Legal and Regulatory Framework
7 questions. Each answer is explained.
Question 1 of 7Practice · Series V-D — Mutual Fund - Specialized Investment Fund Distributors
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Learn these topics
More units in NISM Series V-D
- The Investment Landscape5
- Concept & Role of a Mutual Fund4
- Legal Structure of Mutual Funds in India3
- Scheme Related Information7
- Fund Distribution and Channel Management Practices4
- Net Asset Value, Total Expense Ratio and Pricing of Units5
- Taxation3
- Investor Services10
- Risk, Return and Performance of Funds5
- Mutual Fund Scheme Performance5
- Mutual Fund Scheme Selection10
- Basics of Derivatives10
- Understanding Index5
- Introduction to Forwards and Futures15
- Introduction to Options13
- Strategies Using Equity Futures and Equity Options9
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Markets6
- Interest Rate Derivatives2
- Exchange Traded Interest Rate Futures10
- Exchange Traded Interest Rate Options6
- Strategies Using Interest Rate Derivatives6
Exam format
| Questions | 150 · 1 mark each |
|---|---|
| Duration | 180 min · 3 hours |
| Pass mark | 60% · 90 of 150 marks |
| Negative marking | 10% · 0.1 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | 7 of 150 marks (4.7%) |
Source: July 2026 Annexure I, Chapter 4: Legal and Regulatory Framework
NISM Series V-D Mutual Fund - Specialized Investment Fund Distributors
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 7 questions on Legal and Regulatory Framework, with answers
Q1Which statement correctly distinguishes SEBI from AMFI in the mutual-fund context?
Option A. SEBI is the securities-market regulator. AMFI is the mutual-fund industry association — Correct answer
Option B. AMFI replaces all legal obligations imposed by SEBI on mutual funds and distributors
Why it is wrong: An industry association does not displace the regulator’s legal framework.
Option C. AMFI is India’s central bank and sets policy interest rates for the banking system
Why it is wrong: That describes a central-banking function, not AMFI’s role.
Option D. SEBI guarantees each scheme’s investment return and repays investors for any loss
Why it is wrong: Regulation does not guarantee a scheme’s performance.
Answer: A. SEBI regulates the securities market, including mutual funds within its remit. AMFI performs industry-association functions and supports standards and practices. Remember: Regulatory oversight and industry coordination are distinct roles.
Hint, shown before you answer in practice mode: Do not confuse an industry body with a statutory regulator.
V-D-013easyregulatory
Q2A distributor proposes the advertisement: “This market-linked equity fund earned 18% last year, so your investment will earn at least 18% next year.” What is the main defect?
Option A. It states the investment is market-linked, which a fund advertisement may not say
Why it is wrong: That description does not create the misleading guarantee.
Option B. It turns a historical result into an unsupported promise about a future return — Correct answer
Option C. It discusses returns instead of the number of units the investor would hold
Why it is wrong: Returns can be discussed. The problem is the unjustified certainty.
Option D. It mentions a past number rather than only showing the fund’s logo and name
Why it is wrong: Historical performance can be relevant when presented fairly and with the required context.
Answer: B. A past return does not establish a minimum future return for a market-linked scheme. The proposed statement could mislead an investor about uncertainty and downside risk. Remember: Performance communication must not imply certainty that the product does not provide.
Hint, shown before you answer in practice mode: Check the step from what happened to what is promised.
V-D-014mediumregulatory
Q3Two funds are available, but only Fund A fits the client’s short investment horizon and risk needs. Fund B pays the distributor more commission. What is the appropriate recommendation approach?
Option A. Assess and recommend suitability for the client while disclosing relevant compensation and conflicts — Correct answer
Option B. Tell the client that commission differences never matter, so there is nothing to disclose
Why it is wrong: Relevant conflicts should be addressed transparently.
Option C. Recommend Fund B solely because it pays more, as the client will not notice the difference
Why it is wrong: The distributor’s compensation does not establish client suitability.
Option D. Describe Fund B as suitable without reviewing its risks against the client’s short horizon
Why it is wrong: Removing the risk discussion compounds the conflict rather than resolving it.
Answer: A. A higher commission does not make an unsuitable scheme suitable. The distributor should base the recommendation on the client’s needs and communicate relevant conflicts clearly. Remember: Commercial incentives must not displace a suitability assessment.
Hint, shown before you answer in practice mode: The investor’s objective remains the starting point.
V-D-015easyregulatory
Q4An AMC reviews a distributor’s sales process, complaint handling and controls before continuing the relationship. What is the primary purpose of this due diligence?
