Skip to content
Is the market open today? Today
SearchCtrl K
EnglishHinglish
My learning
Is the market open today? Today

Find your next idea

Unit study guide · NISM Series XXI-A

Role of Portfolio Managers

15 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

A 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?

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 Common mistake: Assuming that discretionary authority removes mandate restrictions.

XXI-A-057

From the practice bank · 2

A manager provides portfolio administration, but the client retains the final decision on proposed purchases and sales. Which service best fits this arrangement?

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 Common mistake: Calling every professionally administered account discretionary.

XXI-A-058

From the practice bank · 3

A service provides recommendations, while the client remains responsible for deciding and arranging execution and custody separately. Which label most closely describes the service?

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 Common mistake: Assuming that receiving a recommendation automatically authorises a trade.

XXI-A-059

From the practice bank · 4

A portfolio manager proposes using client investment cash temporarily to pay its office rent, with repayment next week. What is the central objection?

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 Common mistake: Confusing possession or operating access with ownership of client money.

XXI-A-060

From the practice bank · 5

Which arrangement most directly strengthens control over portfolio transactions?

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 Common mistake: Judging control quality only from whether the portfolio made money.

XXI-A-061

From the practice bank · 6

Which expectation goes beyond the normal safekeeping role of a custodian?

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 Common mistake: Using the presence of a custodian as evidence of guaranteed investment performance.

XXI-A-062

From the practice bank · 7

Which task most directly belongs to a portfolio manager’s compliance function?

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 Common mistake: Treating compliance as optional when investment results are strong.

XXI-A-063

From the practice bank · 8

A client receives an audited portfolio account statement. Which conclusion should the client avoid?

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 Common mistake: Treating audited past information as a guarantee about the future.

XXI-A-064

From the practice bank · 9

Under 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?

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 Common mistake: Counting only cash or relying on hoped-for future appreciation.

XXI-A-065

From the practice bank · 10

Under 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?

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 Common mistake: Ignoring a timing condition after adding the planned amounts.

XXI-A-066

From the practice bank · 11

Which distinction should a distributor preserve when describing an ordinary PMS investment approach under SEBI’s 16 July 2025 master circular?

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 Common mistake: Describing a PMS approach as though the client were buying identical pooled units.

XXI-A-067

From the practice bank · 12

A discretionary client’s agreement excludes one industry. The manager finds an attractive share in that industry. What is the appropriate action before any purchase?

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 Common mistake: Treating delegated discretion as unlimited discretion.

XXI-A-068

From the practice bank · 13

A 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?

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 Common mistake: Using a valuation statement as a guaranteed withdrawal quote.

XXI-A-069

From the practice bank · 14

Two clients use the same investment approach but enter on different dates and add money at different times. Which statement is most accurate?

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 Common mistake: Interpreting every difference between accounts as proof of a control failure.

XXI-A-070

From the practice bank · 15

A manager places a combined order for several eligible client accounts. Which allocation control best protects fair treatment?

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 Common mistake: Treating a profitable overall order as evidence that its allocation was fair.

XXI-A-071