Multiple Choice Questions (43)
Q1
MCQ · 1 mark
EasyConcept
What is the main aim of financial planning for a household?
AMinimising tax in the current year only
BMaximising returns regardless of risk
CBuying as many assets as possible
✓Making sure it has enough income and resources for current and future needs
💡 Financial planning lines up income, expenses, assets and liabilities so that both today's needs and future needs, such as retirement and education, are funded.
Q2
MCQ · 1 mark
MediumConcept
Which best describes financial planning as a process?
✓A holistic approach that reviews the current position, plans for future needs, funds them and tracks progress
BA one-time product sale
CFiling income tax returns
DPicking the best stock each year
💡 It identifies key goals, puts an action plan in place to realign finances to those goals, and reviews progress over time.
Q3
MCQ · 1 mark
MediumNeed for planning
A sole earner with a good income saves regularly but has no emergency fund. What risk does financial planning highlight?
AHis investments will become illiquid
BHe will pay too little tax
✓An interruption in income could force him to use savings or borrow
DHis insurance premiums will rise
💡 An emergency fund protects the household if regular income stops, so long-term savings are not broken or costly debt taken.
Q4
MCQ · 1 mark
MediumRole of planner
Why do many people need a financial planner rather than managing everything themselves?
ABanks will not open accounts without a planner
✓Managing personal finances well needs time, attention and expertise most people lack
CSEBI requires everyone to have a planner
DPlanners guarantee returns
💡 Setting goals, choosing products, asset allocation and regular review all need skill and time that busy individuals often do not have.
Q5
MCQ · 1 mark
MediumPlanning vs advice
How does financial planning differ from a typical financial advisory service?
ATypical advice is always more comprehensive
BPlanning focuses only on stock tips
CThere is no difference
✓Planning covers all of the client's finances and goals, while typical advice may address only one need
💡 Planning is client-centred and comprehensive, covering retirement, insurance, investment and estate. Typical advice may only look at, say, which equity fund to buy.
Q6
MCQ · 1 mark
HardPlanning vs advice
An adviser recommends equity funds to a 62-year-old without checking his equity exposure elsewhere. What would a financial planning approach do differently?
ARecommend even more equity for higher returns
✓Check total equity exposure across assets so it matches his risk-taking ability
CMove all money to fixed deposits automatically
DIgnore other holdings as irrelevant
💡 Financial planning makes sure all financial activities work together. Advice given in isolation can push total risk beyond what the client can bear.
Q7
MCQ · 1 mark
EasyPlanning vs advice
Which feature is built into financial planning but often missing from one-off advice?
✓Ongoing monitoring and continuity
BAvoiding all risk
CGuaranteed returns
DSelling products for commission
💡 Monitoring and taking corrective action is a natural part of the planning process. One-off advice may leave the client to track things alone.
Q8
MCQ · 1 mark
EasyGoal setting
Where does the financial planning process start?
AOpening a demat account
BBuying insurance
✓Setting goals
DChoosing a fund manager
💡 Goals define what has to be achieved and give a clear target for the plan.
Q9
MCQ · 1 mark
MediumGoal setting
Which goal is properly specific, measurable and time-bound?
✓Retire in 20 years with a corpus of ₹5 crore
BHave a comfortable life someday
CSave as much as possible
DBecome rich
💡 Goals should be specific, measurable, realistic and time-bound. 'Become rich' means different things to different people.
Q10
MCQ · 1 mark
MediumGoal setting
A person can save about ₹20,000 a month. Why is a goal needing ₹50,000 a month of saving a problem?
AThe goal is not specific
BThe goal is not measurable
✓The goal is not realistic for their savings capacity
DThe goal is too short-term
💡 A goal must be achievable. If the required saving is far above what the person can save, the goal needs to be resized or deferred.
Q11
MCQ · 1 mark
MediumPrioritising goals
Which goal should normally get priority over buying a luxury car?
AAn annual foreign holiday
✓Children's education and retirement
CA new smartphone every year
DRedecorating the house
💡 Important goals that build long-term financial health come before consumption spending that creates no asset.
Q12
MCQ · 1 mark
HardPrioritising goals
Someone with a large credit card balance receives an unexpected bonus. What does good financial planning suggest?
