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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Manager

Caselet: Mrs Iyer invests Rs 60 lakh in a discretionary PMS. The portfolio manager wishes to place part of her funds into units of a mutual fund run by its own group company. Which statement is correct under the Portfolio Managers Regulations?

Investing client funds in a group company's mutual fund is allowed only with the client's explicit consent and full disclosure of the conflict of interest. Discretionary status does not remove this requirement, and a blanket ban or a fund-type limit is not the rule.

  1. AIt is prohibited in all cases
  2. BIt is permitted only with the client's explicit consent and disclosure of the conflictCorrect
  3. CIt is permitted freely as discretionary PMS needs no consent
  4. DIt is permitted only if the mutual fund is a liquid fund

Explanation

Investment in group-company products raises a conflict of interest. The regulations require disclosure and the client's consent, so the manager cannot invest freely. It is not prohibited outright, and the type of fund is not the deciding condition.

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