NISM Series X-A Ch.12: Portfolio Manager — 200 Practice Questions

Q: According to the provided text, which of the following is described as an essential characteristic of alternative investments?

Illiquidity, as they are not readily convertible into cash.. The text states: 'The essential characteristic of alternative investments is ‘illiquidity’, i.e. they are not readily convertible into cash as they are either off-market investments or because they are complex structures that do not have a ready...'

Q: What is the net worth requirement for an applicant seeking a certificate of registration as a portfolio manager?

Five crore rupees. Section 12.4, point 7, states, 'The applicant fulfils the net worth requirement (five crore rupees)'

Q: What is the minimum experience required for the principal officer of an applicant seeking portfolio manager registration in related activities in the securities market?

At least five years.. Section 12.4 states that the principal officer must have 'experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager'

Q: What is the minimum amount of funds or securities a portfolio manager shall accept from a client?

Fifty lakh rupees. The text states, "The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees."

Q: What is the mandatory requirement for an entity to act as a portfolio manager in India?

Obtaining a certificate of registration from SEBI.. As per section 12.4, 'To act as a portfolio manager, obtaining certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.'

Multiple Choice Questions (175)

Q1 MCQ · 1 mark MediumAlternative Investments

According to the provided text, which of the following is described as an essential characteristic of alternative investments?

AHigh liquidity, allowing easy conversion into cash.

BPrimarily on-market opportunities with readily available exit options.

✓Illiquidity, as they are not readily convertible into cash.

DDesigned mainly for general investors seeking better returns than savings schemes.

💡 The text states: 'The essential characteristic of alternative investments is ‘illiquidity’, i.e. they are not readily convertible into cash as they are either off-market investments or because they are complex structures that do not have a ready...'

Q2 MCQ · 1 mark HardCost, Expenses and Fees

In the context of performance-linked fees for a PMS, what is the 'no catch-up concept' with respect to a hurdle rate?

AThe fund manager earns fees on all gains, starting from the first earning, once the hurdle rate is crossed.

✓Fees are only calculated on the incremental amount of gains above the specified hurdle rate.

CThe fund manager does not charge any performance fees if the hurdle rate is not met.

DThe hurdle rate is adjusted annually based on market performance, and fees are always charged on the full gains.

💡 The no catch-up concept is that only the incremental amount above the hurdle rate would be considered for the calculation of performance-linked fees.

Q3 MCQ · 1 mark MediumNet Worth Requirement

What is the net worth requirement for an applicant seeking a certificate of registration as a portfolio manager?

AFifty lakh rupees

BTwo crore rupees

✓Five crore rupees

DTen crore rupees

💡 Section 12.4, point 7, states, 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q4 MCQ · 1 mark MediumRegistration Requirements

Which of the following is NOT a mandatory requirement for a Principal Officer of an applicant seeking registration as a Portfolio Manager, as per SEBI regulations?

AProfessional qualification in finance, law, accountancy, or business management.

BExperience of at least five years in related activities in the securities market.

CRelevant NISM certification as specified by the regulator.

✓Graduation from a university recognized by the Central Government.

💡 The text specifies that the Principal Officer needs 'a professional qualification in finance, law, accountancy or business management, experience of at least five years... and the relevant NISM certification'. Graduation from a university is specified for 'at least one person who has a graduation from a university', not specifically the Principal Officer's primary qualification.

Q5 MCQ · 1 mark MediumRegistration Requirements

Which of the following is NOT a mandatory qualification or experience requirement for the Principal Officer of an applicant seeking portfolio manager registration?

AProfessional qualification in finance, law, accountancy, or business management.

BExperience of at least five years in related activities in the securities market.

CRelevant NISM certification as specified by the regulator.

✓Being a director or partner in a SEBI-registered stockbroker for at least two years.

💡 The text specifies the Principal Officer needs 'a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market... and the relevant NISM certification.' Option D is not mentioned as a mandatory requirement.

Q6 MCQ · 1 mark MediumPrincipal Officer Qualifications

What is the minimum experience required for the principal officer of an applicant seeking portfolio manager registration in related activities in the securities market?

AAt least two years.

✓At least five years.

CAt least ten years.

DNo specific experience is mentioned, only professional qualification.

💡 Section 12.4 states that the principal officer must have 'experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager'.

Q7 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

What is the minimum amount of funds or securities a portfolio manager shall accept from a client?

ATwenty-five lakh rupees

BOne crore rupees

✓Fifty lakh rupees

DTen lakh rupees

💡 The text states, "The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees."

Q8 MCQ · 1 mark MediumDisclosure Document

Which of the following must be included in the Disclosure Document provided by a Portfolio Manager to a client, as per SEBI requirements?

ADetails of the client's personal financial goals for the next five years.

✓Quantum and manner of payment of fees and portfolio risks specific to each investment approach.

CA guarantee of minimum returns on the portfolio.

DA list of all previous clients and their performance history.

💡 Section 12.8 states that the Disclosure Document is required to include, inter alia, 'the quantum and manner of payment of fees payable to the client for each activity for which service is rendered, portfolio risks specific to each investment approach'.

Q9 MCQ · 1 mark HardResponsibilities and Disclosure

Which of the following statements regarding the responsibilities of a portfolio manager and SEBI's disclosure requirements is INCORRECT?

AA portfolio manager can invest a maximum of 30% of a client’s portfolio in securities of their own associates/related parties with a one-time written consent.

BThe Disclosure Document must include portfolio risks specific to each investment approach and be available on the portfolio manager's website.

✓The portfolio manager is required to keep the funds of all clients in a separate account maintained in any registered bank, not necessarily a Scheduled Commercial Bank.

DThe portfolio manager shall report its performance uniformly in disclosures to SEBI, marketing materials, client reports, and on its website.

💡 The text states, 'The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank.' Option C incorrectly states 'any registered bank.' Options A, B, and D are all correct as per the text.

Q10 MCQ · 1 mark EasyRegistration Requirements

What is the mandatory requirement for an entity to act as a portfolio manager in India?

✓Obtaining a certificate of registration from SEBI.

BHaving a minimum net worth of INR 10 crore.

CBeing a member of a recognized stock exchange.

DAppointing a qualified auditor approved by the Ministry of Finance.

💡 As per section 12.4, 'To act as a portfolio manager, obtaining certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.'

Q11 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

Which of the following is a key responsibility of a discretionary portfolio manager regarding client funds?

ATo manage funds in accordance with the directions of the client.

✓To manage funds individually and independently for each client.

CTo pool funds from multiple clients for common investment strategies.

DTo borrow funds on behalf of the client for investment purposes.

💡 Section 12.5 states, 'The discretionary portfolio manager shall individually and independently manage the funds of each client in accordance with the needs of the client, in a manner which does not partake character of a Mutual Fund...'

Q12 MCQ · 1 mark MediumRegistration Requirements

Which of the following is a mandatory qualification/experience requirement for the Principal Officer of an applicant seeking a Portfolio Manager registration?

AA graduate degree in any discipline and at least two years of experience in the securities market.

✓A professional qualification in finance, law, accountancy, or business management, along with at least five years of experience in related activities in the securities market and relevant NISM certification.

COnly NISM certification specified by the regulator, without any specific professional qualification.

DExperience of at least ten years as a fund manager, irrespective of professional qualification.

💡 Point 4 under 'Before issuing a certificate of registration, the regulator shall take into account the following' states: 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time.' Option A describes the requirement for 'at least one person' in employment other than the Principal Officer and Compliance Officer. Options C and D are incomplete or incorrect.

Q13 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

How does a non-discretionary portfolio manager manage client funds?

AIndividually and independently, without client directions.

✓In accordance with the directions of the client.

CBy replicating a mutual fund's portfolio.

DBy investing only in debt instruments.

💡 The text states, "whereas the non-discretionary portfolio manager shall manage the funds in accordance with the directions of the client."

Q14 MCQ · 1 mark HardFees and Costs

In the context of performance-linked fees, what is the fundamental difference between the 'catch-up' and 'no catch-up' concepts when a hurdle rate has been crossed?

A'Catch-up' applies only to discretionary portfolios, while 'no catch-up' applies to non-discretionary.

✓'Catch-up' calculates fees on all gains from the first earning, whereas 'no catch-up' calculates fees only on the incremental amount above the hurdle rate.

C'Catch-up' allows the manager to recover past losses, while 'no catch-up' does not.

D'Catch-up' is a fixed cost, while 'no catch-up' is performance-linked.

💡 The text clarifies, 'The no catch-up concept is that only the incremental amount above the hurdle rate would be considered while the catch up concept would then look at the fees right from the first earning which would need to catch up to the total earnings.'

Q15 MCQ · 1 mark EasyRegistration Requirements

As per SEBI regulations, what is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager?

AOne crore rupees

BTwo crore rupees

✓Five crore rupees

DTen crore rupees

💡 According to section 12.4, point 7, 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q16 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

According to SEBI regulations, what is the maximum percentage of a client's portfolio that a portfolio manager can invest in securities of their own associates/related parties?

A10%

B20%

✓30%

D50%

💡 The text states: 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.'

Q17 MCQ · 1 mark HardCost, expenses and fees - High Watermark

A Portfolio Manager (PMS) has a profit-sharing fee structure that incorporates the 'high watermark principle'. If the corpus invested initially was Rs 50 lakh, rose to Rs 60 lakh in year 1 (and fees were calculated), then dropped to Rs 55 lakh in year 2. When would the next profit-sharing fee calculation occur?

AWhen the portfolio value exceeds Rs 50 lakh.

BWhen the portfolio value exceeds Rs 55 lakh.

✓When the portfolio value exceeds Rs 60 lakh.

DThe fee calculation would occur annually, regardless of the high watermark.

💡 The high watermark principle states: 'once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed. For example, if there are profit sharing fees are to be calculated on the gains of the corpus invested at Rs 50 lakh and if in one year this rises to Rs 60 lakh then Rs 10 lakh would be the basis for the calculation. Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.' Therefore, the next calculation occurs when the portfolio value exceeds the previous high of Rs 60 lakh.

Q18 MCQ · 1 mark EasyRegistration Requirements

Under which form of Schedule I must an application for obtaining a certificate of registration as a Portfolio Manager be made to SEBI?

✓Form A

BForm B

CForm C

DForm D

💡 The text states, "The application needs to be made in Form A of Schedule I."

Q19 MCQ · 1 mark EasyDirect Access Facility

What is the primary benefit for an investor choosing the direct access facility offered by a Portfolio Manager (PMS)?

AAccess to exclusive investment strategies unavailable through regular plans.

BElimination of the need for an investment adviser.

✓Lower costs due to the absence of intermediaries/distributors.

DGuaranteed higher performance compared to regular plans.

💡 Section 12.7 states, 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor.'

Q20 MCQ · 1 mark HardFees and Expenses

A PMS agreement includes a hurdle rate of 10%. If the portfolio generates a return of 15% in a year, and the agreement specifies a 'no catch-up' concept for performance fee calculation, on what percentage of the return would the profit-sharing fee be calculated?

AOn the full 15% return.

BOn 10% of the return.

✓On the incremental 5% return above the hurdle rate.

DNo profit-sharing fee would be calculated, as it's a 'no catch-up' concept.

💡 The text under '12.6 Cost, expenses and fees of investing in PMS' explains the 'no catch-up concept': 'only the incremental amount above the hurdle rate would be considered'. In this scenario, the return above the hurdle rate is 15% - 10% = 5%.

Q21 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

What is the minimum amount of funds or securities a Portfolio Manager shall accept from a client according to SEBI regulations?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 The text specifies under responsibilities: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q22 MCQ · 1 mark MediumRegistration Requirements

When applying for a certificate of registration as a Portfolio Manager, which of the following details is not explicitly required to be provided in Form A of Schedule I?

ABusiness Plan for three years.

BDetails of settled and pending disputes.

✓Specific details of individual client transactions from the past year.

DCopy of Draft Agreement with Client.

💡 The required information list includes 'Business Plan (for three years)', 'Other Information (Settled and pending disputes, membership with stock exchanges etc.)', and 'Additional information (Copy of Draft Agreement with Client to be provided...)'. Individual client transaction details are not listed as a requirement for Form A itself.

Q23 MCQ · 1 mark MediumRegistration Requirements

Which specific form is required for an application to SEBI for obtaining a certificate of registration as a portfolio manager?

AForm B of Schedule II

✓Form A of Schedule I

CForm C of Schedule III

DForm D of Schedule IV

💡 Section 12.4 states, 'The application needs to be made in Form A of Schedule I.'

Q24 MCQ · 1 mark MediumDirect Access Facility

What is the primary benefit for an investor choosing the direct access facility offered by a Portfolio Management Service (PMS)?

AAccess to exclusive investment opportunities not available otherwise.

✓Lower costs due to the absence of intermediaries.

CGuaranteed higher returns compared to regular plans.

DMore personalized management of funds by the portfolio manager.

💡 Section 12.7, under 'Direct access facility offered by PMS', states, 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor.'

Q25 MCQ · 1 mark HardResponsibilities of a Portfolio Manager

A Portfolio Manager intends to invest a portion of a client's portfolio in securities of its own associates. What is the maximum percentage allowed for such investment and what specific condition must be met?

A10% with annual written consent.

B20% with prior SEBI approval.

✓30% with one-time written consent from the client.

D50% with quarterly disclosure to the client.

💡 The text states, 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.'

Q26 MCQ · 1 mark EasyRegistration Requirements

Which of the following forms is required to be submitted to SEBI for obtaining a certificate of registration as a Portfolio Manager?

AForm B of Schedule I

✓Form A of Schedule I

CForm C of Schedule II

DForm D of Schedule II

💡 The application for obtaining the certificate needs to be made in Form A of Schedule I, as per the text.

Q27 MCQ · 1 mark MediumDirect Access Facility

What is the primary advantage for an investor who chooses the 'direct access facility' offered by a Portfolio Manager compared to a regular plan?

AThe portfolio manager offers higher guaranteed returns.

BThe investor gets direct control over all investment decisions.

✓The cost for the investor will be lower due to the absence of intermediaries.

DThe management process of the funds differs significantly, offering more specialized services.

