Role of Portfolio Managers
15 questions. Each answer is explained.
Question 1 of 10Practice · Series XXI-A — Portfolio Management Services (PMS) Distributors
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Learn these topics
More units in NISM Series XXI-A
- Investments11
- Introduction to Securities Markets7
- Investing in Stocks15
- Investing in Fixed Income Securities8
- Derivatives7
- Collective Investment Vehicles8
- Operational Aspects of Portfolio Managers20
- Portfolio Management Process22
- Performance Measurement and Evaluation of Portfolio Managers15
- Taxation7
- Regulatory, Governance and Ethical Aspects of Portfolio Managers15
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 10% · 0.1 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XXI-A Portfolio Management Services (PMS) Distributors
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 15 questions on Role of Portfolio Managers, with answers
Q1A client gives a portfolio manager authority to choose and execute investments within an agreed mandate without obtaining approval for each trade. Which service is described?
Option A. Investment advice without implementation responsibility
Why it is wrong: The scenario includes authority to choose and execute, not advice alone.
Option B. Discretionary portfolio management — Correct answer
Option C. Non-discretionary portfolio management
Why it is wrong: Under non-discretionary management, investment decisions remain with the client rather than being delegated as stated.
Option D. Custody without investment authority
Why it is wrong: Custody concerns safekeeping and administration, not the delegated investment choices described.
Answer: B. Discretionary authority concerns who decides investments, while the mandate defines the limits of that authority. The client has delegated selection and execution without trade-by-trade approval. That identifies discretionary management. The manager must still follow the mandate, and the delegation does not guarantee an outcome. Remember: Discretion is delegated decision-making within boundaries, not unrestricted control.
Hint, shown before you answer in practice mode: Common mistake: Assuming that discretionary authority removes mandate restrictions.
XXI-A-057easyapplication
Q2A manager provides portfolio administration, but the client retains the final decision on proposed purchases and sales. Which service best fits this arrangement?
Option A. Custody only, with no portfolio management agreement
Why it is wrong: The stated arrangement includes proposed transactions and portfolio administration beyond the custody label.
Option B. Discretionary management merely because administration is delegated
Why it is wrong: Operational delegation does not establish that investment decisions have also been delegated.
Option C. Non-discretionary portfolio management — Correct answer
Option D. A pooled mutual fund chosen by its unitholders trade by trade
Why it is wrong: The scenario describes a client-specific portfolio, not a pooled scheme with that decision process.
Answer: C. Non-discretionary management distinguishes the manager’s agreed services from the client’s retained investment-decision authority. Ask who has the final say on a proposed investment. Here, it is the client. Do not confuse the presence of administrative support with discretionary investment authority. The exact implementation duties remain governed by the agreement. Remember: Identify the decision-maker before classifying a PMS service.
Hint, shown before you answer in practice mode: Common mistake: Calling every professionally administered account discretionary.
XXI-A-058easyapplication
Q3A service provides recommendations, while the client remains responsible for deciding and arranging execution and custody separately. Which label most closely describes the service?
Option A. A clearing and settlement service
Why it is wrong: Advice on investments is not the same as processing market settlement obligations.
Option B. Discretionary management
Why it is wrong: The adviser has not been given authority to make and implement decisions on the client’s behalf.
Option C. Non-discretionary administration with mandatory custody included
Why it is wrong: The scenario specifically leaves execution and custody to separate arrangements.
Option D. Advisory services — Correct answer
Answer: D. Advice, investment discretion and operational implementation are separate elements that should be identified in the service agreement. The provider recommends actions but does not arrange the specified implementation functions. The client’s responsibility for those functions makes advisory services the best fit among the choices. Remember: Do not infer execution or custody duties from the mere provision of advice.
Hint, shown before you answer in practice mode: Common mistake: Assuming that receiving a recommendation automatically authorises a trade.
XXI-A-059easyapplication
Q4A portfolio manager proposes using client investment cash temporarily to pay its office rent, with repayment next week. What is the central objection?
Option A. It is acceptable if the manager labels the payment an internal adjustment.
Why it is wrong: Accounting terminology does not change the purpose or authorisation of the transaction.
Option B. It is acceptable if the client portfolio is above its historical high.
Why it is wrong: Portfolio gains do not transfer ownership of the funds to the manager.
Option C. The use is acceptable whenever the manager expects a profit next week.
Why it is wrong: An expectation of future income does not authorise use of client funds for business expenses.
