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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 offers a discretionary PMS. Which of the following is a requirement for such a portfolio manager regarding client funds and securities?

A portfolio manager must keep client funds and securities separate from its own and maintain client-wise accounts and records. Mixing them, pooling without records, or using them for group companies would violate SEBI requirements designed to protect client assets from misuse.

  1. AClient funds may be pooled with the portfolio manager's own funds for easier dealing
  2. BClient funds and securities must be kept separate from the portfolio manager's own funds and securities, with individual client accounts maintainedCorrect
  3. CClient securities may be lent to group companies for earning extra income
  4. DClient securities may be held in a single common account without client-wise records

Explanation

SEBI rules require segregation of client money and securities from the portfolio manager's own, with client-wise accounts and records. Pooling with own funds, common accounts without client records, or lending to group entities would breach this requirement and expose clients to misuse risk.

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