Risk, Return and Performance
21 questions. Each answer is explained.
Question 1 of 10Practice · Series V-A — Mutual Fund Distributors
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Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 50% · 50 of 100 marks |
| Negative marking | None · a wrong answer costs nothing beyond the mark |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series V-A Mutual Fund Distributors
Exam rules read on NISM's site on 3 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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 3 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 21 questions on Risk, Return and Performance, with answers
Q1An investor made SIP contributions on different dates, missed one instalment and then redeemed the holding. Which measure best captures the investor’s annualised return using the amounts and actual dates of all these cash flows?
Option A. Total profit divided by the sum of all contributions.
Why it is wrong: It gives an unannualised gain ratio and ignores when each amount was invested.
Option B. CAGR treating the sum of contributions as invested on the first date.
Why it is wrong: It assigns the same holding period to money actually invested on different dates.
Option C. XIRR calculated from the dated contributions and redemption. — Correct answer
Option D. The arithmetic average of the scheme’s annual NAV returns.
Why it is wrong: It averages scheme returns rather than measuring the investor’s dated cash flows.
Answer: C. This answer incorporates the size and date of each contribution and the final redemption. Earlier contributions and later contributions have different holding periods. Combining them into a fictional first-day investment changes the problem. XIRR uses the dates and amounts of cash flows to find an annualised money-weighted return. Contributions and redemption must be entered with opposite signs. The scheme’s own return history does not, by itself, capture this investor’s contribution timing. Remember: Use a dated cash-flow measure for the investor’s experience, not a lump-sum shortcut.
Hint, shown before you answer in practice mode: Common mistake: Using CAGR on total SIP contributions as though they all entered on the first day.
VA-017mediumapplication
Q2An investor sees a scheme’s Riskometer category in its disclosure. What does that category primarily communicate?
Option A. The investor’s personal ability to absorb losses
Why it is wrong: Personal risk capacity requires information about that investor, not just the scheme’s risk label.
Option B. The scheme’s expected return for the next year
Why it is wrong: A risk category is not a numerical return forecast.
Option C. The scheme’s assessed potential risk — Correct answer
Option D. The largest loss the scheme can suffer in rupees
Why it is wrong: A risk category does not specify a fixed rupee loss ceiling for every possible investment amount or market outcome.
Answer: C. The Riskometer is a scheme-level risk label. It helps the investor assess fit alongside their own circumstances. The label appears in a scheme disclosure, so its subject is the scheme’s potential risk. It does not know the individual investor’s goals, finances or willingness to bear a loss. Those must be assessed separately. The label is also not a return forecast or a contractual limit on the loss an investor may experience. Remember: Compare scheme risk with investor suitability, rather than treating one as a substitute for the other.
Hint, shown before you answer in practice mode: Common mistake: Reading a product-risk category as a personalised recommendation, a promised return or a maximum-loss guarantee.
VA-018mediumconceptual
Q3A simplified annual illustration starts with ₹1,00,000. Gross investment gains are 13% of that amount and total expenses are ₹1,800. With no other cash flows or charges, what is the net return on the opening amount?
Option A. 13.00%
Why it is wrong: It reports the gross gain without accounting for the ₹1,800 expense.
Option B. 12.77%
Why it is wrong: It approximately applies a 1.8% reduction to the gain rate alone, instead of deducting the stated rupee expense.
Option C. 11.20% — Correct answer
Option D. 14.80%
Why it is wrong: It adds the 1.8% expense burden to the gross return instead of subtracting it.
Answer: C. This answer divides the ₹11,200 net gain by the ₹1,00,000 opening amount. Gross gain = ₹1,00,000 × 13% = ₹13,000. Net gain = ₹13,000 − ₹1,800 = ₹11,200. Net return = ₹11,200 ÷ ₹1,00,000 × 100 = 11.20%. The explicit rupee expense makes the result exact for this illustration. It is not a claim that subtracting an annual TER always reproduces an exact real-world return. Remember: Use the stated expense amount and denominator, and distinguish exact cash arithmetic from a TER approximation.
Hint, shown before you answer in practice mode: Common mistake: Treating an annualised expense ratio as though its cash-flow base and timing never matter.
VA-019mediumnumerical
Q4Across 252 observed trading days, an index fund’s daily return is exactly 0.10 percentage points below its benchmark’s daily return on every day. What is the annualised tracking error for this dataset?