Option D. Client portfolio resources should not be treated as the manager’s working capital. — Correct answer
Answer: D. Segregation protects the distinction between resources entrusted for clients and the service provider’s own finances. Identify whose funds are being used and for whose expense. Office rent is the manager’s business expense. A proposed later repayment does not turn the unauthorised use into a client investment. The matter should be prevented and escalated through controls. Remember: A promise to restore funds is not permission to use them for a different owner’s needs.
Hint, shown before you answer in practice mode: Common mistake: Confusing possession or operating access with ownership of client money.
XXI-A-060mediumapplication
Q5Which arrangement most directly strengthens control over portfolio transactions?
Option A. One authorised person starts each trade and another independently reconciles the records. — Correct answer
Option B. Reconciliation of the trade records is skipped on any day the portfolio makes a profit.
Why it is wrong: A positive return does not prove transaction records are correct.
Option C. The researcher alone changes client bank details and also releases the payments.
Why it is wrong: Being responsible for research does not justify unlimited control over payment instructions.
Option D. The dealer alone enters, approves and reconciles every transaction from start to finish.
Why it is wrong: When one person does every step, there is less independent challenge. Errors are also less likely to be found.
Answer: A. Segregation of duties means splitting the work. Starting, approving and checking each go to a properly separate role. So ask two questions. Can the person who checks the record challenge the action that started it? And can they do it on their own? Take the arrangement where one authorised person starts each trade. A second person reconciles (matches up) the records on their own. Then both answers are yes. A written split, with an independent check of the records, gives a control. That control is missing when one person does and signs off every step. Remember: Good investment results do not replace operational controls.
Hint, shown before you answer in practice mode: Common mistake: Judging control quality only from whether the portfolio made money.
XXI-A-061mediumapplication
Q6Which expectation goes beyond the normal safekeeping role of a custodian?
Option A. Supporting the settlement of securities moving in or out
Why it is wrong: Settlement support is consistent with securities custody arrangements.
Option B. Guaranteeing that the portfolio’s market value will not fall — Correct answer
Option C. Providing holdings information for reconciling the client’s records
Why it is wrong: Holdings information helps reconcile the client’s records with custody records.
Option D. Maintaining custody records of the client’s securities
Why it is wrong: Record maintenance is consistent with a custody function.
Answer: B. Custody reduces particular holding and administration risks. It is not a promise about future market returns. Compare the promise about market value with the operational functions in the other options. The custodian may support safe administration while the securities still fluctuate in value. Responsibilities depend on the applicable arrangement. Remember: Safekeeping is not the same as capital protection.
Hint, shown before you answer in practice mode: Common mistake: Using the presence of a custodian as evidence of guaranteed investment performance.
XXI-A-062easyconceptual
Q7Which task most directly belongs to a portfolio manager’s compliance function?
Option A. Monitoring adherence to applicable obligations and escalating breaches — Correct answer
Option B. Choosing which sectors to overweight based on earnings forecasts
Why it is wrong: This is mainly a job for investment research and for building the portfolio.
Option C. Negotiating the execution price for a trade that has already been authorised
Why it is wrong: Carrying out a trade is a dealing job. It is separate from checking that obligations are met.
Option D. Reconciling the cash received each day against the bank ledger
Why it is wrong: Reconciliation is an accounting control. Compliance may oversee it. But it is not the same as the compliance monitoring function itself.
Answer: A. Compliance asks if the work stays within the rules that apply. It is not about getting the most return from a trade. So look for the task that checks activity against those rules. Compliance monitoring does this. It also includes recording breaches and raising them to a higher level. Picking investments, dealing (carrying out trades) and reconciling accounts are related tasks. But they are separate operational duties. Remember: A compliance function supports disciplined conduct even when a breach appears profitable.
Hint, shown before you answer in practice mode: Common mistake: Treating compliance as optional when investment results are strong.
XXI-A-063easyregulatory
Q8A client receives an audited portfolio account statement. Which conclusion should the client avoid?
Option A. The audit relates to the financial information and scope specified in the report.
Why it is wrong: The scope and opinion should be read to understand what was examined.
Option B. The audit guarantees that next year’s portfolio return will be positive. — Correct answer
Option C. The statement can assist in checking recorded holdings and transactions.
Why it is wrong: Audited information can support review, without replacing the need to understand its scope.
Option D. Qualifications or exceptions in the report deserve attention.
Why it is wrong: Such findings can be relevant to the reliability or presentation of the information.
Answer: B. An audit addresses specified information and assertions for a period. It is not a forecast or guarantee of future performance. Read the report’s subject, period, scope and opinion rather than relying only on the word audited. The portfolio can suffer later market losses even when the earlier accounts were properly prepared and audited. Remember: An audit opinion and an investment-return promise are different things.
