Sample Questions - Chapter 1

27

Sample Questions: Chapter 1

1. The additional return required by the investor over and above the normal rate of
return, when the investment is risky is called ________.
a) Alpha
b) Risk free rate of return
c) Risk premium

2. Future value of the investment is influenced by __________.

a) Time period
b) Rate of return
c) Both time period and rate of interest

3. Which of the following is/are the function(s) of the secondary markets?

a) Provide liquidity for securities issued
b) Provide a platform for making public issues
c) Provide information about public companies
d) All the above

4. Which of the following is/are distinguishing feature(s) of primary market?

a) It originates securities into the market.
b) It enables issuers to raise capital.
c) It helps in intermediation between investors and issuers.
d) All the above

5. Which of the following is a non-institutional investor?

a) A pension fund with a focus on long term investing.
b) A foreign fund registered with SEBI as a foreign investor having investment
operations in India.
c) A domestic family office operating in Indian stock market.
d) A foreign company that is involved in non-financial business operations in India.
Sample Questions - Chapter 2

46

Sample Questions: Chapter 2

1. ____________________ represent ownership in a company that entitles its holders to

participate in its profits and the right to vote on the company’s affairs.
a) Bonds
b) Commercial Papers
c) Equity Shares
2. Financial assets are generically classified into two broad categories: __________.
a) Debt & Equity
b) Bonds and deposits
c) Real estate & gold
d) Equity & gold
3. In India, the Central Government issues ____________.
a) Treasury bills
b) Dated securities
c) Both Treasury Bills and Dated Securities
d) Certificate of deposits
4. Alternative investment is defined as a _________ that does not fall into one of the
conventional investment categories.
a) mutual fund
b) financial asset
c) personal property
d) financial planning
5. The following is an example of alternative investment.
a) Investment in AAA listed bond
b) Investment in Government securities
c) Investment in commercial real estate
d) Investment in Exchange traded futures
Sample Questions - Chapter 3

66

Sample Questions: Chapter 3

1. An AIF that seeks to invest in unlisted securities of later stage companies belongs to
which category?
a. Category I
b. Category II
c. Category III

2. A fund that provides both equity and quasi-equity debt financing to early-stage
companies would classify as which one of the following?
a. Venture capital fund
b. Unsecured bond fund
c. NBFC fund
d. Investment Fund

3. Which of the following investors CANNOT invest in an Angel Fund?

a. Accredited investors
b. Retail investors
c. Manager of the Angel Fund

4. AIFs investing in start-up companies enable funding their working capital requirements.
State whether True or False.
a. True
b. False
Sample Questions - Chapter 4

94

Sample Questions: Chapter 4

1. The following category of investors is not suitable to invest in an AIF.
a. Individuals less than 60 years of age
b. Individuals with no risk-taking capacity
c. Members of a HUF
d. Partners of a firm
2. Which of the following persons is eligible to be the sponsor of an AIF?
a. Individual who is convicted of a criminal offence but awaiting sentencing
b. Individual of an unsound mind but undergoing treatment
c. Individual who is insolvent but is yet to file for bankruptcy
d. ‘Fit and proper’ person as determined by SEBI
3. ___________ is a function of the investment manager.
a. Entrepreneurship
b. Auditing the books of an AIF
c. Harvesting returns
d. Settling business disputes of the investee company
4. Distributor of an AIF is the vital link between potential investors and the investment
managers of an AIF. State whether True or False.
a. True
b. False
5. Sponsor commitment in the context of an AIF means the extent to which the sponsor commits
to running its operations according to established business practices. State whether True or
False.
a. True
b. False
Sample Questions - Chapter 5

110

Sample Questions: Chapter 5

1. The following is the most common structure adopted for a domestic AIF in India.
a. Company
b. Partnership
c. Trust
d. Sole Proprietorship
2. Which of the following is the trust structure that is suitable for an AIF in India?
a. Public charitable trust
b. Limited liability trust
c. Partnership trust
d. Determinate trust
3. In a Limited Liability Partnership (LLP) structure, the investors are ______ in the firm.
a. creditors
b. partners
c. partners in profit only
d. partners without liability
4. In a pure offshore structure, the AIF is pooled outside India and registered in India under
the SEBI (FVCI) Regulations. State whether True or False.
a. True
b. False
5. In a _____________ Structure, commitments from both domestic and offshore investors
are pooled into a domestic pooling vehicle and no approval is required from Reserve
Bank of India, to raise capital from foreign investors.

a. Unified
b. Co-investment
c. Offshore
d. Master-feeder
Sample Questions - Chapter 6

131

Sample Questions: Chapter 6

1. Total Fees charged by a Category I AIF includes Management Fees and Performance Fees
only. State whether True or False.
a. TRUE
b. FALSE

2. In which of the following scenarios is management fee paid to the Investment Manager of
an AIF?
a. if gains are earned by the fund
b. if investors 75% investors by value vote towards payment of such fees
c. irrespective of any future gains or losses made by the Fund

3. The ___________ is the threshold return over which the Investment Manager will be
eligible to earn Performance Fees.
a. Hurdle Rate
b. Internal Rate of Return
c. Gross Net Asset Value
4. If there is a catch-up clause in an investment management agreement, it works as follows:
a. Catch up ensures all of the agreed incentive fee (carry) is paid first to the manager
from the additional returns.
b. Catch up ensures that the manager gets paid management fee irrespective of fund
performance.
c. The amount of catch up for the manager before additional distributions to
investors depend upon the percentage of catch up agreed to between the parties.
d. Catch up ensures that the manager gets paid the agreed percentage of the total
returns before deducting the hurdle rate return.

