NISM Series X-B Investment Adviser (Level 2) Cert. Mock Test - Full-Length Test

Losses from speculative business can be carried forward for 4 years whereas losses from nonspeculative business can be carried forward for 8 years.

A power of attorney can be classified into three forms 1. General Power of Attorney 2. Special Power of Attorney 3. Special Power of attorney for registration.

General power of attorney – In this document the authorization of power to the agent is broad. The agent entitled to act generally, or in more than one transaction.

Gratuity is a lump sum amount paid by the employer to the employee as a token of appreciation for the services they have provided towards the company.

Trusts are legal arrangements that hold assets on behalf of a beneficiary or beneficiaries. There are different types of trust which can be created. The person who creates the trust can decide the terms of the trust to be formed.

Keith Redhead (2008) writes in the report that speculative bubbles are more likely to emerge where: · Proportion of inexperienced traders is high; · Uncertainty about true value is high; · Investment promises small chance of profit but the amount of profit is very high; · It is possible to finance purchases by borrowing money (leveraging) ; · Short selling is difficult (difficult to borrow shares for the purpose of selling them).

Fixed Maturity Plans (‘FMP’) are closed ended debt funds having a fixed maturity date wherein the duration of investment is decided upfront. The funds collected by FMPs are invested by AMC in securities having similar maturity periods.

Married Women’s Property Act, 1874 was enacted to protect the properties of woman against the creditors. Under this Act, all the properties of a woman get insulated from all the other court attachments or any income tax department attachments that the husband has run up.

Subrogation means the insurance company steps into the shoes of the insured person after paying the claim and taking all actions that the insured person could have taken.

An example could be loss incurred by the insured person due to the accident caused by another car which was at fault. In such cases, the insurance company pays the claim to the insured person and then steps into the shoes of the insured person and pursues the claim with the “at fault” driver or his insurance company and recovers the loss from them.

The Income-tax Act has listed certain transactions which are not to be regarded as transfers for the purpose of capital gains and one of them is –

Consolidation of mutual fund – To promote consolidation of different similar scheme of transfer of mutual fund, Income-tax Act provides that consolidation of units shall not be treated as transfer.

Mutual funds offer Index Funds to investors. These funds are based on an underlying index like NIFTY, SENSEX, etc. and simply mirror the returns of that index.

Mutual Funds do not offer funds based on futures / options but can use these to enhance returns or provide safety.

Although Index Futures and Index Options are available from a few days to a max of 3 months, in practice there are poor volumes beyond a month.

The highest volumes are observed in contracts of less than 1 month.

A maximum of Rs. 9 lakh can be deposited in a single POMIS account and Rs. 15 lakh in Joint account.

An Endowment Policy is suitable for building an estate for heirs because it combines both insurance protection and systematic savings. It provides a lump sum payout either on:

• Death of the insured (before policy maturity), or

• Survival of the insured (at policy maturity).

This ensures that either way, a significant corpus is available, which can be passed on to the heirs. Hence, it serves the dual purpose of financial security and wealth accumulation.

Gold exchange-traded fund scheme (Gold ETF) is defined under SEBI (Mutual Funds) Regulations, 1996 to mean mutual fund scheme that invests primarily in physical gold or gold related instruments.

The PMT function is used in MS Excel for calculating monthly / periodic savings required to reach a defined corpus.

FV function is used to calculate the Future Value of an investment or a series of investments.

Clients’ financial risk tolerance – attitudes, values, motivations, preferences and experiences, is measured with a risk profile. The risk profile questionnaire helps in understanding the risk tolerance levels of a client.

SEBI Investment Adviser Regulation 16 requires that the Investment Adviser has to ensure that Clients Risk Profiling is done so as to ensure that the advise or recommended Investment product is suitable for the client.

A person is said to have died intestate when he has not made a Will.