Q28 MCQ · 1 mark EasyRegistration Requirements

According to SEBI regulations, what is the mandatory requirement for an entity to act as a portfolio manager?

AObtaining a license from the Reserve Bank of India.

BRegistering as a company under the Companies Act, 2013.

✓Obtaining a certificate of registration from SEBI under the Portfolio Managers regulations.

DBecoming a member of a recognized stock exchange.

💡 The text states: 'To act as a portfolio manager, obtaining certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.'

Q29 MCQ · 1 mark MediumFees and Costs

A portfolio manager charges performance-linked fees based on the 'High Watermark Principle'. If a client's portfolio value increased from Rs. 50 lakh to Rs. 60 lakh in Year 1, and then dropped to Rs. 55 lakh in Year 2, when would the profit-sharing fee next be calculated?

AIn Year 2, based on the Rs. 5 lakh gain from Rs. 50 lakh to Rs. 55 lakh.

BIn Year 2, based on the Rs. 55 lakh current value.

✓Only when the portfolio value crosses Rs. 60 lakh.

DAnnually, regardless of the previous high value, if the hurdle rate is met.

💡 The 'High watermark principle' states: 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' In the given example, the previous high level for fee calculation was Rs. 60 lakh. Therefore, fees would only be calculated again when the portfolio value exceeds Rs. 60 lakh.

Q30 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

As per SEBI regulations, what is the minimum value of funds or securities a Portfolio Manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.

Q31 MCQ · 1 mark EasyDirect Access Facility

What is the primary benefit of an investor opting for the direct access facility in a Portfolio Management Service (PMS)?

AIt guarantees higher performance returns.

✓It allows the investor to save on costs by bypassing intermediaries.

CIt provides exclusive investment opportunities not available through regular plans.

DIt changes the fundamental management process of the funds.

💡 The text explicitly states that "The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor." It also clarifies that "The rest of the process of the management of the funds does not differ."

Q32 MCQ · 1 mark EasyRegistration Requirements

As per SEBI regulations, what is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager?

ATwo crore rupees

✓Five crore rupees

CTen crore rupees

DOne crore rupees

💡 As per section 12.4, point 7, 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q33 MCQ · 1 mark EasyDirect Access Facility

What is a primary benefit for an investor opting for the 'direct access facility' in PMS, similar to direct plans in mutual funds?

AGuaranteed higher returns on investment.

✓Elimination of intermediary commissions, leading to lower costs.

CAccess to exclusive investment opportunities not available otherwise.

DFaster processing of investment requests.

💡 The text states: 'In a direct plan the investor does not use the services of an intermediary like a broker or a distributor but goes directly to the service provider. This cuts out the need for commission for the intermediary and there is a separate value for such plans because the cost for these will be lower. All this goes on to increase the net returns for the investor.' And 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower.'

Q34 MCQ · 1 mark MediumCost, Expenses and Fees

The 'High Watermark Principle' in PMS fee calculation primarily aims to prevent the portfolio manager from:

ACharging fixed costs more than once a year.

BInvesting in below investment grade securities.

✓Collecting performance-linked fees for recent poor performance when the portfolio value has not surpassed a previous high.

DLending client securities to a third person without consent.

💡 The text explains, 'The PMS should not be collecting fees for some recent poor performance and this is where the high watermark principle comes in. According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.'

Q35 MCQ · 1 mark HardRegistration Requirements & Responsibilities

An applicant for a Portfolio Manager registration must meet several criteria. Which of the following statements correctly describes a mandatory requirement for the principal officer and the minimum funds accepted from a client?

AThe principal officer must have at least three years of experience in related activities, and the portfolio manager shall not accept funds or securities worth less than twenty-five lakh rupees.

✓The principal officer must have a professional qualification in finance and at least five years of experience, and the portfolio manager shall not accept funds or securities worth less than fifty lakh rupees.

CThe principal officer must have a professional qualification in law and at least two years of experience, and the portfolio manager shall not accept funds or securities worth less than one crore rupees.

DThe principal officer must have an NISM certification and at least ten years of experience, and the portfolio manager shall not accept funds or securities worth less than five crore rupees.

💡 From section 12.4, point 4 states the principal officer must have 'a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities'. From section 12.5, it is stated: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q36 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant seeking a certificate of registration as a Portfolio Manager from SEBI?

ATwo crore rupees

BThree crore rupees

✓Five crore rupees

DTen crore rupees

💡 The text states under registration requirements: 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q37 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

What is the minimum amount of funds or securities a Portfolio Manager shall accept from a client?

ATwenty-five lakh rupees

✓Fifty lakh rupees

COne crore rupees

DTwo crore rupees

💡 The text states, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q38 MCQ · 1 mark MediumRegistration Requirements

Which of the following is a mandatory qualification/experience requirement for the Principal Officer of an applicant seeking registration as a Portfolio Manager?

AA bachelor's degree in any discipline and at least three years of experience in the securities market.

✓A professional qualification in finance, law, accountancy or business management, and at least five years of experience in related activities in the securities market.

CA professional qualification in economics or statistics, and at least ten years of experience in banking.

DA postgraduate degree in any discipline and at least two years of experience in a research analyst role.

💡 Section 12.4, point 4 states that 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time.'

Q39 MCQ · 1 mark MediumSEBI Requirements on Disclosure

Which of the following must be included in the Disclosure Document provided by a Portfolio Manager to a client?

ADetails of the client's personal income and tax liabilities.

✓Quantum and manner of payment of fees, and portfolio risks specific to each investment approach.

CThe exact future performance projections for the client's portfolio.

DA guarantee of minimum returns over the investment period.

💡 The Disclosure Document is required to include, inter alia, the quantum and manner of payment of fees payable to the client for each activity for which service is rendered, and portfolio risks specific to each investment approach.

Q40 MCQ · 1 mark MediumCost, expenses and fees

Which principle ensures that a Portfolio Manager does not collect performance-linked fees for recent poor performance, by only calculating fees when the portfolio value crosses a previously achieved higher level?

AHurdle rate principle

BCatch-up concept

✓High watermark principle

DFixed cost principle

💡 The 'High watermark principle' section explains: 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' This prevents charging fees for recovering past losses.

Q41 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

As per SEBI regulations, what is the minimum value of funds or securities a portfolio manager shall accept from a client?

ATen lakh rupees

BTwenty-five lakh rupees

✓Fifty lakh rupees

DOne crore rupees

💡 The text states, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.'

Q42 MCQ · 1 mark MediumFees and Costs - High Watermark

According to the High Watermark Principle, when would a Portfolio Manager calculate profit-sharing fees again after a period where the portfolio value has dropped below a previous high?

AFees are calculated every financial year regardless of performance.

BFees are calculated immediately once the portfolio value recovers any losses.

✓Fees are calculated only when the current fund value surpasses the previous high watermark at which fees were last paid.

DFees are calculated only if the hurdle rate is crossed, irrespective of previous high watermark.

💡 The text explains: 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed. For example, if there are profit sharing fees are to be calculated on the gains of the corpus invested at Rs 50 lakh and if in one year this rises to Rs 60 lakh then Rs 10 lakh would be the basis for the calculation. Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.'

Q43 MCQ · 1 mark MediumDirect Access Facility

What is the primary benefit for an investor opting for the 'direct access facility' in a Portfolio Management Service (PMS)?

AAccess to exclusive investment strategies not available in regular plans.

✓Lower costs due to the absence of intermediaries like distributors.

CGuaranteed higher returns compared to regular PMS plans.

DAbility to manage their own portfolio decisions without any intervention from the PMS.

Q44 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

What is the minimum amount of funds or securities a portfolio manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 The text states, "The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees."

Q45 MCQ · 1 mark MediumInvestment in Related Parties

A portfolio manager can invest a maximum of what percentage of their client’s portfolio in securities of their own associates/related parties, provided a one-time written consent is taken from the client?

A10%

B20%

✓30%

D50%

💡 Section 12.5 specifies, 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.'

Q46 MCQ · 1 mark HardHigh Watermark Principle

According to the high watermark principle, if a portfolio's value drops after fees have been calculated on a specific higher level, when would the profit-sharing fee typically be calculated again?

AImmediately, based on the new, lower value.

BOnly when the portfolio value crosses the original corpus investment value.

✓Only when the portfolio value crosses the previous highest value on which fees were paid.

DAfter a fixed period of one financial year, irrespective of the portfolio value.

💡 Section 12.6, under 'High watermark principle', states: 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.'

Q47 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager from SEBI?

ATwo crore rupees

✓Five crore rupees

CTen crore rupees

DFifty lakh rupees

💡 As per the text, one of the conditions considered by the regulator before issuing a certificate of registration is that "The applicant fulfils the net worth requirement (five crore rupees)".

Q48 MCQ · 1 mark MediumDisclosure Document

Which of the following information is NOT explicitly required to be included in the Disclosure Document provided by a Portfolio Manager to its client?

AThe quantum and manner of payment of fees.

BPortfolio risks specific to each investment approach.

✓Details of the portfolio manager's personal investments.

DDisclosures with respect to related parties as required under Accounting Standards.

💡 The Disclosure Document is required to include 'the quantum and manner of payment of fees', 'portfolio risks specific to each investment approach', and 'disclosures with respect to related parties as required under Accounting Standards'. Details of the portfolio manager's personal investments are not mentioned.

Q49 MCQ · 1 mark MediumRegistration Requirements (Principal Officer)

What is the minimum experience requirement in related activities in the securities market for the Principal Officer of an applicant seeking a Portfolio Manager registration?

AAt least two years

BAt least three years

✓At least five years

DAt least ten years

💡 The text specifies that the principal officer must have 'experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager'.

Q50 MCQ · 1 mark HardRegistration Requirements

Which of the following is NOT a factor that SEBI considers before issuing a certificate of registration to an applicant for a Portfolio Manager?

AThe applicant has appointed a compliance officer.

BThe applicant, its director or partner, principal officer, compliance officer or the employee has at any time been convicted for any offence involving moral turpitude.

CThe applicant has in its employment at least one person with a graduation from a recognized university and two years of experience in related activities in the securities market.

✓The applicant is a partnership firm with a minimum of two partners having professional qualifications.

💡 The text explicitly states, 'the applicant is a body corporate'. A partnership firm is generally not a body corporate, making option D a disqualifying factor rather than a consideration for approval. Options A, B (in reverse – it's a disqualifying factor if convicted), and C are all positive considerations or requirements listed.

Q51 MCQ · 1 mark EasyClient Funds Management

What is the minimum amount of funds or securities a portfolio manager shall accept from a client?

ANot less than ten lakh rupees.

BNot less than twenty-five lakh rupees.

✓Not less than fifty lakh rupees.

DNo minimum amount is specified.

💡 Section 12.5, under 'Responsibilities of a Portfolio Manager', states, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q52 MCQ · 1 mark HardCosts, Expenses and Fees

A client has a portfolio managed by a PMS, and the profit-sharing fees are subject to the High Watermark Principle. If the corpus invested initially was Rs 50 lakh, and in the first year, it rose to Rs 60 lakh, resulting in fees being paid. In the second year, the portfolio value drops to Rs 55 lakh. What would be the basis for calculating profit-sharing fees in the third year, assuming the portfolio value reaches Rs 62 lakh?

ARs 7 lakh (Rs 62 lakh - Rs 55 lakh)

✓Rs 2 lakh (Rs 62 lakh - Rs 60 lakh)

CRs 12 lakh (Rs 62 lakh - Rs 50 lakh)

DNo fees would be calculated until the portfolio crosses Rs 65 lakh.

💡 According to the High Watermark Principle, 'once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' The previous high water mark where fees were paid was Rs 60 lakh. In the second year, the value dropped to Rs 55 lakh. In the third year, if it reaches Rs 62 lakh, the fees would be calculated only on the amount exceeding the previous high watermark of Rs 60 lakh. Therefore, the basis for calculation would be Rs 62 lakh - Rs 60 lakh = Rs 2 lakh.

Q53 MCQ · 1 mark EasyDirect Access Facility

What is the primary benefit for an investor choosing the direct access facility offered by a Portfolio Management Service (PMS) compared to a regular plan?

AThe portfolio manager will provide enhanced performance guarantees.

BThe investor will have more control over individual investment decisions.

✓The cost for the investor will be lower due to the absence of intermediary commissions.

DThe PMS will offer a wider range of investment options exclusively for direct access clients.

💡 The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor.

Q54 MCQ · 1 mark EasyApplication Process

In which form must an application for obtaining a certificate of registration as a Portfolio Manager be made to SEBI?

AForm B of Schedule I

✓Form A of Schedule I

CForm C of Schedule II

DForm D of Schedule II

💡 The text states, 'The application needs to be made in Form A of Schedule I.'

Q55 MCQ · 1 mark MediumRegistration Requirements

According to SEBI regulations, what is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager?

ATwo crore rupees

✓Five crore rupees

CTen crore rupees

DFifty lakh rupees

💡 One of the factors the regulator considers before issuing a certificate of registration is that the applicant fulfills the net worth requirement (five crore rupees).

Q56 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager from SEBI?

AOne crore rupees

BTwo crore rupees

✓Five crore rupees

DTen crore rupees

💡 According to the text, before issuing a certificate of registration, the regulator shall take into account that 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q57 MCQ · 1 mark HardCost, Expenses and Fees

An investor has a PMS with a profit-sharing fee based on the high watermark principle. If the portfolio value increased from Rs 50 lakh to Rs 60 lakh in year 1, and then dropped to Rs 55 lakh in year 2, when would the profit-sharing fee next be calculated?

AWhen the portfolio value exceeds Rs 50 lakh.

BWhen the portfolio value exceeds Rs 55 lakh.

✓When the portfolio value exceeds Rs 60 lakh.

DAt the end of every financial year, regardless of the high watermark.

💡 According to the high watermark principle, once fees are calculated on a specific level of assets (Rs 60 lakh in year 1), the next payment would only come about when the previous higher level (Rs 60 lakh) is passed. If the value drops to Rs 55 lakh in year 2, no fee would be calculated until it crosses Rs 60 lakh again.

Q58 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

What is the maximum percentage of a client's portfolio a portfolio manager can invest in securities of its own associates/related parties, and what client consent is required?