5. A clawback provision ensures that:

a. Investors can clawback their investment from the fund and exit in case of adverse
events or losses in the fund.
b. The manager can clawback fund returns lost in earlier deals from future deals.
c. Manager can clawback incentive fee lost in earlier deals from future deals.
d. Investors can clawback manager’s incentive fee paid on earlier deals from losses
in later deals to base it on overall fund performance.
Sample Questions - Chapter 7

177

Sample Questions: Chapter 7

1. One of the key risks of AIF investment is:

a. the risk of capital inadequacy
b. the risk of inadequate provisioning against NPAs
c. illiquidity risk
d. the risk of inadequate security creation
2. A fund has a PIC of 0.90. It means ________.
a. that the fund is about to complete its final close.
b. that it has only 10% NPA level
c. that the fund has 90% recovery rate on its investments
d. that it has drawn down most of the capital commitments
3. The FIRR is a measure of return based on the ___________.
a. time value of money
b. profit potential of an investment
c. accounting profit of an investment
d. percentage of gross margin
4. Gross IRR and Net IRR of an AIF could be different because of which the following factors?
a. Difference between expected rate of return and actual rate of return
b. Unexpected changes in tax law
c. Investor level cash flows being considered in the computation of Net IRR

5. The MOIC of an AIF is the aggregate of its DPI and RVPI when all the capital calls are met.
State whether True or False.
a. True
b. False
Sample Questions - Chapter 8

200

Sample Questions: Chapter 8

1. One of the key disclosures in a Private Placement Memorandum (PPM) is:

a. the amount of investment made by the investor
b. the management fee structure
c. the details of asset securities
d. the minimum guaranteed return

2. Investment objective of AIF refers to ____________.

a. reporting requirements
b. Target TVPI
c. investee company performance
d. identification of investment opportunities

3. One of the following is a key risk factor for an AIF investor:

a. Regulatory risk of the AIF industry
b. Demand-supply gap
c. Personal tax structure of the investor
d. Data privacy of the sponsor

4. PPM Audit of Angel Funds is mandatory if total investment exceeds INR 100 crores,
effective from FY 2025-26. State whether True or False.
a. True
b. False

5. SEBI has prescribed minimum disclosure standards for a PPM to ensure guaranteed
return by all AIF funds. State whether True or False.
a. True
b. False
Sample Questions - Chapter 9

217

Sample Questions: Chapter 9

1. If a company is at the stage of achieving proof of concept (PoC) for its product and is
therefore in the seed stage, who among the following can be a potential investor in the
company?
a. Sovereign Wealth Fund
b. AIF registered as a Category I Fund
d. High Networth Investor
c. SEBI registered Merchant Bank

2. Monthly Run Rate (MRR) or Annual Run Rate (ARR) is a metric used by venture capitalists
to determine which of the following factors of an early-stage company?
a. Direct operating costs
b. Bills receivable converted into cash
c. Total cash outflow or cash burn
d. Revenue generated from its business operations

3. Which of the following describes a securitised debt instrument?

a. It is a debt instrument which is based on leased rentals.
b. It is a debt instrument created through a pooling of receivables in a special purpose
vehicle.
c. It is a debt instrument which is fully secured.
d. It is a debt instrument which has a claim on the cash flows of a bank or a NBFC.

4. Private equity investment is about investing in any potential sector while venture capital
investment is about investing in high technology companies.
a. True
b. False

5. In an LBO, the acquirer looks for majority control of the target company so as to ensure upside
potential in the deal by growing the target company’s value.
a. True
b. False
Sample Questions - Chapter 10

251

Sample Questions: Chapter 10

1. The due diligence review is conducted by ________.
a. the trustee of the AIF
b. the auditor of the AIF
c. an agency appointed by the investment manager
d. an investment bank appointed by the manager

2. The term sheet is entered into by __________.

a. the manager with a potential investee company
b. the sponsor with the investor
c. the fund with the manager
d. the distributor with the investor

3. The following is a ‘definitive agreement’ for an AIF investment.

a. Private Placement Memorandum
b. Subscription agreement
c. Articles of Association
d. Trust deed
4. A ‘ratchet’ protects the AIF from a future down round. State whether True or False.
a. True
b. False
5. Which of the following is a part of the Code of Conduct prescribed by SEBI for AIF
managers?
a. Ensuring that the funds they manage generate the desired returns for investors.
b. Record in writing, the investment, divestment and other key decisions, together with
appropriate justification for such decisions.
c. Achieve the first close and final close of the funds they manage successfully.
d. Keeping in line with the general theme of alternate investing, convince the investment
committee to approve taking maximum risks in deals to generate maximum returns.
Sample Questions - Chapter 11

