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

Under the SEBI (Portfolio Managers) Regulations, 2020, which statement about the custody of a PMS client's securities and funds is correct?

The portfolio manager must keep each client's funds and securities separately from its own, in client-specific accounts. Pooling them in its proprietary account or in directors' names breaches the regulations, and the rule applies equally to discretionary clients.

  1. AThe portfolio manager must keep the client's funds and securities in separate accounts for each client, distinct from its ownCorrect
  2. BThe portfolio manager may pool all clients' securities in its own proprietary demat account
  3. CThe portfolio manager may hold client securities in the name of its directors
  4. DThe portfolio manager need not maintain separate records if the client is discretionary

Explanation

Client funds and securities must be kept segregated from the portfolio manager's own and held in a separate account for each client. A custodian is also required to hold the securities. Pooling in a proprietary account or holding in directors' names breaches this rule, and discretionary clients get no exemption.

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