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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors

Investing in Fixed Income Securities for NISM XXI-A

Fixed income securities pay interest or a set return and return principal at maturity. For NISM XXI-A, you learn instrument types, money market products, bond pricing and yields, duration, the yield curve, credit ratings and portfolio strategies. Most questions test definitions and the direction in which prices and risks move.

What this chapter covers

This chapter covers how bonds and other debt instruments work and how a portfolio manager uses them. It starts with features and types of instruments, then money market products, then pricing, yield, risk measures, the yield curve, credit risk and strategies.

The chapter is a chain. Pricing rests on the idea that a bond's price is the present value of its cash flows. Duration and convexity build on pricing. Credit ratings and the yield curve explain why yields differ across bonds. Strategies bring these ideas together.

It connects to the rest of the paper through portfolio construction, risk and return, and asset allocation. A PMS distributor must explain to a client why a debt-oriented portfolio can still lose value, and this chapter gives you the reasons. Read the NISM workbook for exact definitions, because MCQs follow its wording.

Fixed income questions reward clear concepts more than heavy calculation. Many are one-step questions on the direction of change, such as what happens to price when yield rises, or which bond is more sensitive to rates. These are quick marks once the logic is clear. Since the exam is 100 one-mark MCQs with 10% negative marking, a confident grasp of these rules lets you answer fast and avoid costly guesses. The chapter also supports other parts of the paper on risk and portfolio design.

Investing in Fixed Income Securities (NISM XXI-A): topics in the order to study them

  1. 1Fixed Income Securities: Features and TypesYou need the vocabulary first: face value, coupon, maturity, issuer types and structures such as zero coupon and floating rate.
  2. 2Money Market InstrumentsThese are short-term debt instruments, so they are easy to learn once the basic features are clear. Focus on issuers and maturity limits.
  3. 3Bond Pricing and Yield MeasuresPrice as the present value of cash flows is the base for every risk concept that follows.
  4. 4Interest Rate Risk, Duration and ConvexityThis builds directly on pricing and explains how much a price moves when yields change.
  5. 5Yield Curve and Term Structure of Interest RatesOnce you know yield and rate risk, you can read how yields vary across maturities and what the curve shapes imply.
  6. 6Credit Risk and Credit RatingsThis explains why yields differ between issuers at the same maturity, adding a second source of risk.
  7. 7Fixed Income Portfolio StrategiesStrategies use every earlier idea, so study them last, when you can see why each approach is chosen.

How to prepare Investing in Fixed Income Securities (NISM XXI-A)

Study this chapter as one connected story from instrument to price to risk to strategy. Do not memorise pieces in isolation.

  1. Read the workbook once for the full picture, noting each definition in your own short words.
  2. Build a one-page sheet of instrument features: issuer, tenor, how it pays, and who typically buys it.
  3. Practise the price-yield link until it is automatic: yield up means price down, and the reverse.
  4. Work a few simple bond price and yield examples by hand so you understand the logic, then focus on direction-of-change questions.
  5. Make a small table of risks (interest rate, credit, reinvestment, liquidity) and what raises or lowers each.
  6. Do topic-wise MCQs, then a mixed set. Log every wrong answer with the rule you missed.
  7. In the final days, revise only your error log and the one-page sheets.

Common mistakes in Investing in Fixed Income Securities (NISM XXI-A)

  • Reversing the direction of price and yield

    Fix: Say it each time: yield up, price down. Test it on a bond at par before answering.

  • Confusing coupon rate with yield

    Fix: The coupon is fixed on face value. Yield reflects the price paid and changes with the market.

  • Treating duration as just time to maturity

    Fix: Remember duration is a sensitivity measure that also depends on coupon and yield. For a zero coupon bond only, it equals maturity.

  • Mixing up money market limits and instruments

    Fix: Make a table with issuer, tenor and purpose for each, and revise the exact workbook details.

  • Assuming a high rating removes all risk

    Fix: Ratings can change, and highly rated bonds still carry interest rate risk.

  • Guessing on unfamiliar questions

    Fix: Remove options that break the basic rules first. Guess only when you can narrow the choice down.

Last-day revision: Investing in Fixed Income Securities (NISM XXI-A)

  • Bond price and yield move in opposite directions.
  • A bond's price is the present value of its coupons and principal, discounted at the required yield.
  • A bond with a coupon equal to its yield trades at par; a lower coupon means a discount, a higher coupon a premium.
  • Longer maturity and lower coupon generally mean higher duration and higher interest rate risk.
  • Duration estimates the percentage price change for a small change in yield.
  • Convexity captures the curvature that duration misses, and it matters more for large yield moves.
  • Zero coupon bonds have no reinvestment risk on coupons but carry high price sensitivity.
  • Money market instruments are short-term debt, with maturity up to one year.
  • An upward sloping yield curve means longer maturity bonds yield more than shorter ones.
  • A lower credit rating means higher credit risk and a higher yield demanded.
  • Credit rating is an opinion on the ability to repay, not a guarantee.
  • Passive strategies such as buy and hold differ from active strategies that take views on rates or credit.

Investing in Fixed Income Securities (NISM XXI-A) practice questions

Investing in Fixed Income Securities (NISM XXI-A) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Investing in Fixed Income Securities (NISM XXI-A): frequently asked questions

How is the NISM XXI-A exam structured?

It has 100 multiple choice questions of 1 mark each and lasts 2 hours. The pass mark is 60%. Negative marking is 10% of the marks assigned to a question.

Do I need to do heavy maths for fixed income?

Mostly no. Understand how price relates to yield, duration and coupon. Be ready for simple calculations, but many questions test direction and definitions.

What is the best way to learn duration and convexity?

Learn what each measures and what raises or lowers it. Duration gives the approximate price change for a small yield change. Convexity corrects that estimate for larger moves.

Should I study credit ratings in detail?

Yes, at the level of what ratings mean and how they link to yield and risk. Learn the idea that lower ratings carry higher credit risk and demand higher yields.