Q 1.

The SEBI Fraudulent and Unfair Trade Practices Regulations prohibit a person to,
directly or indirectly _________ securities in a fraudulent manner.
Buy
Sell
Deal
All of the above

CORRECT ANSWER

Explanation:

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations prohibit a person to, directly or indirectly buy, sell or deal in
securities in a fraudulent manner.
Q 2. Which of the following schemes have the features like 1) Continuous sale and
purchase of units at NAV or NAV related prices, 2) Investor can enter and exit the
scheme any time during the life of a fund, 3) The scheme does not have specific time
frame.
Interval scheme
Open ended scheme
Close ended scheme
All of the above

WRONG ANSWER
CORRECT ANSWER:

Open ended scheme

Explanation:

Open-ended funds allow the investors to enter or exit at any time, after the NFO. The
scheme does not have a maturity. Investors can buy additional units in the scheme
any time after the scheme opens for on-going transactions. Prospective investors can
also buy units. At any time, the existing investors can redeem their investments, that
is, they can sell the units back to the scheme to get their money back.

Close-ended funds have a fixed maturity.

Interval funds combine features of both open-ended and close-ended schemes. They
are largely close-ended but become open-ended at pre-specified intervals
Q 3. The counterparty risk in a futures contract is mitigated primarily through
__________.
The functions of the clearing corporation
Collateralisation by one of the parties to the contract
Settlement on gross basis between two parties
The limits on positions and trading volumes

WRONG ANSWER
CORRECT ANSWER:

The functions of the clearing corporation

Explanation:

The trades executed on the exchange are settled through a clearing corporation,
which acts as a counterparty and guarantees the settlement of the trades to both
buyers and sellers.

The clearing corporation provides full novation of contracts between buyers and
sellers, which means it acts as buyer to every seller and seller to every buyer. As a
result, the operational risk of the transaction is substantially reduced to a trading
investor.
Q 4. _________ is the central, national agency responsible for receiving, processing,
analysing and disseminating information relating to suspect financial transactions to
enforcement agencies.
SEBI
FIU-IND
CBI
RBI

WRONG ANSWER
CORRECT ANSWER:

FIU-IND

Explanation:

Financial Intelligence Unit - India (FIU-IND) is the central, national agency responsible
for receiving, processing, analysing and disseminating information relating to suspect
financial transactions to enforcement agencies and foreign FIUs.
 The portfolio manager is required to report any suspicious transaction within 7
working days to FIU.

Q 5. The feature that allows the issuing firms to retire the bonds before the maturity by
paying a prescribed price is called _______.
Convertibility
Redemption
Callability (call option)
Putability (put option)

WRONG ANSWER
CORRECT ANSWER:

Callability (call option)

Explanation:

A callable bond gives the issuer right to redeem all or part of the outstanding bonds
before the specified maturity date. Callable bonds are advantageous to the issuer of
the security. In other words, callable bonds present investors with a higher level of
reinvestment risk than non-callable bonds.

The issuer will call the bond before its maturity only when the interest rates for similar
bonds fall in market. The investor will receive the face value of the bond before the
maturity.

Q 6. An _________ is a broad outlay of the type of securities and permissible instruments

to be invested in by the portfolio manager for the customer, taking into account
factors specific to clients and securities.
Investment statement
Investment approach
Investment profile
Investment objectives

WRONG ANSWER
CORRECT ANSWER:

Investment approach

Explanation:
 The agreement between the portfolio manager and the client includes the investment
approach. An investment approach is a broad outlay of the type of securities and
permissible instruments to be invested in by the portfolio manager for the customer,
taking into account factors specific to clients and securities.

Q 7. ________ industries rise and fall and very closely follow the general economic
activity in comparison to other industries.
Financial
Cyclical
Consumer staples
Defensive

WRONG ANSWER
CORRECT ANSWER:

Cyclical

Explanation:

A cyclical industry is a type of industry that is sensitive to the business cycle, such
that revenues generally are higher in periods of economic prosperity and expansion
and are lower in periods of economic downturn and contraction.

Cyclical industries are attractive investments during the early stages of an economic
recovery. During the phase of recovery, consumer durable sectors such as producers
of cars, personal computers, refrigerators, tractors etc. become attractive
investments.

Q 8. The agreement between the portfolio manager and the client should include which
of the following?
investment approach, areas of investment and restrictions, if any, imposed by the
client with regard to the investment in a particular company or industry
period of the contract and provision of early termination, if any
the investment objectives and the services to be provided
All of the above

CORRECT ANSWER

Explanation:
 All of the above are included in the agreement.
Q 9. The SEBI (Mutual Funds) Regulations came in the year _______ .
1994
1996
1964
2000

WRONG ANSWER
CORRECT ANSWER:

1996

Explanation:

The SEBI (Mutual Funds) Regulations came in the year 1996.

Q 10. ________ portfolio manager manages the funds in accordance with the directions of
the client.
Discretionary
Non-discretionary
Advisory
All of the above

WRONG ANSWER
CORRECT ANSWER:

Non-discretionary

Explanation:

Non-discretionary portfolio manager manages the funds in accordance with the

directions of the client. The portfolio manager does not exercise his/her discretion for
the buy or sell decisions.

(Discretionary portfolio manager individually and independently manages the funds of

each investor as per the contract.)