A20% with annual written consent.

✓30% with a one-time written consent.

C40% with verbal consent.

D15% with no consent required.

💡 Section 12.5 states, 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.'

Q59 MCQ · 1 mark HardRegistration Requirements

Which of the following is a mandatory qualification or experience requirement for the Principal Officer of an applicant seeking a Portfolio Manager registration from SEBI?

AA bachelor's degree in any discipline and at least two years of experience in the securities market.

✓A professional qualification in finance, law, accountancy, or business management, and at least five years of experience in related activities in the securities market.

CA professional qualification in any field and an NISM certification, with no specific experience requirement.

DA diploma in financial services and at least three years of experience as a stockbroker.

💡 As per section 12.4, point 4, the principal officer must have 'a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market... and the relevant NISM certification'. Option B accurately captures the core professional qualification and experience.

Q60 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

According to SEBI regulations, what is the minimum value of funds or securities that a portfolio manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 The text states, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q61 MCQ · 1 mark EasyResponsibilities of Portfolio Manager

As per SEBI regulations, a portfolio manager shall not accept from a client, funds or securities worth less than what amount?

ATwenty-five lakh rupees

✓Fifty lakh rupees

COne crore rupees

DTen lakh rupees

💡 The text explicitly states: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.'

Q62 MCQ · 1 mark HardResponsibilities of a PM

Which of the following statements regarding the responsibilities and limitations of a Portfolio Manager is INCORRECT, according to SEBI regulations?

AA portfolio manager shall not invest in below investment grade securities.

BA portfolio manager may invest up to 30% of a client’s portfolio in securities of their own associates/related parties, provided a one-time written consent is obtained from the client.

✓A portfolio manager shall keep the funds of all clients in a single pooled account maintained in a Scheduled Commercial Bank for operational efficiency, and segregate client securities in separate accounts.

DA portfolio manager shall not borrow funds or securities on behalf of the client.

💡 The text states: 'The portfolio manager shall segregate each client’s holding in securities in separate accounts.' and 'The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank.' While funds are kept in 'a separate account' (implying a single account distinct from the firm's own funds), the statement in option C specifically mentions a 'single pooled account' for *funds* and implies it for *securities* by combining the ideas, which contradicts the explicit requirement to 'segregate each client’s holding in securities in separate accounts'. Therefore, the statement implying a single pooled account for client securities (or even just the phrasing 'single pooled account' in general for client assets) is incorrect.

Q63 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

What is the minimum amount of funds or securities a portfolio manager shall accept from a client?

ATwenty-five lakh rupees

✓Fifty lakh rupees

COne crore rupees

DTen lakh rupees

💡 The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.

Q64 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

What is the minimum amount of funds or securities a portfolio manager is permitted to accept from a client?

ALess than fifty lakh rupees

BExactly fifty lakh rupees

✓Not less than fifty lakh rupees

DMore than one crore rupees

💡 Section 12.5 specifies, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.' This means the minimum acceptable amount is fifty lakh rupees.

Q65 MCQ · 1 mark HardRegistration Requirements

For an applicant to obtain a certificate of registration as a Portfolio Manager from SEBI, which of the following statements is NOT a mandatory requirement?

AThe applicant must be a body corporate.

BThe applicant must fulfil a net worth requirement of five crore rupees.

✓The Principal Officer of the applicant must have at least ten years of experience in related activities in the securities market.

DThe applicant must have in its employment at least one person with a graduation degree and two years of experience in related securities market activities, in addition to the Principal Officer and Compliance Officer.

💡 According to the text, the Principal Officer must have 'experience of at least five years in related activities in the securities market,' not ten years. Options A, B, and D are all stated as mandatory requirements.

Q66 MCQ · 1 mark MediumRegistration Requirements

For an applicant seeking registration as a Portfolio Manager, what is the minimum experience required for its principal officer in related activities in the securities market?

AAt least two years

BAt least three years

✓At least five years

DAt least ten years

💡 The text specifies: 'the principal officer of the applicant has a professional qualification... experience of at least five years in related activities in the securities market'.

Q67 MCQ · 1 mark EasyDirect Access Facility

What is a primary benefit for an investor opting for the direct access facility offered by a Portfolio Management Service (PMS)?

AAccess to exclusive investment opportunities not available through regular plans.

BDirect involvement in daily portfolio trading decisions.

✓Lower costs due to the absence of intermediaries.

DGuaranteed higher returns compared to regular plans.

💡 The text states, 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor.'

Q68 MCQ · 1 mark MediumCost, Expenses and Fees

What is the primary purpose of 'performance linked costs' in a PMS agreement?

ATo cover the administrative expenses of managing the portfolio, irrespective of returns.

✓To incentivize the fund manager to achieve better performance for the client.

CTo compensate the distributor for selling the PMS plan to the client.

DTo ensure that the client's portfolio does not fall below a certain value.

💡 The performance linked costs or profit sharing fee are an additional amount of fees that the investor has to pay to the PMS. This is present in order to incentivise the fund manager to give a better performance.

Q69 MCQ · 1 mark HardRegistration Requirements

Which of the following is NOT a specific criterion SEBI takes into account before issuing a certificate of registration to an applicant as a Portfolio Manager?

✓The applicant has appointed a dedicated grievance redressal officer.

BThe applicant is a body corporate.

CThe applicant fulfils the net worth requirement of five crore rupees.

DThe principal officer has at least five years of experience in related securities market activities.

💡 The registration criteria list includes: 'the applicant is a body corporate', 'the applicant fulfils the net worth requirement (five crore rupees)', and 'the principal officer... experience of at least five years'. While grievance redressal is mentioned as a business information detail (Form A) and a responsibility, appointing a *dedicated grievance redressal officer* is not explicitly listed as a criterion SEBI considers for registration. The text mentions 'the applicant has appointed a compliance officer' but not a grievance redressal officer as a specific pre-requisite for registration.

Q70 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

What is the minimum amount of funds or securities a portfolio manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 Section 12.5 states, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q71 MCQ · 1 mark MediumRegistration Requirements

What is the net worth requirement for an applicant to be granted a certificate of registration as a Portfolio Manager by SEBI?

ATwo crore rupees

✓Five crore rupees

CTen crore rupees

DOne crore rupees

💡 The text explicitly states, "The applicant fulfils the net worth requirement (five crore rupees)".

Q72 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager from SEBI?

ATwo crore rupees

BThree crore rupees

✓Five crore rupees

DTen crore rupees

💡 As per the text under '12.4 Registration requirements of a Portfolio Manager', point 7 states: 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q73 MCQ · 1 mark MediumRegistration Requirements

Before issuing a certificate of registration to an applicant as a Portfolio Manager, SEBI shall take into account that the applicant has appointed which of the following officers?

AA Chief Financial Officer

BA Chief Executive Officer

✓A Compliance Officer

DA Risk Management Officer

💡 Section 12.4, point 3 of the conditions for issuing a certificate states, 'the applicant has appointed a compliance officer'.

Q74 MCQ · 1 mark MediumDirect Access Facility

Which of the following is the primary benefit for an investor opting for the direct access facility in a Portfolio Management Service (PMS)?

AEnhanced performance guarantees from the PMS provider.

BDirect involvement in daily investment decisions.

✓Lower costs due to the elimination of intermediary commissions.

DAccess to exclusive investment opportunities not available otherwise.

Q75 MCQ · 1 mark HardPMS Fee Structures

A Portfolio Manager's agreement includes a profit-sharing fee, a hurdle rate, and the high watermark principle. If the portfolio value in Year 1 rose from Rs. 50 lakh to Rs. 60 lakh, and in Year 2 it dropped to Rs. 55 lakh, which of the following conditions must be met for profit-sharing fees to be calculated in Year 3?

AThe portfolio value must exceed Rs. 55 lakh AND the returns must be higher than the hurdle rate.

✓The portfolio value must exceed Rs. 60 lakh AND the returns must be higher than the hurdle rate.

CThe portfolio value must exceed Rs. 50 lakh, irrespective of the hurdle rate.

DThe portfolio value must simply show a positive return in Year 3, irrespective of previous highs.

💡 The text explains the high watermark principle: 'till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated'. It also states: 'Provided returns are higher than hurdle rate, profit sharing will be there, as per terms, subject to the condition that the current fund value is higher than the previous high water mark.' Therefore, both conditions must be met.

Q76 MCQ · 1 mark MediumCost, expenses and fees of investing in PMS

An investor has a portfolio managed by a PMS. The initial corpus was Rs 50 lakh. In the first year, the portfolio value rose to Rs 60 lakh, and profit sharing fees were calculated on Rs 10 lakh. In the second year, the portfolio value dropped to Rs 55 lakh. According to the high watermark principle, when will the next profit-sharing fee be calculated?

AWhen the portfolio value exceeds Rs 50 lakh.

BWhen the portfolio value exceeds Rs 55 lakh.

✓When the portfolio value exceeds Rs 60 lakh.

DProfit sharing fees will be calculated on the current year's gains regardless of the previous high.

💡 The high watermark principle states that 'once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' In the given example, the previous higher level where fees were calculated was Rs 60 lakh. Therefore, the next fee calculation will only occur when the portfolio value crosses Rs 60 lakh.

Q77 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

What is the maximum percentage of a client's portfolio that a portfolio manager is allowed to invest in securities of their own associates/related parties, and what is required for this?

AA maximum of 10% with a one-time verbal consent from the client.

BA maximum of 20% with annual written consent from the client.

✓A maximum of 30% with a one-time written consent from the client.

DThere is no restriction on investing in associate/related party securities, provided it is disclosed.

💡 The text says, 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.'

Q78 MCQ · 1 mark MediumRegistration Requirements

Which of the following is a mandatory qualification/experience requirement for the principal officer of an applicant seeking registration as a Portfolio Manager from SEBI?

AA graduate degree in any discipline with at least ten years of experience in the securities market.

✓A professional qualification in finance, law, accountancy, or business management, along with at least five years of experience in related activities in the securities market.

CA post-graduate degree in economics with at least three years of experience as a stockbroker.

DOnly the relevant NISM certification as specified by the regulator from time to time, without any specific experience.

💡 The text states, 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time.'

Q79 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

What is the maximum percentage of a client’s portfolio that a Portfolio Manager is permitted to invest in securities of their own associates/related parties?

A10%

B20%

✓30%

D50%

Q80 MCQ · 1 mark EasyRegistration Requirements

Which of the following forms is mandatory for applying for a certificate of registration as a Portfolio Manager with SEBI?

AForm B of Schedule II

✓Form A of Schedule I

CForm C of Schedule III

DForm D of Schedule IV

💡 The application for obtaining the certificate needs to be made in Form A of Schedule I.

Q81 MCQ · 1 mark HardRegistration Requirements and Disqualifications

An applicant for a Portfolio Manager license has a Principal Officer with a B.Com degree and 6 years of experience as a stockbroker. The applicant also has a net worth of Rs. 6 crore. However, SEBI discovers that the applicant's director was convicted for an economic offense 3 years ago. Considering only the provided text, what is the most likely outcome of the application?

AThe application will be approved, as the Principal Officer and net worth requirements are met.

BThe application will be approved, provided the director resigns.

✓The application will be rejected, as the director's conviction is a disqualifying factor.

DThe application will be put on hold, pending further investigation into the director's past.

💡 The text explicitly states that SEBI shall take into account if 'The applicant, its director or partner, principal officer, compliance officer or the employee has at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence'. A director's conviction for an economic offense is a direct disqualifier, leading to the application's rejection, regardless of other met criteria.

Q82 MCQ · 1 mark HardHigh Watermark Principle

An investor's portfolio managed by a PMS had a value of Rs. 50 lakh. In the first year, it rose to Rs. 60 lakh, and profit-sharing fees were calculated on the Rs. 10 lakh gain. In the second year, the portfolio value dropped to Rs. 55 lakh. According to the high watermark principle, when would the next profit-sharing fee be calculated?

AWhen the portfolio value crosses Rs. 50 lakh.

BWhen the portfolio value crosses Rs. 55 lakh.

✓When the portfolio value crosses Rs. 60 lakh.

DProfit-sharing fees will be calculated based on the year-end performance, regardless of the previous high.

💡 The text explains: 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed. For example... Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.'

Q83 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

Which of the following types of securities are Portfolio Managers explicitly prohibited from investing in?

AGovernment securities

BBlue-chip equities

✓Below investment grade securities

DExchange Traded Funds (ETFs)

💡 Section 12.5 clearly states, 'Portfolio managers shall not make investments in below investment grade securities.'

Q84 MCQ · 1 mark MediumDirect Access Facility

What is the primary benefit for an investor opting for the direct access facility in PMS, similar to direct plans in mutual funds?

AAccess to exclusive investment opportunities.

✓Lower costs due to the absence of intermediaries.

CGuaranteed higher returns compared to regular plans.

DEnhanced control over investment decisions.

💡 The text highlights, "The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor."

Q85 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

Which of the following is NOT a mandatory responsibility of a Portfolio Manager as enumerated by SEBI regulations?

ASegregating each client’s holding in securities in separate accounts.

✓Keeping the funds of all clients in a single pooled account for efficient management.

CActing in a fiduciary capacity with regard to the client's funds.

DEnsuring proper and timely handling of complaints from clients.

💡 As per section 12.5, 'The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank.' Option B describes pooling funds, which contradicts this requirement.

Q86 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

A discretionary portfolio manager is required to manage the funds of each client in which of the following ways?

AIn a manner that partakes the character of a Mutual Fund, pooling client funds for efficiency.

✓Individually and independently, in accordance with the client's needs, without partaking the character of a Mutual Fund.

CIn accordance with general market trends, irrespective of individual client needs.

DBy investing a minimum of 50% of the portfolio in securities of their own associates.

💡 The discretionary portfolio manager shall individually and independently manage the funds of each client in accordance with the needs of the client, in a manner which does not partake character of a Mutual Fund.

Q87 MCQ · 1 mark HardRegistration Requirements - Principal Officer

Which of the following is NOT a mandatory qualification or experience requirement for the Principal Officer of an applicant seeking registration as a Portfolio Manager?

