CAIIB · Advanced Business & Financial Management · Module D — Emerging Business Solutions
CAIIB ABFM Unit 21 — Private Equity and Venture Capital: Free MCQs with Explanations
By Swarnakshi Jha (ex-banker) · Updated 29 October 2026 · Paper III of the December 2026 cycle (Sunday 13 December 2026)
This is the free practice page for CAIIB ABFM Unit 21 — Private Equity and Venture Capital (Module D — Emerging Business Solutions). The CAIIB Mock Centre holds 180 questions on this unit alone, every one with a why-right / why-wrong explanation; below are the facts examiners keep returning to, five practice questions with explanations, and the traps that cost marks.
ABFM · Module D180 MCQs in the Mock Centre5 free belowPaper on 13 December
Key facts examiners test from this unit
Venture capital and private equity: meaning and features — VC is equity plus guidance for young, high-risk, high-growth firms that banks will not lend to.
VC financing stages, process and value to startups — money follows the stage, and every VC deal runs from origination to exit.
Inside a VC firm: roles and fund terms — LPs supply the money, GPs raise, invest, grow and exit, and the fund's terms set who gets what.
Changed since the textbook
India's PE/VC investments reach US$ 60.7 billion in 2025 (EY–IVCA) (11 March 2026). EY and IVCA's PE/VC Agenda: India Trendbook 2026 reports PE/VC investments of US$ 60.7 billion across 1,475 deals in 2025 (up 8% in value and 9% in deals) and exits of US$ 32.9 billion across 257 transactions, the second-highest year for exits. Financial services was the largest sector. Source: Entrepreneur India
AIF commitments reach ₹15.74 lakh crore (SEBI data, 31 December 2025) (5 March 2026). SEBI's data show AIF commitments of ₹15.74 lakh crore, funds raised of ₹6.78 lakh crore and investments of ₹6.45 lakh crore at 31 December 2025, up 21%, 29% and 27% in a year. Category II leads with commitments of ₹11.64 lakh crore; Category I has ₹97,988 crore and Category III ₹3.12 lakh crore. Source: Cafemutual
5 free practice questions — tap an option
Five practice questions from this unit. Answers lock on the first tap, exactly as in the exam, and an explanation opens underneath. The Mock Centre has all 180 questions on this unit, from easy to tough, with caselets and key-in numericals, why every other option is wrong and the exam tip — and tracks your score and revision dates.
Question 1 of 5
Besides funding, what does a venture capitalist typically do for the company it backs?
Why (d): The VC not only provides funds but also takes an active interest in leading the company it has backed. (a) is wrong: VCs are active investors. (b) is wrong: The VC guides; it does not run daily operations. (c) is wrong: The VC does not guarantee sales.
Question 2 of 5
Which of these is NOT a feature that PE and VC share?
Why (a): PE and VC funds are private pools contributed by institutions and wealthy individuals; they do not raise money from the public. (b) is wrong: Investing in firms not ready for public money is a shared feature. (c) is wrong: Few restrictions on their activities is a shared feature. (d) is wrong: Active oversight is a shared feature.
Question 3 of 5
A VC fund targets a 40% compound annual return on a startup it expects to exit in five years. Roughly what exit multiple does it need?
Why (b): The required exit multiple is (1 + 40%)^5 = 1.4^5 ≈ 5.38, about 5.4 times the amount invested. Adding 40% a year without compounding gives 1 + 5 × 0.4 = 3.0 times; 2.0 is the 200% simple gain taken as the multiple; 7.5 times is 1.4^6, which compounds over six years. (a) is wrong: 3.0 times ignores compounding (1 + 5 × 0.4). (c) is wrong: 2.0 takes the simple 200% gain as the multiple. (d) is wrong: 7.5 times compounds over six years instead of five.
Question 4 of 5
What is distress ('vulture') funding in private equity?
Why (b): Distress funding invests in struggling businesses with underperforming units or assets, aiming to profit from selling assets or to turn the business around; it rose after the 2008 crisis. (a) is wrong: It targets distressed, not profitable, firms. (c) is wrong: It invests in companies, not bonds. (d) is wrong: Seed funding is venture capital.
Question 5 of 5
Which AIFs may employ diverse or complex trading strategies and use leverage, including through derivatives?
Why (a): Category III AIFs employ diverse or complex trading strategies and may use leverage, including through listed or unlisted derivatives; hedge funds and PIPE funds are examples. (b) is wrong: Category I funds invest in socially or economically desirable areas. (c) is wrong: Category II funds may borrow only for day-to-day needs. (d) is wrong: Angel funds are in Category I.
0 of 5 answered.
Traps in this unit
VC is equity, not a loan.
PE, not VC, backs established firms and may include debt.
Mezzanine is the third round; bridge the fourth.
Practise all 180 questions on Unit 21. The free CAIIB demo opens Units 1–2 of every paper with full explanations; the ABFM Online Mock Centre unlocks all 4,000+ ABFM questions, the full-length papers with caselets and key-ins, module mocks and Smart Revision for 18 months (₹1,499).
Independent study aid — not affiliated with, endorsed by, or sponsored by the Indian Institute of Banking & Finance (IIBF). Exam pattern, dates, fees and passing criteria are set by IIBF — always confirm the current rules at iibf.org.in. CAIIB content follows rules and developments up to IIBF's cut-off of 30 June 2026 (where a rule changed later, the update box says so); verify from official sources before relying on them in practice.