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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Operational Aspects of Portfolio Managers

Under SEBI's PMS regulations, which statement about the portfolio manager's handling of client funds in a discretionary PMS is correct?

Client funds must be kept in a separate bank account, and client securities must be held and accounted for separately for each client. Portfolio managers cannot mix client assets with their own or use them for proprietary trades or group companies, as segregation protects clients' assets.

  1. AClient funds may be pooled with the portfolio manager's own funds to reduce costs
  2. BClient funds must be kept in a separate bank account and securities held separately for each clientCorrect
  3. CClient securities may be freely lent to group companies of the manager
  4. DClient funds may be used for the manager's proprietary trades when the market is closed

Explanation

SEBI rules require segregation: client funds are held in a separate bank account, and each client's securities are registered or held in that client's name or separately identified. Pooling with the manager's funds or using them for proprietary or group purposes is prohibited.

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