AA professional qualification in finance, law, accountancy, or business management.

BAt least five years of experience in related activities in the securities market.

CRelevant NISM certification as specified by the regulator.

✓A minimum of three years of experience as a registered Investment Adviser.

💡 The text states the Principal Officer must have 'a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification'. While experience as an Investment Adviser is included in the 5 years, 'a minimum of three years of experience as a registered Investment Adviser' is not a standalone mandatory requirement for the Principal Officer, as the overall requirement is 5 years in 'related activities'.

Q88 MCQ · 1 mark MediumRegistration Requirements

According to SEBI regulations, what is the minimum net worth requirement for an applicant seeking registration as a portfolio manager?

ATwo crore rupees

✓Five crore rupees

CTen crore rupees

DFifty lakh rupees

💡 Section 12.4 lists the criteria before issuing a certificate, stating, 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q89 MCQ · 1 mark EasyRegistration Requirements

Which form is mandatory for an applicant to submit to SEBI for obtaining a certificate of registration as a Portfolio Manager?

AForm B of Schedule II

✓Form A of Schedule I

CForm C of Schedule III

DForm D of Schedule IV

💡 The text states: 'The application needs to be made in Form A of Schedule I.'

Q90 MCQ · 1 mark MediumRegistration Requirements - Principal Officer

Which of the following is a mandatory qualification/experience requirement for the principal officer of an applicant seeking registration as a portfolio manager?

AA bachelor's degree in any discipline and three years of experience in the securities market.

CAn experience of at least two years in related activities in the securities market and graduation from a recognized university.

DMembership with a recognized stock exchange and a minimum net worth of five crore rupees.

💡 Section 12.4 states that before issuing a certificate of registration, the regulator shall take into account that 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time.'

Q91 MCQ · 1 mark EasyRegistration Requirements

What is the mandatory requirement for an entity to act as a portfolio manager in India?

✓Obtaining a certificate of registration from SEBI under the Portfolio Managers regulations.

BRegistering as a body corporate with the Ministry of Corporate Affairs.

CObtaining a license from the Reserve Bank of India.

DBecoming a member of a recognized stock exchange.

💡 According to section 12.4 Registration requirements of a Portfolio Manager, 'To act as a portfolio manager, obtaining certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.'

Q92 MCQ · 1 mark MediumFees and Costs

According to the 'high watermark principle' in PMS fee calculation, when would a profit-sharing fee typically NOT be calculated?

AWhen the portfolio value has increased, but is still below the hurdle rate.

✓When the current fund value is lower than the previous highest value at which fees were paid.

CWhen the portfolio manager achieves returns exactly equal to the hurdle rate.

DWhen the client explicitly waives the profit-sharing fee for a given year.

💡 The text explains, 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed. For example, if... Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.'

Q93 MCQ · 1 mark MediumPortfolio Manager Responsibilities

A Portfolio Manager is managing funds for multiple clients. Which of the following actions is permissible under SEBI regulations as per the given text?

ALending securities held on behalf of clients to a third person without any specific provision.

BAccepting funds worth forty lakh rupees from a new client.

CInvesting 40% of a client's portfolio in securities of the portfolio manager's own associates, with client consent.

✓Segregating each client’s holding in securities in separate accounts.

💡 Under '12.5 Responsibilities of a Portfolio Manager': - Option A is incorrect: 'The portfolio manager shall not lend securities held on behalf of the clients to a third person except as provided under these regulations.' - Option B is incorrect: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'. - Option C is incorrect: 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties.' (40% exceeds the 30% limit). - Option D is correct: 'The portfolio manager shall segregate each client’s holding in securities in separate accounts.'

Q94 MCQ · 1 mark EasyRegistration Application

In which form of Schedule I must an application for obtaining a certificate of registration as a Portfolio Manager be made to SEBI?

AForm B

BForm C

✓Form A

DForm D

💡 The text under '12.4 Registration requirements of a Portfolio Manager' specifies: 'The application needs to be made in Form A of Schedule I.'

Q95 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

According to SEBI regulations, what is the minimum amount of funds or securities a Portfolio Manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 The text states: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.'

Q96 MCQ · 1 mark EasyDirect Access Facility

What is the primary benefit for an investor using the direct access facility offered by a Portfolio Management Service (PMS)?

AAccess to exclusive investment opportunities not available otherwise.

✓Lower costs due to the absence of intermediaries.

CGuaranteed higher returns compared to regular plans.

DMore personalized investment advice from the portfolio manager.

💡 The text mentions, 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower.'

Q97 MCQ · 1 mark EasyRegulator's Considerations

What is the minimum net worth requirement for an applicant seeking a certificate of registration as a portfolio manager from SEBI?

ATwo crore rupees.

BThree crore rupees.

✓Five crore rupees.

DTen crore rupees.

💡 The text states: 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q98 MCQ · 1 mark EasyRegistration Requirements

Which of the following forms is mandatory for an applicant seeking a certificate of registration from SEBI to act as a portfolio manager?

AForm B of Schedule II

✓Form A of Schedule I

CForm C of Schedule III

DForm D of Schedule IV

💡 The text states, "The application needs to be made in Form A of Schedule I."

Q99 MCQ · 1 mark HardDirect Access Facility

When advising a knowledgeable client about PMS, an Investment Adviser might recommend the direct access facility primarily for what reason?

ATo ensure continuous support from an intermediary.

BTo allow for more frequent trading decisions.

✓To enable the client to save on costs.

DTo gain access to exclusive investment products.

💡 Section 12.7 highlights the role of Investment Advisers: 'When it comes to advising on the exposure to a PMS the investment adviser can ask their clients to take the direct access facility as it will enable them to save on costs.'

Q100 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

According to SEBI regulations, what is the maximum percentage of a client’s portfolio that a portfolio manager is allowed to invest in securities of their own associates/related parties?

A10%

B20%

✓30%

D50%

💡 The text states, "Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same."

Q101 MCQ · 1 mark MediumCost, expenses and fees - Catch-up/No Catch-up

In the context of performance-linked fees, if a PMS uses the 'no catch-up' concept, how are the fees calculated once the hurdle rate is crossed?

AFees are calculated on the full gains from the first earning.

✓Fees are calculated only on the incremental amount above the hurdle rate.

CFees are calculated as a fixed percentage of the total portfolio value.

DFees are not calculated until the portfolio value doubles.

💡 The text explains: 'The no catch-up concept is that only the incremental amount above the hurdle rate would be considered while the catch up concept would then look at the fees right from the first earning which would need to catch up to the total earnings.'

Q102 MCQ · 1 mark HardFees and Costs - Catch-up Concept

In the context of performance-linked fees for a Portfolio Manager, what does the 'no catch-up' concept signify?

AThe fund manager does not charge any performance fee if the hurdle rate is not met.

BThe performance fee is calculated on the full gains, including the amount below the hurdle rate, once the hurdle rate is crossed.

✓The performance fee is calculated only on the incremental amount of gains above the specified hurdle rate.

DThe fund manager is allowed to catch up on fees for previous years' underperformance.

💡 The text states: 'The no catch-up concept is that only the incremental amount above the hurdle rate would be considered while the catch up concept would then look at the fees right from the first earning which would need to catch up to the total earnings.'

Q103 MCQ · 1 mark HardCost, expenses and fees

In the context of performance-linked fees, what does the 'catch-up concept' imply regarding the calculation of fees once the hurdle rate is crossed?

AOnly the incremental amount above the hurdle rate would be considered for fee calculation.

✓The full gains, right from the first earning, would be used for fee calculation, effectively 'catching up' to total earnings.

CFees are capped at a certain percentage of the hurdle rate.

DThe portfolio manager foregoes fees for initial gains up to the hurdle rate.

💡 The text describes: "The no catch-up concept is that only the incremental amount above the hurdle rate would be considered while the catch up concept would then look at the fees right from the first earning which would need to catch up to the total earnings."

Q104 MCQ · 1 mark MediumAlternative Investments

According to the provided text, which of the following is considered a 'traditional investment'?

APrivate Equity funds.

BReal Estate (commercial property).

✓Stocks and bonds from primary and secondary capital markets.

DHedge funds.

💡 The text defines traditional investments as 'confined to the domain of financial securities such as stocks and bonds from primary and secondary capital market, purchase of general categories of mutual fund units and Exchange Traded Funds (ETFs).'

Q105 MCQ · 1 mark MediumRegistration Requirements

Which of the following is a mandatory qualification requirement for the Principal Officer of an applicant seeking registration as a Portfolio Manager?

AA professional qualification in finance, law, accountancy, or business management, with at least two years of experience in the securities market.

BA graduation from a university recognized by the Central Government and an experience of at least five years in related activities in the securities market.

✓A professional qualification in finance, law, accountancy, or business management, with at least five years of experience in related activities in the securities market, and relevant NISM certification.

DA professional qualification in any discipline with at least five years of experience in managing investment portfolios.

💡 The text states: 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time.' Option C accurately combines all these elements.

Q106 MCQ · 1 mark MediumRegistration Requirements

Which of the following is a mandatory qualification/experience requirement for the principal officer of an applicant seeking registration as a Portfolio Manager?

AA bachelor's degree in any discipline and at least two years of experience in the securities market.

✓A professional qualification in finance, law, accountancy, or business management, and experience of at least five years in related activities in the securities market.

CA professional qualification in IT or engineering, and experience of at least three years in financial services.

DNo specific professional qualification, but ten years of experience in any business management role.

💡 The text states, "the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time."

Q107 MCQ · 1 mark MediumRegistration Requirements

Which of the following is a mandatory qualification for the principal officer of an applicant seeking registration as a Portfolio Manager?

AA graduation degree in any discipline and five years of experience in the securities market.

✓A professional qualification in finance, law, accountancy, or business management, along with at least five years of experience in related activities in the securities market.

CExperience of at least ten years in managing mutual funds.

DMembership with a recognized stock exchange and a NISM certification.

💡 The principal officer of the applicant must have a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market, and the relevant NISM certification.

Q108 MCQ · 1 mark HardCost, expenses and fees

A PMS agreement includes a hurdle rate and a profit-sharing fee. If the concept of 'no catch-up' is applied, how are the profit-sharing fees calculated once the hurdle rate is crossed?

AThe fees are calculated on the full gains from the initial investment.

✓The fees are calculated only on the incremental amount of gains above the hurdle rate.

CThe fees are calculated on the gains that bring the total earnings up to the hurdle rate, and then on the excess.

DThe fees are calculated based on the highest portfolio value achieved, irrespective of the hurdle rate.

💡 Section 12.6, under 'Catch-up/no catch-up concept,' explains, 'The no catch-up concept is that only the incremental amount above the hurdle rate would be considered while the catch up concept would then look at the fees right from the first earning which would need to catch up to the total earnings.'

Q109 MCQ · 1 mark HardFees and Expenses

An investor has a PMS portfolio with a corpus investment value of Rs 50 lakh. In year 1, the portfolio value rises to Rs 60 lakh, and profit-sharing fees are calculated on Rs 10 lakh. In year 2, the portfolio value drops to Rs 55 lakh. According to the high watermark principle, when would the next profit-sharing fee calculation be applicable?

AWhen the portfolio value exceeds Rs 50 lakh.

BWhen the portfolio value exceeds Rs 55 lakh.

✓When the portfolio value exceeds Rs 60 lakh.

DProfit-sharing fees will be calculated annually regardless of the high watermark.

💡 The text under '12.6 Cost, expenses and fees of investing in PMS' explains the High Watermark principle: 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed. For example...Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.' Therefore, the portfolio value must exceed Rs 60 lakh for the next fee calculation.

Q110 MCQ · 1 mark MediumResponsibilities of Portfolio Manager

A portfolio manager wants to invest in securities of its own associates/related parties for a client. What is the maximum percentage of the client's portfolio that can be invested this way, and what condition applies?

AMaximum 20% with prior written consent from SEBI.

✓Maximum 30% with a one-time written consent from the client.

CMaximum 15% with annual written consent from the client.

DMaximum 25% with no specific consent required if disclosed in the agreement.

💡 The text says: 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.'

Q111 MCQ · 1 mark HardDirect Access Facility

An Investment Adviser suggests a client opt for the direct access facility when investing in a Portfolio Management Service (PMS). What is the primary advantage for the client by choosing this facility?

AIt guarantees higher performance compared to a regular plan.

BIt ensures the portfolio manager will invest in a non-discretionary manner.

✓It leads to lower costs due to the absence of intermediaries, resulting in higher net returns.

DIt allows the client to directly manage their portfolio without any intervention from the PMS.

💡 The text states: 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor.' It also clarifies that performance and management process do not differ.

Q112 MCQ · 1 mark MediumFees and Principles

A client's portfolio managed by a PMS had a value of Rs. 70 lakh when performance fees were last paid. In the subsequent year, the portfolio value dropped to Rs. 65 lakh. According to the high watermark principle, when would the profit-sharing fee next be calculated for this client?

AWhen the portfolio value recovers to Rs. 65 lakh.

BWhen the portfolio value reaches Rs. 70 lakh.

✓When the portfolio value exceeds Rs. 70 lakh.

DAt the end of the next financial year, regardless of the portfolio value.

💡 The high watermark principle states that "once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed." Since the previous high watermark for which fees were paid was Rs. 70 lakh, profit-sharing fees would only be calculated again when the portfolio value exceeds Rs. 70 lakh.

Q113 MCQ · 1 mark EasyRegistration Requirements

Which form must be used to apply for a certificate of registration as a Portfolio Manager with SEBI?

AForm B of Schedule II

✓Form A of Schedule I

CForm C of Schedule III

DForm D of Schedule IV

💡 The provided text states, 'The application needs to be made in Form A of Schedule I.'

Q114 MCQ · 1 mark HardCost, expenses and fees

In the context of performance-linked costs for a PMS, what does the 'high watermark principle' ensure?

AThat the PMS manager only charges fees if the portfolio value exceeds the initial investment.

BThat fees are calculated based on the highest portfolio value achieved in any financial year.

✓That the PMS does not collect performance fees for recent poor performance if the current fund value has not surpassed a previously achieved higher level on which fees were already paid.

DThat the client pays a fixed percentage of the assets under management, irrespective of performance, once the portfolio reaches a certain value.

