GPT NISM

Introduction to the Indian Financial Markets for NISM certification

An adviser works inside a large system of markets, regulators and intermediaries. Knowing who regulates what, what each intermediary does and how money flows from savers to users is the backdrop for every product discussed later in X-A.

Advice & ResearchSeries X-A61 MCQs5 lessons12 flashcards3 memory tricks

Practise Introduction to the Indian Financial Markets free

What you'll learn

  1. Financial markets and their regulators
    Describe what financial markets do and who regulates each part.
  2. Government ministries and the RBI
    Explain the roles of the Finance Ministry, MCA, RoC and RBI.
  3. Banks, NBFCs and other lenders
    Distinguish the types of lenders and other RBI-regulated entities.
  4. The securities market and its intermediaries
    Define securities and describe the roles of market infrastructure and intermediaries.
  5. Insurance and pension markets
    Describe the insurance and pension sectors and their intermediaries.

Concepts explained

Who regulates what

India's financial sector has four main regulators: RBI (banking and credit), SEBI (securities), IRDAI (insurance) and PFRDA (pensions), under the oversight of the Central Government and the FSDC.

What it means

  • Bank FD, NBFC, HFC, P2P, account aggregator: RBI.
  • Mutual fund, PMS, AIF, broker, investment adviser: SEBI.
  • Term plan, ULIP, health cover: IRDAI.
  • NPS: PFRDA.
Example 1: Product to regulator
  • Equity fund
  • ULIP
  • NPS
  • Bank FD

Answer: SEBI, IRDAI, PFRDA, RBI

Market infrastructure

Exchanges match trades, clearing corporations settle and guarantee them, and depositories hold securities electronically through depository participants.

What it means

  • Trades on exchanges must go through registered brokers.
  • Securities must be in demat form to trade.
  • DPs are agents of depositories; custodians serve institutions.
Definition of securities

Section 2(h) of the SCRA, 1956 defines securities, including shares, bonds, derivatives, MF and CIS units, security receipts, securitised instruments, government securities and notified instruments.

What it means

  • ULIPs are excluded.
  • The government can notify new instruments (e.g. electronic gold receipts, zero coupon zero principal instruments).

Memory tricks

Four regulators'Bank ka RBI, share ka SEBI, bima ka IRDAI, budhapa ka PFRDA': bank, shares, insurance, old age — each has its own caretaker.

RBI banks, SEBI securities, IRDAI insurance, PFRDA pensions.

Trade journey'Broker bole, exchange jode, clearing chukaye, depository rakhe': the broker speaks, the exchange matches, the clearing corporation pays out, the depository keeps.

Broker → exchange → clearing corporation → depository.

Payments bank vs NBFC'Ek le sakta hai, de nahi sakta; doosra de sakta hai, le nahi sakta': the payments bank can take deposits but can't lend; the NBFC can lend but can't take demand deposits.

Payments banks don't lend; NBFCs don't take demand deposits.

Try 3 NISM-style questions

Q1. Which intermediary handles dividend payments and e-voting communications for a company's investors?

  1. The clearing corporation
  2. The credit rating agency
  3. The registrar and transfer agent
  4. The custodian of a foreign fund
Show answer

Answer: (3) The registrar and transfer agent

RTAs keep investor records and carry out such backroom work.

Q2. Individuals can obtain a free full credit report including the score from each CIC

  1. Once every five years
  2. Only when applying for a home loan
  3. Only through SEBI
  4. Once every calendar year
Show answer

Answer: (4) Once every calendar year

The RBI directs CICs to give one free full report each calendar year.

Q3. Housing finance companies are now regulated by

  1. The RBI
  2. The National Housing Bank
  3. SEBI
  4. The Ministry of Housing
Show answer

Answer: (1) The RBI

Regulation moved from the NHB to the RBI.

Practise all 61 questions Free · explanations for every option · see where you go wrong

More Advice & Research chapters (Series X-A)

Introduction to Personal Financial Planning · Time Value of Money · Evaluating the Financial Position of Clients · Debt Management and Loans · Securities Market Segments