Option A. 0.10%
Why it is wrong: It mistakes the constant daily shortfall for the standard deviation of that shortfall.
Option B. It cannot be determined from the return differences.
Why it is wrong: The series of return differences is sufficient to calculate its own dispersion.
Option C. Approximately 1.59%
Why it is wrong: 0.10% × √252 is about 1.59%, but the 0.10% is not a daily standard deviation here.
Option D. 0% — Correct answer
Answer: D. All daily differences equal their mean, so their standard deviation is zero. Every daily return difference is −0.10 percentage points. Their mean is therefore also −0.10 percentage points. Each deviation from that mean is zero. The variance and standard deviation of the differences are zero. Annualising a zero standard deviation still gives zero. The fund nevertheless trails its benchmark every day in this hypothetical dataset. This is a limiting example that separates variability from a persistent return gap. It is not a forecast of index-fund performance. Remember: A fund can have very low tracking error while consistently lagging its benchmark.
Hint, shown before you answer in practice mode: Common mistake: Confusing tracking error with the average or cumulative return shortfall.
VA-026hardnumerical
Q5Two schemes have the same average annual return over the same observation period. Scheme X has a return standard deviation of 6% and Scheme Y of 12%, calculated on the same basis. What do these figures establish?
Option A. Scheme X could not have lost more than 6% in any year.
Why it is wrong: Standard deviation is not a cap on the size of an actual loss.
Option B. Scheme Y’s observed returns were more dispersed around their average. — Correct answer
Option C. Scheme Y had exactly twice the probability of a negative return.
Why it is wrong: A probability cannot be inferred by simply doubling a standard deviation.
Option D. Scheme Y earned an average annual return of 12%.
Why it is wrong: The 12% figure describes dispersion, not the average return.
Answer: B. This answer makes the valid comparison without inventing a probability or loss bound. The measurements use the same return frequency and period, so their dispersion can be compared. The higher standard deviation indicates wider observed variation. The figures alone do not provide the full return distribution or a guaranteed range of outcomes. Remember: Read standard deviation as variability, and keep it separate from return and downside probability.
Hint, shown before you answer in practice mode: Common mistake: Interpreting “twice the standard deviation” as “twice the chance of losing”.
VA-042mediumapplication
Q6An investment grows from ₹1,00,000 to ₹1,33,100 in exactly three years, with no contributions, withdrawals or distributions. What is its CAGR?
Option A. 33.10%
Why it is wrong: 33.10% is the total growth across all three years.
Option B. 11.03%
Why it is wrong: 33.10% ÷ 3 gives an arithmetic annual average of the total gain, not CAGR.
Option C. 10.00% — Correct answer
Option D. 9.09%
Why it is wrong: Approximately 9.09% comes from a reverse-value calculation, not the forward annual growth rate.
Answer: C. Compounding ₹1,00,000 at 10% for three years gives ₹1,33,100. CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1. Substitute: (₹1,33,100 ÷ ₹1,00,000)^(1/3) − 1 = 1.331^(1/3) − 1. Since 1.10 × 1.10 × 1.10 = 1.331, CAGR = 0.10 = 10.00% per year. The answer does not imply that each actual year earned exactly 10%. It is the equivalent compounded rate. Remember: For a single initial amount and a final value, annualise multiplicatively rather than dividing the total gain.
Hint, shown before you answer in practice mode: Common mistake: Using simple annualisation where the question asks for compound growth.
VA-043mediumnumerical
Q7Over the same one-year period, an equity growth plan returns 8%. Its designated benchmark’s price return is 7% and total return is 9%. On a total-return comparison, the plan:
Option A. Outperformed the benchmark by 1 percentage point.
Why it is wrong: It compares 8% with the 7% price return rather than with the total-return benchmark.
Option B. Matched the benchmark because 8% lies between 7% and 9%.
Why it is wrong: Being between two different benchmark measures does not establish equality with either.
Option C. Underperformed the benchmark by 2 percentage points.
Why it is wrong: It uses the difference between the benchmark’s total and price returns, 9% − 7%.
Option D. Underperformed the benchmark by 1 percentage point. — Correct answer
Answer: D. The fund’s 8% return is 1 percentage point below the benchmark’s 9% total return. The requested comparison uses the benchmark’s 9% total return, not its 7% price-only return. Relative result = 8% − 9% = −1 percentage point. The 2-percentage-point difference between the benchmark’s own two versions is not the fund’s performance difference. Remember: Compare returns over the same period and on the same return basis.
