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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Taxation (NISM XXI-A)

A PMS client's portfolio holds listed equity shares for which the portfolio manager has regularly sold some holdings. Which statement best describes how the classification of gains as short-term or long-term is done?

Each security is classified separately by its own holding period, from purchase to sale. The PMS account opening date, a portfolio average, or the manager's discretion does not decide whether a gain is short-term or long-term.

  1. AThe classification is based on the holding period of each security separately, from its purchase date to its sale dateCorrect
  2. BThe classification is based on the date the client opened the PMS account for the whole portfolio
  3. CThe classification is decided by the portfolio manager at the end of the financial year
  4. DThe classification is based on the average holding period of the whole portfolio

Explanation

Capital gain classification is security-specific. Each security's holding period runs from its acquisition to its transfer, and this determines whether the gain is short-term or long-term. The account opening date or portfolio averages have no role.

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