💡 Section 12.6 explains, 'High watermark is usually the corpus investment value or the NAV at which fees have been paid historically. The PMS should not be collecting fees for some recent poor performance and this is where the high watermark principle comes in. According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.'

Q115 MCQ · 1 mark EasyRegistration Requirements

To act as a portfolio manager, obtaining which of the following is a mandatory requirement?

✓A certificate of registration from SEBI.

BA membership with a recognized stock exchange.

CA minimum of ten years of experience in the securities market.

DA corpus of at least one hundred crore rupees under management.

💡 According to section 12.4, 'To act as a portfolio manager, obtaining certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.'

Q116 MCQ · 1 mark MediumResponsibilities of Portfolio Manager

In what capacity is a portfolio manager required to act with regard to the client's funds?

AAs an agent, following all client instructions without question.

✓In a fiduciary capacity, managing funds in the client's best interest.

CAs a principal, taking ownership of the client's funds temporarily.

DAs a guarantor, assuring specific returns on the client's funds.

💡 The text states: 'The portfolio manager shall act in a fiduciary capacity with regard to the client's funds.'

Q117 MCQ · 1 mark EasyResponsibilities of a Portfolio Manager

According to SEBI regulations, what is the minimum amount of funds or securities a portfolio manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 The text states, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.'

Q118 MCQ · 1 mark HardPerformance Linked Costs

In the context of performance-linked fees, if a PMS uses the 'no catch-up' concept, what amount would be considered for profit-sharing fee calculation once the hurdle rate is crossed?

AThe full gains from the first earning.

✓Only the incremental amount above the hurdle rate.

CA fixed percentage of the total assets under management.

DThe gains up to the hurdle rate.

💡 Section 12.6, under 'Catch-up/no catch-up concept', states, 'The no catch-up concept is that only the incremental amount above the hurdle rate would be considered while the catch up concept would then look at the fees right from the first earning which would need to catch up to the total earnings.'

Q119 MCQ · 1 mark EasyApplication Process

In which form of Schedule I must an application for obtaining a certificate of registration as a portfolio manager be made?

AForm B

✓Form A

CForm C

DForm D

💡 Section 12.4 specifies, 'The application needs to be made in Form A of Schedule I.'

Q120 MCQ · 1 mark EasyPortfolio Manager Responsibilities

What is the minimum value of funds or securities that a Portfolio Manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 The text states: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q121 MCQ · 1 mark MediumPrincipal Officer Qualifications

Which of the following is a mandatory qualification/experience requirement for the principal officer of an applicant seeking registration as a Portfolio Manager?

AA professional qualification in any field and at least two years of experience in the securities market.

✓A professional qualification in finance, law, accountancy or business management, and at least five years of experience in related activities in the securities market.

COnly a relevant NISM certification as specified by the regulator.

DA graduation from a recognized university and at least three years of experience as a fund manager.

💡 Under '12.4 Registration requirements of a Portfolio Manager', point 4 states: 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market...; and the relevant NISM certification as specified by the regulator from time to time.' Option B accurately captures the core requirements.

Q122 MCQ · 1 mark EasyRegistration Requirements

Which form is mandatory for an applicant to submit to SEBI for obtaining a certificate of registration as a Portfolio Manager?

AForm B of Schedule II

✓Form A of Schedule I

CForm C of Schedule III

DForm D of Schedule IV

💡 As per the text, 'The application needs to be made in Form A of Schedule I.'

Q123 MCQ · 1 mark EasyRegistration Requirements

To obtain a certificate of registration from SEBI as a Portfolio Manager, the application needs to be made in which specific form?

✓Form A of Schedule I

BForm B of Schedule II

CForm C of Schedule I

DForm D of Schedule II

💡 The provided text states: 'The application needs to be made in Form A of Schedule I.'

Q124 MCQ · 1 mark HardCost, expenses and fees

According to the High Watermark Principle, when would a Portfolio Manager calculate profit-sharing fees after a period of poor performance?

AFees are calculated every financial year regardless of performance.

BFees are calculated only when the portfolio value drops below the initial investment.

✓Fees are calculated only when the current fund value exceeds the previous highest value on which fees were last paid.

DFees are calculated as soon as the portfolio value recovers to its initial investment level.

💡 The text explains, "According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed." It further clarifies with an example: "Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated."

Q125 MCQ · 1 mark MediumDirect Access Facility

What is a key benefit for an investor opting for the 'direct access facility' offered by a Portfolio Manager, as advised by an Investment Adviser?

AIt guarantees higher returns compared to regular plans due to specialized management.

BIt allows the investor to directly manage their own portfolio without any PMS intervention.

✓It results in lower overall costs for the investor by cutting out intermediary commissions.

DIt provides exclusive access to below investment grade securities for higher potential gains.

💡 The text states: 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor.' It also mentions 'cutting out the need for commission for the intermediary'. Option D is incorrect as portfolio managers shall not make investments in below investment grade securities.

Q126 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager from SEBI?

ATwo crore rupees

BThree crore rupees

✓Five crore rupees

DTen crore rupees

💡 As per the text, under the conditions for issuing a certificate of registration, point 7 states: 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q127 MCQ · 1 mark EasyDirect Access Facility

What is the main advantage for an investor choosing the 'direct access facility' in a Portfolio Management Service (PMS)?

AAccess to exclusive investment opportunities not available through regular plans.

✓Lower costs due to the elimination of intermediaries' commissions.

CGuaranteed higher returns compared to regular PMS plans.

DThe ability to frequently change the portfolio manager without additional charges.

💡 The direct access facility has the same benefit in the PMS as in a mutual fund, which is that the cost for this will be lower, cutting out the need for commission for the intermediary. This leads to a higher net return for the investor.

Q128 MCQ · 1 mark HardCost, expenses and fees (High Watermark)

A client's portfolio managed by a PMS had a value of Rs. 70 lakh at the time profit-sharing fees were last calculated. In the following year, the portfolio value dropped to Rs. 65 lakh, and in the year after, it rose to Rs. 72 lakh. Based on the High Watermark Principle, on what amount would the profit-sharing fee be calculated in the second year when the value reached Rs. 72 lakh?

AOn the entire Rs. 72 lakh, assuming the hurdle rate is met.

BOn Rs. 5 lakh (Rs. 70 lakh - Rs. 65 lakh).

✓On Rs. 2 lakh (Rs. 72 lakh - Rs. 70 lakh).

DNo profit-sharing fee would be calculated until the portfolio value exceeds Rs. 72 lakh.

💡 The High Watermark Principle states that 'once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' The previous high watermark was Rs. 70 lakh. The portfolio dropped to Rs. 65 lakh and then rose to Rs. 72 lakh. Therefore, the profit-sharing fee would be calculated only on the gain above the previous high watermark, which is Rs. 72 lakh - Rs. 70 lakh = Rs. 2 lakh.

Q129 MCQ · 1 mark HardFees and Costs - High Watermark

An investor has a portfolio managed by a PMS. The portfolio value was Rs 50 lakh when fees were first calculated. In the first year, it rose to Rs 60 lakh, and fees were calculated on the Rs 10 lakh gain. In the second year, the portfolio value dropped to Rs 55 lakh. According to the high watermark principle, when would the next profit-sharing fee be calculated?

AWhen the portfolio value exceeds Rs 50 lakh.

BWhen the portfolio value exceeds Rs 55 lakh.

✓When the portfolio value exceeds Rs 60 lakh.

DWhen the portfolio value exceeds Rs 65 lakh.

💡 As per the High Watermark Principle described in section 12.6, 'once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' The example provided in the text explicitly states: 'Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.'

Q130 MCQ · 1 mark HardResponsibilities of a Portfolio Manager

A Portfolio Manager is permitted to invest in securities of its own associates/related parties under specific conditions. What is the maximum percentage of a client’s portfolio that can be invested this way, and what client consent is required?

AMaximum 20% with a one-time verbal consent from the client.

✓Maximum 30% with a one-time written consent from the client.

CMaximum 10% with annual written consent from the client.

DMaximum 25% with explicit consent for each transaction.

💡 As per section 12.5, 'Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.'

Q131 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

A discretionary portfolio manager is entrusted with managing a client's funds. Which of the following best describes the core principle guiding their management?

AThey must manage funds in a manner that closely resembles a Mutual Fund.

✓They shall manage funds individually and independently, in accordance with the client's needs.

CThey are required to obtain written directions from the client for every transaction.

DThey primarily focus on investing in below investment grade securities for higher returns.

💡 The text under '12.5 Responsibilities of a Portfolio Manager' states: 'The discretionary portfolio manager shall individually and independently manage the funds of each client in accordance with the needs of the client, in a manner which does not partake character of a Mutual Fund'. Options A is explicitly contradicted, Option C describes a non-discretionary manager, and Option D is incorrect as portfolio managers 'shall not make investments in below investment grade securities'.

Q132 MCQ · 1 mark EasySEBI Requirements on Performance Disclosure

Which document is a Portfolio Manager required to provide to the client, specifying details like the quantum and manner of fees, portfolio risks, and related party disclosures, and which must also be available on the portfolio manager's website and filed with SEBI?

AAnnual Report

BBusiness Plan

CDraft Agreement with Client

✓Disclosure Document

💡 Section 12.8 states: 'The Portfolio Manager is also required to provide the client with a Disclosure Document containing specified particulars.' It further elaborates that this document includes 'the quantum and manner of payment of fees... portfolio risks... disclosures with respect to related parties...' and 'This document is required to be made available on the website of the portfolio manager as well as filed with the SEBI.'

Q133 MCQ · 1 mark EasyClient Funds

What is the minimum value of funds or securities that a portfolio manager shall accept from a client?

ATen lakh rupees.

BTwenty-five lakh rupees.

✓Fifty lakh rupees.

DOne crore rupees.

💡 The text specifies: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.'

Q134 MCQ · 1 mark EasyResponsibilities of a PM

According to SEBI regulations, what is the minimum value of funds or securities a portfolio manager shall accept from a client?

ANot less than Ten lakh rupees

BNot less than Twenty-five lakh rupees

✓Not less than Fifty lakh rupees

DNot less than One crore rupees

💡 The text states under '12.5 Responsibilities of a Portfolio Manager' that 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q135 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

What is the minimum value of funds or securities that a Portfolio Manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 As per section 12.5, 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q136 MCQ · 1 mark EasyDirect Access Facility

What is the main advantage for an investor choosing the 'direct access facility' offered by a Portfolio Management Service (PMS)?

AAccess to exclusive investment opportunities not available through regular plans.

✓Lower overall costs due to the absence of intermediary commissions.

CGuaranteed higher returns compared to regular PMS plans.

DMore personalized management of funds by the portfolio manager.

💡 As per section 12.7, 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower.'

Q137 MCQ · 1 mark EasyRegistration Requirements

What is the mandatory requirement for an entity to act as a portfolio manager in India?

✓Obtaining a certificate of registration from SEBI.

BRegistering with the Reserve Bank of India.

CBecoming a member of a recognized stock exchange.

DHaving a minimum of ten years of experience in financial services.

💡 To act as a portfolio manager, obtaining a certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.

Q138 MCQ · 1 mark EasyRegistration Requirements

An application for obtaining a certificate of registration as a Portfolio Manager from SEBI must be made in which specific form?

AForm B of Schedule II

BForm C of Schedule I

✓Form A of Schedule I

DForm D of Schedule II

💡 As per section 12.4, 'The application needs to be made in Form A of Schedule I.'

Q139 MCQ · 1 mark MediumAlternative Investments

As per the provided text, what is identified as the essential characteristic of alternative investments?

AHigh liquidity, allowing for easy conversion into cash.

BInvestment primarily in traditional stocks and bonds.

✓Illiquidity, meaning they are not readily convertible into cash.

DGuaranteed higher returns compared to traditional investments.

💡 The text explicitly states: 'The essential characteristic of alternative investments is ‘illiquidity’, i.e. they are not readily convertible into cash'.

Q140 MCQ · 1 mark MediumFees and Costs in PMS

A client invests Rs. 50 lakh with a PMS. In the first year, the portfolio value rises to Rs. 60 lakh, and profit-sharing fees are calculated. In the second year, the portfolio value drops to Rs. 55 lakh. According to the high watermark principle, when would the profit-sharing fee next be calculated?

AWhen the portfolio value exceeds Rs. 50 lakh.

BWhen the portfolio value exceeds Rs. 55 lakh.

✓When the portfolio value exceeds Rs. 60 lakh.

DProfit-sharing fees will be calculated annually regardless of the high watermark.

💡 The text states, 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' The example provided clarifies: 'Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.'

Q141 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

According to SEBI regulations, what is the maximum percentage of a client's portfolio that a portfolio manager can invest in securities of their own associates/related parties?

A10%

B20%

✓30%

D40%

Q142 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

A Portfolio Manager is allowed to invest a maximum percentage of their client’s portfolio in securities of their own associates/related parties, provided a one-time written consent is obtained from the client. What is this maximum percentage?

A10%

B20%

✓30%

D50%

Q143 MCQ · 1 mark EasyRegistration Requirements

What is the mandatory requirement for an entity to act as a portfolio manager in India?

✓Obtaining a certificate of registration from SEBI under the Portfolio Managers regulations.

BHaving a minimum net worth of fifty lakh rupees before starting operations.

CAppointing a Principal Officer with at least two years of experience in the securities market.

DFiling an application directly with the Reserve Bank of India.

💡 The text clearly states, 'To act as a portfolio manager, obtaining certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.'

Q144 MCQ · 1 mark MediumDiscretionary Portfolio Management

How does a discretionary portfolio manager manage the funds of each client?

AIn accordance with the directions of the client, similar to a Mutual Fund.

✓Individually and independently, in a manner which does not partake character of a Mutual Fund.

CBy pooling funds from multiple clients for collective investment decisions.

DBy investing exclusively in below investment grade securities for higher returns.

💡 The text states: 'The discretionary portfolio manager shall individually and independently manage the funds of each client in accordance with the needs of the client, in a manner which does not partake character of a Mutual Fund'.