AInvest it in equity and keep paying the minimum on the card
BSpend it on a holiday since it was unexpected
CKeep it idle in a savings account
✓Use it to pay off the credit card debt
💡 Paying off expensive debt does not create an asset but clearly improves the household's financial health.
Q13
MCQ · 1 mark
MediumImportant goals
Why do long-term goals like retirement often get too little saving?
AThey need less money
BThey cannot be planned
✓They seem far away, so urgent short-term goals take priority
DRetirement benefits are always enough
💡 Delaying retirement saving loses years of compounding, which shrinks the final corpus.
Q14
MCQ · 1 mark
MediumImportant goals
A client believes his PF, superannuation and gratuity will be enough for retirement. What should the adviser do?
AAccept the client's view to keep the relationship
BRecommend only equity to boost returns
CAdvise him to retire later without checking
✓Work through the numbers to show whether the corpus is adequate
💡 These benefits often fall short. The adviser should demonstrate any gap with numbers so the client saves enough while earning.
Q15
MCQ · 1 mark
MediumStaggering goals
A family cannot afford a house purchase next year. What is a sensible planning response?
✓Defer the goal by a few years until finances can support it
BCancel all other goals
CTake a personal loan for the down payment
DStop insurance premiums
💡 Pushing a goal back, for example from 1 year to 3, gives time to build the down payment and income needed for the EMI.
Q16
MCQ · 1 mark
HardStaggering goals
Which goal is least suitable for deferring and may justify careful use of a loan if funds are short?
AAn international holiday
✓A child's higher education
CA luxury car
DA home renovation
💡 Education has to happen at the right age, so it cannot easily be postponed. Prudent borrowing can bridge a gap.
Q17
MCQ · 1 mark
MediumCash flow
How can a person who spends less than they earn still face a cash crunch?
AThey hold too many assets
BTheir income is too high
CThey pay too little tax
✓Large expenses may fall due before income arrives
💡 A timing mismatch between inflows and outflows can force costly short-term borrowing unless there is a reserve.
Q18
MCQ · 1 mark
EasyBudgeting
What does a personal budget list?
AOnly investments made
BOnly tax-saving instruments
✓Expected income and expenses, with amounts and timing
DOnly the assets owned
💡 A budget with cash flow dates shows at a glance whether income is managed properly and whether enough is being saved.
Q19
MCQ · 1 mark
EasyInsurance planning
Insurance works as a:
ALoan facility
✓Risk transfer mechanism
CGuaranteed investment
DTax on income
💡 A small premium transfers the financial impact of unexpected events, such as death, illness or property loss, to the insurer.
Q20
MCQ · 1 mark
MediumInsurance planning
Which insurance covers loss of a household's income because of the earner's death?
✓Life insurance
BMotor insurance
CTravel insurance
DFire insurance
💡 Life insurance covers the permanent loss of income from death. Health and accident covers deal with medical costs and temporary disability.
Q21
MCQ · 1 mark
MediumDebt management
Why is borrowing described as 'using tomorrow's income today'?
ABorrowed money never has to be repaid
BLoans increase future income
CLoans are interest-free
✓A part of future income must go to repay the loan
💡 Repayments reduce future ability to save and, if excessive, can squeeze spending on essentials.
Q22
MCQ · 1 mark
MediumDebt management
Which loan is generally more helpful to long-term wealth?
AA credit card balance for shopping
✓A loan for an appreciating asset such as a house
CA loan for a holiday
DA loan for a depreciating car
💡 Loans that fund appreciating assets add to long-term wealth. A car loan funds a depreciating asset with running costs, though it may improve lifestyle.
Q23
MCQ · 1 mark
HardDebt management
Why is borrowing to buy financial assets (leveraging) considered risky?
AFinancial assets cannot be sold
BIt is illegal in India
✓Financial asset prices can be volatile, while the loan must be repaid regardless
DBanks never lend for financial assets
💡 If prices fall, the investor still owes the full loan and interest, which magnifies losses.
Q24
MCQ · 1 mark
MediumAsset allocation
What approach does an investment adviser mainly take in investment planning?
✓A top-down asset allocation approach
BPicking individual stocks and bonds
CFollowing tips from news channels
DTiming the market daily
💡 The adviser decides how much goes to each asset class to deliver the needed return within the client's risk preference.
Q25
MCQ · 1 mark
MediumTax planning
What role should tax efficiency play in investment decisions?
