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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Portfolio Management Process

In the portfolio management process, which step is carried out first, before the portfolio manager selects securities for a client?

The first step is preparing an investment policy statement that records the client's objectives, risk tolerance, time horizon and constraints. Only after this are asset allocation, security selection, implementation, monitoring, rebalancing and performance evaluation carried out, since they all depend on the client's profile.

  1. APreparing an investment policy statement based on the client's objectives, risk tolerance and constraintsCorrect
  2. BRebalancing the portfolio after market movements
  3. CEvaluating the performance of the portfolio against the benchmark
  4. DExecuting trades through the broker

Explanation

The process begins with understanding the client and documenting objectives, risk tolerance, time horizon and constraints in a policy statement. Asset allocation, security selection, implementation, monitoring and performance evaluation follow. Rebalancing and evaluation can only occur after a portfolio exists.

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