Capital markets, insurance & financial instruments

Answer: (b) Only two

SEBI defines an Alternative Investment Fund (AIF) as a privately pooled fund that collects money from sophisticated investors and invests it under a set policy. Hedge funds and venture capital funds are such pooled funds and are registered as AIFs; bonds and stocks are securities that a fund may buy, not funds themselves.

• ✗ I A bond is a debt security issued by a government or company. It can be held by an AIF, but a bond is not a pooled fund.
• ✓ II SEBI registers hedge funds (along with PIPE funds) as Category III AIFs, which may use complex trading strategies and leverage.
• ✗ III Stocks are shares of ownership in a company, an asset class traded on exchanges, not a privately pooled investment vehicle.
• ✓ IV Venture capital funds, including angel funds, form a sub-category of Category I AIFs under the SEBI (Alternative Investment Funds) Regulations, 2012.

Remember · AIF = privately pooled fund regulated by SEBI (2012 rules). Category I: venture capital, angel, SME, social venture, infrastructure funds; Category III: hedge funds, PIPE funds.

Question and answer: UPSC's official GS Paper I (2025, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) II only

The BRSR is a SEBI requirement, not an RBI one, and it applies to the top 1,000 listed companies by market capitalisation, not all listed companies. Its disclosures cover environmental, social and governance (ESG) performance, so they are largely non-financial.

• ✗ I SEBI's May 2021 circular made BRSR filing mandatory from 2022-23 for the top 1,000 listed companies by market capitalisation; the RBI has no role, and not every listed company is covered.
• ✓ II The BRSR reports performance on ESG parameters under the nine principles of the National Guidelines on Responsible Business Conduct, asking firms to look beyond financials.

Remember · BRSR: SEBI, circular of 10 May 2021; mandatory from FY 2022-23 for top 1,000 listed companies; ESG (non-financial) disclosures; replaced the Business Responsibility Report.

Question and answer: UPSC's official GS Paper I (2025, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) Both Statement II and Statement III are correct and both of them explain Statement I

A bondholder has lent money to the company and is owed a fixed return, while a stockholder owns a share of the company and takes whatever is left. Because lenders must be repaid first, bondholders face less risk than owners; both Statements II and III therefore explain Statement I.

• ✓ Statement-I Bond returns are fixed in advance (coupon and redemption amount), while stock returns depend on profits and share prices, so bonds are generally the lower-risk claim on the same company.
• ✓ Statement-II SEBI explains that an equity investor becomes an owner of the company, while a debt investor becomes a lender to it.
• ✓ Statement-III As a lender, the bondholder has a higher claim on the company's assets than a shareholder if the company goes bankrupt, so bondholders are repaid first.

Remember · Bondholders = lenders (fixed return, paid before shareholders); stockholders = owners (voting rights, residual claim, higher risk).

Question and answer: UPSC's official GS Paper I (2025, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) I and II only

Indian exchanges lead the world in the number of derivative contracts traded, driven by a boom in index options, and India's equity market has grown fast enough to rank among the world's five largest. Statement III is false: SEBI is the statutory regulator, it registers and regulates investment advisers, and it has itself published studies on retail losses in futures and options.

• ✓ I SEBI, citing World Federation of Exchanges data, notes that an Indian exchange ranks first globally by number of contracts traded, far ahead of the next exchange.
• ✓ II The Economic Survey 2023-24 records that the Indian market rose to fifth in the world by market capitalisation in FY24, while Hong Kong was among the few major markets that did not post better returns that year. Business Standard, reporting Bloomberg data, said in January 2024 that India's market capitalisation had overtaken Hong Kong's for the first time.
• ✗ III The SEBI Act sets up SEBI to protect the interests of investors in securities and to regulate the securities market, including registering and regulating investment advisers. Its September 2024 study found that over 9 in 10 (93%) individual F&O traders incurred losses between FY22 and FY24.

Remember · India leads the world in exchange-traded options volume; SEBI's 2024 study: 93% of individual F&O traders lost money (FY22–FY24). SEBI is the regulator and registers investment advisers.

Question and answer: UPSC's official GS Paper I (2025, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). Permalink · Report an error