B. To identify only the person authorised to upload documents
Why it is wrong: Administrative access does not necessarily identify ultimate ownership or control.
Option C. To identify only the person delivering the account form
Why it is wrong: A document courier need not own or control the entity.
Option D. To understand the natural person who ultimately owns or controls it — Correct answer
Answer: D. Beneficial-owner identification seeks the natural person who ultimately owns or controls the entity under applicable rules. A signatory or document handler is not automatically that person. Remember: An entity’s representative and its beneficial owner can be different people.
Hint, shown before you answer in practice mode: Look beyond the entity’s name and its administrative representatives. Common mistake: Stopping due diligence at the authorised signatory without considering ultimate control.
XXI-B-064easyregulatory
Q3Which statement about an investor charter is most appropriate for portfolio-management clients?
Option A. It guarantees the manager will outperform every benchmark in each year
Why it is wrong: An investor charter is not a guarantee of investment performance.
Option B. It transfers every investment loss of the client to the regulator
Why it is wrong: Regulatory investor-protection processes do not make all market losses reimbursable.
Option C. It explains service expectations and investor rights and responsibilities — Correct answer
Option D. It removes the need for clients to read the management agreement
Why it is wrong: The client-specific agreement remains important alongside the charter.
Answer: C. An investor charter explains service expectations and investor rights and responsibilities. It should not be presented as capital protection or assured outperformance. Remember: Investor protection and investment-return guarantees are different concepts.
Hint, shown before you answer in practice mode: Distinguish a service and rights framework from an investment promise. Common mistake: Treating a published charter as insurance against market risk.
XXI-B-065mediumconceptual
Q4An analyst receives confidential, price-sensitive information about an unannounced acquisition. The information is not generally available and no permitted exception applies. What is the appropriate immediate response before dealing in the affected security?
Option A. Deal first and record a note when the public announcement appears
Why it is wrong: A later note does not resolve the problem of dealing while possessing the information.
Option B. Ask a relative to place the same trade in their own account instead
Why it is wrong: Using another person does not remove the misuse of confidential information.
Option C. Avoid dealing and escalate the information through compliance controls — Correct answer
Option D. Trade only a small quantity in the personal account to limit exposure
Why it is wrong: A smaller trade does not make the stated information generally available.
Answer: C. The analyst should avoid dealing and escalate through compliance controls because the information is unpublished and price-sensitive. The stated facts provide no applicable exception for trading. Remember: Handle confidential price-sensitive information before any affected dealing takes place.
Hint, shown before you answer in practice mode: Consider both the information’s public availability and its possible price effect. Common mistake: Believing a small trade or another person’s account avoids the issue.
XXI-B-066mediumapplication
Q5The same firm receives a large confidential client buy order. A dealer first buys the security personally to benefit from the client order’s expected price impact. Which misconduct does this most directly illustrate?
Option A. Hedging a documented exposure for the client
Why it is wrong: The personal purchase is intended to benefit from the client’s order rather than offset its risk.
Option B. Rebalancing within the client’s agreed policy
Why it is wrong: The dealer is exploiting advance order knowledge in a personal account, not rebalancing for the client.
Option C. Correcting a previously recorded settlement error
Why it is wrong: No settlement correction explains the dealer’s anticipatory personal trade.
Option D. Front running the client’s order — Correct answer
Answer: D. The dealer is front running because the personal trade seeks to profit from advance knowledge of a client’s pending order. This creates a serious conflict with fair treatment of the client. Remember: Confidential client-order information must not be used for personal trading advantage.
Hint, shown before you answer in practice mode: Identify who uses advance knowledge of whose pending transaction. Common mistake: Assuming order information is harmless because it is not an issuer’s earnings announcement.
XXI-B-067mediumapplication
Q6A review finds that a manager repeatedly trades a stable client portfolio without an investment reason. The trades mainly generate transaction-linked compensation for the manager. What is the main concern?
Option A. Necessary rebalancing after documented policy changes
Why it is wrong: The facts state there is no investment reason or relevant policy change.
Option B. Excessive trading driven by a conflict of interest — Correct answer
Option C. Passive replication of a newly changed index
Why it is wrong: There is no stated index change requiring the repeated transactions.
Option D. Routine independent valuation of untraded securities
Why it is wrong: Valuation does not require the unnecessary trades described.
Answer: B. The concern is excessive trading driven by the manager’s compensation rather than the client’s investment needs. Activity alone is not evidence of useful portfolio management. Remember: Trading should have a defensible client-investment purpose.
Hint, shown before you answer in practice mode: Compare the economic purpose of the trades with who benefits from them. Common mistake: Judging manager effort by trade count without considering purpose and costs.
XXI-B-068mediumapplication
Q7A broker offers the firm research in return for additional client-funded dealing commissions. The research may be useful, but the arrangement would also pay for a personal benefit to the manager. Which response best protects research objectivity and client interests?
Option A. Accept everything once the broker labels the whole package, including the personal benefit, as research
Why it is wrong: A label does not turn a personal benefit into client-benefiting research.
Option B. Reject the personal benefit and assess any research arrangement under the applicable client-benefit controls — Correct answer
Option C. Accept everything if the manager also reads the research report before using the broker for client trades
Why it is wrong: Some useful research does not justify charging clients for an unrelated personal benefit.
Option D. Accept everything if the additional commission is spread evenly across all client accounts of the firm
Why it is wrong: Spreading the cost does not remove its conflicted or non-client purpose.
Answer: B. The personal benefit should be rejected, and any research arrangement separately assessed under applicable controls. A useful research component does not justify an unrelated personal benefit at clients’ expense. Remember: Client-funded arrangements require scrutiny of actual purpose, benefits and conflicts.
Hint, shown before you answer in practice mode: Assess the purpose of each benefit rather than accepting a single package label. Common mistake: Assuming every broker-provided benefit becomes acceptable when bundled with research.
XXI-B-069hardapplication
Q8Two eligible client accounts order 600 and 400 shares in the same batch, but only 500 shares are filled. The documented pre-trade policy requires proportionate allocation by order quantity. What allocation follows that policy?
Option A. 300 shares and 200 shares — Correct answer
Option B. 250 shares and 250 shares
Why it is wrong: An equal allocation ignores the policy’s order-quantity proportions.
Option C. 400 shares and 100 shares
Why it is wrong: This distribution does not follow the 60% and 40% order proportions.
Option D. 500 shares and 0 shares
Why it is wrong: Allocating the entire fill to one account breaches the stated proportionate policy.
Answer: A. The accounts should receive 300 and 200 shares because their orders are in a 60:40 ratio. Total orders = 600 + 400 = 1,000 shares. Allocations = 500 × 600 ÷ 1,000 = 300 and 500 × 400 ÷ 1,000 = 200. The allocation rule is a stated case policy. Remember: Pre-established allocation policies help prevent after-the-event favouritism.
Hint, shown before you answer in practice mode: Apply the established allocation basis consistently rather than choosing after seeing the fill. Common mistake: Using account size, commercial importance or equal shares when the policy specifies order proportions.
XXI-B-070hardapplication
Regulatory, Governance and Ethical Aspects of Portfolio Managers: common questions
How many practice questions are there on Regulatory, Governance and Ethical Aspects of Portfolio Managers?
8 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 Regulatory, Governance and Ethical Aspects of Portfolio Managers?
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.
Introduction to Indices
6 questions on Introduction to Indices. Its quiz opens on that unit.
Open Introduction to IndicesPaper Trading Try it on the practice trading desk