NISM Series X-A · Unit 2 of 12 · about 10% of the paper
Securities market segments: NISM Series X-A notes and practice questions
Equity, debt and derivative segments, how they work and what a client is buying when she buys each.
What to know in Unit 2
- Equity market and its participants.
- Debt market: G-secs, corporate bonds, money market.
- Derivatives for advisers.
Key terms, examples and exam traps
Equity market
The equity market is where shares are issued and traded, giving investors ownership and a claim on residual profits.
Example. An investor buys shares and shares in a company's future profit.
Exam trap. This statement is false: The equity market offers fixed returns.
Debt market
The debt market is where fixed-income securities such as bonds and treasury bills are issued and traded.
Example. An investor lends to a government in return for interest.
Exam trap. This statement is false: The debt market gives investors ownership of companies.
Primary and secondary markets
The primary market creates new securities and the secondary market trades existing ones, giving liquidity to investors.
Example. An IPO happens in the primary market; later trading happens in the secondary market.
Exam trap. This statement is false: Trading among investors takes place in the primary market.
Demat and trading accounts
A demat account holds securities electronically and a trading account is used to place orders through a broker.
Example. An investor needs both to buy shares on an exchange.
Exam trap. This statement is false: A demat account is used to place orders.
Settlement cycle
Equity cash market trades settle on T+1, meaning the next working day after the trade.
Example. A share bought on Monday is settled the next working day.
Exam trap. This statement is false: Equity trades take a week to settle.
Corporate bond market
Corporate bonds are debt securities issued by companies and carry credit risk, rated by rating agencies.
Example. A company raises money by issuing rated bonds.
Exam trap. This statement is false: Corporate bonds are free from credit risk.
Government securities market
G-secs are issued by the government to borrow, and carry virtually no credit risk, though prices move with interest rates.
Example. A government bond has no default risk but its price can fall when rates rise.
Exam trap. This statement is false: G-sec prices never change.
Money market instruments
Money market instruments mature within a year and include T-bills, CP, CD and repos.
Example. A company parks funds for 60 days in a short-term instrument.
Exam trap. This statement is false: Money market instruments mature after ten years.
Derivatives for advisers
Derivatives such as futures and options are used for hedging and speculation; advisers must understand leverage before recommending them.
Example. An adviser explains why a protective position may reduce a client's portfolio risk.
Exam trap. This statement is false: Derivatives remove market risk entirely.
Stock market indices
Indices such as the Sensex and Nifty 50 track the market and are benchmarks for portfolios and index funds.
Example. A portfolio manager compares returns with a broad market index.
Exam trap. This statement is false: Indices are fixed numbers that never change.
Short-term vs long-term capital gains
Gains on listed shares and equity funds are short-term if held up to 12 months and long-term if held longer, with different tax rates.
Example. An investor selling after 15 months realises a long-term gain.
Exam trap. This statement is false: The tax rate is the same regardless of the holding period.
Market risk of equity
Equity prices fluctuate with company performance and market sentiment, and capital can be lost, especially over short horizons.
Example. A client's equity fund falls 15% in a quarter.
Exam trap. This statement is false: Equities cannot lose value over short periods.
Settlement guarantee
The clearing corporation guarantees the settlement of exchange trades, reducing counterparty risk for investors.
Example. A trader need not worry that the other party will fail to deliver.
Exam trap. This statement is false: Exchange trades have no settlement guarantee.
Rating scales
Bond ratings range from the highest (AAA) to default (D), and investment grade is generally BBB- and above.
Example. A bond rated BB is considered below investment grade.
Exam trap. This statement is false: BBB is the highest rating.
Yield curve
The yield curve plots yields of bonds against their maturities; an upward-sloping curve is normal, where longer maturities yield more.
Example. Ten-year bonds yield more than one-year bonds.
Exam trap. This statement is false: The yield curve plots share prices against time.
Liquidity of securities
Liquidity varies by security: large-cap shares and G-secs trade easily while thinly traded bonds can be hard to sell.
Example. A client finds it difficult to sell a thinly traded bond.
Exam trap. This statement is false: All securities are equally liquid.
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? Bond ratings range from the highest (AAA) to default (D), and investment grade is generally BBB- and above.
- Unit linked insurance plan
- Rating scales
- Claim settlement ratio
- Insured versus assured
Q2. Which statement best describes “Corporate bond market”?
- A REIT owns and operates income-producing real estate and distributes most of its income to unit holders, listed on exchanges.
- Hybrid funds combine equity and debt, with varied allocations, to balance growth and stability.
- Corporate bonds are debt securities issued by companies and carry credit risk, rated by rating agencies.
- Advance tax is paid in instalments during the year by taxpayers whose liability exceeds a threshold.
Q3. Which statement best describes “Debt market”?
- Liquidity varies by security: large-cap shares and G-secs trade easily while thinly traded bonds can be hard to sell.
- The debt market is where fixed-income securities such as bonds and treasury bills are issued and traded.
- A sovereign gold bond is a government security denominated in grams of gold that pays interest and has no storage or purity issues, with a defined tenure.
- A recurring deposit lets a saver deposit a fixed sum every month for a fixed term, earning a fixed interest rate.
Q4. Which statement best describes “Settlement cycle”?
- Bonds are debt instruments paying interest and returning principal at maturity; yields depend on credit quality and tenure.
- Equity cash market trades settle on T+1, meaning the next working day after the trade.
- Corporate bonds are debt securities issued by companies and carry credit risk, rated by rating agencies.
- Exit load is charged on redemption within a defined period and is credited to the scheme.
Q5. Which term is described here? Derivatives such as futures and options are used for hedging and speculation; advisers must understand leverage before recommending them.
- Client agreement
- Trust
- Derivatives for advisers
- Annuity
Q6. Which term is described here? Liquidity varies by security: large-cap shares and G-secs trade easily while thinly traded bonds can be hard to sell.
- Medical costs in retirement
- Liquidity of securities
- IRDAI
- Set-off and carry forward
Frequently asked questions
How much of NISM Series X-A comes from Unit 2?
Unit 2 (Securities market segments) usually carries about 10% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series X-A Unit 2?
Equity market and its participants. Debt market: G-secs, corporate bonds, money market. Derivatives for advisers.
Are these NISM Series X-A practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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