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2026 Statistics

Key Facts: IAI SP5 Exam

Syllabus Topics

IAI SP5 syllabus

3h 20m

Exam Duration

IAI SP5 syllabus

15%

Sample IAI SP5 Practice Questions

Try these sample questions to test your IAI SP5 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Under the efficient market hypothesis, the semi-strong form states that security prices reflect which information set?

A.Only past price and volume data

B.All information, public and private (insider)

C.All publicly available information including past prices

D.Only the most recent annual report

Explanation: Semi-strong efficiency holds that prices reflect all publicly available information, so fundamental analysis of public data cannot consistently produce excess risk-adjusted returns. It encompasses the weak form (past prices) and is encompassed by the strong form.

2An investor wants exposure to a diversified pool of commercial property without the illiquidity of direct holdings. Which vehicle is MOST appropriate?

A.A single freehold office building

B.A zero-coupon government bond

C.A currency forward contract

D.A Real Estate Investment Trust (REIT)

Explanation: A REIT is a listed, pooled vehicle holding income-producing real estate; its shares trade on an exchange, giving property exposure with far greater liquidity and diversification than direct ownership. It also typically distributes most rental income as dividends.

3A pension scheme adopts a liability-driven investment (LDI) strategy. The PRIMARY objective of LDI is to:

A.Maximise the absolute return on assets regardless of liabilities

B.Match the sensitivity of assets to changes that affect the liabilities

C.Hold only equities for long-term growth

D.Minimise the management expense ratio of the fund

Explanation: LDI structures the asset portfolio so its value moves in line with the liabilities as interest rates and inflation change, reducing the volatility of the funding position. Bonds and interest-rate/inflation swaps are commonly used to match liability duration and inflation linkage.

4A bond has a Macaulay duration of 8 years and a yield to maturity of 5%. Its modified duration is approximately:

A.7.62 years

B.8.40 years

C.8.00 years

D.0.40 years

Explanation: Modified duration = Macaulay duration / (1 + y) = 8 / 1.05 = 7.62 years. Modified duration estimates the percentage price change for a 1% change in yield, so a 1% rise in yield implies roughly a 7.62% price fall.

5A portfolio returned 12% over a year. The risk-free rate was 4% and the portfolio's standard deviation of returns was 16%. The Sharpe ratio is:

A.0.75

B.0.25

C.0.50

D.1.00

Explanation: Sharpe ratio = (portfolio return - risk-free rate) / standard deviation = (12% - 4%) / 16% = 8 / 16 = 0.50. It measures excess return per unit of total risk and is used to compare risk-adjusted performance across portfolios.

6Which body is responsible for setting the syllabus and conducting the SP5 Investment and Finance examination in India?

A.Securities and Exchange Board of India (SEBI)

B.Reserve Bank of India (RBI)

C.Insurance Regulatory and Development Authority of India (IRDAI)

D.Institute of Actuaries of India (IAI)

Explanation: The Institute of Actuaries of India (IAI) is the statutory professional body that sets the actuarial syllabus and conducts examinations such as SP5 in India. Its syllabus mirrors the IFoA SP5 curriculum, adapted to the Indian jurisdiction.

7The price of a forward contract on a non-dividend-paying asset is best given by:

A.The current spot price discounted at the risk-free rate

B.The expected future spot price under real-world probabilities

C.The current spot price compounded at the risk-free rate to maturity

D.The spot price plus the expected dividend yield

Explanation: By no-arbitrage, the forward price F = S0 × e^(rT) for a non-dividend asset, where the spot is carried forward at the risk-free rate over time T. Holding the asset incurs the cost of carry (financing), which the forward price must compensate.

8An equity is expected to pay a dividend of 4 next year, growing at 3% per annum in perpetuity. If the required return is 9%, the Gordon growth model value of the share is:

A.44.44

B.133.33

C.66.67

D.40.00

Explanation: The Gordon (constant) growth model gives P = D1 / (r - g) = 4 / (0.09 - 0.03) = 4 / 0.06 = 66.67. The model assumes a constant dividend growth rate below the required return in perpetuity.

9Behavioural finance identifies 'anchoring'. This bias describes investors who:

A.Rely too heavily on an initial reference figure when making estimates

B.Sell winners too early and hold losers too long

C.Follow the crowd into popular investments

D.Treat money differently depending on its source or label

Explanation: Anchoring is the tendency to fix on an initial value (such as a purchase price or first forecast) and adjust insufficiently from it when forming new estimates. It can distort valuations and revisions of expectations.

10Which performance measure is calculated as portfolio excess return over the benchmark divided by the tracking error (standard deviation of the excess return)?

A.Information ratio

B.Sharpe ratio

C.Treynor ratio

D.Jensen's alpha

Explanation: The information ratio = active return (portfolio minus benchmark) divided by tracking error. It measures the consistency with which a manager generates excess return relative to a benchmark per unit of active risk.

