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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 normally comes first, before the portfolio manager selects the securities to be held?

The first step is preparing the client's investment policy statement that records objectives, risk tolerance, horizon and constraints. Asset allocation, security selection, implementation, rebalancing and performance evaluation all follow from this foundation, so they cannot logically come first.

  1. APreparing the client's investment policy statement covering objectives, risk tolerance and constraintsCorrect
  2. BRebalancing the portfolio after a market fall
  3. CComparing returns with the benchmark
  4. DChoosing the brokers for executing trades

Explanation

The process starts with understanding the client: objectives, risk tolerance, time horizon, liquidity needs and constraints are recorded in an investment policy statement. Asset allocation and security selection follow. Rebalancing and performance comparison happen only after a portfolio exists.

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