Unit study guide · NISM Series XXI-B
Role of Portfolio Managers in India
8 questions in this unit
What this unit covers
- Which service lets the portfolio manager select investments within the client’s agreed mandate without seeking approval for each trade?
- In non-discretionary portfolio management, whose directions guide the portfolio’s investment decisions?
- Which arrangement is advisory-only when the provider does not manage or execute the client’s portfolio?
- A PMS firm separates fund management, compliance, custody and audit. The investment team must choose securities within approved mandates. Which function should own those investment decisions?
- A PMS firm has separate investment and compliance teams. A manager wants to trade an instrument that may fall outside an applicable restriction. Which function should first clarify the compliance position?
- A PMS firm appoints an independent custodian and retains its own investment team. The custodian receives asset and settlement records. Which duty best matches that appointment?
- A PMS firm reports a client’s holdings and fees. An independent reviewer needs to trace these figures to transactions and supporting evidence. What is most useful for that review?
- A PMS firm outsources record processing, but retains responsibility for client reporting. The provider’s error creates a mismatch in client holdings. Which response best respects that retained responsibility?
Key ideas
From the practice bank · 1
Which service lets the portfolio manager select investments within the client’s agreed mandate without seeking approval for each trade?
Discretionary management delegates investment selection to the manager within the agreed mandate. That discretion does not remove the client’s objectives or restrictions. Remember: Discretion is authority within a mandate, not unrestricted freedom.
Hint Identify who has authority to make investment choices. Common mistake: Assuming discretionary authority overrides every client restriction.
XXI-B-033From the practice bank · 2
In non-discretionary portfolio management, whose directions guide the portfolio’s investment decisions?
The client’s directions guide investment decisions in non-discretionary management. The manager’s role should be understood from the agreed scope of service. Remember: Non-discretionary service does not transfer the same investment choice as discretionary service.
Hint Recall what has not been delegated under this service model. Common mistake: Assuming every portfolio-management agreement delegates stock selection.
XXI-B-034From the practice bank · 3
Which arrangement is advisory-only when the provider does not manage or execute the client’s portfolio?
An advisory-only provider gives recommendations while the client retains decisions and implementation. The exact service scope must be clear in the agreement. Remember: Advice and authority to manage a portfolio are different services.
Hint Separate a recommendation from delegated management and execution. Common mistake: Treating a recommendation as permission to take control of the client’s assets.
XXI-B-035From the practice bank · 4
A PMS firm separates fund management, compliance, custody and audit. The investment team must choose securities within approved mandates. Which function should own those investment decisions?
The authorised fund-management function owns investment decisions within the approved mandate. Custody, settlement and audit have different control or support responsibilities. Remember: Separate investment decision-making from asset administration and independent checking.
Hint Match authority and accountability to the purpose of each function. Common mistake: Assuming the team handling the securities must also choose them.
XXI-B-036From the practice bank · 5
A PMS firm has separate investment and compliance teams. A manager wants to trade an instrument that may fall outside an applicable restriction. Which function should first clarify the compliance position?
The compliance function should clarify the restriction before the trade proceeds. Investment attractiveness does not resolve a compliance uncertainty. Remember: Questionable permissions should be resolved before execution.
Hint Identify who checks adherence before a questionable transaction proceeds. Common mistake: Treating a promising investment as an exception to a restriction.
XXI-B-037From the practice bank · 6
A PMS firm appoints an independent custodian and retains its own investment team. The custodian receives asset and settlement records. Which duty best matches that appointment?
The custodian safeguards and administers assets according to its role. Appointment of a custodian does not transfer portfolio-selection responsibility to it. Remember: Custody and fund management should not be confused.
Hint Distinguish protecting records and holdings from choosing market exposure. Common mistake: Expecting the custodian to prevent every market loss.
XXI-B-038From the practice bank · 7
A PMS firm reports a client’s holdings and fees. An independent reviewer needs to trace these figures to transactions and supporting evidence. What is most useful for that review?
Complete, reconcilable records let the reviewer trace holdings and fees to underlying evidence. A summary presentation cannot replace the transaction trail. Remember: Reliable reporting requires an auditable link to underlying records.
Hint Think about the evidence needed to reproduce a reported number. Common mistake: Assuming an attractive report is evidence that its numbers are correct.
XXI-B-039From the practice bank · 8
A PMS firm outsources record processing, but retains responsibility for client reporting. The provider’s error creates a mismatch in client holdings. Which response best respects that retained responsibility?
The firm should investigate and correct the affected records because it retained responsibility for client reporting. It should also address the failed control rather than only the visible total. Remember: An outsourced process still needs accountable supervision and reconciliation.
Hint Distinguish delegating a task from giving up responsibility for its result. Common mistake: Assuming an external provider absorbs every responsibility for an outsourced activity.
XXI-B-040