Unit study guide · NISM Series X-A
Introduction to Investment
5 questions in this unit
What this unit covers
- An investor buys ordinary equity shares of Company P and plain non-convertible bonds issued by Company Q. Which description correctly identifies the investor’s relationship with the two companies?
- Investor P individually selects and buys the shares in a personal portfolio. Investor Q buys units of a mutual fund whose investment team selects the underlying securities within the scheme’s objective. Which statement correctly distinguishes the two approaches?
- An investor compares a bullion-based gold ETF that seeks domestic gold-price exposure with ordinary shares in a gold-mining company. Which distinction is most accurate?
- A client must pay ₹10,00,000 in four months. The proposed funding source is a vacant plot, but comparable plots have taken more than a year to sell. Even if the estimated plot value exceeds ₹10,00,000, what is the clearest mismatch?
- A hypothetical product has a principal amount of ₹2,00,000. Its maturity payment is principal plus 50% of any positive index return multiplied by principal, but this additional payment cannot exceed 10% of principal. There are no other payments. The index rises 30% over the product’s term. Assuming the issuer pays the stated amount in full, what is the total maturity payment?
Key ideas
From the practice bank · 1
An investor buys ordinary equity shares of Company P and plain non-convertible bonds issued by Company Q. Which description correctly identifies the investor’s relationship with the two companies?
This correctly assigns ownership to P’s shares and lending to Q’s bonds. Company P’s ordinary shares make the investor a shareholder, or part-owner, of P. Company Q’s plain non-convertible bonds make the investor a lender to Q, not an ordinary shareholder merely by holding that bond. Non-convertible distinguishes the instrument from one that converts into equity under its terms. A debt claim is not a guarantee that all payments will in fact be made. Remember: Identify the nature of the claim—ownership or debt—before considering its return and risks.
Hint Common mistake: Assuming every security issued by a company confers the same shareholder rights.
X-A-051From the practice bank · 2
Investor P individually selects and buys the shares in a personal portfolio. Investor Q buys units of a mutual fund whose investment team selects the underlying securities within the scheme’s objective. Which statement correctly distinguishes the two approaches?
Q delegates underlying security selection while retaining the decision about which fund to choose. P chooses the individual shares in the personal portfolio. That is direct underlying-security selection. Q chooses a mutual fund and delegates selection of the fund’s underlying securities to its managers. Q still needs to consider whether the fund’s objective, costs and risks match the intended investment purpose. Professional management does not guarantee a return. Remember: Delegation changes the management process, not the need to choose a suitable investment route.
Hint Common mistake: Confusing professional management with certainty of returns or the removal of all investor decisions.
X-A-052From the practice bank · 3
An investor compares a bullion-based gold ETF that seeks domestic gold-price exposure with ordinary shares in a gold-mining company. Which distinction is most accurate?
Bullion-price exposure differs from ownership of a mining business with operating risks. The fund in the question seeks domestic gold-price exposure through bullion. The comparison security is a mining-company share. A gold price movement affects the economic setting, but mining-company results can also change because of extraction costs, production disruptions and company decisions. It is therefore not justified to expect the two investments to deliver identical returns merely because both relate to gold. Remember: Look through a product name to the underlying assets and economic risks.
Hint Common mistake: Grouping every gold-related investment as though it owns the same asset and has the same return drivers.
X-A-053From the practice bank · 4
A client must pay ₹10,00,000 in four months. The proposed funding source is a vacant plot, but comparable plots have taken more than a year to sell. Even if the estimated plot value exceeds ₹10,00,000, what is the clearest mismatch?
The expected difficulty in turning the plot into cash by the payment date is the direct mismatch. The payment deadline is four months away. Comparable plot sales have taken more than a year. Even if the plot is estimated to be worth more than the liability, the client may not complete a sale and receive funds by the deadline. This is a timing and mismatch. The facts do not establish a specific inflation loss, foreign-exchange exposure or interest-rate movement. Remember: For a cash deadline, estimated wealth and available cash are different tests.
Hint Common mistake: Treating a valuation above the liability as proof that the liability can be paid on time.
X-A-054From the practice bank · 5
A hypothetical product has a principal amount of ₹2,00,000. Its maturity payment is principal plus 50% of any positive index return multiplied by principal, but this additional payment cannot exceed 10% of principal. There are no other payments. The index rises 30% over the product’s term. Assuming the issuer pays the stated amount in full, what is the total maturity payment?
₹2,20,000 applies participation, then the cap, and includes principal. Uncapped participation return = 50% × 30% = 15% of principal, or ₹30,000. The additional-payment cap is 10% of ₹2,00,000 = ₹20,000. Use the smaller of ₹30,000 and ₹20,000. Total maturity payment = principal ₹2,00,000 + capped additional payment ₹20,000 = ₹2,20,000. The result assumes the issuer pays the contractual amount as stated. Remember: Apply payoff conditions in order: underlying return, participation, cap, then add principal if the terms require it.
Hint Common mistake: Mixing up the extra return with the total payout or ignoring an issuer-payment assumption.
X-A-055Liquidity describes how easily a given quantity can be traded.
Read more