Hint, shown before you answer in practice mode: Common mistake: Creating apparent outperformance by choosing the benchmark’s price-only version.
VA-044mediumnumerical
Q8A ₹20 lakh debt portfolio has 40% of its market value in bonds with modified duration 2 and 60% in bonds with modified duration 5. For a parallel yield rise of 0.50 percentage points, what is the approximate immediate change in portfolio value? Ignore convexity, accrued income and other changes.
Option A. A rise of ₹38,000
Why it is wrong: The size uses the correct weighted duration, but the direction is wrong. Under the stated duration approximation, a yield rise lowers the bond value.
Option B. A fall of ₹35,000
Why it is wrong: This averages durations as (2 + 5) / 2 = 3.5, incorrectly giving equal weight to the 40% and 60% positions.
Option C. A fall of ₹76,000
Why it is wrong: This uses a full 1-percentage-point yield rise instead of the specified 0.50-percentage-point change.
Option D. A fall of ₹38,000 — Correct answer
Answer: D. Portfolio modified duration is 0.40 × 2 + 0.60 × 5 = 3.8. A 0.005 yield increase gives an approximate return of −3.8 × 0.005 = −1.9%, or a ₹38,000 fall. Calculate the value-weighted duration: 0.40 × 2 + 0.60 × 5 = 0.8 + 3 = 3.8. Convert the yield change: 0.50 percentage points = 0.005 in decimal form. Approximate fractional price change = −modified duration × yield change = −3.8 × 0.005 = −0.019, or −1.9%. Value change = ₹20,00,000 × (−0.019) = −₹38,000. The negative sign denotes a fall. This is a first-order immediate price estimate under the stated exclusions, not a forecast of the portfolio’s full holding-period return. Remember: Weight durations by value, convert the yield change to a decimal and retain the minus sign.
Hint, shown before you answer in practice mode: Common mistake: Using equal weights, confusing percentage points with decimals, or adding coupon income to an immediate price-only estimate.
VA-067hardnumerical
Q9Using comparable annual inputs, Scheme X has return 11%, standard deviation 10% and beta 1.2. Scheme Y has return 10%, standard deviation 12.5% and beta 0.5. With a 5% risk-free rate, which ranking follows from the Sharpe and Treynor measures?
Option A. X has the higher value on both measures
Why it is wrong: X has the higher Sharpe value, but Y’s lower positive beta gives it a higher excess return per unit of beta.
Option B. X has the higher Sharpe measure, while Y has the higher Treynor measure — Correct answer
Option C. Y has the higher value on both measures
Why it is wrong: Y has the higher Treynor value, but X has the higher excess return relative to total volatility.
Option D. Y has the higher Sharpe measure, while X has the higher Treynor measure
Why it is wrong: This reverses both calculated rankings. The correct denominators are standard deviation for Sharpe and beta for Treynor.
Answer: B. Sharpe is 0.60 for X and 0.40 for Y. Treynor is 0.05 for X and 0.10 for Y when returns are decimals. The measures therefore rank the schemes differently. Excess returns are 11% − 5% = 6% for X and 10% − 5% = 5% for Y. Sharpe divides excess return by standard deviation. X = 0.06 / 0.10 = 0.60. Y = 0.05 / 0.125 = 0.40. X is higher. Treynor divides excess return by beta. X = 0.06 / 1.2 = 0.05. Y = 0.05 / 0.5 = 0.10. Y is higher. The different ranking reflects total volatility versus market sensitivity. It is not an arithmetic contradiction and does not by itself establish universal suitability for every investor. Remember: Use standard deviation for Sharpe and beta for Treynor, with the same-period excess return in both numerators.
Hint, shown before you answer in practice mode: Common mistake: Comparing raw returns alone, omitting the risk-free rate or swapping the two risk denominators.
VA-068hardnumerical
Q10For the same period and benchmark, Scheme A has beta 0.7 and return standard deviation 20%. Scheme B has beta 1.1 and standard deviation 14%. Which conclusion is supported by these statistics?
Option A. A has lower measured market sensitivity but higher total volatility — Correct answer
Option B. A has lower measured market sensitivity and lower total volatility
Why it is wrong: The lower beta supports only the market-sensitivity part. A’s 20% standard deviation exceeds B’s 14%.
