Unit ko samjho · NISM Series X-A
Portfolio Manager
10 questions is unit mein
Sawaal aur jawaab English mein hain, kyunki NISM ka exam paper bhi English mein hota hai.
Is unit mein kya hai
- A client authorises a portfolio manager to choose securities and execute trades within an agreed investment mandate, without obtaining approval for each individual trade. Which service description best fits this arrangement?
- A manager proposes portfolio changes, but the client decides whether each proposed investment will be made. The manager then implements only the client-approved decisions under a portfolio-management agreement. Which description is most appropriate?
- An agreement covers investment recommendations only. It gives the professional no authority to select trades on the client’s behalf or execute them. Which activity remains outside this advice-only agreement?
- A discretionary portfolio agreement expressly prohibits borrowing and restricts investments to listed ordinary shares. The manager sees an attractive unlisted investment that would require borrowed funds. Which action respects the existing mandate?
- Arrangement P manages securities recorded for each client separately. Arrangement Q pools contributions in a fund and gives investors units representing an interest in that pool. Which distinction is supported by these stated structures?
- A hypothetical annual fee is 1% of the opening portfolio value of ₹80,00,000. The portfolio is worth ₹88,00,000 immediately before the fee is deducted at year-end. There is no performance fee. What is the management fee?
- A hypothetical portfolio starts at ₹1 crore and finishes a year at ₹1.16 crore before fees. The agreement charges 20% only on the gain above an 8% annual hurdle on opening value, with no catch-up and no other fee. What performance fee is due?
- A hypothetical fee arrangement has ₹30 lakh of profit available after returning all invested capital. Allocate the first ₹8 lakh to the investor, the next ₹2 lakh entirely to the manager as catch-up, and split the remaining profit 80% to the investor and 20% to the manager. What total profit share does the manager receive?
- A hypothetical account has an established performance-fee high-water mark of ₹1.25 crore. It fell to ₹1 crore and later recovered to ₹1.20 crore. Its agreement charges a performance fee only on value above the unchanged high-water mark. There are no client cash flows, fixed fees or hurdle adjustments. What performance fee is due on this recovery?
- An account opens at ₹1 crore and closes at ₹1.15 crore before fees. First deduct a fixed fee equal to 1% of opening value. Then charge 20% of any remaining value above ₹1.08 crore, without catch-up. There are no other charges or cash flows. What is the final account value after both fees?
Zaroori ideas
Practice bank se · 1
A client authorises a portfolio manager to choose securities and execute trades within an agreed investment mandate, without obtaining approval for each individual trade. Which service description best fits this arrangement?
The manager makes and implements individual investment decisions within the authority agreed with the client. Identify the two powers in the agreement: choosing securities and executing the resulting transactions. Both are delegated here. Because the client need not approve each trade, the arrangement is discretionary rather than client-directed at the individual-trade level. Delegation does not mean unrestricted trading. The stated investment mandate still limits what the manager is authorised to do, and the label says nothing about assured returns. Remember: Classify the service by decision-making authority, not by whether a professional is involved.
Hint Common mistake: Confusing delegated decisions with unlimited freedom to ignore the client’s mandate.
X-A-151Practice bank se · 2
A manager proposes portfolio changes, but the client decides whether each proposed investment will be made. The manager then implements only the client-approved decisions under a portfolio-management agreement. Which description is most appropriate?
The client retains the investment decisions while the manager administers and implements those approved decisions. Separate proposing an investment from deciding to undertake it. The professional proposes, but the client makes the investment decision. Next identify who implements the approved decision: the manager. This distinguishes the described arrangement from the advice-only alternative. The decisive issue is not whether the manager can send an order. It is whether the manager can independently choose the investment without the required client decision. Remember: Decision authority and transaction implementation are related but separate dimensions of a service.
Hint Common mistake: Calling every service that implements a trade discretionary.
X-A-152Practice bank se · 3
An agreement covers investment recommendations only. It gives the professional no authority to select trades on the client’s behalf or execute them. Which activity remains outside this advice-only agreement?
Recommendations do not themselves confer authority to execute transactions for the client. Read the express scope: the professional may recommend investments but has no trade-selection or execution authority for the client. Explaining risks, linking recommendations to goals and reviewing advice are compatible with that stated advisory role. Placing a trade would cross the agreement’s stated boundary unless separate authority were established. This question tests the scenario’s scope, not a universal legal rule for every advisory business. Remember: Check the actual authority granted before assuming that advice includes transaction execution.
Hint Common mistake: Treating acceptance of a recommendation as automatically creating an execution mandate.
X-A-153Practice bank se · 4
A discretionary portfolio agreement expressly prohibits borrowing and restricts investments to listed ordinary shares. The manager sees an attractive unlisted investment that would require borrowed funds. Which action respects the existing mandate?
The transaction conflicts with both express restrictions, regardless of the manager’s investment outlook. The proposal violates two independent conditions: the investment is unlisted and the financing involves borrowing. Neither an optimistic forecast nor a short proposed holding or borrowing period removes either restriction in the facts given. Under the existing agreement, the transaction should not be undertaken. Any possible future change in authority is a separate matter requiring an appropriate process, not a justification for trading first. Remember: Investment opportunity and permission to invest are different questions.
Hint Common mistake: Using expected profitability as a substitute for mandate compliance.
X-A-154Practice bank se · 5
Arrangement P manages securities recorded for each client separately. Arrangement Q pools contributions in a fund and gives investors units representing an interest in that pool. Which distinction is supported by these stated structures?
