NISM Series V-D · Unit 12 of 12 · about 4% of the paper
Strategies using interest rate derivatives and distributor conduct: NISM Series V-D notes and practice questions
Hedging and trading strategies with interest rate derivatives and the distributor's duties for complex products.
What to know in Unit 12
- Hedge a bond portfolio.
- Adjust duration.
- Ethics and disclosure.
Key terms, examples and exam traps
Hedging a bond portfolio
A holder of bonds fears a rise in yields and hedges by selling interest rate futures to offset the fall in bond values.
Example. A fund sells G-Sec futures against its bond holdings.
Exam trap. This statement is false: A holder of bonds hedges by buying more bonds.
Adjusting duration
A manager can lengthen or shorten a portfolio's effective duration using interest rate futures without selling bonds.
Example. A manager reduces duration using short futures.
Exam trap. This statement is false: Duration can be changed only by selling bonds.
Trading a view on rates
A trader expecting yields to fall buys interest rate futures and one expecting yields to rise sells them.
Example. A trader buys futures before an expected rate cut.
Exam trap. This statement is false: A trader expecting a rate cut sells futures.
Disclosure of complexity
Distributors must explain the strategy, derivative use and risks of a SIF in plain language before the investor decides.
Example. A distributor explains how short positions can lose money.
Exam trap. This statement is false: A distributor should only mention likely gains.
No assured returns
Distributors must not promise or imply guaranteed returns on mutual funds or SIFs.
Example. A distributor refuses to state a fixed return for a SIF.
Exam trap. This statement is false: A distributor may promise 12% for a SIF.
Code of conduct
Distributors must act with honesty and care, avoid mis-selling, keep client information confidential and disclose commissions.
Example. A distributor discloses the commission and gives true information.
Exam trap. This statement is false: The code allows exaggerated claims.
Mis-selling
Mis-selling is selling a product that does not suit the client or by giving misleading information, and it can lead to penalties.
Example. A distributor sells a complex SIF to a client who needs regular liquidity.
Exam trap. This statement is false: Mis-selling happens only if the client loses money.
Grievance redressal
Investors can complain to the AMC, then to SEBI's complaint system and use online dispute resolution if unresolved.
Example. An unhappy investor files a complaint on SCORES.
Exam trap. This statement is false: Investors have no place to complain about mis-selling.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? Investors can complain to the AMC, then to SEBI's complaint system and use online dispute resolution if unresolved.
- Bond price and yield
- Role of trustees
- Grievance redressal
- Open-ended and closed-ended
Q2. Which term is described here? A holder of bonds fears a rise in yields and hedges by selling interest rate futures to offset the fall in bond values.
- Hedging a bond portfolio
- Forward contract
- Three-tier structure
- Beta
Q3. Which term is described here? A trader expecting yields to fall buys interest rate futures and one expecting yields to rise sells them.
- Cost of carry
- Trading a view on rates
- Hybrid Long-Short
- New fund offer
Q4. Which term is described here? Mis-selling is selling a product that does not suit the client or by giving misleading information, and it can lead to penalties.
- Who uses IRDs
- Disclosure of complexity
- Long straddle
- Mis-selling
Q5. Which term is described here? Distributors must not promise or imply guaranteed returns on mutual funds or SIFs.
- Derivative
- Hedging with index futures
- No assured returns
- Interest rate derivative
Q6. Which term is described here? Distributors must explain the strategy, derivative use and risks of a SIF in plain language before the investor decides.
- Long-short use
- Money market
- Net asset value
- Disclosure of complexity
Frequently asked questions
How much of NISM Series V-D comes from Unit 12?
Unit 12 (Strategies using interest rate derivatives and distributor conduct) usually carries about 4% of the questions. The whole exam has 150 questions and the pass mark is 60%.
What should I study in NISM Series V-D Unit 12?
Hedge a bond portfolio. Adjust duration. Ethics and disclosure.
Are these NISM Series V-D practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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