When a person dies without a Will, then the property devolves upon the heirs as per the laws of inheritance applicable to him/her. The law of inheritance in case of Hindus, Buddhists, Jains and Sikhs is governed by the Hindu Succession Act 1956. In the case of Christians, Parsis and the Jews, the law of inheritance is mentioned in the Indian Succession Act 1925.

Exchange-Traded Funds (ETFs) are like Mutual Funds that track an index (i.e., NIFTY/SENSEX), or a commodity (Gold) or a basket of assets like an index fund. However, unlike regular Mutual Funds, ETFs are listed on exchange and trade like a stock, thus experiencing price changes throughout the day as it is bought and sold.

The cost component includes fund management charges, brokerage and demat and other charges and the difference between the buy and sell quotes on the exchange.

Fixed Maturity Plans (‘FMP’) are closed ended debt funds having a fixed maturity date wherein the duration of investment is decided upfront. The funds collected by FMPs are invested by the Asset Management Companies in securities having similar maturity periods.

The relationship between the investment adviser and the client is like of Doctor and Patient. The investment adviser is like a financial doctor who guides his client on the best solutions of his/her financial / investment issues etc.

The client is like a patient who can tell his personal financial difficulties with confidence to the adviser and seek solutions. Its a relationship of trust.

SEBI Investment Adviser Regulation 16 requires that the Investment Adviser (IA) has to ensure that Clients Risk Profiling is done so as to ensure that the advise or recommended Investment product is suitable for the client.

A foreign company is treated as resident in India if during the relevant previous year its Place of Effective Management is in India. For determination of Place of Effective Management, the CBDT has issued the guidelines in Circular No. 6/2017, dated January 24, 2017. These guidelines apply to a foreign company whose gross turnover or receipts during the year exceed Rs. 50 Crores.

As the above company has a turnover of Rs 42 crores, which is below Rs. 50 crores, it is treated as a Non-Resident.

Lock in periods :

Equity Linked Saving Scheme (ELSS) – 3 years

Bank Tax Saving FDs – 5 years

PPF – 15 years

NPS Tier 1 – Only after the investor reaches the age of 60 years

The investment advisor should not be emotionally diverted because of a good bull market in stocks and corrections can happen any time. He should stick to the desired asset allocation as per the clients risk profile.

Strategic Asset Allocation is allocation aligned to the financial goals of the individual. It considers the returns required from the portfolio to achieve the goals, given the time horizon available for the corpus to be created and the risk profile of the individual.

Tactical asset allocation is the decision that comes out of calls on the likely behaviour of the market. Dynamic Asset Allocation uses pre-defined models to allocate assets among different asset classes.

For getting tax exemption for the contributions to the superannuation fund, established for the employees, the employer has to get the fund approved by the Commissioner of Income Tax.

Once the fund is approved by the Commissioner of Income Tax, then the employer can treat the contributions made to the fund within the limits prescribed in the Income Tax Act as business expense and deduct it from the profits made for Income Tax purposes.

The difference between Top up plan and Super top up plan is in how the threshold limit (deductible) is applied. In a Top up plan the threshold limit is applied for every claim whereas in a super top up plan the threshold limit is applied on the total of all hospitalisation claims for the year.

So since this is super top-up policy, the claims will be made in the following manner:

First claim of 5 Lakhs: 3 Lakhs paid from base plan. 2 Lakhs paid from Super-top Up Plan. Threshold limit of 3 Lakhs is already applied.

Second claim of 2 Lakhs: Threshold limit of 3 Lakhs is already applied during the first claim. So 2 Lakhs paid from Super-top up plan.

Third claim of 2 Lakhs: Threshold limit already applied. So 1 Lakhs paid from the super-top up plan. And the remaining 1 Lakhs, the client will have to bear from his own pocket.

Cost of acquisition of the right shares is the price paid by the shareholder for their acquisition.

For eg. If a company is issuing Rights Shares at Rs 50, the Rs 50 will be cost of acquisition by the existing shareholder.

