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NISM Series V-D · Unit 5 of 12 · about 8% of the paper

Specialized Investment Funds: framework and rules: NISM Series V-D notes and practice questions

What a SIF is, how it sits between mutual funds and PMS, the strategies, the ₹10 lakh threshold, limits and distributor duties.

Practise this unit freeAll of NISM Series V-D

What to know in Unit 5

Key terms, examples and exam traps

Specialized Investment Fund

A SIF is a SEBI-regulated investment product launched by an AMC for investors who want more sophisticated strategies than regular mutual funds, with a higher minimum investment.

Example. A wealthy investor wants a long-short strategy not available in ordinary funds.

Exam trap. This statement is false: A SIF is the same as a regular mutual fund scheme.

Position between MF and PMS

SIFs sit between mutual funds and portfolio management services, with MF-style pooling and regulation but more flexible strategies.

Example. A client wants more flexibility than a fund but not a customised PMS.

Exam trap. This statement is false: SIFs are an individually managed portfolio for each investor.

Minimum investment

The minimum investment in SIFs is ₹10 lakh per investor, aggregated across all the SIF strategies of the same AMC at the PAN level.

Example. An investor's investments across two strategies of one AMC are added up for the ₹10 lakh test.

Exam trap. This statement is false: The minimum ₹10 lakh applies separately to each strategy.

Accredited investors

Accredited investors are exempt from the ₹10 lakh minimum investment.

Example. An accredited investor invests a smaller amount in a SIF.

Exam trap. This statement is false: Accredited investors must invest ₹1 crore.

Passive breach of minimum

If market movement reduces an investor's holding below ₹10 lakh, the investor can only redeem the entire remaining amount rather than part.

Example. An investor's holding falls to ₹9 lakh because of NAV decline.

Exam trap. This statement is false: Falling below ₹10 lakh makes the folio freeze permanently.

SIP, SWP and STP in SIFs

SIPs, SWPs and STPs are allowed in SIFs provided the investor's investment meets the minimum threshold.

Example. An investor with ₹10 lakh sets up a SIP into a SIF.

Exam trap. This statement is false: SIFs allow only lump sum investment.

Equity Long-Short

The Equity Long-Short strategy must invest at least 80% in equity and equity-related instruments and may take limited short positions through derivatives.

Example. A SIF buys stocks and also shorts through index futures.

Exam trap. This statement is false: Equity Long-Short can invest only in debt.

Equity Ex-Top 100 Long-Short

This strategy must invest at least 65% in equity of companies outside the top 100 by market capitalisation.

Example. A SIF holds mostly mid and small caps outside the largest 100.

Exam trap. This statement is false: This strategy must invest only in the top 100 stocks.

Sector Rotation Long-Short

This equity strategy must keep at least 80% in equity and can be exposed to a maximum of four sectors at a time.

Example. A SIF shifts between banking, auto, IT and pharma.

Exam trap. This statement is false: Sector Rotation must be spread equally across ten sectors.

Debt Long-Short

The Debt Long-Short strategy can take up to 25% unhedged short exposure through exchange-traded debt derivatives.

Example. A debt SIF shorts interest rate futures when it expects yields to rise.

Exam trap. This statement is false: Debt SIFs cannot use any derivatives.

Sectoral Debt Long-Short

This strategy invests in at least two sectors, with no more than 75% in a single sector and up to 25% unhedged short exposure.

Example. A debt SIF holds 70% in one sector and the rest elsewhere.

Exam trap. This statement is false: This strategy can put 100% in one sector.

Hybrid Long-Short

The Hybrid Long-Short strategy holds at least 25% each in equity and debt, with maximum 25% short exposure through unhedged derivatives.

Example. A hybrid SIF keeps 40% in equity and 40% in debt.

Exam trap. This statement is false: A Hybrid Long-Short fund must be fully invested in equity.

Derivative and short limits

Unhedged short exposure through derivatives is limited to 25% of net assets, and non-hedging use of exchange-traded derivatives is also limited to 25%.

