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NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

Portfolio Management Services by Brokers: NISM-Series-VII Notes

Updated 11 October 2026 · Fact-checked

Portfolio management service (PMS) means managing a client's money in securities for a fee, under a contract. A broker can offer it only if registered with SEBI as a portfolio manager. In discretionary PMS the manager decides; in non-discretionary PMS the client approves each decision. Broking only executes the client's orders.

Understand Portfolio Management Services by Brokers

A stock broker normally does one job: it executes buy and sell orders on the client's instructions. It does not decide what you should buy. A portfolio management service (PMS) is a different activity. The manager takes a client's money or securities and manages them to meet agreed goals, for a fee.

PMS is regulated by SEBI under the SEBI (Portfolio Managers) Regulations. A broker that wants to offer PMS needs a separate registration as a portfolio manager. Being a broker does not give it this permission. Many brokers run PMS through a group company or a separate division that holds the licence.

There are two main types. In discretionary PMS, the manager has the authority to choose investments and trade on the client's behalf without asking for approval every time. The client has a contract that sets out the mandate. In non-discretionary PMS, the manager advises, but the client must give consent before each transaction is done. The manager acts only on the client's directions.

PMS differs from broking in four ways: the service (decision-making versus execution), the fee (management or performance fee versus brokerage), the relationship (a portfolio management agreement versus a client registration form), and the duty owed (a fiduciary-type duty to act in the client's interest). PMS is also different from a mutual fund. In PMS, the securities are held in the client's own name, so each client has an individual portfolio. In a mutual fund, money is pooled into one scheme.

A PMS client is usually a high-net-worth person, because SEBI sets a minimum investment amount per client. Know the exact figure from your NISM workbook edition before the exam, since regulations change.

Key formulas to remember

Discretionary PMS
Manager decides and trades → no client approval for each trade
Done under the authority given in the portfolio management agreement.
Non-discretionary PMS
Manager advises → client approves each trade
Manager acts only as per the client's directions.
Registration rule
Broker registration ≠ portfolio manager registration
A broker needs a separate SEBI registration as a portfolio manager to offer PMS.
Minimum investment
Minimum ₹50 lakh per client (₹50,00,000)
Under the SEBI (Portfolio Managers) Regulations, 2020. Confirm against your workbook edition.
PMS vs mutual fund
PMS = individual portfolio in client's name; MF = pooled scheme
A common comparison question.

How to solve Portfolio Management Services by Brokers questions

Use this method for any question on PMS by brokers.

  1. 1Read the question and decide whether it tests the type of PMS, registration, the minimum investment, or PMS versus broking.
  2. 2If it is about who takes the decision, look for the word 'discretion' or 'consent'. Discretion means the manager decides. Consent means the client decides.
  3. 3If it is about registration, remember that a broker needs a separate SEBI portfolio manager registration.
  4. 4If it is about money, recall the minimum investment per client and check the unit (lakh, not crore).
  5. 5If it is about comparison, separate execution (broking) from decision-making (PMS), and individual portfolio (PMS) from pooled fund (mutual fund).
  6. 6Eliminate options that are extreme, such as 'broker can offer PMS without registration', then pick the one that fits the rule.

Quickest way: Who decides? Who is registered?

When to use it: Use when you have under a minute and the options look similar.

  1. Ask: who makes the trade decision? Manager means discretionary. Client approval means non-discretionary.
  2. Ask: is it just executing orders? Then it is broking, not PMS.
  3. Ask: does the firm hold a portfolio manager licence? If not, it cannot offer PMS.
  4. Match the number to the minimum investment rule if one is asked.

Common mistakes in Portfolio Management Services by Brokers

  • Thinking every stock broker can offer PMS.

    Both activities deal with securities, so they seem the same.

    Fix: Remember PMS needs its own SEBI registration as a portfolio manager.

  • Swapping discretionary and non-discretionary.

    The words sound similar and students rush.

    Fix: Discretion means the manager has freedom to decide. Non-discretionary means the client must approve each action.

  • Treating PMS as a pooled fund like a mutual fund.

    Both are professional management products.

    Fix: In PMS each client has a separate portfolio with securities in their own name.

  • Confusing brokerage with PMS fees.

    Both are charges paid to a securities firm.

    Fix: Brokerage is for executing trades. PMS fees are for managing the portfolio, and may be fixed, performance-based or a mix.

  • Mixing up the minimum investment amount, for example saying ₹5 lakh or ₹5 crore.

    Numbers are not revised in memory.

    Fix: Write the figure as ₹50 lakh per client and verify it in your workbook edition.

Worked examples

Example 1

A broker's PMS arm invests a client's funds in stocks of its own choice, without asking the client before each trade. Which type of PMS is this, and what must the broker have to offer it?

Show the solution
  1. The manager chooses stocks and trades without per-trade approval.
  2. This is the feature of discretionary PMS.
  3. Offering PMS is a separate activity from broking.
  4. So a SEBI registration as a portfolio manager is needed.

Answer: It is discretionary PMS, and the broker must hold a SEBI portfolio manager registration.

Example 2

Which statement correctly separates PMS from broking? (a) Both only execute orders (b) PMS involves managing the client's portfolio for a fee under an agreement, while broking executes orders for brokerage (c) PMS pools all client money into one scheme (d) Broking requires a portfolio manager licence

Show the solution
  1. Option (a) is wrong because PMS involves decisions, not only execution.
  2. Option (c) describes a mutual fund, not PMS.
  3. Option (d) is wrong because broking needs broker registration, not a portfolio manager licence.
  4. Option (b) states the PMS agreement, the management fee, and the execution role of broking correctly.

Answer: Option (b)

Exam tips

  • Questions often give a short scenario. Look for who takes the trade decision to name the type of PMS.
  • Expect a direct question on registration: PMS needs separate SEBI portfolio manager registration.
  • Learn the minimum investment figure and its unit. A wrong unit is a common trap option.
  • Under negative marking, skip only if you cannot remove two options. Rules like these usually allow quick elimination.

Practice questions from Other Services Provided by Brokers

Portfolio Management Services by Brokers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Portfolio Management Services by Brokers: frequently asked questions

Can a stock broker offer PMS without extra registration?

No. Portfolio management is a separate regulated activity. The broker needs registration as a portfolio manager with SEBI, in addition to its broker registration.

What is the difference between discretionary and non-discretionary PMS?

In discretionary PMS the manager decides and trades on the client's behalf under the agreement. In non-discretionary PMS the manager only advises, and the client must approve each transaction.

What is the minimum investment in PMS under SEBI rules?

The SEBI (Portfolio Managers) Regulations, 2020 set a minimum of ₹50 lakh per client. Check your current NISM workbook edition in case of changes.

How is PMS different from a mutual fund?

In PMS each client has an individual portfolio, with securities held in the client's name. A mutual fund pools money from many investors into one scheme.