Consider the following statements: Statement-I. Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable. Statement-II. InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’. Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(c) Statement-I is correct but Statement-II is incorrect

Prelims · Economy & social development · 31 questions

Capital markets, insurance & financial instruments

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Prelims 2023 · Q21

Hard

Consider the following statements:

Statement-I: Interest income from the deposits in Infrastructure Investment Trusts (InvITs) distributed to their investors is exempted from tax, but the dividend is taxable.
Statement-II: InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’.

Which one of the following is correct in respect of the above statements?

Answer & explanation

Answer: (d) Statement-I is incorrect but Statement-II is correct

An InvIT is a 'pass-through' vehicle: interest it receives from its project SPVs is not taxed at the trust level but is taxed when distributed to unitholders, so Statement-I gets it the wrong way round. The Finance Act, 2021 widened the SARFAESI Act's definition of 'borrower' to include pooled investment vehicles such as InvITs, so Statement-II is right.

✗ Statement-I Under section 115UA of the Income-tax Act, interest income that an InvIT passes on to its unitholders is deemed to be their income and is taxed in their hands; it is not exempt.
✓ Statement-II From 1 April 2021, clause (f) of section 2(1) of the SARFAESI Act covers 'any person who, or a pooled investment vehicle' that has taken financial assistance, and business trusts such as InvITs and REITs are pooled investment vehicles. Lenders can therefore enforce security against them.

Remember · InvIT/REIT = business trust = pooled investment vehicle. Interest passed to unitholders is taxable in their hands. Since 2021, InvITs and REITs count as 'borrowers' under SARFAESI.

Sources

Finance Bill 2021, Part X, Amendment to the SARFAESI Act, 2002 (Union Budget 2021-22) ↗ “It is proposed to amend clause (f) of sub-section (1) of the said section so as to clarify that the definition of “borrower” in the said Act shall also include a pooled investment vehicle … “pooled investment vehicle” means a fund established in India in the form of a trust or otherwise, such as mutual fund, alternative investment fund, collective investment scheme or a business trust”
Memorandum explaining the provisions in the Finance Bill, 2020 ↗ “distributed income of the nature as referred to in clause (23FC) or clause (23FCA) of section 10 shall be deemed to be income of the unit holder and shall be charged to tax as income of the previous year.”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q25

Easy

Consider the following markets:

1.Government Bond Market
2.Call Money Market
3.Treasury Bill Market
4.Stock Market

How many of the above are included in capital markets?

Answer & explanation

Answer: (b) Only two

The capital market deals in long-term funds (more than a year), such as government bonds and shares, while the money market deals in funds for up to one year, such as call money and treasury bills. So only the government bond market and the stock market are capital markets.

✓ 1. Government bonds, or dated securities, have an original maturity of one year or more, so they are long-term capital-market instruments.
✗ 2. Call money is overnight inter-bank borrowing and lending, a money-market transaction.
✗ 3. Treasury bills are short-term (91, 182 and 364 days) zero-coupon government securities, which the RBI classes as money market instruments.
✓ 4. Shares traded on the stock market are long-term (perpetual) claims on companies, the core of the capital market.

Remember · Money market: up to 1 year (call money, T-bills, CPs, CDs, repos). Capital market: over 1 year (shares, dated G-secs/bonds, debentures).

Sources

Reserve Bank of India, FAQs on Government Securities Market ↗ “Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). … Money market instruments include call money, repos, T- Bills (for details refer para 1.3), Cash Management Bills (for details refer para 1.4), Commercial Paper, Certificate of Deposit”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q73

Easy

In the context of finance, the term ‘beta’ refers to

Answer & explanation

Answer: (d) a numeric value that measures the fluctuations of a stock to changes in the overall stock market

Beta is a number that shows how much a stock's price tends to move when the overall market moves. A beta of 1 means the stock moves in step with the market; above 1 means it swings more, below 1 means it swings less.

✓ (d) Beta compares a stock's movement with a market benchmark (for example, the Nifty 50). It measures sensitivity to market-wide movement, which is why it is used as a gauge of market (systematic) risk in the Capital Asset Pricing Model.
✗ (a) Buying and selling the same asset at the same time on different platforms to earn from a price gap is arbitrage, not beta.
✗ (b) Balancing risk against reward across a portfolio is asset allocation or portfolio construction. Beta is only one input to that decision; it is not the strategy itself.

Remember · Beta = a stock's sensitivity to the overall market. Beta 1 moves with the market; above 1 is more volatile than the market; below 1 is less volatile.

Sources

SEBI, Glossary of securities market terms (investor FAQ file): Beta ↗ “Beta A measure of the volatility of a stock relative to the market index in which the stock is included. A low beta indicates relatively low risk; a high beta indicates a high risk. … Technically, arbitrage consists of purchasing a commodity or security in one market for immediate sale in another market (deterministic arbitrage).”
World Bank Economic Review paper on international asset pricing (CAPM and betas) ↗ “Usually, the covariances are scaled by the variance of the world market portfolio and are called betas. The CAPM predicts that equities with higher covariances (higher risk) will command higher expected returns”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

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