Option A. To select the distributor only by the largest sales volume
Why it is wrong: Volume alone does not establish acceptable conduct or controls.
Option B. To transfer the AMC’s entire responsibility for scheme management to the distributor
Why it is wrong: Distribution due diligence does not make the distributor the fund manager.
Option C. To assess whether the distributor’s conduct and controls support compliant investor servicing — Correct answer
Option D. To guarantee that every customer earns a positive return
Why it is wrong: A conduct review cannot eliminate market losses.
Answer: C. Due diligence evaluates how the distributor operates, including risks in sales and servicing. It is a control process, not a guarantee of investment performance. Remember: Sound distribution depends on both competence and conduct.
Hint, shown before you answer in practice mode: Focus on the quality of the distribution process.
V-D-016mediumregulatory
Q5An investor has first raised a service complaint with the mutual fund and remains dissatisfied with the response. Which platform is specifically associated with SEBI’s investor-complaint redressal mechanism?
Option A. SCORES — Correct answer
Option B. The exchange’s order-entry screen
Why it is wrong: An order screen is for trading, not SEBI’s investor-complaint platform.
Option C. MF Utility’s transaction platform
Why it is wrong: A transaction platform is not SEBI’s designated investor-complaint system.
Option D. A central KYC registry
Why it is wrong: An identity-information registry is not the designated grievance platform.
Answer: A. SCORES is SEBI’s system for lodging and tracking eligible investor complaints. The investor should preserve the complaint record and follow the applicable escalation process. Remember: Use the designated complaint route and retain supporting evidence.
Hint, shown before you answer in practice mode: Identify SEBI’s complaints system, not a trading or valuation tool.
V-D-017mediumregulatory
Q6A client has authorised a purchase of Fund P. A distributor believes Fund Q will perform better and submits a purchase of Q without obtaining fresh client authority. What is the most important problem?
Option A. Only the eventual return determines whether the substitution was acceptable
Why it is wrong: A favourable outcome would not retrospectively supply missing authority.
Option B. The distributor should merely change the recorded instruction to Q
Why it is wrong: Changing the record would conceal rather than correct the issue.
Option C. Any two funds from the same AMC may automatically be substituted
Why it is wrong: Common ownership does not make different schemes interchangeable instructions.
Option D. The transaction differs from the client’s authorised instruction — Correct answer
Answer: D. The distributor should execute the instruction that was actually authorised. If a different product is proposed, it requires an appropriate discussion and valid authority before the transaction. Remember: Accurate consent and records are essential even when intentions are favourable.
Hint, shown before you answer in practice mode: Separate the authority to transact from an opinion about performance.
V-D-018mediumregulatory
Q7A fictional ₹100 crore scheme has internal limits of 8% per issuer and 15% per corporate group. It holds ₹6 crore in Issuer A and ₹14 crore across A’s group. It proposes buying another ₹2 crore of A using existing cash, with total scheme assets unchanged. Which conclusion follows? Assumptions: The 8% and 15% limits are fictional internal limits, not current statutory thresholds.
Option A. Both limits are met because ₹2 crore is below each limit
Why it is wrong: The checks must include existing holdings, not only the new purchase.
Option B. The issuer limit is met, but the corporate-group limit would be breached — Correct answer
Option C. Neither limit can be evaluated without the number of units outstanding
Why it is wrong: The limits are defined relative to the given total assets, so unit count is unnecessary.
Option D. Only the issuer limit is breached
Why it is wrong: Issuer A becomes 8%, which meets the stated maximum. The group becomes 16%.
Answer: B. Issuer A would be ₹8 crore/₹100 crore = 8%, while the group would be ₹16 crore/₹100 crore = 16%. The group exceeds its 15% cap even though the issuer is at its permitted maximum. Remember: Each applicable concentration constraint must be checked separately.
Hint, shown before you answer in practice mode: Add the purchase to both the issuer exposure and the group exposure.
V-D-019hardregulatory
Legal and Regulatory Framework: common questions
How many practice questions are there on Legal and Regulatory Framework?
7 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 22 practice topics for NISM Series V-D, which has 150 questions in total.
Are these real NISM Series V-D questions on Legal and Regulatory Framework?
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.
How much of the NISM Series V-D exam is Legal and Regulatory Framework?
NISM's published syllabus outline gives it 7 of the paper's 150 marks, or 4.7% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 4: Legal and Regulatory Framework
Does negative marking apply to NISM Series V-D?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 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.
Scheme Related Information
7 questions on Scheme Related Information. Its quiz opens on that unit.
Open Scheme Related InformationPaper Trading Try it on the practice trading desk