📊 NISM Series V-DChapter 14 of 22⚖ 5 of 150 marks weightage
Ch.14: Understanding Index
Practice questions for NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination, Chapter 14: Understanding Index — covering index construction methods, impact cost, index management, and the applications of indices in fund products. Carries 5 out of 150 marks. The exam has 150 MCQs, 60% passing score, and −10% negative marking per wrong answer.
30
MCQ
30
Total Qs
5
Exam Marks
60%
Pass Score
-10%
Neg. Marking
What You Will Learn in This Chapter
The index and its significance as a market benchmark and derivatives underlying
Four index construction methods: market-cap weighted, free-float, price-weighted and equal-weighted — including how each is calculated
Impact cost and the bid-ask spread, and how liquidity affects transaction cost
Index management: construction, maintenance and revision, including SEBI's 2025 prudential norms for non-benchmark index derivatives
Applications of indices — index funds, index derivatives and Exchange Traded Funds (ETFs)
A key advantage of Exchange Traded Funds (ETFs) over other mutual funds, per the workbook, is that:
AThey cannot be bought or sold intraday
BThey can be bought and sold on the exchange, allowing intraday transactions
CThey are exempt from all expense ratios
DThey only track price-weighted indices
Q2MCQMediumApplications of Indices — Index Funds
An index fund aims to:
AOutperform its benchmark index through active stock selection
BGenerate returns equivalent to the return on its underlying index, investing in the same stocks in the same proportion
CInvest only in government securities regardless of the index name
DGuarantee a fixed absolute return each year
Q3MCQEasyAttributes of an Index
Which of the following is NOT listed as an attribute of a good market index?
AIt should reflect market behaviour
BIt should be computed by an independent third party, free from any market participant's influence
CIt should be professionally maintained
DIt should be revised every trading day regardless of corporate actions
Q4MCQHardEqual-Weighted Index
An equal-weighted index constructed with a total stock value of Rs.1,20,000 rises in value to Rs.1,46,000. If the base index value was 100, the new index value is approximately:
A104.00
B121.67
C146.00
D226.06
Q5MCQMediumEqual-Weighted Index
In an equal-weighted index, the number of shares of each constituent stock is adjusted so that:
AEach stock has the same absolute share price
BEach stock has the same weight (value) in the index
COnly large-cap stocks are included
DDividend yields are equalized across stocks
Q6MCQMediumEqual-Weighted Index
When price movements cause some constituents' weights to drift above the target equal weight in an equal-weighted index, the fund manager must:
ADo nothing until the next annual review
BSell the stocks that increased in price and buy the stocks that fell in price, to restore equal weights
CRemove the drifting stocks from the index permanently
DIncrease the total number of constituents
Q7MCQMediumFree-Float Market Capitalization Index
A free-float market capitalization index computes weights based on:
AThe total shares issued, including promoter holdings locked-in
BOnly the shares readily available for immediate trading
CThe face value of the shares
DThe number of shareholders, not shares
Q8MCQMediumFree-Float Market Capitalization Index
Which of the following Indian indices are cited as having moved to a free-float basis?
AOnly Sensex
BSensex, Nifty and SX40
COnly Nifty Next 50
DNone — Indian indices remain full market-cap weighted
Q9MCQMediumImpact Cost
Impact cost:
AIs fixed regardless of the size of the transaction
BVaries with transaction size, and differs for the buy side and sell side
CIs only relevant to bond markets, not equities
DIs charged directly by SEBI as a regulatory fee
Q10MCQMediumImpact Cost
The difference between the best buy order price and the best sell order price in an order book is called the:
AImpact cost
BBid-ask spread
CTracking error
DFree-float discount
Q11MCQMediumImpact Cost
The 'ideal price' used to measure impact cost is defined as:
AThe last traded price of the day
BThe average of the best bid and best offer price
CThe 52-week average price
DThe opening price of the stock
Q12MCQHardImpact Cost
Given a best bid of Rs.9.80/Rs.9.70/Rs.9.60 (1000/2000/3000 qty) and best offer of Rs.9.90/Rs.10.00/Rs.10.10 (1000/1500/1000 qty), the impact cost of buying 1,500 shares is closest to:
A0.25%
B0.84%
C1.50%
D2.10%
Q13MCQMediumIndex Management
Who manages BSE and NSE indices respectively, per the workbook?
ASEBI directly manages both
BBSE indices are managed by Asia Index Pvt Ltd; NSE indices are managed by NSE Indices Limited
CAMFI manages both exchanges' indices
DBoth are managed by the RBI
Q14MCQMediumIndex Management
On diversification and index construction, the workbook states that:
AGoing from 50 to 100 stocks in an index sharply reduces risk further
BGoing from 10 to 20 stocks sharply reduces risk, but gains shrink well beyond 100 stocks
CRisk reduction is linear no matter how many stocks are added
DA single-stock index carries the same risk as a 500-stock index
Q15MCQHardIndex Management
Which of the following correctly distinguishes index construction, maintenance and revision?
