NISM Certification Overview

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Questions and Answers

What must analysts do before meeting with a company's management?

Focus solely on competitors

Thoroughly learn about the company's products and industry (correct)

Ignore past performance reports

Prepare emotional questions to connect with management

Which of the following statements about analysts' independence is true?

Analysts must base their analysis on factual information and remain unbiased. (correct)

Analysts are encouraged to change their views based on management feedback.

Analysts can lead their research based on personal inclinations.

Analysts should always reveal their personal biases to management.

Why is networking important for analysts during research?

To promote their own personal brand.

To gather personal opinions from management only.

To acquire contacts who can provide meaningful insights into the company's performance. (correct)

To avoid dealing with competitors.

How should analysts approach their communication with clients after preparing a research report?

By being realistic in their suggestions. Signup and view all the answers

What is a key benefit of having a clear and specific set of questions ready for management meetings?

It allows for effective use of time and better understanding of operations. Signup and view all the answers

What should analysts avoid discussing with management?

Sensitive non-public information Signup and view all the answers

Which type of individuals should analysts seek out to gain better insights for their research?

Relevant contacts who understand the company's heartbeat, not just top management Signup and view all the answers

What characterizes the necessary pre-meeting research for analysts?

It should consist of thoroughly learning about the company and its context. Signup and view all the answers

What is a defining characteristic of equity shares?

They provide fractional ownership in a business venture. Signup and view all the answers

Which of the following can issue debentures, bonds, or notes?

Companies, government, and other specified issuers. Signup and view all the answers

Which regulatory body oversees equity shares issuance in India?

Securities and Exchange Board of India (SEBI) Signup and view all the answers

What type of securities are electronic gold receipts classified as?

Rights or interests in securities. Signup and view all the answers

What distinguishes a secured debenture from an unsecured one?

Secured debentures are backed by collateral support. Signup and view all the answers

What is the main medium through which equity shares are issued?

Stock exchanges and direct issuance by companies. Signup and view all the answers

Which of the following best describes the nature of debentures?

They serve as instruments for raising long-term debt. Signup and view all the answers

What type of investors can participate in the purchase of equity shares?

Institutional investors and individuals alike. Signup and view all the answers

What is the primary purpose of stock market indices?

To serve as a benchmark for comparing returns Signup and view all the answers

Which of the following is a characteristic of open-ended mutual fund schemes?

Investors can buy and sell units at any time Signup and view all the answers

How do sector indices differ from general stock market indices?

They track specific sectors instead of the overall market Signup and view all the answers

What does the Net Asset Value (NAV) of a mutual fund unit represent?

The market value of all assets minus liabilities divided by total units Signup and view all the answers

Which of these statements is true about Exchange Traded Funds (ETFs)?

ETFs may track an index or basket of assets Signup and view all the answers

What distinguishes closed-ended mutual funds from open-ended funds?

They sell a specific number of units and trade on the stock market Signup and view all the answers

What distinguishes an ETF from an index fund?

ETFs are traded on a stock exchange with continuously changing prices. Signup and view all the answers

Which of the following is NOT a common index in India?

Dow Jones Industrial Average Signup and view all the answers

Indices can also serve as an underlying for which of the following financial instruments?

Index funds and options Signup and view all the answers

Which characteristic is NOT associated with preference shares?

Voting rights in company matters. Signup and view all the answers

What is a feature of convertible debentures?

They offer a fixed coupon rate until conversion. Signup and view all the answers

How does the dividend payment structure of preference shares operate compared to common equity shares?

Preference shares typically guarantee a fixed dividend payout. Signup and view all the answers

Which type of preference share allows unpaid dividends to be carried forward?

Cumulative preference shares. Signup and view all the answers

Which statement about ETFs is true?

ETFs may provide diversification like index funds. Signup and view all the answers

In the event of a company's winding up, which group is paid first?

Preference shareholders. Signup and view all the answers

Which of the following is NOT a feature of preference shares?

Entitlement to residual assets. Signup and view all the answers

Study Notes

Disclaimers

The text states that this publication is based on sources considered reliable but does not guarantee accuracy.
National Institute of Securities Markets (NISM) and Securities and Exchange Board of India (SEBI) do not guarantee completeness or accuracy of the information.
Both NISM and SEBI disclaim any liability for errors or omissions in the information.
The content in the text reflects the state of knowledge at the time of publication, which is subject to change.

