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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 decides on the asset allocation for a client?

The first step is understanding the client's objectives, risk tolerance, time horizon and constraints. Every later decision, such as asset allocation, security selection, rebalancing and performance evaluation, is built on this client profile, so it must be established before any investment is made.

  1. ARebalancing the portfolio after market movements
  2. BEvaluating the performance against the benchmark
  3. CUnderstanding the client's objectives, risk tolerance and constraintsCorrect
  4. DSelecting individual securities for purchase

Explanation

The process starts with identifying the client's return objectives, risk tolerance, time horizon, liquidity needs and constraints, usually written in an investment policy statement. Asset allocation, security selection, rebalancing and evaluation all depend on this input, so they come later.

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