Q145 MCQ · 1 mark MediumCost and Fees

An investor's portfolio managed by a PMS had a value of Rs 50 lakh. In year 1, it rose to Rs 60 lakh, and profit-sharing fees were calculated. In year 2, the portfolio value dropped to Rs 55 lakh. According to the high watermark principle, when would the next profit-sharing fee be calculated?

AWhen the portfolio value crosses Rs 50 lakh again.

BWhen the portfolio value crosses Rs 55 lakh again.

✓When the portfolio value crosses Rs 60 lakh again.

DProfit-sharing fees are calculated annually regardless of the high watermark.

💡 The high watermark principle states, 'once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.' In this case, the previous high level where fees were calculated was Rs 60 lakh. Therefore, fees will only be calculated again when the portfolio value exceeds Rs 60 lakh.

Q146 MCQ · 1 mark MediumPMS Fees

In the context of Portfolio Management Services (PMS) fees, what is the primary function of a 'Hurdle rate'?

AIt is the maximum percentage of profit a PMS manager can earn.

BIt is the minimum rate of return an investor must achieve before any fixed costs are applied.

✓It is the rate which must be crossed before the PMS would charge any extra profit-sharing fees to the investor.

DIt is the rate at which the fixed costs for the PMS are calculated.

💡 As per section 12.6, 'This is the rate which would need to be crossed if the PMS would charge extra fees to the investor.'

Q147 MCQ · 1 mark HardRegistration Requirements

Which of the following statements is INCORRECT regarding the criteria SEBI considers before issuing a certificate of registration to a Portfolio Manager?

AThe applicant must be a body corporate.

✓The principal officer must have a minimum of two years of experience in related activities in the securities market.

CThe applicant must have appointed a compliance officer.

DThe applicant must have at least one additional employee (beyond Principal and Compliance Officer) with a graduation and at least two years of experience in related activities in the securities market.

💡 Statement B is incorrect. The text specifies that the principal officer must have "experience of at least five years in related activities in the securities market." The requirement of "at least two years in related activities" applies to the additional employee in employment, not the principal officer.

Q148 MCQ · 1 mark MediumRegistration Requirements - Personnel

According to SEBI regulations for Portfolio Managers, what is the minimum experience required for the principal officer of an applicant in related activities in the securities market?

AAt least two years

BAt least three years

✓At least five years

DAt least ten years

💡 The text states that 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market'.

Q149 MCQ · 1 mark HardRegistration Requirements

Which of the following is NOT a mandatory condition for SEBI to consider before issuing a certificate of registration to a portfolio manager applicant?

AThe applicant has appointed a compliance officer.

BThe principal officer has at least five years of experience in related securities market activities.

✓The applicant is a partnership firm.

DThe applicant has in its employment at least one person with a graduation degree and two years of experience in the securities market.

💡 Section 12.4 states that 'the applicant is a body corporate'. A partnership firm is typically not classified as a body corporate in this context. Options A, B, and D are all explicitly listed as mandatory conditions.

Q150 MCQ · 1 mark MediumSEBI requirements on performance disclosure

Which of the following particulars is NOT explicitly required to be included in the Disclosure Document provided by a Portfolio Manager to a client?

AThe quantum and manner of payment of fees.

BPortfolio risks specific to each investment approach.

✓Details of the client's personal financial goals.

DDisclosures with respect to related parties as required under Accounting Standards issued by ICAI.

💡 The text states the Disclosure Document is required to include "inter alia, the quantum and manner of payment of fees payable to the client for each activity for which service is rendered, portfolio risks specific to each investment approach, disclosures with respect to related parties as required under Accounting Standards issued by Institute of Chartered Accounts of India etc." Details of the client's personal financial goals are not listed as a required inclusion in the Disclosure Document itself.

Q151 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager from SEBI?

ATwo crore rupees

BThree crore rupees

✓Five crore rupees

DTen crore rupees

💡 The text specifies that one of the factors the regulator considers is, 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q152 MCQ · 1 mark MediumMinimum Investment

What is the minimum amount of funds or securities that a portfolio manager shall accept from a client?

ANot less than ten lakh rupees

BNot less than twenty-five lakh rupees

✓Not less than fifty lakh rupees

DNot less than one crore rupees

💡 Under '12.5 Responsibilities of a Portfolio Manager', it is stated: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q153 MCQ · 1 mark MediumDirect Access Facility

What is the primary advantage for an investor choosing the 'direct access facility' when investing in a Portfolio Management Service (PMS)?

AAccess to exclusive investment strategies not available through regular plans.

BDirect control over all investment decisions, making it a non-discretionary service.

✓Lower costs due to the absence of intermediary commissions.

DGuaranteed higher returns compared to regular PMS plans.

Q154 MCQ · 1 mark HardCatch-up/No Catch-up Concept

A PMS agreement includes a hurdle rate of 10%. If the 'catch-up concept' is applied for calculating performance-linked fees, how are the fees determined when the portfolio generates a return exceeding 10%?

AFees are calculated only on the incremental gains above the 10% hurdle rate.

✓Fees are calculated on the full gains, starting from the first earning, to 'catch up' to the total earnings.

CFees are calculated only if the portfolio value is higher than the previous high watermark, ignoring the hurdle rate.

DThe portfolio manager does not charge any performance-linked fees under the catch-up concept.

Q155 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

What is the maximum percentage of a client's portfolio that a portfolio manager can invest in securities of their own associates/related parties, and what is required for this?

A10%, with a one-time verbal consent from the client.

B20%, with annual written consent from the client.

✓30%, with a one-time written consent from the client.

D50%, with no specific consent required as long as it's disclosed.

Q156 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

Which of the following actions is explicitly prohibited for a Portfolio Manager regarding client funds or securities, as per SEBI regulations?

AMaintaining client funds in a separate account in a Scheduled Commercial Bank.

BSegregating each client’s holding in securities in separate accounts.

✓Borrowing funds or securities on behalf of the client.

DInvesting up to 30% of a client’s portfolio in securities of own associates with one-time written consent.

💡 The text explicitly states, 'The portfolio manager shall not borrow funds or securities on behalf of the client.' Options A and B are mandatory responsibilities, and option D is permitted with specific conditions.

Q157 MCQ · 1 mark MediumCost, expenses and fees

Under the 'high watermark principle' for PMS fees, if a portfolio's value drops after a fee calculation, when would the next profit-sharing fee be calculated?

AImmediately after the portfolio value recovers to its initial investment.

✓Only when the portfolio value crosses the previous highest level on which fees were paid.

CAnnually, regardless of the portfolio performance.

DOnly when the portfolio value exceeds the hurdle rate.

💡 Section 12.6 states, 'According to this principle once the fees are calculated on a specific level of assets then the next payment would only come about when the previous higher level is passed.'

Q158 MCQ · 1 mark EasyRegistration Requirements

Which regulatory body issues the certificate of registration for a Portfolio Manager in India?

AReserve Bank of India (RBI)

✓Securities and Exchange Board of India (SEBI)

CMinistry of Finance

DNational Institute of Securities Markets (NISM)

💡 The text states, 'To act as a portfolio manager, obtaining certificate of registration from SEBI under the Portfolio Managers regulations is a mandatory requirement.'

Q159 MCQ · 1 mark MediumPrincipal Officer Requirements

Which of the following is NOT a mandatory requirement for the Principal Officer of an applicant seeking registration as a portfolio manager?

AA professional qualification in finance, law, accountancy, or business management.

BExperience of at least five years in related activities in the securities market.

CRelevant NISM certification as specified by the regulator.

✓Graduation from a foreign university with a Ph.D. in financial economics.

💡 The text lists: 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market... and the relevant NISM certification'. A Ph.D. from a foreign university is not explicitly stated as a mandatory requirement.

Q160 MCQ · 1 mark MediumSEBI requirements on performance disclosure

Which of the following information is NOT explicitly required to be included in the Disclosure Document provided by a Portfolio Manager to a client, as per SEBI regulations?

AThe quantum and manner of payment of fees.

BPortfolio risks specific to each investment approach.

CDisclosures with respect to related parties as required under Accounting Standards.

✓A guarantee of minimum annual returns to the client.

💡 The text lists the required inclusions in the Disclosure Document: 'The Disclosure Document is required to include, inter alia, the quantum and manner of payment of fees payable to the client for each activity for which service is rendered, portfolio risks specific to each investment approach, disclosures with respect to related parties as required under Accounting Standards issued by Institute of Chartered Accounts of India etc.' A guarantee of minimum annual returns is not mentioned and is generally not permissible in investment products.

Q161 MCQ · 1 mark MediumPMS Fees

According to the 'high watermark principle' in PMS fee calculation, under which scenario would a profit-sharing fee NOT be calculated for the current period?

AWhen the current fund value exceeds the previous high watermark.

BWhen the current fund value drops below the initial corpus investment value.

✓When the current fund value is higher than the initial corpus but still below the previous high watermark.

DWhen the returns are lower than the hurdle rate, irrespective of the fund value.

💡 As per section 12.6, 'Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.' This illustrates that fees are only calculated when the current fund value surpasses the previous high watermark.

Q162 MCQ · 1 mark MediumSEBI Requirements on Performance Disclosure

Which of the following details is NOT explicitly mentioned as a required inclusion in the Disclosure Document provided by a Portfolio Manager to a client?

AThe quantum and manner of payment of fees.

BPortfolio risks specific to each investment approach.

CDisclosures with respect to related parties as required under Accounting Standards.

✓A guarantee of minimum returns over a specified period.

💡 The Disclosure Document is required to include 'the quantum and manner of payment of fees', 'portfolio risks specific to each investment approach', and 'disclosures with respect to related parties'. There is no mention of guaranteeing minimum returns; rather, the disclosure of portfolio risks suggests the opposite.

Q163 MCQ · 1 mark MediumPerformance Disclosure

What specific information regarding fees is a Portfolio Manager required to include in the Disclosure Document provided to clients?

AOnly the fixed percentage of the amount invested as a fee.

✓The quantum and manner of payment of fees for each activity and the range of fees charged under various heads.

CThe exact amount of performance-linked costs paid by other clients.

DA guarantee that the total fees will not exceed a certain percentage of returns.

💡 As per section 12.8, 'The Disclosure Document is required to include, inter alia, the quantum and manner of payment of fees payable to the client for each activity for which service is rendered...' and 'The portfolio manager shall disclose the range of fees charged under various heads in the disclosure document.'

Q164 MCQ · 1 mark EasyDirect Access Facility

What is the primary benefit for an investor opting for the 'direct access facility' in PMS, similar to direct plans in mutual funds?

AAccess to exclusive investment opportunities not available otherwise.

✓Lower costs due to the absence of intermediaries.

CA guarantee of higher returns compared to regular plans.

DDirect control over all investment decisions.

💡 The text under '12.7 Direct access facility offered by PMS' states: 'The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower. The lower amount of expenses will lead to a lower amount being charged as expenses to the investor.'

Q165 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant to obtain a certificate of registration as a Portfolio Manager from SEBI?

AOne crore rupees

BThree crore rupees

✓Five crore rupees

DTen crore rupees

💡 The text states, 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q166 MCQ · 1 mark MediumRegistration Requirements - Principal Officer

Which of the following describes the experience requirement for the Principal Officer of an applicant seeking a Portfolio Manager registration from SEBI?

AAt least three years in related activities in the securities market.

BAt least five years in unrelated activities in the financial market.

✓At least five years in related activities in the securities market, including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager.

DAt least two years as a fund manager only.

💡 The text specifies that 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time.'

Q167 MCQ · 1 mark MediumRegistration Requirements

For an applicant seeking registration as a Portfolio Manager, what is the minimum experience required for the Principal Officer in related activities in the securities market?

AAt least two years

BAt least three years

✓At least five years

DAt least ten years

💡 The text specifies that the principal officer must have 'experience of at least five years in related activities in the securities market'.

Q168 MCQ · 1 mark EasyRegistration Requirements

What is the minimum net worth requirement for an applicant seeking a certificate of registration as a Portfolio Manager from SEBI?

AOne crore rupees

✓Five crore rupees

CTen crore rupees

DFifty lakh rupees

💡 According to point 7 under 'Before issuing a certificate of registration, the regulator shall take into account the following', the applicant must fulfil the net worth requirement of 'five crore rupees'.

Q169 MCQ · 1 mark EasyCost, expenses and fees

What is the primary purpose of performance-linked costs in a Portfolio Management Service (PMS)?

ATo cover administrative expenses of the PMS.

✓To incentivize the fund manager to give a better performance.

CTo compensate for fixed costs regardless of investment outcome.

DTo reduce the overall expenses for the investor.

💡 Section 12.6 explains performance-linked costs: 'This is present in order to incentivise the fund manager to give a better performance.'

Q170 MCQ · 1 mark MediumPerformance Disclosure

Which of the following particulars is NOT explicitly required to be included in the Disclosure Document provided by a Portfolio Manager to a client, as per the text?

AThe quantum and manner of payment of fees.

BPortfolio risks specific to each investment approach.

✓Details of the portfolio manager's personal investment strategies for their own funds.

DDisclosures with respect to related parties as required under Accounting Standards issued by Institute of Chartered Accounts of India.

💡 Under '12.8 SEBI requirements on performance disclosure', the text states: 'The Disclosure Document is required to include, inter alia, the quantum and manner of payment of fees payable to the client... portfolio risks specific to each investment approach, disclosures with respect to related parties as required under Accounting Standards issued by Institute of Chartered Accounts of India etc.' The portfolio manager's personal investment strategies are not listed as a required particular.

Q171 MCQ · 1 mark HardCost, Expenses and Fees

In the context of performance-linked fees for a PMS, what is the key difference between the 'catch-up' concept and the 'no catch-up' concept when a hurdle rate is crossed?

✓'Catch-up' means fees are calculated on the full gains from the first earning above the hurdle rate, while 'no catch-up' considers only the incremental amount above the hurdle rate.

B'Catch-up' refers to the portfolio manager making up for previous losses before charging fees, whereas 'no catch-up' implies fees are charged irrespective of past performance.

C'Catch-up' applies only to discretionary portfolios, while 'no catch-up' applies to non-discretionary portfolios.

D'Catch-up' allows the portfolio manager to charge fees retroactively for periods below the hurdle rate, while 'no catch-up' strictly limits fees to current performance above the hurdle.