About NISM Certifications

NISM Certifications and Continuing Professional Education (CPE) Programs are developed and administered for professionals in the Indian securities markets.
These programs aim to enhance knowledge, skills, and ethics of market intermediaries to foster confidence and effective intermediation for investors.
Certification programs cover various topics, including mutual funds, equities, derivatives, securities operations, compliance, research analysis, investment advice, and portfolio management.

About the Workbook

This workbook is intended to assist candidates preparing for the NISM Certification Examination for Research Analyst.
The workbook covers a range of topics relevant to the examination, including research analysis procedures and communication within the field.

Communication with Management

Analysts should conduct thorough research before meeting with company management, including understanding the company's products, industry, competitors, and financial information.
Analysts should maintain independence and objectivity in their research and avoid revealing confidential information.
Analysts can leverage their network to gather insights from individuals knowledgeable about the company's functions and plans.
When meeting with management, analysts should have clear and specific questions to optimize the time.

Financial Instruments in the Indian Securities Market

Investors in the Indian market have access to a variety of financial products, including equity, debt, and derivative products.

Equity Shares

Equity shares represent fractional ownership in a company.
Equity shareholders collectively own the company, bear the risk, and enjoy the rewards of ownership.
Equity shares are issued by companies and traded on stock exchanges.
SEBI and regulators under the Companies Act oversee equity shares.

Debentures/Bonds/Notes

Debentures/Bonds/Notes are financial instruments for raising long-term debt.
They can be unsecured or secured (backed by collateral).
Debentures/Bonds/Notes are issued by companies, governments, Special Purpose Vehicles (SPVs), and other entities.
They are traded directly by issuers and on stock exchanges (if listed).
RBI, SEBI, and regulators under the Companies Act oversee debentures/Bonds/Notes.

Indices

Stock market indices provide a snapshot of the overall performance of a specific segment of the market.
Indices are representative of the underlying market and are periodically reviewed and modified.
The NSE Nifty 50 is an index tracking the top 50 companies listed on the National Stock Exchange (NSE).
Other common indices in India include Nifty Next 50, Nifty 100, Nifty 500, S&P BSE 100, S&P BSE 500, S&P BSE MidCap, and S&P BSE SmallCap.
Sector-specific indices, like those for banking, information technology, pharma, and fast-moving consumer goods, allow investors to track performance within specific sectors.
Uses of indices include:
- Comparing returns between asset classes, such as stocks and bonds.
- Benchmarking the performance of active equity funds or portfolios.
- Indicating the health of the overall economy or specific sectors.
- Providing real-time market sentiment.
- Acting as the underlying asset for index funds, index futures, and index options.

Mutual Fund Units

Mutual Funds (MFs) pool investor money for collective investment in securities.
Each investor's share is represented by units issued by the fund.
The Net Asset Value (NAV) of the units fluctuates with the value of the underlying portfolio.
Mutual fund schemes can be open-ended or close-ended.
- Open-ended schemes allow investors to buy and sell units at any time at NAV-linked prices.
- Close-ended schemes have a fixed capital and units are traded on stock exchanges.

Exchange Traded Funds (ETFs)

ETFs are investment instruments that track indices, commodities, or baskets of assets.
ETFs are listed and traded on stock exchanges similar to individual stocks, providing real-time price updates.
ETFs are passively managed, typically leading to lower expense ratios than actively managed funds.
ETFs offer diversification benefits like index funds while allowing for individual unit buying and selling.

Hybrids/Structured Products

Preference Shares

Preference shares have features of both equity and debt.
They are a form of equity with preference for dividend payouts and capital repayment compared to common equity shares.
Preference shares resemble equity as they are owned by shareholders and dividend is paid from profit after tax.
Unlike common equity shares, preference shares do not offer voting rights or a claim on residual assets.
Preference shares resemble debt because they offer a fixed dividend payable before any common equity dividend.
There are various types of preference shares, including cumulative (unpaid dividends are carried forward) and non-cumulative (unpaid dividends lapse).

Convertible Debentures & Bonds

Convertible debentures are debt instruments that can be converted into equity shares at a pre-defined time.
They offer both debt and equity characteristics.
They pay periodic interest like other debt instruments until conversion.
Upon conversion, they become equity shares.

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Description

Explore the essential aspects of NISM certifications and Continuing Professional Education programs. This quiz highlights the role of NISM and SEBI in enhancing knowledge and ethics among securities market professionals, ensuring effective investor intermediation. Test your understanding of various topics covered in these certifications.