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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process

Which of the following is a legal and regulatory constraint, rather than a return objective, that would be recorded in a client's Investment Policy Statement?

A restriction on holding the employer's shares because of insider trading rules is a legal and regulatory constraint. The other choices describe a return target, risk tolerance and a financial goal, which are objectives or risk attributes rather than constraints.

  1. ARestriction on holding shares of the client's employer company due to insider trading rulesCorrect
  2. BDesire to earn 12% p.a. on the portfolio
  3. CWillingness to accept a 15% fall in portfolio value
  4. DNeed to accumulate Rs 1 crore for retirement

Explanation

Constraints in an IPS include liquidity, time horizon, tax, legal and regulatory, and unique circumstances. Insider trading restrictions on the employer's shares are a legal constraint. The other options are a return objective, risk tolerance and a goal.

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