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

Under SEBI's PMS framework, which statement about a portfolio manager's use of derivatives for a client is correct?

Use of derivatives for a client is allowed only when the PMS agreement permits it and it fits the client's mandate and the disclosed investment approach. It is neither banned outright nor allowed without the client's agreement, because the manager must act within agreed terms.

  1. AIt is allowed only if the PMS agreement permits it and it is in line with the client's mandateCorrect
  2. BIt is always allowed irrespective of the agreement
  3. CIt is prohibited in all circumstances
  4. DIt is allowed only for discretionary clients on the manager's own account

Explanation

Portfolio managers must act within the investment approach and the terms agreed in the client agreement. Derivatives can be used only where the agreement and the disclosed approach allow it. They are not prohibited outright, nor allowed without the client's consent.

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