NISM Series XIX-A · Unit 11 of 13 · about 5% of the paper
Valuation: NISM Series XIX-A notes and practice questions
How private assets are valued and why it matters for NAV and fees.
What to know in Unit 11
- Valuation methods.
- Independent valuation.
- Frequency and guidelines.
Key terms, examples and exam traps
Fair value
Fair value is the price at which an asset could be sold in an orderly transaction between market participants at the measurement date.
Example. A fund estimates what an unlisted holding would fetch in a sale today.
Exam trap. This statement is false: Fair value equals the purchase cost always.
Discounted cash flow
DCF values an asset as the present value of expected future cash flows.
Example. A valuer projects future cash flows and discounts them.
Exam trap. This statement is false: DCF uses only the last transaction price.
Comparable multiples
This method values a company using multiples such as EV/EBITDA of similar listed firms, adjusted for size and liquidity.
Example. A valuer applies peers' EV/EBITDA to the investee's earnings.
Exam trap. This statement is false: Comparable multiples need no peer companies.
Last round price
The price of a recent funding round is a data point for fair value, but it may need adjustment if conditions change.
Example. A start-up is valued by its latest financing.
Exam trap. This statement is false: The last round price is always right.
Cost basis
Valuing at cost is acceptable only for a short period after investment, until better evidence is available.
Example. A newly bought stake is held at cost for a while.
Exam trap. This statement is false: Cost is the right basis for old investments.
Independent valuer
SEBI requires valuation of an AIF's investments by an independent valuer for certain funds, and valuation should be done at regular intervals.
Example. An independent firm values the portfolio every half year.
Exam trap. This statement is false: The manager alone may value its holdings.
IPEV guidelines
The International Private Equity and Venture Capital valuation guidelines are a widely used standard for valuing private holdings.
Example. A fund follows a global standard for valuation.
Exam trap. This statement is false: IPEV guidelines apply to listed shares.
Valuation and fees
Because fees can depend on NAV or invested capital, inflated valuations can overstate performance and fees, so independent checks matter.
Example. An inflated NAV can raise a manager's fee.
Exam trap. This statement is false: Valuation has no link to fees.
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 statement best describes “Independent valuer”?
- SEBI requires valuation of an AIF's investments by an independent valuer for certain funds, and valuation should be done at regular intervals.
- Due diligence does not end at investment; monitoring continues through reports, meetings and performance reviews.
- The vintage year is the year in which a fund first invested; funds are compared with others of the same vintage.
- A term sheet sets the key terms of an investment, such as valuation, rights and conditions, before definitive agreements.
Q2. Which statement best describes “Cost basis”?
- Valuing at cost is acceptable only for a short period after investment, until better evidence is available.
- Category III AIFs, such as hedge funds, employ diverse or complex trading strategies and may use leverage and trade listed derivatives.
- The IMA appoints the manager and sets its duties, authority, fees and standards of care.
- Each investor in an AIF must invest at least ₹1 crore, with a lower limit of ₹25 lakh for angel funds and employees or directors of the AIF's manager.
Q3. Which statement best describes “IPEV guidelines”?
- A drawdown or capital call is the manager's notice to investors to pay a portion of their commitment for an investment or expenses.
- Carried interest is the manager's share of fund profits, commonly 20%, earned after investors receive their capital and preferred return.
- The trust deed sets up the fund as a trust, defining the roles of trustee, sponsor and manager, and the rights of beneficiaries.
- The International Private Equity and Venture Capital valuation guidelines are a widely used standard for valuing private holdings.
Q4. Which statement best describes “Last round price”?
- The price of a recent funding round is a data point for fair value, but it may need adjustment if conditions change.
- An AIF scheme cannot have more than 1,000 investors (200 for angel funds) as it raises money through private placement.
- Most AIFs are set up as trusts, with a trustee holding the fund's assets for investors as beneficiaries, giving flexibility and pass-through tax treatment.
- Investments in associates and the manager's related parties need to be disclosed and approved by investors as per the regulations.
Q5. Which term is described here? The International Private Equity and Venture Capital valuation guidelines are a widely used standard for valuing private holdings.
- Buyback by promoter
- Strategic sale
- IPEV guidelines
- Conflicts of interest
Q6. Which statement about “Fair value” is correct?
- Legal review is only about taxes.
- Valuation risk does not arise in private assets.
- Fair value is the price at which an asset could be sold in an orderly transaction between market participants at the measurement date.
- Fair value equals the purchase cost always.
Frequently asked questions
How much of NISM Series XIX-A comes from Unit 11?
Unit 11 (Valuation) 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 11?
Valuation methods. Independent valuation. Frequency and guidelines.
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.
Next
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.