💡 The text states, 'The no catch-up concept is that only the incremental amount above the hurdle rate would be considered while the catch up concept would then look at the fees right from the first earning which would need to catch up to the total earnings.'

Q172 MCQ · 1 mark MediumRegistration Requirements

According to SEBI regulations, what is the minimum net worth requirement an applicant must fulfill to obtain a certificate of registration as a Portfolio Manager?

ATwo crore rupees

BThree crore rupees

✓Five crore rupees

DTen crore rupees

💡 The text explicitly states under the factors SEBI considers before issuing a certificate: 'The applicant fulfils the net worth requirement (five crore rupees)'.

Q173 MCQ · 1 mark HardCost, Expenses and Fees

According to the High Watermark Principle, if a client's portfolio value reaches Rs. 60 lakh in one year and profit-sharing fees are calculated, but then drops to Rs. 55 lakh the next year, when will the profit-sharing fee be calculated again?

AThe fee will be calculated as soon as the portfolio value exceeds Rs. 50 lakh again.

✓The fee will be calculated when the portfolio value crosses the previous high of Rs. 60 lakh.

CThe fee will be calculated based on any positive gain from Rs. 55 lakh, regardless of the previous high.

DThe fee will be calculated only after two consecutive years of positive returns.

💡 The text explains: 'Next year if the portfolio value drops to Rs 55 lakh then till it crosses the previous high of Rs 60 lakh the profit sharing fee would not be calculated.'

Q174 MCQ · 1 mark MediumResponsibilities of a Portfolio Manager

According to SEBI regulations, what is the minimum value of funds or securities a portfolio manager shall accept from a client?

ATwenty-five lakh rupees

✓Fifty lakh rupees

COne crore rupees

DTen lakh rupees

💡 Section 12.5 Responsibilities of a Portfolio Manager states: 'The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees'.

Q175 MCQ · 1 mark MediumPerformance Disclosure

Which of the following details is NOT explicitly required to be included in the Disclosure Document provided by a Portfolio Manager to its clients, as per SEBI regulations?

AThe quantum and manner of payment of fees.

BPortfolio risks specific to each investment approach.

CDisclosures with respect to related parties as required under Accounting Standards.

✓Detailed personal financial statements of the portfolio manager's employees.

💡 Section 12.8 lists required particulars for the Disclosure Document, including 'the quantum and manner of payment of fees', 'portfolio risks specific to each investment approach', and 'disclosures with respect to related parties as required under Accounting Standards'. Detailed personal financial statements of employees are not mentioned.

Case-Based Questions (5 sets)

Case 1 Case-Based · 1 mark each PMS Registration and Responsibilities

Mr. Ajay Sharma, a 45-year-old software professional, has accumulated significant wealth over the years. With a current net worth of ₹12 Crores, primarily in fixed deposits and real estate, he is now looking to diversify his portfolio and achieve potentially higher returns through professional management. He is considering investing ₹70 lakhs in a Portfolio Management Service (PMS). He has heard about the various types of fees and regulatory requirements for PMS providers and wants to ensure he makes an informed decision. Ajay is also keen on understanding how his investment would be managed, especially concerning potential conflicts of interest and the transparency of charges. He is evaluating "Alpha Wealth Managers Pvt. Ltd." as a potential PMS provider, which claims to offer both discretionary and non-discretionary services.

Hard Sub-question 1

Alpha Wealth Managers proposes to invest 35% of Mr. Ajay Sharma's portfolio in securities of its own associate companies to leverage internal expertise. Additionally, Mr. Sharma is considering utilizing the direct access facility for his PMS. Which of these two propositions aligns correctly with SEBI regulations for PMS?

ABoth propositions are fully compliant and beneficial for Mr. Sharma.

BThe investment in associate companies is compliant, but the direct access facility is not always beneficial.

✓The investment in associate companies exceeds the regulatory limit, but the direct access facility is a valid option for cost saving.

DNeither proposition is aligned with SEBI regulations for PMS.

💡 As per the chapter text (12.5 Responsibilities of a Portfolio Manager), "Portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same." Thus, investing 35% exceeds the 30% limit. Regarding the direct access facility (12.7 Direct access facility offered by PMS), it is stated that "The direct access facility has the same benefit in the PMS as in a mutual fund which is that the cost for this will be lower." Therefore, it is a valid option for cost saving.

Medium Sub-question 2

For Alpha Wealth Managers Pvt. Ltd. to obtain a certificate of registration from SEBI, what is the minimum experience requirement for its Principal Officer in related activities in the securities market?

ATwo years in any financial services sector.

BThree years specifically as a fund manager.

✓Five years in related activities including in a portfolio manager, stock broker, or investment advisor.

DSeven years in business management with NISM certification.

💡 As per the chapter text (12.4 Registration requirements of a Portfolio Manager), one of the conditions is that "the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time."

Medium Sub-question 3

Alpha Wealth Managers Pvt. Ltd. charges a performance fee based on the High Watermark principle. If Mr. Ajay Sharma's initial investment is ₹70 lakhs, the portfolio grows to ₹85 lakhs in Year 1, drops to ₹80 lakhs in Year 2, and then rises to ₹90 lakhs in Year 3 (assuming the hurdle rate is met in all profitable years). On what amount would the performance fee be calculated in Year 3?

A₹20 lakhs (₹90 lakhs - ₹70 lakhs)

✓₹5 lakhs (₹90 lakhs - ₹85 lakhs)

C₹10 lakhs (₹90 lakhs - ₹80 lakhs)

DNo performance fee in Year 3 as it dropped in Year 2.

💡 The High Watermark principle dictates that performance fees are calculated only on gains above the previously achieved highest value on which fees were paid. Year 0 (Initial Investment): ₹70 lakhs Year 1: Portfolio grows to ₹85 lakhs. Fees would be calculated on ₹15 lakhs (₹85L - ₹70L). The high watermark becomes ₹85 lakhs. Year 2: Portfolio drops to ₹80 lakhs. No fees are paid as there are no new gains above the high watermark. Year 3: Portfolio rises to ₹90 lakhs. The previous high watermark was ₹85 lakhs. Therefore, fees would be calculated on the gain above ₹85 lakhs, which is ₹5 lakhs (₹90 lakhs - ₹85 lakhs).

Easy Sub-question 4

In what specific capacity is Alpha Wealth Managers Pvt. Ltd. expected to act concerning Mr. Ajay Sharma's funds, as per SEBI regulations?

AAs an agent, executing trades on behalf of the client.

BAs a principal, investing its own funds alongside the client's.

✓In a fiduciary capacity, prioritizing the client's best interests.

DAs an advisor, providing recommendations without managing funds.

💡 The chapter text (12.5 Responsibilities of a Portfolio Manager) states, "The portfolio manager shall act in a fiduciary capacity with regard to the client's funds." This means they must prioritize the client's best interests.

Easy Sub-question 5

Based on SEBI (Portfolio Managers) Regulations, 2020, is Mr. Ajay Sharma's proposed investment amount of ₹70 lakhs acceptable for a Portfolio Management Service?

ANo, because the minimum investment required is ₹1 crore.

✓Yes, as the minimum investment threshold is ₹50 lakhs.

CNo, as the minimum investment must be in securities, not cash.

DYes, but only if it's a non-discretionary portfolio.

💡 As per the chapter text (12.5 Responsibilities of a Portfolio Manager), "The portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees." Mr. Ajay Sharma's proposed investment of ₹70 lakhs exceeds this minimum threshold, making it acceptable.

Case 2 Case-Based · 1 mark each Portfolio Manager Regulations and Fees

Mr. Rajan Sharma, aged 52, and his wife, Mrs. Priya Sharma, aged 48, are a high net-worth couple residing in Mumbai. With their children settled abroad, they are looking to consolidate and professionally manage their investment portfolio, which currently stands at approximately ₹75 lakhs across various instruments. They are particularly interested in a Portfolio Management Service (PMS) to achieve their long-term financial goals, which include wealth appreciation and legacy planning. They have been researching different PMS providers and have come across "Alpha Wealth Managers Pvt. Ltd.," a newly established firm seeking to obtain a certificate of registration from SEBI. Alpha Wealth Managers boasts a team with extensive experience, including a Principal Officer with over 10 years of experience in the securities market and relevant NISM certifications. The firm plans to offer both discretionary and non-discretionary services. The Sharmas are keen to understand the regulatory requirements for a PMS, its responsibilities towards clients, and the various fee structures. They are particularly intrigued by the 'direct access facility' and how it might benefit them. They have decided to meet with an Investment Adviser to guide them through the process and help them make an informed decision about Alpha Wealth Managers and PMS in general.

Easy Sub-question 1

Based on the SEBI (Portfolio Managers Regulations), 2020, what is the minimum amount of funds or securities Mr. and Mrs. Sharma must commit to Alpha Wealth Managers Pvt. Ltd. to avail of their PMS services?

A₹25 lakh

✓₹50 lakh

C₹75 lakh

D₹1 crore

💡 As per the Portfolio Managers regulations, a portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.

Easy Sub-question 2

The Sharmas are considering the 'direct access facility' offered by Alpha Wealth Managers. What is the primary benefit of choosing this facility over a regular PMS plan?

AHigher guaranteed returns due to direct investment.

BAccess to exclusive investment strategies not available in regular plans.

✓Lower overall costs for the investor by cutting out intermediary commissions.

DMore frequent performance reports and direct interaction with the fund manager.

💡 The direct access facility in PMS allows investors to directly approach the PMS provider without an intermediary. This cuts out the need for commission for the intermediary, leading to lower overall costs and potentially higher net returns for the investor.

Medium Sub-question 3

Mr. and Mrs. Sharma are concerned about potential conflicts of interest. If Alpha Wealth Managers Pvt. Ltd. decides to invest in securities of its own associates/related parties, what is the maximum percentage of the client's portfolio that can be invested in such securities, and what condition applies?

AMaximum 20% with prior verbal consent from the client.

✓Maximum 30% with a one-time written consent from the client.

CMaximum 50% without any specific consent required.

DNo investment is allowed in securities of associates/related parties.

💡 Portfolio managers shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties. A one-time written consent shall be taken from the client for the same.

Medium Sub-question 4

Alpha Wealth Managers Pvt. Ltd. is in the process of obtaining its registration from SEBI. Which of the following conditions related to its Principal Officer is mandatory for SEBI to issue a certificate of registration?

AThe Principal Officer must be a graduate in any discipline.

✓The Principal Officer must have at least five years of experience in related activities in the securities market and relevant NISM certification.

CThe Principal Officer must be involved in at least one litigation connected with the securities market.

DThe Principal Officer must have a net worth of at least ₹5 crore.

💡 One of the mandatory conditions for SEBI to issue a certificate of registration to a Portfolio Manager is that 'the principal officer of the applicant has a professional qualification in finance, law, accountancy or business management, experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager; and the relevant NISM certification as specified by the regulator from time to time.'

Hard Sub-question 5

The Sharmas are evaluating the fee structure of Alpha Wealth Managers, which includes a performance-linked fee. The agreement states a hurdle rate of 8% and employs the 'high watermark' principle for performance fee calculation. Their initial portfolio value is ₹75 lakhs. In Year 1, the portfolio grows to ₹85 lakhs. In Year 2, it drops to ₹80 lakhs. In Year 3, it recovers and grows to ₹90 lakhs. If the profit-sharing fee is 20% on gains above the hurdle rate (assuming 'no catch-up' for simplicity), at which point will the performance fee be calculated in Year 3, assuming the hurdle rate was crossed?

AOn the gains from ₹75 lakhs to ₹90 lakhs.

BOn the gains from ₹80 lakhs to ₹90 lakhs, provided the return exceeds 8%.

✓On the gains from ₹85 lakhs to ₹90 lakhs, provided the return exceeds 8%.

DNo performance fee will be calculated in Year 3 because the portfolio dropped in Year 2.

💡 According to the high watermark principle, performance fees are only calculated when the portfolio value crosses the previous highest value (high watermark) on which fees were previously paid. 1. Initial portfolio: ₹75 lakhs. 2. End of Year 1: Portfolio grows to ₹85 lakhs. If the return exceeds the hurdle rate, performance fee is calculated on gains above ₹75 lakhs. The high watermark is now set at ₹85 lakhs. 3. End of Year 2: Portfolio drops to ₹80 lakhs. No performance fee is calculated, and the high watermark remains ₹85 lakhs. 4. End of Year 3: Portfolio grows to ₹90 lakhs. This value exceeds the previous high watermark of ₹85 lakhs. Therefore, the performance fee (if the return exceeds the hurdle rate) will be calculated on the gains above the previous high watermark, which is ₹90 lakhs - ₹85 lakhs = ₹5 lakhs. This corresponds to gains from ₹85 lakhs to ₹90 lakhs.

Case 3 Case-Based · 1 mark each Portfolio Manager Registration and Client Responsibilities

Mr. Ajay Sharma, a seasoned professional with 7 years of experience in the securities market, including 3 years as a fund manager for a large mutual fund house, decides to establish his own Portfolio Management Service (PMS) firm, "Apex Wealth Managers Pvt. Ltd." He holds a professional qualification in finance and has completed the relevant NISM certifications. His company has a net worth of ₹6 crore, a well-equipped office space, and has appointed a dedicated compliance officer. Ajay also plans to hire Ms. Reena Kapoor, who has a graduation degree and 2.5 years of experience as an investment advisor, to join his team. He plans to offer both discretionary and non-discretionary services. Meanwhile, Mrs. Priya Singh, a successful entrepreneur, is exploring options to manage her investable surplus of ₹75 lakh. She is looking for a personalized investment approach and is particularly interested in understanding the fee structures, including performance-linked fees, and the benefits of direct access facilities offered by PMS providers. She wants to ensure her chosen PMS adheres to all regulatory requirements and acts in her best interest, specifically concerning the maximum allocation to related parties and the segregation of funds.

Easy Sub-question 1

Based on the information provided, does Mr. Ajay Sharma meet the experience requirement to be the Principal Officer for Apex Wealth Managers Pvt. Ltd.?

ANo, because he only has 3 years of experience as a fund manager, which is less than the 5-year requirement.

