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

Which statement about the PMS agreement between a portfolio manager and a client is correct under SEBI rules?

The portfolio manager must execute a written agreement with the client that sets out the services, investment approach, fee structure and other terms. Oral arrangements are not permitted, and the manager cannot use client securities for its own borrowings.

  1. AThe portfolio manager may enter into the agreement orally if the client is an existing investor
  2. BThe agreement must be executed in writing and must contain the disclosed fee structure and terms of the servicesCorrect
  3. CThe agreement need not specify the investment approach
  4. DThe agreement may allow the portfolio manager to pledge client securities for its own borrowings

Explanation

A written agreement covering services, fees, investment approach and risks is mandatory. Oral agreements are not allowed, the investment approach must be stated, and using client assets for the manager's own borrowing is prohibited.

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