Option C. A has higher measured market sensitivity but lower total volatility
Why it is wrong: This reverses both comparisons. A has the lower beta and the higher standard deviation.
Option D. The figures are inconsistent because beta and standard deviation must rank funds identically
Why it is wrong: Beta relates returns to a benchmark, while standard deviation measures the overall spread of returns. They need not produce the same ranking.
Answer: A. A’s beta is lower, while its standard deviation is higher. The two statistics describe different aspects of risk. Compare the betas: 0.7 is below 1.1, so A has the lower measured sensitivity to the stated benchmark. Compare the standard deviations: 20% is above 14%, so A has greater total return variability over the measurement period. The statistics can coexist because total variability also reflects movements not captured by the benchmark relationship. These are measured characteristics, not a guarantee about the next market movement or a complete suitability assessment. Remember: Read beta and standard deviation separately rather than treating them as interchangeable risk rankings.
Hint, shown before you answer in practice mode: Common mistake: Assuming that a fund with beta below one must be less volatile overall than every fund with beta above one.
VA-069mediumapplication
Q11A corporate bond in a debt fund falls in market value after the issuer’s credit outlook weakens. The issuer has missed no payment, and the question excludes a general interest-rate move, currency change or trading-liquidity shock. Which risk best explains the fall?
Option A. General interest-rate risk
Why it is wrong: The question excludes a general interest-rate move and identifies issuer-specific credit deterioration as the cause.
Option B. Currency risk
Why it is wrong: No currency change is involved. The fall is linked to the issuer’s credit outlook.
Option C. Credit risk — Correct answer
Option D. Trading-liquidity risk
Why it is wrong: The question rules out a trading-liquidity shock. A worsening issuer outlook is a credit explanation, even when the bond remains tradable.
Answer: C. The stated cause is a deterioration in the issuer’s perceived ability to meet its obligations. Credit-related price loss can occur before an actual payment default. Identify the stated trigger rather than inferring one from the fact that the holding is a bond. The issuer’s credit outlook has weakened. Investors may require greater compensation for bearing that issuer’s risk, reducing the price of its existing bond. The question expressly excludes the principal competing explanations in the options, leaving credit deterioration as the supported cause. No default is needed for the mark-to-market price loss described. A no-missed-payment history therefore does not disprove credit risk. Remember: Distinguish a credit-related valuation loss from an actual default event.
Hint, shown before you answer in practice mode: Common mistake: Treating credit risk as relevant only after a coupon or principal payment has already been missed.
VA-070mediumapplication
Q12Which event is the clearest example of company-specific risk that a diversified equity portfolio can reduce?
Option A. A broad market fall after an economy-wide growth shock
Why it is wrong: A common economy-wide shock can affect many holdings together, so simply holding more companies does not remove that market risk.
Option B. A market-wide repricing after a general rise in interest rates
Why it is wrong: A common interest-rate repricing is a broad market influence rather than the company-confined event requested.
Option C. A widespread fall in equities during a general financial crisis
Why it is wrong: The event affects the market broadly. Diversification can change exposure but does not eliminate such a common shock.
Option D. A major product recall confined to one investee company — Correct answer
Answer: D. The recall is specific to one company. Spreading exposure across different companies can limit the portfolio’s dependence on that event. The key distinction is whether the source of risk is confined to a company or is a common influence on many companies. The product recall is expressly confined to one investee company. A portfolio with different company exposures need not depend entirely on that company’s outcome. The other events are economy-wide or market-wide shocks, so they can affect many holdings at once. Reducing company-specific exposure does not mean the diversified portfolio has no possibility of loss. Remember: Diversification reduces concentration in company-specific events but does not remove market-wide shocks.
Hint, shown before you answer in practice mode: Common mistake: Treating the presence of many securities as proof that every kind of risk has been diversified away.
VA-071easyapplication
Q13A scheme earns 13% over a year. The benchmark earns 11%, the risk-free rate is 5% and the scheme’s beta against that benchmark is 1.2. Using the stated CAPM inputs, what is Jensen alpha for the year?
Option A. 2.0 percentage points
Why it is wrong: This is actual return minus benchmark return, 13% − 11%. It does not adjust the required return for the scheme’s beta.