Hint, shown before you answer in practice mode: Common mistake: Treating audited past information as a guarantee about the future.
XXI-A-064mediumapplication
Q9Under the ordinary first-investment rule in SEBI’s 16 July 2025 PMS master circular, a client contributes ₹32 lakh cash and eligible securities valued at ₹18 lakh in one initial transfer. Excluding special accredited and co-investment arrangements, does this meet the ₹50 lakh floor?
Option A. Yes, because the floor can be met solely by expected future appreciation.
Why it is wrong: The contribution meets the floor from actual initial value, not an assumed future gain.
Option B. No, the cash and securities must each separately equal ₹50 lakh.
Why it is wrong: The question concerns the value of the initial contribution, not two independent minimums.
Option C. No, only the ₹32 lakh cash can be counted.
Why it is wrong: The named ordinary rule refers to funds or securities, and the question states that the transferred securities are eligible.
Option D. Yes, the combined initial contribution is ₹50 lakh. — Correct answer
Answer: D. The minimum-contribution test in the expressly named framework applies to the value of the eligible initial funds and securities. Use the accepted valuation given for the eligible securities. Add ₹32 lakh + ₹18 lakh = ₹50 lakh. That equals the stated floor. This calculation does not establish eligibility for other routes or certify the later regulatory framework. Remember: Apply a threshold to the correct contribution components and the correct dated framework.
Hint, shown before you answer in practice mode: Common mistake: Counting only cash or relying on hoped-for future appreciation.
XXI-A-065mediumregulatory
Q10Under the ordinary first-investment rule in SEBI’s 16 July 2025 PMS master circular, a prospective client proposes ₹30 lakh now and ₹20 lakh six months later. No special exception applies. Which response is correct?
Option A. It satisfies the rule if the distributor also signs the client’s application form.
Why it is wrong: A distributor’s signature does not replace the contribution condition.
Option B. It satisfies the rule because the two planned payments add up to ₹50 lakh in total.
Why it is wrong: The timing condition is part of the named rule, not just the eventual total.
Option C. The proposal does not satisfy the stated first single lump-sum ₹50 lakh requirement. — Correct answer
Option D. It satisfies the rule if projected returns could later bridge the ₹20 lakh gap.
Why it is wrong: An expected investment return is not an initial contribution.
Answer: C. A threshold can have a timing condition as well as an amount condition. Both must be checked. The proposed first contribution is ₹30 lakh, below the stated ordinary minimum. The later ₹20 lakh is not part of the first single lump-sum transfer, so the proposal does not meet this dated rule. Remember: Check when a minimum must be satisfied, not only the sum of future commitments.
Hint, shown before you answer in practice mode: Common mistake: Ignoring a timing condition after adding the planned amounts.
XXI-A-066mediumregulatory
Q11Which distinction should a distributor preserve when describing an ordinary PMS investment approach under SEBI’s 16 July 2025 master circular?
Option A. A named approach gives every client units in one common pool, in the same way a mutual fund does.
Why it is wrong: The label does not establish that pooled structure for a PMS service.
Option B. An investment approach does not turn client portfolios into a mutual-fund-style pooled scheme. — Correct answer
Option C. A named approach removes the need for a separate written agreement with each client.
Why it is wrong: A marketing label does not replace the contractual basis of the service.
Option D. A named approach makes differences in when each client adds or takes out money irrelevant.
Why it is wrong: Individual timing can affect holdings and returns despite a shared approach.
Answer: B. A common strategy label describes how investments may be managed. It does not, by itself, define a pooled legal vehicle. Separate the description of the investment approach from the ownership and administration of each client portfolio. The named master-circular framework restricts offering portfolio management as mutual-fund-like schemes. Client terms and outcomes still require individual understanding. Remember: Do not use a familiar strategy name to imply a different legal or ownership structure.
Hint, shown before you answer in practice mode: Common mistake: Describing a PMS approach as though the client were buying identical pooled units.
XXI-A-067mediumregulatory
Q12A discretionary client’s agreement excludes one industry. The manager finds an attractive share in that industry. What is the appropriate action before any purchase?
Option A. Record it under a different industry label so the exclusion no longer seems to apply.
Why it is wrong: Relabelling does not change the actual exposure or cure a mandate breach.
Option B. Buy it first and ask the client for approval only if the share later loses money.
Why it is wrong: A later outcome does not retrospectively authorise a prohibited investment.
