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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Regulatory, Governance and Ethical Aspects of Portfolio Managers

Under the SEBI (Portfolio Managers) Regulations, 2020, a portfolio manager wants to invest a discretionary client's funds in the securities of its own associate company. Which statement is correct?

Investing discretionary client funds in securities of an associate company is allowed only within SEBI-prescribed limits and with proper disclosure to the client. It is neither unrestricted nor absolutely banned, and hiding it from the client would breach conflict-of-interest and disclosure obligations.

  1. AIt is freely permitted without any limit
  2. BIt is prohibited entirely in all situations
  3. CIt is subject to the limits prescribed by SEBI, including a cap on investment in securities of associates or related parties, and needs disclosure to the clientCorrect
  4. DIt is allowed if the client is not informed to avoid bias

Explanation

Investments in associates or related parties are permitted only within SEBI's prescribed limits and with disclosure, to manage conflicts. They are not freely permitted, not wholly banned, and concealment from the client would violate disclosure norms.

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