SEBI Investor Certification Mock Test Explained – Part 3 | How to use this
- Read the question, confirm the answer, then learn the concept via the crisp explanation and exam cue.
- Use the consistency across Parts 1–3 to revise faster before attempting SICE/NISM.
Q1. Which of the following is a risk management strategy?
- Correct answer: All of the above (Risk reduction, Risk avoidance, Risk transfer).
- Explanation: Risk can be reduced via diversification and asset‑mix, avoided by not entering unfavorable markets, and transferred through hedging/insurance.
- Exam cue: All three are valid risk strategies—pick “All of the above.”
Q2. Which rule is used to know the rate at which investment doubles in a given period?
- Correct answer: Rule of 72.
- Explanation: Estimate required CAGR by 72 ÷ years to double, or years to double by 72 ÷ rate.
- Exam cue: Thumb rule only, not a precise forecast.
Q3. Electronic contract note can be issued by a broker only with prior authorization of:
- Correct answer: The client (consent to receive in electronic form).
- Explanation: If a client declines e‑notes, a physical contract note must be provided.
- Exam cue: Client authorization is mandatory for e‑delivery.
Q4. In long‑term planning like retirement, which factor makes household costs go up?
- Correct answer: Inflation.
- Explanation: Rising general prices erode purchasing power and increase monthly expense needs over time.
- Exam cue: Think “inflation risk = higher future cost.”
Q5. Which is a sign of a possible scam?
- Correct answer: Attractive returns presented as a very safe option.
- Explanation: Scams oversell high returns with “no/low risk” promises and hide risk factors.
- Exam cue: “High return + very safe” is a red flag.
Q6. If a stock is available for trading on an exchange, it means:
- Correct answer: It is listed.
- Explanation: Listing agreement with the exchange enables secondary market trading.
- Exam cue: “Tradable on exchange” implies “listed company.”
Q7. One advantage of investing through mutual funds:
- Correct answer: Professional management.
- Explanation: Portfolios are managed by qualified fund managers and research teams; portfolios are standardized by scheme objective.
- Exam cue: Not custom portfolios; no guaranteed returns.
Q8. What does a fund’s NAV represent?
- Correct answer: Realizable value of the assets of the fund (per unit, net of liabilities/expenses).
- Explanation: NAV reflects the per‑unit market value of underlying securities after expenses.
- Exam cue: NAV ≈ “per‑unit price” of the fund.
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Q9. Valid methods of receiving KYC Identification Number (KIN):
- Correct answer: All of these (email, letter, SMS).
- Explanation: KIN can be communicated via multiple official channels.
- Exam cue: Choose “All of these.”
Q10. Depositories are registered with:
- Correct answer: SEBI.
- Explanation: NSDL/CDSL function as SEBI‑registered market infrastructure institutions.
- Exam cue: Intermediaries must be registered with SEBI.
Q11. Which among the following has potential to offer capital gains?
- Correct answer: Equity mutual funds (and equities generally).
- Explanation: Capital gains arise when market value exceeds purchase cost; PPF is not capital‑gain focused.
- Exam cue: Equity‑linked products carry price appreciation potential.
Q12. Which type of mutual fund generally incurs higher cost?
- Correct answer: Actively managed funds.
- Explanation: Active research, trading, and higher turnover increase expense ratios.
- Exam cue: “Active > Passive” on fees.
Q13. Which ratio is negatively affected by a bonus issue?
- Correct answer: Earnings per share (EPS).
- Explanation: Share count rises but profit unchanged immediately, so EPS declines post‑bonus.
- Exam cue: EPS falls after bonus unless earnings also rise.
Q14. Which factor drives SIP success as a method?
- Correct answer: Commitment to invest a fixed sum for a fixed period regardless of market conditions.
- Explanation: Rupee‑cost averaging accumulates more units on dips and fewer on rises; discipline matters more than timing.
- Exam cue: Process > prediction.
Q15. Passive mutual funds are designed to:
- Correct answer: Provide returns similar to their market index.
- Explanation: They replicate index constituents/weights; aim to match, not beat.
- Exam cue: “Tracking error” is the watch metric.
Q16. Market with strong demand and rising stock prices:
- Correct answer: Bull market.
- Explanation: Healthy demand lifts sales and profits, attracting buyers and pushing prices up.
- Exam cue: Bull = rising, Bear = falling.
Q17. Consequence of being outside exchange purview in dabba trading:
- Correct answer: No access to grievance redressal.
- Explanation: Illegal, unregulated trades lack exchange records and protections.
- Exam cue: Always route via registered brokers on NSE/BSE.
Q18. In CAS, how are unit holders identified?
- Correct answer: By PAN.
- Explanation: PAN links and consolidates holdings for the consolidated statement.
- Exam cue: PAN is the unique key for CAS.
Q19. Agents of a depository in the securities market:
- Correct answer: Depository Participants (DPs).
- Explanation: DPs interface between investors and depositories for demat services.
- Exam cue: “DP = agent of depository.”
Q20. A put option gives the buyer the right to:
- Correct answer: Sell the underlying security at the strike price.
- Explanation: Buyer pays premium for the right (no obligation); call gives right to buy.
- Exam cue: Put = sell, Call = buy.
Q21. Is PoA mandatory in the securities market?
- Correct answer: No, it is optional and voluntary.
- Explanation: KYC is mandatory; PoA is investor’s choice.
- Exam cue: Do not confuse KYC with PoA.
Q22. Which fund type invests in short‑ and long‑term debt instruments?
- Correct answer: Debt funds.
- Explanation: They invest in fixed‑income instruments across durations/credits per mandate.
- Exam cue: Match duration with goal horizon.
Q23. You can ignore risk in which situation?
- Correct answer: None of the above.