The Directors & Officers Liability Insurance policy insures members of the board of directors, the management and employee performing a supervisory or managerial role in a company against personal liability and defence costs incurred from claims alleging them to have committed a wrongful act in the line of their duties for the company.

The premium payable on the policy is a function of the sum insured, age and medical history of the insured, among others.

Since health insurance policies are renewed every year, the tenure is not a criteria for determining the premium.

Real Estate Investment Trust (REIT) gives an opportunity to the investors to invest in large-scale, diversified portfolios of income-producing real estate.

REITs invest in the majority of real estate property types, which includes offices, apartment buildings, warehouses, retail centres, medical facilities, data centres, cell towers, infrastructure and hotels

Whole Life insurance policies are investment cum insurance policies that provide life insurance cover for the entire life of the insured person or upto an upper age limit specified by the insurer, whichever is earlier, provided the premiums are paid as contracted.

• Deferred annuity is a financial product where the payments start at a future date, typically after a deferral period.
• During the deferral period, the investor can contribute either as a lump sum or through periodic payments, and the investment grows tax-deferred.
• After the specified time, the annuity pays out as a stream of fixed or variable payments, which can last for a specified period or the lifetime of the annuitant.

  The other options are incorrect because:

1. Describes an immediate annuity, not a deferred annuity.
2. Does not describe how deferred annuities work.
3. Does not align with how payment timelines are determined for a deferred annuity.

One of the tax efficient ways to generate a regular income is Systematic Withdrawal Plans in mutual fund schemes. It is an option where an investment withdrawal plan is scheduled in a specified frequency.

One can withdraw either a fixed amount or only the capital gains, whichever options suits ones requirements. The money withdrawn through SWP can be either invested in another fund or used for own requirements.

If any income from securities earned in foreign currency is taxable in India, it shall be converted into Indian Rupees at the rate of conversion (SBI telegraphic transfer buying rate) existed on the last day of the month immediately preceding the month in which income is due.

In the above question, the preceding month is August and the last date of this month is 31st August.

In consolidation of shares, the cost of acquisition shall be the total amount paid to acquire the original shares apportioned between the consolidated shares.

In the above case, Vijay had paid Rs 230 each for 10,000 shares ie. Total Rs 23,00,000.

The company has announced consolidation of two equity shares into one. So for every 2 shares, one share will be issues (of face value Rs 200). Therefore for 10,000 shares, 5000 shares will be issued.

The cost of acquisition for these 5000 shares will be same ie. Rs. 23,00,000

So for each share the cost will be recorded as 23,00,000 / 5000 = Rs. 460

All the above scenarios will require portfolio rebalancing.

Alternative Investment Funds Category 3 undertake diverse or complex trading strategies including investment in listed or unlisted derivatives. These carry high risk.

Its used by High Net worth Investor looking for complex or leveraged investment strategies

Short-term capital gains (STCG) from the sale of equity-oriented mutual funds, where the holding period is less than 12 months, are taxable at a flat rate of 15% under Section 111A of the Income Tax Act.
This is exclusive of applicable surcharge and cess.

To determine the retirement corpus required, we account for:

1. Future value of monthly income needed at retirement (adjusting for inflation).
2. Converting this into an annual income requirement.
3. Calculating the corpus needed to sustain this income for 20 years, assuming an 8% return and 6% inflation.

Key Calculations:

• Future Monthly Income Requirement (Inflation-Adjusted): ~Rs 1,50,000
• Future Annual Income Requirement: ~Rs 18,00,000
• Retirement Corpus Needed: ~Rs 3 Crores

To avail the benefit of Section 54 of the Income Tax Act, which provides for exemption on capital gains arising from the sale of a residential property, the taxpayer must purchase a new residential house in India either one year before or two years after the transfer of the old house. Alternatively, the taxpayer can construct a new residential house in India within three years from the date of transfer of the old house.

Required return is calculated using future value growth from Rs 20 lakh to Rs 30 lakh over five years. Ratio equals 1.5. Annual compounded rate is the fifth root of 1.5 minus one, which is about 8.45 percent. This helps assess whether the goal is realistic with suitable asset allocation.

