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

In the portfolio construction process for an individual client, which step logically comes immediately after the adviser has gathered the client's goals, risk profile and constraints?

After collecting the client's goals, risk profile and constraints, the adviser drafts the Investment Policy Statement. The IPS documents objectives and constraints and guides later asset allocation, security selection, rebalancing and performance measurement, so it must come before any securities are chosen.

  1. ADrafting the Investment Policy StatementCorrect
  2. BRebalancing the portfolio after a market fall
  3. CMeasuring the portfolio's Sharpe ratio
  4. DSelecting individual securities for purchase

Explanation

The client's objectives and constraints are formalised in an Investment Policy Statement (IPS), which then guides asset allocation and security selection. Security selection comes later, and rebalancing and performance measurement happen only after the portfolio is constructed.

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