Option C. Buy it, because a discretionary mandate overrides all of the client’s restrictions.
Why it is wrong: The delegated authority is bounded by the mandate.
Option D. Respect the restriction and follow the proper process for any agreed mandate change. — Correct answer
Answer: D. An investment can appear attractive and still be outside the authorised universe for a particular client. Check the proposed holding against the explicit industry exclusion. Do not execute outside that authority. A genuine change needs the appropriate documented process before relying on the revised mandate. Remember: Investment attractiveness does not create authority to breach a client restriction.
Hint, shown before you answer in practice mode: Common mistake: Treating delegated discretion as unlimited discretion.
XXI-A-068mediumapplication
Q13A client requests an early withdrawal from a portfolio containing thinly traded securities. The agreement requires an orderly disposal process rather than immediate payment. What should be explained first?
Option A. The last valuation guarantees the amount and timing of cash received.
Why it is wrong: A valuation is not an executable sale commitment for illiquid positions.
Option B. Any withdrawal is legally forbidden for every PMS client.
Why it is wrong: The scenario does not establish such a universal prohibition.
Option C. The contractual process, expected saleability, costs and possible price impact. — Correct answer
Option D. The manager may ignore the request permanently because one holding is illiquid.
Why it is wrong: Liquidity difficulty does not remove the need to follow the agreement and communicate an implementation process.
Answer: C. Withdrawal rights and the practical conversion of holdings into cash must be assessed together. Read the agreed process and identify the positions that may take time or incur price impact to sell. Explain the implementation uncertainty and applicable costs without promising an unsupported exact payout or inventing a blanket lock-in. Remember: A right to request withdrawal does not make every holding instantly liquid.
Hint, shown before you answer in practice mode: Common mistake: Using a valuation statement as a guaranteed withdrawal quote.
XXI-A-069mediumapplication
Q14Two clients use the same investment approach but enter on different dates and add money at different times. Which statement is most accurate?
Option A. Their returns must be identical because both accounts follow one named approach.
Why it is wrong: A common name does not erase different account histories.
Option B. Any difference in their returns proves that one of the accounts was mishandled.
Why it is wrong: Differences can have ordinary economic or contractual explanations that must be examined.
Option C. A fair comparison needs only the two accounts’ ending rupee balances.
Why it is wrong: Different contributions and starting values make ending balances alone inadequate.
Option D. Their actual returns can differ even if the manager follows the same approach. — Correct answer
Answer: D. A strategy description and an individual account’s investment experience are different levels of analysis. Identify the different entry and contribution dates in the scenario. Those differences can affect units or securities bought and money-weighted outcomes. A fair comparison must use appropriate periods, cash flows and cost definitions. Remember: Compare like-for-like performance measures rather than expecting identical client experiences.
Hint, shown before you answer in practice mode: Common mistake: Interpreting every difference between accounts as proof of a control failure.
XXI-A-070mediumapplication
Q15A manager places a combined order for several eligible client accounts. Which allocation control best protects fair treatment?
Option A. Give all the fills to the newest client and explain that choice only if someone asks later.
Why it is wrong: An ad hoc preference is not a fair, documented allocation process.
Option B. Wait for the closing price, then give the profitable fills to the accounts the manager prefers.
Why it is wrong: This uses hindsight to favour selected clients.
Option C. Give the best fills to whichever client pays the highest fee, since that client earns the firm most.
Why it is wrong: Fee size is not a sound basis for preferential allocation of favourable outcomes.
Option D. Use a documented allocation method consistently, rather than picking recipients after seeing the fills. — Correct answer
Answer: D. Fair allocation requires a process that does not let later price information determine which client receives a favourable trade. Separate eligibility and allocation criteria from knowledge of subsequent performance. A documented method and independent checks help ensure comparable clients are treated consistently while respecting their mandates and available funds. Remember: Control the allocation process before hindsight can influence it.
Hint, shown before you answer in practice mode: Common mistake: Treating a profitable overall order as evidence that its allocation was fair.
XXI-A-071hardapplication
Role of Portfolio Managers: common questions
How many practice questions are there on Role of Portfolio Managers?
15 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 12 practice topics for NISM Series XXI-A, which has 150 questions in total.
Are these real NISM Series XXI-A questions on Role of Portfolio Managers?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XXI-A?
Yes. NISM takes off 10% of a question's marks for a wrong answer. On a 1-mark question that is 0.1 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Operational Aspects of Portfolio Managers
20 questions on Operational Aspects of Portfolio Managers. Its quiz opens on that unit.
Open Operational Aspects of Portfolio Managers