- Explanation: All investments carry risk; reputation, friend tips, or high promised returns don’t remove risk.
- Exam cue: Never “ignore risk.”
Q24. Better long‑run option to manage inflation risk:
- Correct answer: Stocks (of fundamentally strong, well‑performing companies).
- Explanation: Equities have historically outpaced inflation, but selection and quality matter.
- Exam cue: Real returns beat inflation over long horizons.
Q25. Three important things to consider while investing are:
- Correct answer: Safety, Liquidity, and Returns.
- Explanation: Prioritize safety of capital, access to funds, and appropriate return for risk/horizon.
- Exam cue: SRL lens for every product.
Q26. Which is NOT a required document for transmission of securities?
- Correct answer: Passport of the legal heir.
- Explanation: Transmission needs notarized death certificate and applicable succession/probate documents, not a passport.
- Exam cue: Focus on death + succession proofs.
Q27. Significance of filing complaints through official channels:
- Correct answer: Ensures proper tracking and resolution status.
- Explanation: Formal portals maintain records and enable escalation and timely closure.
- Exam cue: Use official mechanisms, not informal messages.
Q28. What does due diligence refer to in investments?
- Correct answer: Comprehensive analysis and assessment before investing.
- Explanation: Review financials, business model, management, competition, and macro sensitivity.
- Exam cue: Diligence reduces avoidable mistakes.
Q29. What does NSE Nifty 50 represent?
- Correct answer: Index of top 50 companies by free‑float market capitalization.
- Explanation: Broad benchmark representing large, frequently traded companies.
- Exam cue: Free‑float methodology matters.
Q30. Recommended action before investing:
- Correct answer: Read and understand offer documents; seek expert help if unclear.
- Explanation: Disclosures detail risks, fees, and strategy; understanding improves suitability.
- Exam cue: “Read all scheme related documents carefully.”
Q31. What reduces returns from investments?
- Correct answer: Taxes and inflation.
- Explanation: Real return ≈ nominal return minus inflation and taxation impact.
- Exam cue: Optimize post‑tax, real returns.
Q32. An investor should avoid investing in:
- Correct answer: Ponzi schemes.
- Explanation: They promise high returns with low/no risk and collapse when inflows stop.
- Exam cue: “Too good to be true” offers are dangerous.
Q33. Only way to protect from online frauds and email scams:
- Correct answer: Be careful about data and protect it from scammers; practice cyber hygiene.
- Explanation: Avoid unknown downloads/links, don’t share credentials, use official portals.
- Exam cue: Vigilance beats convenience.
Q34. Which factor contributes to potentially higher returns of Direct Plans in mutual funds?
- Correct answer: Lower expense ratio (no distributor commission).
- Explanation: Direct Plans reduce costs, compounding small savings over time.
- Exam cue: Direct vs Regular = fee differential.
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Q35. Radhika refuses to complete regulatory KYC to open accounts—can she refuse?
- Correct answer: No; KYC is mandatory under PMLA for demat/trading/bank accounts.
- Explanation: KYC establishes identity/address to prevent misuse of the financial system.
- Exam cue: PoA optional; KYC mandatory.
Q36. 62‑year‑old investor advised to complete nomination—correct?
- Correct answer: Yes; nominations ensure smooth transfer to legal heirs on demise.
- Explanation: Reduces delays/disputes in transmission across demat/MF/bank accounts.
- Exam cue: Keep nominations and will aligned.
Q37. “Reduce risk by selling equity at higher levels; it’s easy to time markets”—true?
- Correct answer: No; timing markets consistently is not feasible.
- Explanation: Prefer target‑based profit‑booking and rebalancing over prediction.
- Exam cue: Time in market beats timing the market.
Q38. 24‑year‑old seeks investment advice from a friend—right approach?
- Correct answer: No; consult a professional financial adviser instead.
- Explanation: Friend opinions are not a substitute for suitability analysis and planning.
- Exam cue: Use qualified, conflict‑aware advice.
Q39. Prudent investor parks ₹5 lakh at ~7% and is fine with nominal returns—will it stand time?
- Correct answer: No; real return may be low/negative after inflation and taxes.
- Explanation: Blend growth assets for long‑term goals; keep fixed‑income for short‑term safety/liquidity.
- Exam cue: Nominal vs real return distinction.
Q40. Strategy to reduce investment risk by investing across avenues:
- Correct answer: Diversification.
- Explanation: Spread across asset classes and within them to reduce concentration risk.
- Exam cue: Avoid “all eggs in one basket.”
Q41. Buying an insurance policy is an example of:
- Correct answer: Risk transfer.
- Explanation: Paying premium transfers financial burden of covered events to insurer.
- Exam cue: Insurance ≠ investment; it’s protection.
Q42. Relationship between inflation and value of money:
- Correct answer: Inverse.
- Explanation: As prices rise, a fixed sum buys fewer goods/services.
- Exam cue: Plan with real purchasing power.
Q43. Investing in PSU bank stocks after rapid price rise—right?
- Correct answer: No; price‑only momentum entries are risky without understanding drivers.
- Explanation: Prefer fundamentals/valuation assessment and risk controls.
- Exam cue: Avoid FOMO trades.
Q44. Example of active income:
- Correct answer: Salary earned by an employee.
- Explanation: Requires ongoing effort/time; rent, dividends, and interest are passive.
- Exam cue: Active vs passive is about effort and involvement.
Q45. Which is considered a high‑risk investment product?
- Correct answer: Stock (equity shares).
- Explanation: Highest volatility and drawdown risk among listed choices.
- Exam cue: Risk rises with potential return.
Q46. Strategy to reduce risk by investing across avenues:
- Correct answer: Diversification.
- Explanation: Repeated for reinforcement; core principle across Parts 1–3.
- Exam cue: Diversify across and within asset classes
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