Risk
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
- 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
- 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 Risk, with answers
Q1What should come before selecting a technique to measure and control a portfolio’s risk?
Option A. Choosing the most attractive historical return period
Why it is wrong: A selected return period does not identify the portfolio’s risk sources.
Option B. Identifying the relevant exposures and risk sources — Correct answer
Option C. Reporting that the chosen risk limit has already worked
Why it is wrong: Effectiveness cannot be established before understanding and assessing the exposure.
Option D. Removing every security with a recent negative return
Why it is wrong: A recent loss alone does not identify or measure the full risk problem.
Answer: B. The relevant exposures and risk sources should first be identified. Measurement, controls and monitoring can then be designed for those risks. Remember: Risk management starts with understanding exposures, not merely selecting a statistic.
Hint, shown before you answer in practice mode: A measurement is useful only when the thing being measured is understood. Common mistake: Calculating a familiar risk measure before asking which risk actually matters.
XXI-B-101easyconceptual
Q2A faulty process sends an order for ten times the authorised quantity. Which risk category does this most directly illustrate?
Option A. Inflation risk
Why it is wrong: The order error is unrelated to a decline in purchasing power.
Option B. Interest-rate risk
Why it is wrong: The loss source is a process error rather than a change in interest rates.
Option C. Exchange-rate risk
Why it is wrong: The issue does not arise from a movement in currency values.
Option D. Operational risk — Correct answer
Answer: D. This is operational risk because a process failure produces an incorrect transaction. Controls such as authorisation checks address this type of failure. Remember: Operational errors can create losses independently of a market forecast.
Hint, shown before you answer in practice mode: Identify whether the problem comes from market prices or the operating process. Common mistake: Classifying every trading loss as market risk.
XXI-B-102easyconceptual
Q3A portfolio holds many issuers, but almost all depend on the same industry. Which risk remains despite the large holding count?
Option A. Industry concentration risk — Correct answer
Option B. Complete elimination of common economic exposure
Why it is wrong: Many names can still share the same industry driver.
Option C. Only settlement risk with no investment concentration
Why it is wrong: The industry concentration is an investment risk independent of settlement mechanics.
Option D. Only the risk of one specific company’s accounting error
Why it is wrong: The portfolio also retains a common industry exposure beyond individual-company risk.
Answer: A. Industry concentration remains because the issuers share common business drivers. A high holding count does not by itself create broad economic diversification. Remember: Diversification depends on the independence of exposures as well as the number of holdings.
Hint, shown before you answer in practice mode: Count independent economic exposures rather than only security names. Common mistake: Using the number of securities as the only test of diversification.
XXI-B-103mediumapplication
Q4A risk report gives a ₹2 crore portfolio a one-day 99% value at risk of ₹4 lakh. The model uses a continuous loss distribution. What probability does it assign to a one-day loss exceeding ₹4 lakh?
Option A. 1% — Correct answer
Option B. 0%
Why it is wrong: Value at risk is a quantile and does not rule out larger losses.
Option C. 4%
Why it is wrong: The rupee loss threshold does not define a 4% exceedance probability.
Option D. 99%
Why it is wrong: Ninety-nine percent is the confidence level, not the probability of exceeding the loss threshold.
Answer: A. The model assigns a 1% probability to losses beyond ₹4 lakh over the stated one-day horizon. A 99% value-at-risk estimate is not the maximum possible loss. Remember: Value at risk must be read with its confidence level, horizon and model assumptions.
Hint, shown before you answer in practice mode: Distinguish the confidence level from the probability beyond its loss threshold. Common mistake: Interpreting value at risk as a guaranteed worst-case loss.
XXI-B-104mediumapplication
Q5The same portfolio must pay ₹30 lakh immediately. Only ₹10 lakh is available in immediately usable cash, and no other proceeds can arrive in time. What is the immediate cash shortfall?
Option A. ₹40 lakh
Why it is wrong: Adding available cash to the obligation does not calculate the shortfall.
Option B. ₹20 lakh — Correct answer
Option C. ₹30 lakh
Why it is wrong: This ignores the ₹10 lakh already available to meet the payment.
