NISM Series V-D · Unit 4 of 12 · about 12% of the paper
Investor services, risk, performance and scheme selection: NISM Series V-D notes and practice questions
Account services, KYC, risk profiling, performance measures and choosing a scheme.
What to know in Unit 4
- KYC and services.
- Risk measures.
- Return measures.
- Suitability.
Key terms, examples and exam traps
KYC
Investors must complete KYC with proof of identity and address and PAN before investing in funds.
Example. A first-time investor completes KYC before investing.
Exam trap. This statement is false: KYC is only needed above ₹50,000 and only for equity funds.
Systematic investment plan
A SIP invests a fixed amount at regular intervals, averaging cost across market ups and downs.
Example. An investor puts ₹5,000 every month.
Exam trap. This statement is false: A SIP guarantees profits.
Systematic withdrawal plan
A SWP lets an investor take a fixed amount at regular intervals by redeeming units.
Example. A retiree withdraws ₹20,000 every month.
Exam trap. This statement is false: A SWP puts money into the scheme monthly.
Systematic transfer plan
A STP moves a fixed amount at regular intervals from one scheme to another.
Example. An investor moves ₹10,000 monthly from a liquid fund to an equity fund.
Exam trap. This statement is false: A STP withdraws money to the bank.
Standard deviation
Standard deviation measures how much returns vary around their average, so a higher value means a more volatile fund.
Example. A fund with 18% standard deviation swings more than one with 8%.
Exam trap. This statement is false: A higher standard deviation means safer returns.
Beta
Beta measures a fund's sensitivity to the market, where 1.2 means a move 20% larger than the market.
Example. A fund with beta 1.2 rises 12% when the market rises 10%.
Exam trap. This statement is false: Beta is the fund's absolute return.
Sharpe ratio
The Sharpe ratio measures excess return over the risk-free rate per unit of total risk.
Example. A higher Sharpe ratio means better risk-adjusted performance.
Exam trap. This statement is false: A lower Sharpe ratio means better risk-adjusted performance.
CAGR
CAGR is the annualised rate at which an investment grows over a period longer than a year.
Example. ₹100 growing to ₹121 in two years is a 10% CAGR.
Exam trap. This statement is false: CAGR is the simple total gain divided by years.
Benchmark and tracking
A fund's performance should be compared with its stated benchmark over comparable periods and consistently, not for one period only.
Example. An adviser compares a fund with its benchmark over five years.
Exam trap. This statement is false: A fund can be judged by its last month's return.
Risk profiling
Risk profiling assesses a client's capacity and willingness to take risk to guide product choice.
Example. A distributor asks how the client would feel if the portfolio fell 25%.
Exam trap. This statement is false: Every client of the same age has the same risk profile.
Suitability
A distributor must recommend products that suit the client's goals, horizon, risk profile and financial situation.
Example. A conservative client is not pushed into a high-risk fund.
Exam trap. This statement is false: The highest commission product is the suitable one.
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? A SWP lets an investor take a fixed amount at regular intervals by redeeming units.
- Yield to maturity
- Cash settlement of index futures
- Systematic withdrawal plan
- Derivative risk
Q2. Which term is described here? CAGR is the annualised rate at which an investment grows over a period longer than a year.
- Three-tier structure
- CAGR
- Systematic and unsystematic risk
- Option premium
Q3. Which term is described here? A fund's performance should be compared with its stated benchmark over comparable periods and consistently, not for one period only.
- Benchmark and tracking
- Who uses IRDs
- No assured returns
- Exit load
Q4. Which term is described here? The Sharpe ratio measures excess return over the risk-free rate per unit of total risk.
- KYC
- Gross exposure cap
- Stamp duty on units
- Sharpe ratio
Q5. Which term is described here? Standard deviation measures how much returns vary around their average, so a higher value means a more volatile fund.
- Standard deviation
- Underlying
- Open-ended and closed-ended
- Index uses
Q6. Which statement best describes “Suitability”?
- A distributor must recommend products that suit the client's goals, horizon, risk profile and financial situation.
- Theta shows the loss of option value as time passes, hurting option buyers.
- A long straddle buys a call and a put at the same strike and expiry, gaining from a big move in either direction.
- SEBI regulates mutual funds in India through the SEBI (Mutual Funds) Regulations and issues circulars to AMCs, trustees and distributors.
Frequently asked questions
How much of NISM Series V-D comes from Unit 4?
Unit 4 (Investor services, risk, performance and scheme selection) usually carries about 12% 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 4?
KYC and services. Risk measures. Return measures. Suitability.
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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UpperCrust Academy is independent study material from UpperCrust Wealth. It is not affiliated with NISM, SEBI or AMFI. For education only. Not investment advice. Always confirm the latest syllabus and rules on the official NISM website.