AConstruction = choosing stocks and methodology; Maintenance = adjusting for corporate actions; Revision = changing the composition of index constituents over time
BConstruction, maintenance and revision are three names for the same single process
CMaintenance means changing constituent stocks; revision means adjusting for stock splits
DOnly revision is done by regulators; construction and maintenance are done by AMCs
Q16MCQEasyIntroduction to an Index
When looking at an index value over time, which is more important — the actual numeric value or the percentage change?
AThe actual numeric value
BThe percentage change from the base value
CNeither matters once the index is published
DOnly the value on the base date matters
Q17MCQEasyIntroduction to an Index
A stock index is best described as:
AA single company's share price movement
BA portfolio of securities that represents a particular market or a portion of a market
CA government-fixed benchmark interest rate
DA regulatory filing required for all listed companies
Q18MCQHardMarket Capitalization Weighted Index
A market-cap weighted index has a base market capitalization of Rs. 18,800 lakhs (indexed to 100). If market capitalization rises to Rs. 42,500 lakhs, the new index value is approximately:
A104.00
B121.67
C226.06
D325.00
Q19MCQEasyMarket Capitalization Weighted Index
In a market capitalization weighted index, a stock's weight in the index is determined by:
AIts share price alone
BIts market capitalization — higher market cap means higher weight
CAn equal split regardless of size
DIts dividend yield
Q20MCQMediumMarket Capitalization Weighted Index
ABC company has 5,00,00,000 shares outstanding and a current market price of Rs. 120 per share. Its market capitalization is:
ARs. 60 crores
BRs. 120 crores
CRs. 600 crores
DRs. 6,000 crores
Q21MCQEasyMarket Capitalization Weighted Index
Sensex and Nifty were originally designed using which index construction method?
APrice-weighted method
BEqual-weighted method
CMarket capitalization weighted method
DVolume-weighted method
Q22MCQEasyPrice-Weighted Index
Which of these are cited as popular price-weighted indices?
ANifty 50 and Sensex
BDow Jones Industrial Average and Nikkei 225
CS&P BSE 500 and Nifty 500
DSX40 and Nifty Next 50
Q23MCQHardPrice-Weighted Index
Five stocks priced at Rs.150, 300, 450, 100 and 250 on the base date rise to Rs.650, 450, 600, 350 and 500 respectively. Using the price-weighted method, the percentage increase in the index is:
A21.67%
B84.00%
C104.00%
D126.06%
Q24MCQMediumPrice-Weighted Index
In a price-weighted index, a stock's influence on the index is proportional to:
AIts market capitalization
BIts trading volume
CIts price — higher-priced stocks carry more weight
DIts free-float percentage
Q25MCQMediumSample Question (Official NISM)
Which of the following costs is not actually paid by market participants but arises due to lack of liquidity?
ASecurities Transaction Tax
BImpact cost
CSEBI charges
DBrokerage
Q26MCQMediumSample Question (Official NISM)
State whether TRUE or FALSE: Impact cost is low when the liquidity in the system is poor.
ATrue
BFalse
COnly true for price-weighted indices
DOnly true for debt market indices
Q27MCQHardSEBI Circular on Non-Benchmark Indices
Under the SEBI circular's implementation timeline, BANKNIFTY (NSE) is required to comply via:
AA single tranche by December 31, 2025
BFour monthly tranches, by March 31, 2026
CImmediate compliance with no transition window
DTwo tranches over 18 months
Q28MCQHardSEBI Circular on Non-Benchmark Indices
Per SEBI's October 30, 2025 circular on derivatives eligibility for existing non-benchmark indices, which prudential norm is correctly stated?
AMinimum of 25 constituents, top constituent weight ≤ 30%
BMinimum of 14 constituents, top constituent weight ≤ 20%, top-3 combined weight ≤ 45%
CNo minimum constituent requirement, only a top-3 combined weight cap of 60%
DMinimum of 50 constituents with equal weighting mandated
Q29MCQEasySignificance of the Stock Index
Which of the following is explicitly listed as a significance of the stock index?
AIt fixes the price of every stock in the market
BIt serves as a benchmark for evaluating portfolio performance
CIt guarantees a minimum return to index fund investors
DIt sets the repo rate for the economy
Q30MCQMediumSignificance of the Stock Index
Besides being a performance benchmark, an index is also significant because it is:
AUsed as an underlying for OTC and exchange-traded derivative products
BThe only asset class regulated by SEBI
CUsed to calculate a mutual fund's expense ratio
DA substitute for a fund's Scheme Information Document
About this content: These practice questions are based on the
NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination Workbook
published by the National Institute of Securities Markets (NISM), Mumbai (March 2026 edition).
NISM is a SEBI-established institution. Questions cover Chapter 14: Understanding Index with verified answers and explanations.
BullWiser is an independent exam preparation platform — not affiliated with NISM, SEBI or AMFI.
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