Example. A SIF cannot run an unhedged short of 40% of net assets.

Exam trap. This statement is false: SIFs have no limit on unhedged short positions.

Gross exposure cap

Cumulative gross exposure across cash and derivatives must not exceed 100% of net assets.

Example. A SIF cannot leverage beyond its net assets.

Exam trap. This statement is false: SIFs can freely leverage to two times net assets.

Redemption and structure

SIFs can be open-ended or interval and redemption notice can be up to 15 working days, with the redemption frequency set out in the scheme documents.

Example. A SIF allows redemption only at fixed intervals.

Exam trap. This statement is false: All SIFs allow instant daily redemption.

Separate branding

SIFs must keep branding and marketing distinct from the mutual fund, with the MF brand shown only as the offeror and not more prominently than the SIF brand.

Example. A SIF advertisement uses a smaller MF brand name than the SIF name.

Exam trap. This statement is false: A SIF must use the MF brand more prominently.

Risks of SIFs

SIFs carry market, strategy, derivative, liquidity and concentration risks and do not guarantee returns or capital.

Example. A distributor explains that short positions can lose money.

Exam trap. This statement is false: SIFs protect the investor's capital.

Suitability for SIFs

SIFs suit investors who understand complex strategies, can bear higher risk, accept lower liquidity and have a higher net worth, so suitability must be checked before sale.

Example. A distributor declines to sell a SIF to an investor who needs liquidity every month.

Exam trap. This statement is false: SIFs are suitable for any retail investor.

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? Unhedged short exposure through derivatives is limited to 25% of net assets, and non-hedging use of exchange-traded derivatives is also limited to 25%.

  1. Unit holders and units
  2. Derivative and short limits
  3. Interest rate risk
  4. Stock index

Q2. Which term is described here? SIFs can be open-ended or interval and redemption notice can be up to 15 working days, with the redemption frequency set out in the scheme documents.

  1. Speculator
  2. Clearing corporation
  3. Debt Long-Short
  4. Redemption and structure

Q3. Which statement best describes “Accredited investors”?

  1. The Debt Long-Short strategy can take up to 25% unhedged short exposure through exchange-traded debt derivatives.
  2. A custodian holds the scheme's securities in safe custody and settles transactions, separate from the AMC.
  3. This equity strategy must keep at least 80% in equity and can be exposed to a maximum of four sectors at a time.
  4. Accredited investors are exempt from the ₹10 lakh minimum investment.

Q4. Which statement best describes “Equity Long-Short”?

  1. This strategy must invest at least 65% in equity of companies outside the top 100 by market capitalisation.
  2. An interest rate derivative is a contract whose value depends on an interest rate or a bond price, and it is used to hedge or take a view on rates.
  3. CAGR is the annualised rate at which an investment grows over a period longer than a year.
  4. The Equity Long-Short strategy must invest at least 80% in equity and equity-related instruments and may take limited short positions through derivatives.

Q5. Which statement best describes “SIP, SWP and STP in SIFs”?

  1. TER is the annual cost of running a scheme as a percentage of assets, charged to the scheme and reflected in NAV.
  2. SIPs, SWPs and STPs are allowed in SIFs provided the investor's investment meets the minimum threshold.
  3. Accredited investors are exempt from the ₹10 lakh minimum investment.
  4. Selling futures against a stock portfolio offsets losses on the portfolio if the market falls, though it gives up gains on a rise.

Q6. Which term is described here? This strategy invests in at least two sectors, with no more than 75% in a single sector and up to 25% unhedged short exposure.

  1. Position between MF and PMS
  2. Sectoral Debt Long-Short
  3. One scheme per category
  4. Price and yield
See the answers in the free mock

Frequently asked questions

How much of NISM Series V-D comes from Unit 5?

Unit 5 (Specialized Investment Funds: framework and rules) usually carries about 8% 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 5?

Minimum investment. Strategy rules. Limits and redemption. Suitability for SIFs.

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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← Unit 4Investor services, risk, performance and scheme selectionUnit 6 →Basics of derivatives and understanding index

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