Ramesh Singh Test: Security Market In India - 2 - UPSC MCQ

Both Statement-I and Statement-II are accurate regarding Participatory Notes (PNs). Statement-I establishes the regulatory requirement for issuing PNs, emphasizing the need for entities to be regulated and compliant with KYC norms. Statement-II complements this by highlighting that downstream issuance or transfer of PNs can only occur to entities that are also regulated. Therefore, both statements are correct, and Statement-II logically extends and explains Statement-I.

- Statement 1: This statement is correct. Participatory Notes (PNs) can indeed be issued to entities that are regulated by the relevant regulatory authority in their country of incorporation and must comply with 'know your client' (KYC) norms.

- Statement 2: This statement is incorrect. SEBI has mandated that Qualified Foreign Investors (QFIs) are not allowed to issue Participatory Notes (PNs).

- Statement 3: This statement is correct. The Securities and Exchange Board of India (SEBI) requires Foreign Institutional Investors (FIIs) issuing PNs to report the issued and outstanding PNs.

Therefore, the correct answer is Option C.

1. Angel Investor: Correctly matched. An angel investor is indeed an investor who provides financial backing to entrepreneurs for starting their business. This was introduced in the Union Budget 2013-14.

2. QFI Scheme: Correctly matched. The QFI scheme was introduced in the Budget 2011-12, allowing qualified foreign investors to invest directly in Indian mutual funds.

3. RFPI: Incorrectly matched. The term RFPI (Registered Foreign Portfolio Investor) was introduced by the RBI in March 2014, not in Budget 2013-14.

4. Participatory Notes (PNs): Correctly matched. PNs are derivative instruments issued by SEBI registered FIIs against Indian securities, allowing investors to benefit from price fluctuations without owning the underlying securities.

Hence, pairs 1, 2, and 4 are correctly matched, but pair 3 is not.

1. Masala Bonds: Correctly matched. These are indeed rupee-denominated bonds issued overseas by commercial banks for their capital requirements and financing infrastructure and affordable housing.

2. Inflation Indexed Bonds (IIBs): Incorrectly matched. IIBs provide inflation protection to both the principal and interest payments, not just the principal amount.

3. Capital Indexed Bonds (CIBs): Incorrectly matched. CIBs only provide inflation protection to the principal amount, not both principal and interest payments.

4. e-Gold: Incorrectly matched. e-Gold is not a mutual fund scheme but an investment in units traded on the National Stock Exchange (NSEL).

Thus, only the first pair is correctly matched.

1. CPSE ETF : Tracks a single PSU stock

- Incorrect. The CPSE ETF tracks the CPSE Index, which comprises shares of 10 blue-chip PSUs, not a single PSU stock.

2. NPS : Introduced for Central Government employees starting January 1, 2004

- Correct. The National Pension System (NPS) was indeed made mandatory for Central Government employees (except armed forces) who join service w.e.f January 1, 2004.

3. FSDC : Formed in response to the 2007-08 financial crisis

- Correct. The Financial Stability Development Council (FSDC) was set up by the Government of India in December 2010, in line with the G-20 initiative which came in the wake of the 2007-08 financial crisis.

4. FATF : India became a member in June 2010

- Correct. India joined the Financial Action Task Force (FATF) as its 34th member in June 2010.

So, pairs 2, 3, and 4 are correctly matched.

1. Correct: Angel investors are indeed typically found among an entrepreneur's family and friends, but they can also come from outside. They provide financial backing for startups in exchange for either equity in the business or loans at more favorable terms. This aligns with the statement.

2. Correct: Qualified Foreign Investors (QFIs) were first allowed to invest directly in Indian mutual funds in the Budget 2011-12. Later, the scheme was expanded to allow QFIs to invest directly in Indian equity markets and corporate debt securities, confirming the accuracy of this statement.

3. Incorrect: Participatory Notes (PNs) do not allow the holder to directly own Indian securities. Instead, they are derivative instruments issued by SEBI-registered FIIs, and the holder does not enjoy any voting rights in relation to the underlying Indian securities.

Hence, the correct answer is Option B: 1 and 2 Only.

1. The Financial Stability Development Council (FSDC) was indeed established by the Government of India in December 2010 in line with the G-20 initiative, which was launched in response to the financial crises triggered by the 2007-08 sub-prime crisis in the USA. This makes statement 1 correct.
2. The Financial Sector Assessment Programme (FSAP) for India was conducted by the IMF and World Bank in January 2013. This program assessed the Indian financial system in relation to the highest international standards, confirming the accuracy of statement 2.
3. The FSAP assessment for India did identify some gaps, including the lack of de jure independence of the regulators such as the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority (IRDA). Therefore, statement 3 is also correct.
Since all three statements are accurate, the correct answer is Option D

Statement-I correctly defines angel investors as individuals who provide financial support to entrepreneurs, often based on personal relationships and trust in the entrepreneur rather than solely on the business idea. Statement-II accurately describes Participatory Notes (PNs) as derivative instruments issued by SEBI registered FIIs against Indian securities, enabling investors to benefit economically without owning the underlying securities. While both statements are factually accurate, they address different financial concepts and are not directly related or explanatory of each other, hence the correct answer is Option B.

The primary aim of introducing Inflation-Indexed Bonds (IIBs) by the Reserve Bank of India is to protect investors from the erosive effects of inflation on their savings. These bonds provide returns that consistently exceed the rate of inflation, ensuring that the purchasing power of investors is maintained over time. By offering this protection against inflation, IIBs aim to make financial savings more attractive compared to other investment options like gold, which may not provide similar safeguards against inflation.

The primary objective of the CPSE ETF is to disinvest a part of the Government's holding in Public Sector Units (PSUs). This scheme was listed on the BSE and NSE platforms to enable the government to divest its stake in these enterprises. By doing so, the government aims to raise funds and encourage broader participation in these public sector entities.