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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 Portfolio Managers' obligation relating to client funds and securities under SEBI regulations is correct?

Client funds and securities must be kept separate from the portfolio manager's own funds and securities. This segregation protects investors, so pooling money, lending it to other clients or pledging client holdings for the manager's own borrowing is prohibited.

  1. AClient funds may be pooled with the portfolio manager's own funds for convenience
  2. BClient funds and securities must be kept separate from the portfolio manager's own funds and securitiesCorrect
  3. CClient funds may be lent to other clients if returns are higher
  4. DClient securities can be pledged by the portfolio manager in its own name for its borrowing

Explanation

SEBI requires portfolio managers to keep each client's funds and securities segregated from their own and to maintain separate accounts for clients. Pooling, lending to other clients or pledging securities for the manager's borrowing would breach this fiduciary requirement.

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