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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Regulatory, Governance and Ethical Aspects of Portfolio Managers

A portfolio manager must follow which of the following regarding client funds under the SEBI Portfolio Managers Regulations?

Client funds must be held in a separate bank account kept apart from the portfolio manager's own funds. Segregation protects client assets and avoids conflicts of interest, so pooling with own money, proprietary use or lending between clients is not permitted.

  1. AClient funds may be pooled together with the portfolio manager's own funds for convenience
  2. BClient funds must be kept in a separate bank account, distinct from the portfolio manager's own fundsCorrect
  3. CClient funds may be used to fund the portfolio manager's proprietary trades if returns are shared
  4. DClient funds may be lent to other clients with their verbal consent

Explanation

Regulations require segregation of client money and securities from the portfolio manager's own money. Pooling, proprietary use or inter-client lending would create conflicts of interest and is prohibited.

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