277

Sample Questions: Chapter 11

1. Which of the following metric measures the estimated value of a start-up immediately
before it receives external funding from a Category I AIF or a Category II AIF?

a. Post-money Valuation
b. Pre-Money Valuation
c. Net Asset Value
d. Enterprise Value

2. ____________ is the percentage of customers who discontinue using a product or

service over a given period
a. Customer Acquisition Cost
b. Customer Lifetime Value
c. Churn Rate
d. Burn Rate

3. Sum of the parts (SOTP) valuation in AIF context means:

a. The AIF portfolio is divided into various similar parts and valued together
b. The underlying AIF investee companies are valued separately and their value is
added up.
c. The portfolio companies are valued first and added to the value determined for the
AIF.
d. AIF is valued at fund level and investee companies are valued at portfolio level. Both
the values are added to get the SOTP value.

4. EV/EBITDA value of a company provides the enterprise value of the company and not
its equity value. State whether True or False.
a. True
b. False

5. In determination of the valuation of an AIF fund under the Bottom-Up approach, the
equity value of the investee companies is used. State whether True or False.
a. True
b. False
Sample Questions - Chapter 12

298

Sample Questions: Chapter 12

1. Under the SEBI (AIF) Regulations 2012, annual reporting by a Category I AIF to investors shall
be:
a. towards the end of the fund tenure
b. after the final close
c. within 180 days from the close of the financial year
d. within 90 days after the balance sheet date

2. The fund has to maintain records relating to ________.

a. all material contracts of investee companies
b. valuation policies and practices
c. monetary policy prescribed by RBI
d. effective rate of return

3. Fund activity reporting to SEBI under the AIF Regulations shall be on a ________.
a. monthly basis
b. annual basis
c. quarterly basis
d. six-monthly basis

4. Any change in the board of directors of an investee company has to be reported by the
manager to AIF investors under the reporting requirements. State whether True or False.
a. True
b. False

5. Fund documents once signed cannot be amended during the life of the AIF vehicle. State
whether True or False.
a. True
b. False
Sample Questions - Chapter 13

323

Sample Questions: Chapter 13

1. Which of the following Trust structures are eligible to pass-through income in the
nature of ‘Capital Gains’, to its investors?
a. Determinate Irrevocable Trust
b. Determinate Revocable Trust
c. Indeterminate Irrevocable Trust
d. Indeterminate Revocable Trust

2. Which of the following is an example of capital gains for an AIF?

a. An investee company sells one of its business divisions at a huge profit
b. The founders of an investee company sell their shares to third parties at a profit.
c. An investee company makes an IPO at a huge valuation in which the founder sell
their stock through an offer for sale.
d. The AIF exits an investee company at a huge gain after 4 years of holding.

3. Withholding tax means _____________.

a. a sum deducted from any income paid/ credited
b. the tax on income not disclosed
c. additional tax and penalty for withholding information
d. tax that is withheld and carried forward to next year

4. In the case of a non-resident investor in an AIF, the allowability of withholding tax

paid in India in their home country tax assessment is subject to the provisions of the
DTAA between India and their home country. State whether True or False.
a. True
b. False

5. Since start-ups generally issue their shares to AIFs at a huge valuation, the chances
of accruing capital gains to the AIF in such investments is negligible. State whether
True or False.
a. True
b. False
Sample Questions - Chapter 14

388

Sample Questions: Chapter 14

1. The following investors are not an accredited investor, as per the Accreditation
Framework:

a. An individual investor having annual income of INR 5 crore

b. An corporate having networth of INR 250 crore
c. An individual investor having annual income of INR 50 lakh
d. An individual investor having networth of Rs 50 crore.

2. Which of the following entity is least likely to be a permissible legal structure, seeking
registration as an AIF under the SEBI (Alternative Investment Funds) Regulations?

a. Limited Liability Partnership (LLP)

b. Company
c. Trust
d. Proprietorship

3. For an Indian company engaged in a sector where FDI is not prohibited, the default
aggregate FPI limits is the applicable sectoral cap as laid out in Schedule I of the Foreign
Exchange Management (Non-debt Instruments) Rules, 2019. State whether True or
False.

a. True
b. False

4. AIFs can invest in Joint Venture or Wholly Owned Subsidiary of itself while making
overseas investments. State whether True or False.

a. True
b. False

5. The PPM should be submitted by the AIF sponsor through a SEBI-registered Custodian.
State whether True or False.

a. True
b. False
Answer Key
Chapter 1
Q1: C
Q2: C
Q3: D
Q4: D
Q5: C

Chapter 2
Q1: C
Q2: A
Q3: C
Q4: B
Q5: C