Developed in collaboration with the National Institute of Securities Market (NISM), the apex body responsible for giving certifications in the securities market, the certification is voluntary and aims to empower individuals with essential knowledge about savings and investment.
In April, Mint reported that stock exchanges had proposed two frameworks to curb retail participation in futures & options (F&O) trading. One of the proposals suggested that investors take an exam to become aware of the risks in derivatives trading. While these proposals are still under review, the investor certification exam has been introduced as a voluntary test to improve financial literacy.
As per Sebi, this initiative seeks to empower individuals with essential knowledge about basic concepts of savings and investment. “This online exam will help enhance investors’ understanding of the investment process and the associated risks in the securities market and thus promote an efficient approach to investment aligned with the risk appetite of the investor,” the regulator said in a statement.
The author appeared for the exam to understand what it is all about and what can be expected from it.
What to expect
The exam consists of 50 multiple choice questions, carrying one mark each, and has to be completed within 60 minutes.
Questions broadly cover:
- Basics of budgeting and investment process
- Alternative investments like Reits or Real Estate Investment Trust and InvITs or Infrastructure Investment Trust
- Basic concepts of investing, such as risk and return
- Different investment products
The last five questions quiz the candidate on some behavioural aspects of investing through hypothetical situations and what should be the right approach towards these situations.
For instance, say X invests in a manufacturing mutual fund after noticing an upswing in the sector. After investing, he forgets about it for a year, during which an economic crisis causes the manufacturing sector to suffer losses and fall in the stock prices of manufacturing companies under the manufacturing theme. As a result, X, too, suffers losses. The candidate will be asked whether X could have avoided the losses by giving three scenarios.
After the exam, only the correct answers to the last five questions are provided with explanations. The answers to the other 45 questions are not shown, nor are incorrect responses identified. The final score is displayed upon completion.
The passing score is 25, with no negative marking for wrong answers. Candidates can reappear after six months if they fail.
The certificate, which is issued a few days of the exam, is valid for two years.
Registration and study material
Individuals have to register on the NISM online certifications system first. NISM takes about three days to approve the profile after you have registered, only after which you are allowed to enrol for the exam.
There is no eligible criteria with respect to age or educational qualifications to enroll for the investors certification exam.
There are no age or educational qualification requirements for enrollment. PAN and proof of address are mandatory for registration, and the certificate will not be issued without a PAN.
Once your profile is approved, under the ‘Enrolment’ tab, select “Enroll for SEBI Investor Certification Examination”. Next, select the dates on which you are available to take the exam and the portal will show you the available time slots for those dates. Slots are generally available two to three days after the enrolment.
Candidates can appear for the exam within six months of enrolling.
Study material is provided in the certification portal after one enrolls for the exam. It can be seen under the “My examination/CPE/eCE” tab. Alternatively, you can download it from the NISM website.
Two booklets are provided–one on the basics of financial education and the other is a comprehensive guide on the securities market.
Should you take it
The difficulty level of the exam is suited for stock market beginners. Experts recommend it for new investors as a way to learn the basics of budgeting, investing, and the structure of securities markets.
“In the interest of investors, it is a good mechanism to test the knowledge of direct investors in stocks or even in mutual funds, before they do it directly. This will nudge the novice investors to gain proper knowledge before investing and also refrain them from getting misled by just seeing past returns,” said Manikaran Singal, a Sebi-registered investment advisor.
While the exam is a good starting point for novice investors, it does have some limitations. For instance, there are no questions on bonds, capital gains taxation, and the role of registered investment advisors (RIAs). Additionally, there are very few direct questions on mutual funds, whereas it asks four to five advanced questions on Reits and InvITs, which have few investors compared to MFs.
Overall, the Sebi investor certification exam is beneficial for those new to the market, helping them build a foundational understanding of investing and market structures.
Also Read: Sebi tweaks stocks’ F&O norms, curbs use of finfluencers