About the IAI SP5 Exam

IAI SP5 Investment and Finance Specialist Principles develops the ability to apply actuarial principles to evaluating investments, selecting and valuing assets, building portfolios that meet investor needs, and managing investment risk. The syllabus mirrors the IFoA SP5 curriculum within the Indian jurisdiction.

Assessment

Written, application-focused specialist-principles paper covering all eight syllabus topics

Time Limit

3 hours 20 minutes (including reading time)

Passing Score

Pass mark is set by IAI at each sitting; 60% is the usual guideline but the actual cut score is determined during marking

Exam Fee

Per the current IAI fee schedule for Specialist Principles subjects (Institute of Actuaries of India (IAI))

IAI SP5 Exam Content Outline

10%

Economic, Regulatory and Legislative Framework

Understand the framework for investment management, including market structure, regulation, the prudent-person principle, custody and governance, and the roles of key market participants.

15%

Specialist Investment Products

Know the characteristics of equities, conventional and index-linked bonds, property and REITs, derivatives (forwards, futures, options, swaps, CDS) and alternatives such as private equity, hedge funds and commodities.

10%

Valuing Investments

Apply discounted cashflow, dividend discount models, bond duration and convexity, option pricing concepts, and approaches to valuing illiquid and unlisted assets.

10%

Monitoring and Managing Investment Risks

Identify and measure market, credit, currency, liquidity and counterparty risk using VaR, expected shortfall, coherent risk measures, stress testing and scenario analysis.

10%

Investor Characteristics

Assess investor objectives, the nature and term of liabilities, risk appetite, behavioural finance biases, ESG considerations and the effect of taxation on net returns.

15%

Appropriate Investment Strategies

Design strategies including liability-driven investment, immunisation, cashflow matching, duration and inflation hedging, de-risking glidepaths and lifestyling.

15%

Portfolio Management and Risk Control

Set strategic and tactical asset allocation, choose active versus passive and core-satellite structures, apply risk budgeting, and control tracking error and active risk.

15%

Analysing Portfolio Performance

Compute time-weighted and money-weighted returns, risk-adjusted measures (Sharpe, Treynor, information ratio, Jensen's alpha), performance attribution and benchmarking.

How to Pass the IAI SP5 Exam

What You Need to Know

Passing score: Pass mark is set by IAI at each sitting; 60% is the usual guideline but the actual cut score is determined during marking
Assessment: Written, application-focused specialist-principles paper covering all eight syllabus topics
Time limit: 3 hours 20 minutes (including reading time)
Exam fee: Per the current IAI fee schedule for Specialist Principles subjects

Keys to Passing

Work through all 100 available questions
Review every answer and explanation
Track weak areas and revisit them
Use our AI tutor for tough concepts

IAI SP5 Study Tips from Top Performers

1Treat SP5 as an application subject. Practise turning syllabus knowledge into structured written points about a specific investor's objectives, liabilities and constraints, because roughly half the marks reward application.

2Master liability-driven investment, immunisation and cashflow matching, since strategies (15%) and portfolio management (15%) together with performance (15%) form the heaviest part of the paper.

3Be fluent with the performance toolkit: time-weighted versus money-weighted returns, the Sharpe, Treynor and information ratios, Jensen's alpha and Brinson-style attribution.

4Know the risk measures cold, including VaR, expected shortfall and why subadditivity makes expected shortfall coherent while VaR can fail it, and link each to the relevant risk type.

5Drill the valuation formulas (Gordon growth, modified duration, no-arbitrage forward pricing) under timed conditions with a scientific calculator so setup becomes automatic.

Frequently Asked Questions

What is IAI SP5?

IAI SP5 Investment and Finance Specialist Principles is a fellowship-stage actuarial subject run by the Institute of Actuaries of India. It develops the ability to apply actuarial principles to evaluating, valuing and risk-managing portfolios of investments, mirroring the IFoA SP5 curriculum in the Indian jurisdiction.

What topics are on the SP5 syllabus?

The 2026 syllabus has eight topics: the framework for investment management (10%), specialist investment products (15%), valuing investments (10%), monitoring and managing risks (10%), investor characteristics (10%), appropriate investment strategies (15%), portfolio management and risk control (15%), and analysing portfolio performance (15%).

How long is the SP5 exam?

SP5 is a written examination of 3 hours 20 minutes, which includes reading time. A scientific calculator is permitted, and the paper is application-focused, so disciplined time management is essential.

What is the format of the SP5 exam?

SP5 is a written, long-form specialist-principles paper rather than a multiple-choice test, with the assessment weighted roughly 25% knowledge, 50% application and 25% higher-order skills. This free bank provides 100 MCQs as structured knowledge prep over the same syllabus.

What is the passing score for SP5?

The pass mark is set by IAI for each sitting. A guideline of 60% is commonly cited, but the actual cut score is determined during the marking process and is not published as a fixed percentage in advance.

How does IAI SP5 relate to IFoA SP5?

IAI SP5 mirrors the Institute and Faculty of Actuaries (IFoA) SP5 syllabus on investment and finance, adapted to the Indian regulatory and market context. The core technical material on investments, portfolios and risk is essentially the same across both bodies.