✓Yes, because his total securities market experience of 7 years exceeds the 5-year requirement, and fund management experience is considered relevant.

CNo, because experience as a fund manager is not considered relevant for a Portfolio Manager's Principal Officer.

DYes, but only if he also has experience as a stockbroker or research analyst.

💡 According to the SEBI regulations for Portfolio Managers, the principal officer must have experience of at least five years in related activities in the securities market, including in a portfolio manager, stockbroker, investment advisor, research analyst, or as a fund manager. Mr. Ajay Sharma has 7 years of experience in the securities market, including 3 years as a fund manager, which clearly exceeds the 5-year requirement and is considered relevant.

Hard Sub-question 2

Beyond the Principal Officer's qualification and the company's net worth, what critical aspects would SEBI also scrutinize for Apex Wealth Managers Pvt. Ltd.'s registration, particularly concerning its team and operational readiness, and how does Ms. Reena Kapoor's hiring contribute?

ASEBI would primarily check for a large marketing team; Ms. Kapoor's experience is irrelevant as she is not a Principal Officer.

✓SEBI would verify the existence of a robust grievance redressal mechanism, research facilities, and that Ms. Kapoor, with her graduation and 2.5 years of experience, fulfills the requirement for at least one additional experienced employee.

CSEBI would focus on the applicant's past investment performance; Ms. Kapoor's role is mainly administrative.

DSEBI would only examine the capital structure; Ms. Kapoor's hiring is not a regulatory requirement.

💡 SEBI's registration requirements are comprehensive. Beyond net worth and Principal Officer qualifications, SEBI scrutinizes the applicant's organizational structure, infrastructural facilities (like adequate office space and equipment), business plan, and crucially, business information including facilities for making investment decisions, risk profiling procedures, details of grievance redressal and dispute resolution mechanisms, and research and database facilities. Furthermore, in addition to the Principal Officer and Compliance Officer, the applicant must have at least one person in its employment who has a graduation degree and an experience of at least two years in related activities in the securities market. Ms. Reena Kapoor, with her graduation and 2.5 years of experience as an investment advisor (a related activity), fulfills this specific regulatory requirement, contributing to the firm's operational readiness and compliance.

Medium Sub-question 3

If Apex Wealth Managers Pvt. Ltd. offers Mrs. Priya Singh a performance-linked fee structure with a hurdle rate of 8% and applies the high watermark principle, under which condition would performance fees be calculated in a given financial year?

APerformance fees are always calculated if the portfolio generates any positive return.

BPerformance fees are calculated only if the portfolio return exceeds 8%, regardless of previous performance.

✓Performance fees are calculated only if the portfolio return exceeds 8% AND the current portfolio value surpasses the highest value on which fees were previously paid.

DPerformance fees are calculated if the portfolio value drops below the high watermark, to compensate for losses.

💡 The high watermark principle states that performance fees are only calculated when the current fund value is higher than the previous high watermark (the corpus investment value or NAV at which fees have been paid historically). Additionally, the hurdle rate specifies that profit sharing will only occur if the returns are higher than this rate. Therefore, both conditions must be met: the return must exceed the 8% hurdle rate, and the current fund value must be higher than the previous high watermark.

Easy Sub-question 4

Mrs. Priya Singh plans to invest ₹75 lakh with a PMS. Is this amount acceptable under SEBI (Portfolio Managers Regulations)?

ANo, the minimum investment required is ₹1 crore.

✓Yes, as the minimum acceptable fund or securities from a client is ₹50 lakh.

CNo, the minimum investment for discretionary PMS is ₹1 crore, while for non-discretionary it is ₹50 lakh.

DYes, but only if she opts for a direct access facility.

💡 As per SEBI regulations, a portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees. Mrs. Priya Singh's investment of ₹75 lakh meets this minimum requirement.

Medium Sub-question 5

Considering Mrs. Priya Singh's concern about the PMS adhering to regulatory requirements, what are the specific rules regarding a PMS investing in its own associates/related parties and the handling of client funds?

AA PMS can invest up to 50% of a client’s portfolio in its own associates/related parties with client consent, and all client funds must be pooled into one master account.

✓A PMS can invest up to 30% of a client’s portfolio in its own associates/related parties with a one-time written client consent, and client funds must be kept in a separate account in a Scheduled Commercial Bank.

CA PMS is prohibited from investing in its own associates/related parties, and client funds must be held directly by the portfolio manager in cash.

DThere are no specific limits on investing in associates/related parties, but client funds must be segregated into individual client accounts, not pooled.

💡 SEBI regulations state that a portfolio manager shall invest a maximum of 30% of their client’s portfolio in securities of their own associates/related parties, and a one-time written consent shall be taken from the client for the same. Furthermore, the portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank, and also segregate each client’s holding in securities in separate accounts.

Case 4 Case-Based · 1 mark each Portfolio Management Services (PMS)

Mr. and Mrs. Sharma, both 45 years old, are high-net-worth individuals looking to optimize their investment portfolio. They have a combined annual income of ₹50 lakhs and have accumulated an investable corpus of ₹75 lakhs. They are considering investing ₹60 lakhs into a Portfolio Management Service (PMS) to benefit from professional management tailored to their financial goals, which include funding their children's higher education in 10 years and ensuring a comfortable retirement. They are comfortable with a moderate-to-high risk profile. They have approached Ms. Priya Singh, a SEBI-registered Investment Adviser, for guidance. Ms. Singh has explained the various aspects of PMS, including the registration requirements for a PMS provider, their responsibilities, and the different fee structures like fixed fees, performance-linked fees, and concepts such as 'high watermark' and 'hurdle rate'. She also mentioned the 'direct access facility' offered by PMS providers. The Sharmas are particularly interested in understanding the regulatory framework governing PMS and how they can ensure they choose a reputable and compliant service.

Easy Sub-question 1

Based on the SEBI (Portfolio Managers) Regulations, what is the minimum amount of funds or securities that Mr. and Mrs. Sharma must commit to a portfolio manager?

A₹25 lakh

✓₹50 lakh

C₹75 lakh

D₹1 crore

💡 As per the Portfolio Managers regulations, a portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees.

Easy Sub-question 2

When a firm applies for a Portfolio Manager registration with SEBI, which of the following details is mandatory to be included in Form A of Schedule I?

ADaily trading logs of the applicant.

BDetailed personal financial statements of all clients.

✓Organization structure and a three-year business plan.

DList of all competitors and their market share.

💡 Form A requires information such as Organization Structure and Business Plan (for three years), among other details like particulars of the applicant, infrastructural facilities, and financial information.

Hard Sub-question 3

Ms. Priya Singh, the Investment Adviser, has recommended that Mr. and Mrs. Sharma consider a direct access facility for their PMS investment. Which of the following statements accurately reflects the benefits of this facility and a key requirement for a firm to obtain PMS registration from SEBI?

AThe direct access facility provides enhanced performance guarantees, and a PMS applicant's Principal Officer must have at least two years of experience in the securities market.

✓The direct access facility results in lower costs for the investor due to the absence of intermediaries, and a PMS applicant must have a net worth of at least five crore rupees.

CThe direct access facility offers a wider range of investment options not available through regular plans, and a PMS applicant can be an individual, not necessarily a body corporate.

DThe direct access facility allows investors to manage their portfolio directly, and the PMS applicant is not required to appoint a compliance officer.

💡 The direct access facility in PMS, similar to mutual funds, cuts out the need for commission for intermediaries, leading to lower costs and potentially higher net returns for the investor. Regarding PMS registration, one of the mandatory requirements by SEBI is that the applicant fulfills the net worth requirement of five crore rupees. Option A is incorrect: Direct access does not guarantee enhanced performance, and a Principal Officer requires at least five years of experience, not two. Option C is incorrect: Direct access doesn't inherently offer a wider range of options; the process of fund management remains the same. Also, the applicant must be a body corporate. Option D is incorrect: Direct access means direct approach to the PMS provider, not direct management by the investor. A PMS applicant is required to appoint a compliance officer.

Medium Sub-question 4

The Sharmas are evaluating the fee structure proposed by a PMS provider, which includes a performance-linked fee. The provider explains the 'High Watermark Principle'. If the Sharmas initially invest ₹60 lakhs, and their portfolio grows to ₹70 lakhs in the first year, then drops to ₹65 lakhs in the second year, what would be the basis for calculating performance fees in the third year, assuming all other conditions (like hurdle rate) are met and the previous high watermark was ₹70 lakhs?

APerformance fees would be calculated on any gains above ₹60 lakhs.

BPerformance fees would be calculated on any gains above ₹65 lakhs.

✓Performance fees would only be calculated if the portfolio value crosses ₹70 lakhs.

DPerformance fees would be calculated on the entire portfolio value of ₹65 lakhs.

💡 According to the High Watermark principle, performance fees are only calculated when the portfolio value surpasses the previous highest value on which fees were last paid. In this case, fees were paid when the portfolio reached ₹70 lakhs. Therefore, in the third year, performance fees would only be calculated if the portfolio value exceeds ₹70 lakhs.

Medium Sub-question 5

Mr. and Mrs. Sharma are concerned about the transparency and ethical conduct of their potential portfolio manager. Which of the following is a key responsibility of a portfolio manager regarding client funds, as per SEBI regulations?

AThe portfolio manager must pool all client funds into a single account for efficient management.

✓The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank and segregate each client’s holding in securities in separate accounts.

CThe portfolio manager can invest up to 50% of a client’s portfolio in securities of their own associates/related parties without explicit consent.

DThe portfolio manager is permitted to borrow funds on behalf of the client for investment purposes.

💡 The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank and shall segregate each client’s holding in securities in separate accounts. Option A is incorrect as funds are kept separate, not pooled. Option C is incorrect as the limit is 30% with one-time written consent. Option D is incorrect as borrowing funds on behalf of the client is generally not permitted.

Case 5 Case-Based · 1 mark each PMS Regulatory and Operational Aspects

Mr. and Mrs. Sharma, aged 45 and 42 respectively, are successful IT professionals based in Bengaluru. They have accumulated substantial savings of ₹70 lakh and are now looking for sophisticated investment avenues beyond traditional mutual funds. Having heard about Portfolio Management Services (PMS), they decide to explore this option for long-term wealth creation and approach a SEBI-registered Investment Adviser, Ms. Priya Singh. The Sharmas are keen to understand not only the potential returns but also the regulatory framework, the responsibilities of a portfolio manager, and the fee structures involved. They specifically inquire about the minimum investment required, how their funds will be managed, and the various costs associated with PMS, particularly performance-linked fees.

Medium Sub-question 1

For a body corporate to be granted a certificate of registration as a Portfolio Manager, what is the minimum professional experience required for its Principal Officer in related activities in the securities market?

ATwo years

BThree years

✓Five years

DTen years

💡 One of the conditions for registration is that the principal officer of the applicant must have 'experience of at least five years in related activities in the securities market including in a portfolio manager, stock broker, investment advisor, research analyst or as a fund manager'.

Easy Sub-question 2

One of the fundamental responsibilities of a portfolio manager, as discussed with the Sharmas, is to act in a certain capacity with regard to the client's funds. What is this capacity?

AAs an agent representing the portfolio manager's interests.

BAs a trustee holding funds for a third party.

✓In a fiduciary capacity, prioritising the client's best interests.

DAs a custodian, merely safeguarding the assets.

💡 The Portfolio Managers regulations explicitly state that 'The portfolio manager shall act in a fiduciary capacity with regard to the client's funds.' This means they must act in the best interest of their clients.

Easy Sub-question 3

What is the minimum amount of funds or securities that a portfolio manager can accept from a client as per SEBI (Portfolio Managers) Regulations?

A₹10 lakh

B₹25 lakh

✓₹50 lakh

D₹1 crore

💡 As per the Portfolio Managers regulations, a portfolio manager shall not accept from the client, funds or securities worth less than fifty lakh rupees (₹50 lakh).

Hard Sub-question 4

The Sharmas are informed about performance-linked fees, including the 'hurdle rate' and 'catch-up' concepts. If their PMS agreement includes a hurdle rate of 8% and a 'catch-up' concept for profit sharing, and their portfolio generated a 15% return in a year, how would the profit-sharing fee typically be calculated compared to a 'no catch-up' concept?

AUnder 'catch-up', fees are calculated only on the 7% (15%-8%) above the hurdle rate, similar to 'no catch-up'.

✓Under 'catch-up', fees are calculated on the full 15% return, whereas under 'no catch-up', it's only on the 7% above the hurdle rate.

CUnder 'catch-up', fees are calculated on the full 15% return, while 'no catch-up' means no fees are charged at all.

DThe 'catch-up' and 'no catch-up' concepts are only relevant if the returns are below the hurdle rate.

💡 The 'no catch-up' concept means that only the incremental amount above the hurdle rate (15% - 8% = 7% in this case) would be considered for profit sharing. Conversely, the 'catch-up' concept allows the PMS to take a percentage of the entire earnings once the hurdle rate is crossed, essentially 'catching up' to the full gains from the beginning. Therefore, with a 'catch-up' concept, the fees would be calculated on the full 15% return, assuming the profit-sharing percentage applies to that entire amount after the hurdle is met.

Medium Sub-question 5

When applying for a certificate of registration as a Portfolio Manager from SEBI, in which form is the application made, and which of the following details is NOT typically required in this application form itself?

AForm A of Schedule I; Business Plan for three years

BForm B of Schedule II; Financial Information

✓Form A of Schedule I; Details of client's personal investment preferences

DForm B of Schedule I; Organization Structure

💡 The application for obtaining the certificate of registration needs to be made in Form A of Schedule I. While a business plan for three years, financial information, and organizational structure are required, details of a specific client's personal investment preferences are not part of the portfolio manager's registration application form. The application requires details about the general risk profiling procedure, but not individual client preferences.

About this content: These practice questions are based on the NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination Workbook published by the National Institute of Securities Markets (NISM), Mumbai. NISM is a SEBI-established institution. Questions cover Portfolio Manager with verified answers and explanations. BullWiser is an independent exam preparation platform — not affiliated with NISM or SEBI. Last updated: July 08, 2026.

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Ch.12: Portfolio Manager

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