NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process
In the portfolio construction process followed by an investment adviser, which step logically comes immediately after gathering the client's information and determining the client's risk profile and investment objectives?
The Investment Policy Statement is drafted next. Once the client's objectives, constraints and risk profile are known, they are documented in the IPS, which then guides asset allocation, security selection, implementation, monitoring and rebalancing of the portfolio.
- ADrafting the Investment Policy StatementCorrect
- BRebalancing the portfolio
- CEvaluating the performance against the benchmark
- DExecuting trades in the market
Explanation
After the client's objectives, constraints and risk profile are understood, they are documented in an Investment Policy Statement (IPS). The IPS then guides asset allocation, security selection, implementation, monitoring and rebalancing. Rebalancing and performance evaluation occur only after a portfolio exists.
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