Portfolio suitability should rely more on capacity when tolerance and capacity differ materially. A client nearing retirement may emotionally prefer risk, but limited recovery time and dependence on savings reduce loss bearing ability. Advisers should prioritize preservation, income stability, and controlled volatility over aggressive preferences.

Anchoring bias occurs when investors rely excessively on an initial reference point such as original purchase price. Decisions then become distorted because current fundamentals may be ignored. Continuing investment only to justify an earlier price can increase concentration risk and delay objective reassessment of portfolio suitability.

Retirees facing rising living costs need income that adjusts over time. An inflation linked income strategy, using suitable annuity or staggered assets, helps preserve purchasing power better than fixed nominal payouts. Advisers should also review longevity risk, taxation, liquidity, and healthcare expense uncertainty.

Zero Coupon Bonds (Listed or Unlisted) shall be considered as long-term capital asset if they are held for 12 months or more.

A Will is the most basic legal document which specifies who will inherit one’s assets and in what manner. A Will helps to ensure that the assets that an individual leaves behind for 359 his/her loved ones are distributed as per his wishes.

When a bank becomes the corporate agent of an insurance company it is referred to as a bancassurance arrangement or partnership

Non-Life insurance provides risk cover from loss or destruction of assets created and to provide for unexpected, large expenses that can be a drain on the available income of the individual.

Term of the insurance is typically 1 year. In some cases, such as health/ two wheeler policies, the term may be two years

Behavioral Finance is the study of the way in which psychology influences the behavior of market participants, both at the individual and group level, and the subsequent effect on the financial markets.

The lock-in period for ULIPs is five years to reflect the long-term, protection function of the policy.

Term insurance is a pure risk cover product. It pays a benefit only if the policy holder dies during the period for which one is insured.

Term insurance premiums are typically low because it only covers the risk of death and there is no investment component in it.

Anchoring bias occurs when people rely on pre-existing information when they make decisions. Most of investors anchor their investment around some initial information, which they so heavily relied upon. This makes all the subsequent information to be seen in light of the anchor information.

For example, during negotiations, it is often observed that the first price mentioned becomes anchor price during the entire negotiations. Making a judgement about where the prices of the stock could be on the basis of its past performance is another example of anchoring.

Senior Citizens’ Savings Scheme (SCSS) is available to any resident individual aged 60 years and above.

However, the scheme is also available for the retired personnel of the Defence Services (excluding Civilian Defence employees) on attaining the age of 50 years subject to fulfilment of other terms & conditions

Income Replacement Method is used to calculate the amount required in retirement. It’s a percentage of the current income. For eg. If your current income is Rs 1 lakh per month and in retirement you will be comfortable with an income of Rs 70000 per month, then 70% is the percentage of your current income that you will be able to replace with savings during retirement.

The above mentioned expenses are not required while calculating the income required in retirement.

The cost of acquisition in case of conversion of stock-in-trade into capital asset will be the Fair Market Value (FMV) of stock as on date of conversion.

As per section 64 (1)(vi) of Income Tax Act, if an individual transfers his/her asset to his/ her son’s wife, otherwise than for adequate consideration, then income from such asset will be clubbed with the income of the individual (i.e., transferor being the father-in-law/mother-in-law).

Transfer of following securities by a non-resident to another non-resident is not charged to capital gains:

i. Transfer of GDR of an Indian company by a non-resident to another non-resident outside India;

ii. Transfer of Rupee Denominated Bond of an Indian company by one non-resident to another non-resident outside India;

iii. Transfer of bonds or GDR or Rupee Denominated Bond, derivative or other notified securities by a non-resident on a recognised stock exchange located in any International Financial Services Centre (IFSC) provided the consideration is paid or payable in foreign currency; or

iv. Transfer of Government Security, carrying periodic payment of interest, outside India through an intermediary dealing in settlement of securities by a non-resident to another non-resident.