Option B. 0.8 percentage points — Correct answer
Option C. 8.0 percentage points
Why it is wrong: This is actual return minus the risk-free rate, 13% − 5%. It has not deducted the beta-adjusted market risk premium.
Option D. −0.2 percentage points
Why it is wrong: This subtracts 1.2 × 11% from 13%, incorrectly applying beta to the entire benchmark return instead of its premium over the risk-free rate.
Answer: B. CAPM-required return is 5% + 1.2 × (11% − 5%) = 12.2%. Actual return of 13% exceeds that by 0.8 percentage points. Calculate the market risk premium: 11% − 5% = 6 percentage points. Calculate the scheme’s beta-adjusted premium: 1.2 × 6 = 7.2 percentage points. Add the risk-free rate to get the CAPM-required return: 5% + 7.2% = 12.2%. Jensen alpha = actual return − required return = 13% − 12.2% = 0.8 percentage points. The positive result describes performance relative to the specified model and period. It does not prove future outperformance or isolate skill with certainty. Remember: For Jensen alpha, subtract the risk-free rate and the beta-adjusted market premium from actual return.
Hint, shown before you answer in practice mode: Common mistake: Confusing alpha with raw benchmark outperformance or applying beta to the full benchmark return.
VA-075mediumnumerical
Q14A debt portfolio has 20% of its market value in securities maturing in 0.5 years, 50% in securities maturing in 2 years and 30% in securities maturing in 5 years. What is its value-weighted average maturity?
Option A. 2.50 years
Why it is wrong: 2.50 years is the unweighted average of 0.5, 2 and 5. It treats the three value allocations as equal.
Option B. 2.60 years — Correct answer
Option C. 3.20 years
Why it is wrong: This swaps the 50% and 30% weights on the two-year and five-year holdings: 0.20 × 0.5 + 0.30 × 2 + 0.50 × 5 = 3.20 years.
Option D. 7.50 years
Why it is wrong: 7.50 years adds the three maturities without averaging them.
Answer: B. The stated value weights give 0.10 + 1.00 + 1.50 = 2.60 years. Use the supplied market-value weights, which sum to 100%. Weighted average maturity = 0.20 × 0.5 + 0.50 × 2 + 0.30 × 5. The contributions are 0.10, 1.00 and 1.50 years. Their sum is 2.60 years. This describes average remaining maturity. It is not automatically the portfolio’s modified duration or a promise of a fixed investor holding period. Remember: For weighted average maturity, multiply each remaining maturity by its portfolio-value weight and add.
Hint, shown before you answer in practice mode: Common mistake: Giving a small holding the same influence as a large holding by using a simple average.
VA-081mediumnumerical
Q15A gilt fund mainly holds long-dated, fixed-rate Government of India securities. Market yields rise sharply, with no default or other change assumed. Which immediate effect is most likely?
Option A. Existing coupon rates rise, so NAV must rise.
Why it is wrong: The coupon on an existing fixed-rate bond does not reset merely because market yields rise.
Option B. The market prices of the bonds can fall, reducing NAV. — Correct answer
Option C. The bonds remain at face value until their maturity dates.
Why it is wrong: Face value is a contractual principal amount, not a rule that the bond must always be marked at that amount.
Option D. The fund receives extra principal to offset the yield rise.
Why it is wrong: There is no contractual principal top-up in the facts given. Changing yields change value, not the promised principal.
Answer: B. A bond-price decline caused by higher required yields can reduce the fund’s NAV. The existing securities have fixed cash flows. A rise in the market’s required yield makes those cash flows less valuable today. Their market prices can therefore decline, even without a payment default. The fund’s NAV reflects portfolio values. Long-dated fixed-rate holdings can make the effect material, although the exact change needs further information. Remember: Do not confuse low default risk with low interest-rate risk.
Hint, shown before you answer in practice mode: Common mistake: Treating a government-security portfolio as immune to a decline in NAV.
VA-086mediumapplication
Q16An unhedged overseas holding is worth USD 1,000 when the exchange rate is ₹80 per USD. It rises to USD 1,080 while the exchange rate falls to ₹76 per USD. Ignoring distributions, costs and taxes, what is the return in rupees?
Option A. 8.00%
Why it is wrong: 8% is the dollar return. It ignores the smaller number of rupees received for each dollar at the end.
