New to stock markets? Sebi’s certification exam is your first step in investing

Developed in collaboration with the National Institute of Securities Market (NISM), the apex body responsible for securities market certification, the programme is voluntary, and aims to empower individuals with essential knowledge about savings and investment.

Mint had earlier reported that stock exchanges had proposed two frameworks to curb retail participation in futures and options (F&O) trading. One proposal suggested that investors should take an exam to understand the risks in derivatives trading. While these proposals are still under review, the investor certification programme has been introduced as a voluntary measure to improve financial literacy.

According to Sebi, this initiative aims to equip individuals with essential knowledge about savings, and investment basics. “This online exam will help enhance investors' understanding of the investment process and associated risks in the securities market, thus promoting an efficient approach to investment aligned with the risk appetite of the investor," NISM said in a statement.

The author took the exam to understand its content and expectations. Here’s an analysis:

Exam overview

The exam comprises 50 multiple-choice questions, each worth one mark, to be completed in 60 minutes. Topics include:

• Basics of budgeting and investment process
• Alternative investments such as Real Estate Investment Trust (Reits) and Infrastructure Investment Trust (InvITs)
• Basic concepts of investments such as risk and return
• Includes various investment products

The final five questions address behavioural aspects of investing through hypothetical scenarios, and what should be the right approach to address these issues. For instance, a scenario might explore how an investor could avoid losses in a manufacturing mutual fund during an economic downturn.

Sample: X invests in a mutual fund focusing on the manufacturing sector amid a surge in manufacturing company stock prices. Subsequently, he ignores the manufacturing MF portfolio for a year, and during this time an economic downturn hits the manufacturing sector, leading to losses in the stock prices of associated companies. Consequently, X too, suffers financial losses.

As part of the examination, the candidate will need to evaluate whether X could have prevented these losses by considering 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 is issued within a few days of the examination, and is valid for two years.

Registration and study material

To register, individuals must sign up on the NISM online certification system. NISM takes about three days to approve the registered profile, and will then allow you to enrol for the exam.

There are no eligibility criteria related to age or educational qualifications to enrol for the investors certification exam, but PAN (Permanent Account Number) and proof of address are mandatory for registration. Besides, 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". Examination slots are generally available two to three days after the enrolment process is completed. Once its updated, the portal will show you the available time slots and dates. Select a suitable date and time slot, according to your convenience.

Candidates can appear for the exam within six months of enrolment.

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 the course allows you to learn the basics of budgeting, investing, and the structure of the securities markets.

“In the interest of investors, it is a good mechanism to test the knowledge of direct investors in stocks or even mutual funds, before they start trading in stocks or invests through MFs. This will nudge the novice investors to gain proper knowledge before investing, and also refrain them from getting misled by just seeing the past returns," said Manikaran Singal, a Sebi-registered investment advisor.

While the exam is a good starting point for newbie 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 few direct questions on mutual funds. In contrast, the exam includes four to five advanced questions on REITs and InvITs, which have fewer investors compared to mutual funds.

Overall, the Sebi investor certification programme is beneficial for those who are preparing to enter the stock market, helping them build a foundational understanding of investing and market structures.

Also Read: Sebi tweaks stocks’ F&O norms, curbs use of finfluencers