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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 specific securities for a client?

The first step is understanding the client's objectives, risk tolerance, horizon and constraints and framing an investment policy. Only after this can the manager decide asset allocation and select securities. Execution, rebalancing and performance measurement all happen later in the process.

  1. ARebalancing the portfolio after market movements
  2. BUnderstanding the client's objectives, risk tolerance and constraints, and framing an investment policyCorrect
  3. CMeasuring the performance against the benchmark
  4. DExecuting trades through the broker

Explanation

The process begins with knowing the client's return objectives, risk appetite, time horizon, liquidity needs and constraints, which are documented in an investment policy. Asset allocation, security selection, execution, monitoring and performance evaluation follow. Rebalancing and performance measurement come only after a portfolio exists.

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