Option B. 3.00%
Why it is wrong: 3% simply subtracts the 5% exchange-rate decline from the 8% asset gain. It omits the interaction between them.
Option C. 2.60% — Correct answer
Option D. 13.00%
Why it is wrong: 13% adds the exchange-rate move with the wrong sign and also ignores compounding.
Answer: C. The two currency conversions produce a ₹2,080 gain on ₹80,000, or 2.60%. Initial rupee value = USD 1,000 × ₹80 per USD = ₹80,000. Final rupee value = USD 1,080 × ₹76 per USD = ₹82,080. Gain = ₹82,080 − ₹80,000 = ₹2,080. Rupee return = ₹2,080 ÷ ₹80,000 × 100 = 2.60%. Equivalently, the value multiplier is 1.08 × (76 ÷ 80) = 1.026. The stronger rupee offsets part of the foreign-asset gain. Remember: Value the foreign holding in rupees at both endpoints before calculating its rupee return.
Hint, shown before you answer in practice mode: Common mistake: Adding the asset and currency percentage changes instead of multiplying their value factors.
VA-087hardnumerical
Q17A debt scheme’s stated mandate is to maintain short maturity and high credit quality. Which approach is most appropriate when choosing a benchmark for evaluating its performance?
Option A. Choose whichever debt index had the closest return to the scheme last month.
Why it is wrong: A close return in one month can be accidental and does not establish a match to the scheme’s mandate.
Option B. Choose whichever debt index has the highest historical yield, regardless of maturity.
Why it is wrong: A high yield may reflect a different maturity or credit-risk exposure rather than a relevant benchmark for this scheme.
Option C. Choose a debt index whose maturity and credit-risk profile fit the scheme’s mandate. — Correct answer
Option D. Choose whichever debt index recently had the lowest return, regardless of composition.
Why it is wrong: Choosing a weak recent performer can flatter the scheme without establishing a comparable investment universe.
Answer: C. Maturity and credit-risk alignment makes the comparison relevant to the stated debt-investment mandate. The stated mandate identifies two important characteristics: short maturity and high credit quality. A benchmark with a materially different maturity or credit profile can experience different market effects, making a simple performance comparison less informative. Matching the benchmark to the mandate is more appropriate than picking a return after observing recent results. A suitable benchmark does not have to hold exactly the same securities as the scheme. Remember: Select a performance benchmark for mandate and risk relevance, not for a convenient recent return.
Hint, shown before you answer in practice mode: Common mistake: Choosing a benchmark after seeing which comparison makes the scheme look best.
VA-091mediumapplication
Q18An investment rises by 25% in the first year and falls by 25% in the second. With no cash flows or charges, what is its cumulative two-year return?
Option A. 0%
Why it is wrong: This adds +25% and −25% and ignores the changed base for the second year.
Option B. −25%
Why it is wrong: This counts the second-year loss but discards the first-year gain.
Option C. −3.125%
Why it is wrong: This divides the 6.25% cumulative loss by two. The question asks for the cumulative return, not an arithmetic allocation of that loss across years.
Option D. −6.25% — Correct answer
Answer: D. Multiplying 1.25 by 0.75 gives 0.9375, or a 6.25% cumulative loss. Use a notional starting value of ₹100. After the first year it is ₹100 × 1.25 = ₹125. The second-year fall is 25% of ₹125, leaving ₹125 × 0.75 = ₹93.75. The cumulative return is (₹93.75 ÷ ₹100 − 1) × 100 = −6.25%. A zero arithmetic average of the two annual percentages is not a zero cumulative holding-period return. Remember: Multiply successive return factors when no money enters or leaves the investment.
Hint, shown before you answer in practice mode: Common mistake: Using the arithmetic average of annual returns as the cumulative return.
VA-092mediumnumerical
Q19A fund holds fixed-coupon bonds. Existing coupon amounts are unchanged, but future coupon receipts can now be reinvested only at lower rates than previously expected. Which risk does this change most directly illustrate?
Option A. Credit default risk on the existing coupons
Why it is wrong: There is no stated failure to pay. Lower reinvestment rates are different from the issuer defaulting on its coupons.
Option B. Liquidity risk from selling the bonds
Why it is wrong: No difficulty in selling a bond or obtaining a fair sale price is described.
Option C. Reinvestment risk on the future cash flows — Correct answer
Option D. Currency risk on the bond principal
Why it is wrong: No foreign-currency exposure or exchange-rate movement appears in the scenario.
