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

Under the SEBI (Portfolio Managers) Regulations, which statement about a portfolio manager's use of derivatives for a discretionary client is generally correct?

A portfolio manager may use derivatives only within what SEBI regulations allow and what the client agreement and disclosure document specify, for example hedging or other permitted purposes. Use is neither banned outright nor free of disclosure, and it is not restricted to non-discretionary services.

  1. ADerivatives are prohibited in all PMS portfolios
  2. BDerivatives may be used only as permitted by the regulations and the client agreement, such as for hedging or other permitted purposesCorrect
  3. CDerivatives may be used without any disclosure to the client
  4. DDerivatives may be used only for non-discretionary services

Explanation

Portfolio managers may deal in derivatives only within the framework of the regulations and the investment approach agreed in the client agreement and disclosure document. They are not banned outright and must disclose the strategy, and use is not limited to non-discretionary services.

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