NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
Under SEBI's rules for portfolio managers, which statement about use of derivatives for a discretionary PMS client is generally correct?
Derivatives may be used in a PMS portfolio only when the client agreement and investment approach permit it and SEBI regulations allow it. They are neither freely usable nor banned outright, since the manager must act within the agreed mandate.
- ADerivatives may be used only if permitted by the client agreement and applicable regulationsCorrect
- BDerivatives may be used freely regardless of the agreement
- CDerivatives are prohibited in all PMS portfolios
- DDerivatives may be used only for non-discretionary clients
Explanation
A portfolio manager must invest as per the investment approach and the terms of the agreement with the client, within SEBI regulations. Derivative use is therefore not unrestricted nor banned outright; it depends on the permitted mandate.
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