NISM Series X-B: Investment Adviser (Level 2) Mock Test (Set 2)

According to the rules of the Employees’ Provident Fund (EPF), a member can withdraw for the purpose of purchasing or constructing a house after completion of 5 years of continuous service. The property can be in the member’s name or jointly with his wife.

Loss from business or profession cannot be set off against salary income. Business losses are allowed to be set off only against profits from business or profession, and not against salary income.

The regulations for the National Pension System (NPS) require that at least 40% of the accumulated corpus in the NPS account has to be used to purchase an annuity upon retirement.

A financial goal is a specific, measurable, and time-bound objective related to one’s financial plans. Among the options provided, the need for Rs.5 lakhs after two years to pay a child’s tuition fees represents a specific financial goal with a clear amount, timeframe, and purpose.

Short-term capital loss can be set off against both long-term capital gain and short-term capital gain. This provides flexibility for investors to offset losses against gains in the same category, helping in the reduction of overall tax liability.

Since Dinakaran sold the house within one year of its purchase (between 20th Jan 2013 and 20th Dec 2014), the capital gain incurred is classified as Short Term Capital Gain.

The SEBI (AIF) Regulations 2012 define an AIF (Alternative Investment Fund) as a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, for investing in accordance with a defined investment policy.

To form a trust, three parties are required: the settlor (who creates the trust), the trustee (who holds and manages the trust property), and the beneficiary (who benefits from the trust).

The age limit for the reverse mortgage scheme in India is 60 years. It is a financial product designed for senior citizens to convert their home equity into income.

Asset reconstruction companies (ARCs) are created to manage and recover non-performing assets (NPAs) of banks and financial institutions. They play a role in acquiring and resolving distressed assets, helping in the cleanup of the financial system.

Having a higher capital base provides a financial cushion and increases the ability to absorb downsides that may come with risk. It provides a buffer against losses and enhances financial resilience.

The maximum tax-exempt limit for employer contribution to the National Pension System (NPS) for a non-government employer is 10% of salary and dearness allowance.

For an ordinary resident in India, the global income is taxable, including income that accrues or arises outside India and is received outside India. Non-residents and not ordinary residents are generally taxed only on income earned or received in India. Non-Resident Indians (NRIs) are subject to tax on income earned or received in India.

In the Pradhan Mantri Vaya Vandana Yojana (PMVVY), policyholders can avail a loan against the policy after completing three policy years. The loan amount can be up to 75% of the purchase price of the annuity at the prevailing interest rates.

A Critical Illness Policy provides a lump sum benefit to the insured if they are diagnosed with specified critical illnesses such as cancer, heart attack, stroke, kidney failure, or multiple sclerosis. This benefit is paid irrespective of the actual medical expenses incurred, and it aims to provide financial support during a critical illness.

In the distribution stage of a retirement plan, the primary goal is often to create a fixed income stream to support the retiree’s living expenses. This could involve utilizing various income-generating sources such as pensions, annuities, or a well-structured investment portfolio that provides a steady stream of income. The emphasis is on providing a reliable and consistent source of funds during the retirement years.

Anchoring bias refers to the tendency of individuals to rely too heavily on the first piece of information encountered (the “anchor”) when making decisions. In the context of financial decision-making, this bias can lead individuals to give disproportionate weight to the initial information they receive, even if it becomes irrelevant or outdated.

According to the mental accounting theory, people treat money differently based on factors such as the money’s origin and intended use. This theory suggests that individuals categorize and manage their finances in a way that reflects their psychological perceptions, leading to different behaviors and decision-making based on mental compartments or accounts.

The basic objective of tax alpha is to maximize after-tax return. Tax alpha refers to the additional returns that can be achieved by making tax-efficient investment decisions and strategies. It involves minimizing the impact of taxes on investment returns, ultimately aiming to enhance the after-tax performance of an investment portfolio.

Loss Aversion Bias often leads people to stay away from profitable opportunities due to a perception of high risks, even when the actual risk may be very low. This bias is based on the tendency of individuals to prefer avoiding losses over acquiring equivalent gains. The fear of losing money can lead to conservative decision-making, even in situations where the potential for gain outweighs the risk.

Under section 80E of the Income Tax Act, the deduction for Interest on Educational Loan is allowed for the actual amount paid as interest on the loan. There is no fixed limit; taxpayers can claim the deduction for the entire interest amount paid during the financial year.

In the case of life insurance, “Riders” are add-on benefits that can be attached to policies to provide additional coverage in case of specific eventualities. Riders enhance the scope of the basic insurance policy by offering supplementary features and benefits. Examples of riders include critical illness riders, accidental death benefit riders, and disability riders, among others.

Insurance policies, in general, are not designed to protect against stock market losses. Insurance primarily serves to provide financial protection against specific risks or uncertainties, such as death, health issues, property damage, or other unforeseen events. Stock market losses fall under the purview of investment and are not typically covered by standard insurance policies.

For Debt mutual funds, short-term capital gains tax is applicable if the holding period is less than 3 years.

Gains from the sale of sculptures, paintings, jewelry, and other similar items are chargeable to tax.

The National Pension System (NPS) provides its subscribers with investment choices to invest their retirement savings. Subscribers can choose from various investment options based on their risk appetite and financial goals.

Masala bonds are rupee-denominated borrowings issued by Indian entities in overseas markets. These bonds are issued to raise funds from international investors, and the debt is denominated in Indian rupees.

A Systematic Withdrawal Plan (SWP) is a facility in mutual funds that allows investors to withdraw a fixed amount at regular intervals from their investments. It is useful for generating regular income from mutual fund schemes. Investors can choose the frequency and amount of withdrawals based on their income needs.

When an investor wishes to take a loan against some portion of their mutual fund holdings, they typically need to mark a lien only on the specific portion that is being pledged as collateral for the loan. This allows the investor to use a part of their mutual fund holdings as security for the loan while keeping the rest of the holdings unaffected. A lien is a legal right or interest that a lender has in the borrower’s property, in this case, the specific portion of mutual fund units.