AIt should be ignored completely
✓It should guide choices, but needs and risk appetite should be the basis
CIt should be the main basis of every decision
DIt matters only for retired investors
💡 Post-tax return and holding period matter, but the client's requirements and risk appetite should drive decisions.
Q26
MCQ · 1 mark
MediumRetirement planning
What should happen to a retirement portfolio as retirement approaches?
✓It should be gradually shifted to less volatile assets
BAll of it should be withdrawn as cash
CIt should move fully into equity
DIt should stop being reviewed
💡 In the pre-retirement stage, rebalancing towards stability protects the corpus. Monitoring continues through retirement too.
Q27
MCQ · 1 mark
MediumEstate planning
What is estate planning about?
ABuying real estate
BReducing monthly expenses
CPlanning a holiday home
✓Arranging the transfer of wealth to heirs and other beneficiaries smoothly and tax-efficiently
💡 It uses tools such as gifts during one's lifetime and wills that take effect after death.
Q28
MCQ · 1 mark
EasyAssets and net worth
How is net worth calculated?
AAssets plus liabilities
BIncome minus expenses
✓Assets minus liabilities
DSavings minus taxes
💡 A higher net worth indicates a better financial position. It should be calculated and tracked regularly.
Q29
MCQ · 1 mark
MediumAssets and net worth
A household has assets of ₹75 lakh and liabilities of ₹25 lakh. What is its net worth?
A₹25 lakh
B₹75 lakh
✓₹50 lakh
D₹1 crore
💡 Net worth = ₹75 lakh − ₹25 lakh = ₹50 lakh.
Q30
MCQ · 1 mark
MediumPhysical assets
Which is a key drawback of physical assets such as real estate?
AThey are highly regulated and standardised
BThey can be bought in very small units
CThey never rise with inflation
✓Illiquidity and the need for specialised skills to buy, manage and sell
💡 Physical assets also tend to be large-ticket and limited in regulation, though they are often seen as inflation hedges.
Q31
MCQ · 1 mark
MediumPhysical assets
Why are physical assets such as gold often seen as inflation hedges?
ATheir prices are fixed by the government
✓Their prices tend to rise with inflation
CThey pay fixed interest
DThey have no resale value
💡 Physical assets show a positive correlation with inflation and are bought mainly for appreciation.
Q32
MCQ · 1 mark
MediumPhysical assets
Which of these should an adviser NOT treat as an investment asset?
✓A personal car
BGold
CListed shares
DA rented-out flat
💡 A car is a consumption asset that depreciates, even if it lasts long. It should not be confused with investments.
Q33
MCQ · 1 mark
MediumFinancial assets
Which is an advantage of financial assets over physical assets?
AThey are always risk-free
✓They are standardised, regulated and can be bought in small amounts
CThey never fall in value
DThey are exempt from tax
💡 Standardisation and mandatory disclosure make comparison easier, and small ticket sizes make them accessible.
Q34
MCQ · 1 mark
EasyPlanning process
What is the first step in the six-step financial planning process?
AImplementing recommendations
BBuying insurance
✓Establishing and defining the client-planner relationship
DMonitoring the plan
💡 The process starts when the client engages the adviser and the scope and terms of work are agreed.
Q35
MCQ · 1 mark
MediumPlanning process
Which is the correct order of the middle steps of the financial planning process?
AMonitor, analyse, gather data
BImplement, gather data, monitor
CPresent recommendations, then gather data
✓Gather data and goals, analyse financial status, develop and present recommendations
💡 The full sequence is: define the relationship, gather data, analyse, recommend, implement, monitor.
Q36
MCQ · 1 mark
MediumPlanning process
Why is monitoring the last step of the financial planning process?
✓Client circumstances and investment performance change over time
BThe plan is finished after implementation
CSEBI forbids changes to a plan
DMonitoring is optional
💡 Monitoring keeps the plan aligned with goals and allows revisions when needed.
Q37
MCQ · 1 mark
MediumConflict of interest
Why does earning commission from product makers create a conflict of interest for an adviser?
AProduct makers set the client's goals
✓The adviser may push higher-commission products rather than suitable ones
CCommissions are always illegal
DCommissions reduce the adviser's workload
💡 This can lead to mis-selling, where unsuitable products are sold against the client's interest.