Option D. ₹10 lakh
Why it is wrong: This is available cash rather than the unmet payment amount.
Answer: B. The immediate shortfall is ₹20 lakh because only ₹10 lakh is available for a ₹30 lakh payment. Working: ₹30 lakh − ₹10 lakh = ₹20 lakh. Remember: Portfolio wealth and cash available by a payment deadline are different things.
Hint, shown before you answer in practice mode: Compare cash available by the deadline with cash due by that deadline. Common mistake: Assuming assets can always be sold and settled before an immediate payment.
XXI-B-105mediumapplication
Q6The risk report also shows that the portfolio previously peaked at ₹2.5 crore and is now worth ₹2 crore. There were no intervening cash flows. What is the drawdown from that peak?
Option A. 20% — Correct answer
Option B. 25%
Why it is wrong: This divides the loss by current value instead of the prior peak.
Option C. 50%
Why it is wrong: This confuses a half-crore absolute loss with a 50% relative loss.
Option D. 5%
Why it is wrong: This does not express the ₹0.5 crore decline relative to the ₹2.5 crore peak.
Answer: A. The drawdown is 20% because the ₹0.5 crore fall is one-fifth of the prior peak. Working: (₹2.5 crore − ₹2 crore) ÷ ₹2.5 crore × 100 = 20%. Remember: Drawdown measures the fall from a preceding peak, not the return needed to recover.
Hint, shown before you answer in practice mode: Measure the fall relative to the high from which it occurred. Common mistake: Using the current value as the denominator.
XXI-B-106mediumapplication
Q7A ₹50 lakh bond exposure in the risk review has a stated one-year default probability of 2%. If default occurs, the assumed loss is 60% of exposure, with no discounting or further changes. What is the expected credit loss?
Option A. ₹30.00 lakh
Why it is wrong: This is the loss conditional on default, not the probability-weighted expected loss.
Option B. ₹0.40 lakh
Why it is wrong: This uses the 40% recovery rather than the stated 60% loss on default.
Option C. ₹0.60 lakh — Correct answer
Option D. ₹1.00 lakh
Why it is wrong: This applies default probability but assumes the entire exposure is lost on default.
Answer: C. Expected credit loss is ₹0.60 lakh because the conditional loss must be weighted by default probability. Loss if default occurs = ₹50 lakh × 60% = ₹30 lakh. Expected loss = ₹30 lakh × 2% = ₹0.60 lakh, or ₹60,000. Remember: Expected credit loss combines exposure, default probability and loss severity.
Hint, shown before you answer in practice mode: Separate the chance of default from the loss if default actually happens. Common mistake: Using recovery rate in place of loss given default.
XXI-B-107hardapplication
Q8A stress test applies a 20% equity fall and a 5% bond fall to a ₹2 crore portfolio weighted 60% equity and 40% bonds. The portfolio is not rebalanced during the shock and cash flows are zero. What is the modelled loss?
Option A. ₹25 lakh
Why it is wrong: This uses equal asset weights rather than the stated 60% and 40% mix.
Option B. ₹40 lakh
Why it is wrong: This applies the equity shock to the entire portfolio.
Option C. ₹28 lakh — Correct answer
Option D. ₹14 lakh
Why it is wrong: This treats the 14% portfolio loss as ₹14 lakh instead of applying it to ₹200 lakh.
Answer: C. The modelled loss is ₹28 lakh because the weighted portfolio decline is 14%. Equity contribution = 60% × 20% = 12%. Bond contribution = 40% × 5% = 2%. Total decline = 14%. Monetary loss = ₹200 lakh × 14% = ₹28 lakh. Remember: Stress testing evaluates specified shocks and can reveal losses beyond a value-at-risk threshold.
Hint, shown before you answer in practice mode: Calculate each asset class’s contribution to the total portfolio shock. Common mistake: Applying the largest asset-class shock to the entire mixed portfolio.
XXI-B-108hardapplication
Risk: common questions
How many practice questions are there on Risk?
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 Risk?
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.
Equity Portfolio Management Strategies
14 questions on Equity Portfolio Management Strategies. Its quiz opens on that unit.
Open Equity Portfolio Management StrategiesPaper Trading Try it on the practice trading desk