NISM Series XIX-A · Unit 1 of 13 · about 5% of the paper
Overview of alternative investments: NISM Series XIX-A notes and practice questions
What counts as alternative, how it differs from listed equity and debt, and the main strategies.
What to know in Unit 1
- Characteristics of alternatives.
- Private equity, venture, hedge, real assets.
Key terms, examples and exam traps
Alternative investments
Alternative investments are assets other than listed equity, bonds and cash, such as private equity, venture capital, hedge funds, real estate and infrastructure.
Example. An investor puts money in an unlisted growth company through a fund.
Exam trap. This statement is false: Alternative investments are the same as listed shares.
Private equity
Private equity invests in unlisted companies, usually taking significant ownership, with the aim of growing value and exiting later.
Example. A fund buys a stake in a private manufacturer to expand it.
Exam trap. This statement is false: Private equity invests only in listed companies.
Venture capital
Venture capital funds early-stage, high-growth companies, accepting high failure rates for the chance of outsized returns.
Example. A fund backs a start-up with a new technology.
Exam trap. This statement is false: Venture capital funds only mature, stable firms.
Hedge fund strategies
Hedge funds use strategies such as long-short, market-neutral, event-driven and macro, often with leverage and derivatives.
Example. A fund buys undervalued shares and sells overvalued ones short.
Exam trap. This statement is false: Hedge funds can only buy and hold equities.
Illiquidity
Alternatives are typically illiquid, with money locked for years and limited exit options before the end of the fund's life.
Example. An investor cannot withdraw until the fund winds up.
Exam trap. This statement is false: Alternatives offer daily redemption.
Low correlation
Many alternatives show low correlation with listed markets, offering diversification, though valuations are less frequent.
Example. A real-estate fund does not move with the stock market.
Exam trap. This statement is false: Alternatives always move exactly with equities.
Manager skill
Returns from alternatives depend heavily on manager skill, so dispersion between top and bottom managers is wide.
Example. The gap between the best and worst PE fund is large.
Exam trap. This statement is false: All alternative managers deliver similar returns.
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? Alternative investments are assets other than listed equity, bonds and cash, such as private equity, venture capital, hedge funds, real estate and infrastructure.
- Minimum investment
- Alternative investments
- SEBI AIF Regulations 2012
- Tax planning limits
Q2. Which statement best describes “Venture capital”?
- On the end of tenure, the fund must liquidate or distribute assets in specie, with approvals as required.
- This method values a company using multiples such as EV/EBITDA of similar listed firms, adjusted for size and liquidity.
- Speaking with existing investors, investee CEOs and co-investors gives independent views on the manager's conduct and value addition.
- Venture capital funds early-stage, high-growth companies, accepting high failure rates for the chance of outsized returns.
Q3. Which statement best describes “Hedge fund strategies”?
- In a pass-through structure, income is taxed in the investors' hands rather than at the fund level, preserving the character of income.
- Hedge funds use strategies such as long-short, market-neutral, event-driven and macro, often with leverage and derivatives.
- The difference between top and bottom funds is large in private markets, so manager selection matters more than in listed funds.
- Red flags include unclear strategy, no track record, excessive fees, weak controls, related-party deals, resistance to disclosure and promised returns.
Q4. Which term is described here? Alternatives are typically illiquid, with money locked for years and limited exit options before the end of the fund's life.
- Category III taxation
- Illiquidity
- Operational due diligence
- Fund due diligence
Q5. Which category of AIF is permitted to use leverage beyond day-to-day operational needs?
- Category I
- Category III
- No category
- Category II
Q6. Which term is described here? Returns from alternatives depend heavily on manager skill, so dispersion between top and bottom managers is wide.
- Sponsor and manager commitment
- Category III taxation
- Disclosures of risk factors
- Manager skill
Frequently asked questions
How much of NISM Series XIX-A comes from Unit 1?
Unit 1 (Overview of alternative investments) usually carries about 5% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series XIX-A Unit 1?
Characteristics of alternatives. Private equity, venture, hedge, real assets.
Are these NISM Series XIX-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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