Q38
MCQ · 1 mark
MediumRegulation
Under SEBI's regulatory approach, who should pay a registered investment adviser?
✓The client, not the product manufacturer
BSEBI
CThe mutual fund or insurer
DThe stock exchange
💡 Anyone giving financial advice for a fee must register with SEBI and should earn only from the client, which separates advice from distribution.
Q39
MCQ · 1 mark
HardRegulation
Under the amended Investment Adviser Regulations, what is true for an individual investment adviser?
AThey can earn commissions on any product they recommend
BThey need no SEBI registration
✓They cannot do both advisory and distribution and must choose one
DThey can do both if they disclose it
💡 Individuals must register as either adviser or distributor. They may offer execution only through direct plans or products, with no consideration earned at group or family level.
Q40
MCQ · 1 mark
MediumBusiness models
How do fee-only advisers usually handle execution of the plan?
AThey always execute through regular plans
BThey earn commission on each product sold
CThey refuse any implementation
✓They refer clients to other agencies for execution
💡 Keeping execution separate ensures that commissions do not influence their advice.
Q41
MCQ · 1 mark
MediumBusiness models
Which of these is a type of fee a fee-only planner may charge?
ACommission from the AMC
✓An asset-based fee as a percentage of assets advised
CEntry load on mutual funds
DBrokerage from the stock exchange
💡 Fees may be one-time, ongoing review fees, asset-based fees, or fees for analysis and portfolio construction.
Q42
MCQ · 1 mark
MediumBusiness models
What is an aggregation model in execution-only services?
✓Many distributors share a common company's research and platforms and pay it a share of revenue
BA single adviser charging fees
CAn AMC selling only its own funds
DSEBI pooling client money
💡 Aggregators shortlist products, provide research, training and technology, and share revenue with associated distributors.
Q43
MCQ · 1 mark
MediumBusiness models
What do wraps and platforms offer?
ABank loans against property
BLife insurance only
✓Technology-based, standardised model portfolios that clients can buy and track
DPhysical gold storage
💡 Advisers can use these platforms to execute, monitor and review client portfolios across products.
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Case-Based Questions (1 set)
Case 1
Case-Based · 2 marks each
Goals, net worth and the planning process
Anil (40) earns ₹2 lakh a month and saves about ₹40,000 after expenses and EMIs. He is the only earner in his family. His assets are a flat worth ₹90 lakh, mutual funds of ₹18 lakh, bank deposits of ₹6 lakh and a car worth ₹6 lakh. He owes ₹45 lakh on his home loan and ₹4 lakh on his car loan. He wants to fund his daughter's college in 8 years, buy a holiday home next year, and retire at 58. He has no health cover beyond a small employer policy and no emergency fund.
Easy Sub-question 1
What is Anil's net worth?
A₹65 lakh
✓₹71 lakh
C₹120 lakh
D₹49 lakh
💡 Assets = 90 + 18 + 6 + 6 = ₹120 lakh. Liabilities = 45 + 4 = ₹49 lakh. Net worth = 120 − 49 = ₹71 lakh.
Medium Sub-question 2
Which goal is the best candidate to defer if savings cannot cover everything?
AHis daughter's college education
BHis retirement corpus
✓The holiday home
DAn emergency fund
💡 Education cannot wait and retirement needs long compounding. A holiday home is a lifestyle goal that can be pushed back.
Medium Sub-question 3
Before investing for his goals, which gap should the planner address first?
APrepaying the car loan in full
BBuying the holiday home
CSwitching all savings to small cap funds
✓Creating an emergency fund and adequate health and life cover
💡 As the sole earner with no reserve and thin cover, an income shock or medical bill could wreck every goal. Protection comes first.
Medium Sub-question 4
After the plan is implemented, what is the planner's next step?
✓Monitor and review the plan regularly
BSet entirely new goals every month
CClose the relationship
DSell all existing investments
💡 Monitoring is the final step of the six-step process. Changes in income, goals or performance may need revisions.
About this content: These practice questions are based on the
NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination Workbook
published by the National Institute of Securities Markets (NISM), Mumbai.
NISM is a SEBI-established institution. Questions cover Introduction to Personal Financial Planning with verified answers and explanations.
BullWiser is an independent exam preparation platform — not affiliated with NISM or SEBI.
Last updated: .
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