The distinction follows from separate client portfolios in P versus ownership through units of one pool in Q. In P, portfolio records and securities are associated with individual clients. That is the defining structure supplied in the question. In Q, the investor holds units in the pool. The pool’s underlying investments are not described as separately selected accounts for every unitholder. Neither arrangement determines performance, risk or active-versus-passive style by itself. Those depend on the mandate and investments, which must be assessed separately. Remember: Identify what the investor actually holds before comparing managed investment products.
Hint Common mistake: Inferring management style or guaranteed performance from the ownership structure alone.
X-A-155Practice bank se · 6
A hypothetical annual fee is 1% of the opening portfolio value of ₹80,00,000. The portfolio is worth ₹88,00,000 immediately before the fee is deducted at year-end. There is no performance fee. What is the management fee?
The stated 1% is applied to the ₹80,00,000 opening-value base, not to the closing valuation. The agreement explicitly selects opening portfolio value. Therefore use ₹80,00,000 and disregard closing value for this fee calculation. Fee = ₹80,00,000 × 0.01 = ₹80,000. Deducting it from ₹88,00,000 would leave ₹87,20,000 before any other unspecified costs. The increase to ₹88,00,000 does not change the chosen opening-value base. These are hypothetical terms, not a prescribed fee rate or a statement about a real provider. Remember: Read the fee percentage, base and deduction timing together.
Hint Common mistake: Automatically applying every annual fee percentage to the year-end valuation.
X-A-156Practice bank se · 7
A hypothetical portfolio starts at ₹1 crore and finishes a year at ₹1.16 crore before fees. The agreement charges 20% only on the gain above an 8% annual hurdle on opening value, with no catch-up and no other fee. What performance fee is due?
Only ₹8,00,000 of gain exceeds the ₹8,00,000 hurdle gain, and 20% of that excess is ₹1,60,000. Gross investment gain = ₹1.16 crore − ₹1 crore = ₹16,00,000. The hurdle gain is 8% × ₹1 crore = ₹8,00,000. Eligible excess gain = ₹16,00,000 − ₹8,00,000 = ₹8,00,000. Apply the 20% sharing rate to this excess, giving ₹1,60,000. The investor’s post-fee value would be ₹1,14,40,000. A hurdle is a fee threshold in this contract. It does not promise that the investment will earn 8%. Remember: Separate gross gain, hurdle gain, chargeable gain and the fee itself.
Hint Common mistake: Treating a hurdle as either a promised investment return or a fee on all profits.
X-A-157Practice bank se · 8
A hypothetical fee arrangement has ₹30 lakh of profit available after returning all invested capital. Allocate the first ₹8 lakh to the investor, the next ₹2 lakh entirely to the manager as catch-up, and split the remaining profit 80% to the investor and 20% to the manager. What total profit share does the manager receive?
The manager receives ₹2 lakh of catch-up plus 20% of the ₹20 lakh remaining profit. The ₹30 lakh consists only of profit: invested capital has already been returned and must not be deducted again. After ₹8 lakh goes to the investor and ₹2 lakh to the manager, ₹20 lakh remains. The manager’s final-stage share is 20% × ₹20 lakh = ₹4 lakh. Manager total = ₹2 lakh + ₹4 lakh = ₹6 lakh. Investor total = ₹8 lakh + 80% × ₹20 lakh = ₹24 lakh. The two shares reconcile to all ₹30 lakh. Remember: Apply waterfall stages in sequence and reconcile the final allocations to the available pool.
Hint Common mistake: Applying the last-stage percentage to profit that has already been allocated.
X-A-158Practice bank se · 9
A hypothetical account has an established performance-fee high-water mark of ₹1.25 crore. It fell to ₹1 crore and later recovered to ₹1.20 crore. Its agreement charges a performance fee only on value above the unchanged high-water mark. There are no client cash flows, fixed fees or hurdle adjustments. What performance fee is due on this recovery?
The recovered account value remains below the ₹1.25 crore threshold, so there is no chargeable excess. Compare the current ₹1.20 crore with the unchanged ₹1.25 crore threshold. The account is ₹5 lakh below the threshold. Chargeable excess = maximum of zero and ₹1.20 crore − ₹1.25 crore = zero. A fee percentage is unnecessary because its base is zero. Although the account gained ₹20 lakh from its low point, that is not the same as exceeding its high-water mark. The question excludes new cash flows that could require additional contractual adjustments. Remember: A recovery from a loss is not automatically a new performance-fee profit.
Hint Common mistake: Resetting the fee threshold to the account’s lowest recent value.
X-A-159Practice bank se · 10
An account opens at ₹1 crore and closes at ₹1.15 crore before fees. First deduct a fixed fee equal to 1% of opening value. Then charge 20% of any remaining value above ₹1.08 crore, without catch-up. There are no other charges or cash flows. What is the final account value after both fees?
Deduct ₹1 lakh first, then 20% of the ₹6 lakh excess over ₹1.08 crore, leaving ₹1.128 crore. Fixed fee = 1% × ₹1 crore = ₹1 lakh. Account value after the fixed fee is ₹1.15 crore − ₹1 lakh = ₹1.14 crore. The remaining excess over the stated ₹1.08 crore threshold is ₹6 lakh. Performance fee = 20% × ₹6 lakh = ₹1.20 lakh. Final value = ₹1.14 crore − ₹1.20 lakh = ₹1,12,80,000. Total fees of ₹2.20 lakh reconcile gross closing value to net closing value. Remember: Follow the specified sequence rather than adding headline fee percentages.
Hint Common mistake: Calculating the performance fee before a fixed fee when the agreement says the reverse.
X-A-160