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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Role of Portfolio Managers

In a discretionary PMS, which statement correctly describes the portfolio manager's authority?

In discretionary PMS, the portfolio manager takes investment decisions on the client's behalf, individually and independently, within the terms of the portfolio management agreement. The client does not approve each trade, and securities are held in the client's own individual account.

  1. AThe manager needs client approval for each individual trade
  2. BThe manager may exercise investment discretion on behalf of the client, as per the portfolio management agreementCorrect
  3. CThe manager can only advise and the client must execute all trades
  4. DThe manager must pool the funds of all clients into a single scheme with a common NAV

Explanation

In discretionary PMS the manager independently decides the choice and timing of investments in the client's individual account, within the agreement. Requiring approval per trade describes non-discretionary service. Advising only describes advisory service. Pooling with a common NAV resembles a mutual fund, not a PMS where holdings are in the client's own name.

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