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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 best describes the portfolio manager's obligation regarding the client's funds under SEBI rules?

The portfolio manager must keep client funds and securities separate from its own and hold client money in a separate bank account. Mixing, proprietary use or pledging for its own needs is prohibited as a breach of its fiduciary duty.

  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 those of the portfolio manager, with a separate bank account for client fundsCorrect
  3. CClient securities may be pledged freely to raise the manager's working capital
  4. DClient funds may be used for the manager's proprietary trades if returned within a week

Explanation

Portfolio managers must keep client funds and securities segregated from their own and maintain a separate client bank account. Pooling, using funds for proprietary trading or pledging client assets for the manager's own needs would breach fiduciary duties and the rules.

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