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 asset allocation decision is made?
The investment policy statement comes first. It records the client's objectives, risk tolerance and constraints, and it guides the later steps of asset allocation, security selection, monitoring, rebalancing and performance evaluation.
- APreparing the investment policy statement based on the client's objectives and constraintsCorrect
- BRebalancing the portfolio after market movements
- CEvaluating the performance against the benchmark
- DSelecting individual securities for purchase
Explanation
The process starts with understanding the client and documenting objectives, risk tolerance and constraints in an investment policy statement. Asset allocation, security selection, rebalancing and performance evaluation follow it. Selecting securities first would ignore the client's needs.
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