Answer: C. The investor or fund earns less on future reinvestment of coupon cash than had been assumed. The existing bonds continue to pay their fixed contractual coupons in this example. The question does not describe a missed payment. The change is the lower return available on cash received in the future and then reinvested. That is reinvestment risk. The current market price of a bond may respond to rates separately, but that is not the effect being asked about. Remember: Fixed coupons do not fix the rate that will be earned when those coupons are reinvested.
Hint, shown before you answer in practice mode: Common mistake: Confusing a fixed contractual coupon with a fixed compounded outcome for all future reinvestments.
VA-116mediumapplication
Q20A practice dataset contains four equally weighted returns: 0%, 2%, 4% and 6%. Treat these four observations as the complete population and do not annualise. What is the population standard deviation, rounded to two decimal places?
Option A. 5.00 percentage points
Why it is wrong: Five is the variance in squared percentage points. Standard deviation requires taking its square root.
Option B. 2.58 percentage points
Why it is wrong: This is √(20 ÷ 3), the sample-standard-deviation result using n − 1. The question specifies a population of four.
Option C. 3.00 percentage points
Why it is wrong: Three percent is the mean return, not the dispersion around that mean.
Option D. 2.24 percentage points — Correct answer
Answer: D. The square root of the population variance of five is approximately 2.24 percentage points. Mean return = (0 + 2 + 4 + 6) ÷ 4 = 3%. Work in percentage-point units throughout. Deviations from the mean are −3, −1, +1 and +3 percentage points. Their squares are 9, 1, 1 and 9. Population variance = (9 + 1 + 1 + 9) ÷ 4 = 5 squared percentage points. Population standard deviation = √5 = 2.2360679 percentage points, which rounds to 2.24. The denominator is four because the stem explicitly specifies the population convention. Remember: Check both the denominator convention and the units before calculating standard deviation.
Hint, shown before you answer in practice mode: Common mistake: Using the sample denominator automatically or reporting the variance without taking its square root.
VA-117hardnumerical
Q21Two investors each start with ₹1,00,000 and withdraw ₹10,000 immediately after year 1. X earns +20% in year 1 and −20% in year 2. Y earns −20% first and +20% second. There are no other cash flows, taxes or costs. What are their invested balances at the end of year 2?
Option A. X ₹96,000 and Y ₹96,000
Why it is wrong: ₹96,000 is the result for each path only when the withdrawal is omitted.
Option B. X ₹88,000 and Y ₹84,000 — Correct answer
Option C. X ₹84,000 and Y ₹88,000
Why it is wrong: This reverses the two return sequences and their resulting balances.
Option D. X ₹86,000 and Y ₹86,000
Why it is wrong: ₹86,000 subtracts ₹10,000 only after completing both returns, putting the cash flow at the wrong date.
Answer: B. The balances follow the separate year-by-year cash-flow calculations. For X, year 1 ends at ₹1,00,000 × 1.20 = ₹1,20,000. After withdrawal, ₹1,10,000 remains. Year 2 ends at ₹1,10,000 × 0.80 = ₹88,000. For Y, year 1 ends at ₹1,00,000 × 0.80 = ₹80,000. After withdrawal, ₹70,000 remains. Year 2 ends at ₹70,000 × 1.20 = ₹84,000. Without the withdrawal, each path would end at ₹96,000. With the specified withdrawal, X has ₹4,000 more left invested. The answer reports the remaining invested balances only. It does not add back the identical ₹10,000 each investor has already received. Remember: The timing of withdrawals can make return sequence important even when the same annual returns occur.
Hint, shown before you answer in practice mode: Common mistake: Applying the two-year compounded return first and then subtracting an earlier withdrawal.
VA-144hardnumerical
Risk, Return and Performance: common questions
How many practice questions are there on Risk, Return and Performance?
21 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 8 practice topics for NISM Series V-A, which has 150 questions in total.
Are these real NISM Series V-A questions on Risk, Return and Performance?
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 V-A?
No. NISM applies no negative marking to Series V-A. A wrong answer costs nothing beyond the mark you did not earn, so a blank is never better than an attempt. 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.
Legal and Regulatory Environment
19 questions on Legal and Regulatory Environment. Its quiz opens on that unit.
Open Legal and Regulatory Environment