Understanding Index
5 questions. Each answer is explained.
Question 1 of 5Practice · 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
- Legal and Regulatory Framework7
- 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
- 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 | 5 of 150 marks (3.3%) |
Source: July 2026 Annexure I, Chapter 14: Understanding Index
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 If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.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 5 questions on Understanding Index, with answers
Q1What is a principal use of a broad equity-market index for a diversified equity fund?
Option A. Removing the need to understand the fund’s investment mandate and its holdings.
Why it is wrong: A benchmark must be assessed for suitability to the mandate.
Option B. Proving that every constituent share had the same return over the period.
Why it is wrong: Constituents can have very different returns.
Option C. Guaranteeing the fund’s future return will match or beat the market index.
Why it is wrong: A reference index does not guarantee a fund’s future performance.
Option D. Providing a defined market reference against which performance can be compared. — Correct answer
Answer: D. An index aggregates the performance of a defined set of securities under stated rules. It can act as a benchmark, provided that its exposure is relevant to the fund’s mandate. Remember: A useful benchmark should represent the exposure being evaluated.
Hint, shown before you answer in practice mode: An index summarises a specified market or segment.
V-D-079easyconceptual
Q2A two-share index uses free-float market capitalisation. Company A has 100 lakh shares at ₹20 and a free-float factor of 0.40. Company B has 50 lakh shares at ₹40 and a free-float factor of 1.00. What is A’s index weight, rounded to two decimals? Assumptions: The supplied share counts and free-float factors are hypothetical. No other constituents exist.
Option A. 40.00%
Why it is wrong: This is A’s free-float factor, not its weight in the combined index.
Option B. 71.43%
Why it is wrong: This is B’s weight.
Option C. 28.57% — Correct answer
Option D. 50.00%
Why it is wrong: This ignores the different free-float factors and compares full market capitalisations.
Answer: C. A’s free-float value is 100 × 20 × 0.40 = ₹800 lakh. B’s is 50 × 40 × 1.00 = ₹2,000 lakh, so A’s weight is 800 ÷ 2,800 = 28.57%. Remember: Free-float weighting uses investible market value, not total issued capital alone.
Hint, shown before you answer in practice mode: Multiply shares, price and free-float factor before calculating each share of the total.
V-D-080mediumnumerical
Q3An index starts a period with weights of 60% in share A and 40% in share B. A rises 10% and B falls 5%. There are no dividends, corporate actions or rebalancing. What is the index return for the period? Assumptions: Opening weights are given. No dividends, corporate actions or rebalancing occur.
Option A. 4% — Correct answer
Option B. 5%
Why it is wrong: This subtracts the two security returns without applying weights.
Option C. 8%
Why it is wrong: This adds the magnitude of B’s loss instead of subtracting its contribution.
Option D. 2.5%
Why it is wrong: This averages the two returns equally instead of using the stated weights.
Answer: A. The contribution from A is 0.60 × 10% = 6 percentage points. B contributes 0.40 × (−5%) = −2 percentage points, giving an index return of 4%. Remember: Use opening weights to compute a one-period weighted return.
Hint, shown before you answer in practice mode: Each constituent contributes its opening weight multiplied by its return.
V-D-081mediumnumerical
Q4Immediately before an order, the best bid is ₹99.90 and best ask is ₹100.10. For this exercise, the ideal price is their midpoint and buy-side impact cost equals (average execution price − ideal price) ÷ ideal price × 100. The buy order executes at an average ₹100.60. What is the impact cost? Assumptions: Use the midpoint and impact-cost definition expressly supplied. Fees are excluded.
Option A. 0.50%
Why it is wrong: This approximately uses the ask as the reference instead of the specified midpoint.
Option B. 0.60% — Correct answer
Option C. 60.00%
Why it is wrong: This treats ₹0.60 as a fraction of ₹1 rather than ₹100.
Option D. 0.70%
Why it is wrong: This approximately uses the bid as the reference instead of the specified midpoint.
Answer: B. The ideal midpoint is (99.90 + 100.10) ÷ 2 = ₹100. The buy-side impact cost is (100.60 − 100) ÷ 100 × 100 = 0.60%. Remember: Impact-cost calculations require an explicit reference price.
Hint, shown before you answer in practice mode: First calculate the midpoint of ₹99.90 and ₹100.10.
V-D-082mediumnumerical
Q5A price-weighted index contains two shares priced at ₹60 and ₹40. Its divisor is 1, so the index is 100. The first share undergoes a two-for-one split, halving its price to ₹30 with no economic value change. What new divisor preserves the index level at 100? Assumptions: The index is price-weighted and the split creates no economic price movement.
Option A. 1.4286
Why it is wrong: This is the reciprocal of the required divisor.
Option B. 2.00
Why it is wrong: Doubling the divisor would compound the artificial fall.
Option C. 1.00
Why it is wrong: The post-split price sum is 70, so an unchanged divisor would create an artificial index fall.
Option D. 0.70 — Correct answer
Answer: D. The new divisor is (₹30 + ₹40) ÷ 100 = 0.70. The adjustment prevents a mechanical share split from appearing as an economic loss in the index. Remember: Index maintenance must separate corporate-action mechanics from market returns.
Hint, shown before you answer in practice mode: Solve (30 + 40) ÷ new divisor = 100.
V-D-083hardnumerical
Understanding Index: common questions
How many practice questions are there on Understanding Index?
5 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 Understanding Index?
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 Understanding Index?
NISM's published syllabus outline gives it 5 of the paper's 150 marks, or 3.3% of the exam. It is quoted from the outline, not estimated. The published unit it comes from: July 2026 Annexure I, Chapter 14: Understanding Index
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.
Introduction to Forwards and Futures
15 questions on Introduction to Forwards and Futures. Its quiz opens on that unit.
Open Introduction to Forwards and FuturesPaper Trading Try it on the practice trading desk