Q 11. While making an application for a portfolio manager, financial information has to
be submitted for which of the three years?
Current and the next two years
 Preceding two years and the current year
Preceding 3 years
Succeeding three years

WRONG ANSWER
CORRECT ANSWER:

Preceding two years and the current year

Explanation:

Iformation has to be submitted for the Capital Structure : Paid-up capital & Free
Reserves for Year prior to the preceding year of current year, Preceding year, Current
Year.

Q 12. A reputed portfolio manager has deployed funds of a client with a corporate. The
corporate has promised that convertible bonds will be issued against these funds. Is
this transaction in order?
This is NOT in order as no physical delivery of the security has been made and this is
not permitted
This is NOT in order as this amounts to lending of the client's funds and this is not
permitted
This is in order as this style of investment is routine and approved
This is in order as eventually bonds will be issued to the PMS

WRONG ANSWER
CORRECT ANSWER:

This is NOT in order as this amounts to lending of the client's funds and this is not
permitted

Explanation:

As per SEBI's Do’s and Don’ts for the portfolio managers -

The portfolio manager shall not deploy the clients' funds in bill discounting, badla
financing or for the purpose of lending or placement with corporate or non-corporate
bodies.
Q 13. The time period restriction for a contra trade by a Designated Person of a company
is ______ .
One month
Three months
Six Months
Nine months

WRONG ANSWER
CORRECT ANSWER:

Six Months

Explanation:

The SEBI (Prohibition of Insider Trading) Regulations code of conduct shall specify
the period, which in any event shall not be less than six months, within which a
designated person who is a connected person of the listed company and is permitted
to trade in the securities of such listed company, shall not execute a contra trade.

Q 14. _______ is the threshold limit for the suspicious transactions for which record needs
to be kept as per the Money Laundering Act.
Rs. 5 Lakhs
Rs. 10 Lakhs
Rs. 25 Lakhs
Rs. 1 Crore

WRONG ANSWER
CORRECT ANSWER:

Rs. 10 Lakhs

Explanation:

As per Prevention of Money Laundering Act, 2002, a suspicious transaction includes :

All cash transactions of the value of more than Rs. 10 lakh or its equivalent in foreign
currency.

Q 15. Define the relationship between the prices of a bond and its yield.
Its always positive
 Its always inverse
Its positive when interest rates are falling
Its positive when interest rates are rising

WRONG ANSWER
CORRECT ANSWER:

Its always inverse

Explanation:

If market interest rate levels rise, the price of a bond falls. Conversely, if the market
interest rates decline, the price of the bond rises.

In other words, the yield of a bond is inversely related to its price

Q 16. A PMS has changed its main office address. This should be informed to ______ .
A. Financial Intelligence Unit – India (FIU)
B. SEBI
C. Clients
Only A and B
Only B and C
Only A and C
All A, B and C

WRONG ANSWER
CORRECT ANSWER:

Only B and C

Explanation:

The change in office address has to be informed to SEBI and the clients.

Its not to be informed to FIU as only suspicious transaction with respect to money
laundering etc. have to be reported to FIU.

Q 17. A reputed PMS firm has 5 group companies. Identify which among the following is
the best practice about disclosing these to the client.
The PMS firm has to disclose about the group companies only if there is a conflict of
 interest
The PMS firm need not disclose about the group companies
The PMS firm has to disclose about the group companies
The PMS firm need not disclose about the group companies as they are not above 10
in number

WRONG ANSWER
CORRECT ANSWER:

The PMS firm has to disclose about the group companies only if there is a conflict of
interest

Explanation:

If the portfolio manager has group companies, a disclosure of conflict of interest

related to services offered by group companies of the portfolio manager if any, has to
be mentioned in the disclosure document.

Q 18. Which of the following institutions can issue bonds in India ?

Financial Insstitutions
Banks
Corporates
All of the above

CORRECT ANSWER

Explanation:

In India, the fixed income market is classified on the basis of the entities issuing fixed
income securities. Fixed income securities are issued by legal entities such as the
Central and State Governments, Public Bodies, Banks and Institutions, statutory
corporations and other corporate bodies.

Q 19. The price of ABC Ltd. equity shares has reached its resistance line. As per technical
analysis, this is a good time to ______ .
Buy the shares of ABC Ltd.
Sell the shares of ABC Ltd.
Hold the shares of ABC Ltd.
 WRONG ANSWER
CORRECT ANSWER:

Sell the shares of ABC Ltd.

Explanation:

Technical analysis integrates these three elements into price charts - points of
support and resistance in charts and price trends.

If a stock price is moving closer to an established resistance level, a holder of the

stock can benefit by selling the share and booking profits at this stage since the
prices are likely to retract once it is close to the resistance level.

Q 20. Identify the TRUE statement with respect to an investor seeking to engage a
portfolio manager.
There is no need for an investor to understand anything about investing styles
An investor should pay attention to the major provisions of the investment contract
An investor has to depend on the distributors advice on the choice of a portfolio
manager
An investor only has to place trust in the portfolio managers approach to investing

WRONG ANSWER
CORRECT ANSWER:

An investor should pay attention to the major provisions of the investment contract

Explanation:

Portfolio Managers can be evaluated on the basis of their investment philosophy,

investment approach, investment process, strategies, styles and past performance
compared against a benchmark or managers’ universe. Attention can also be paid to
the major provisions in the contract with the portfolio managers.

Q 21. Identify the TRUE statement -

Sharpe ratio when multiplied by the downside Risk is called Sortiona ratio
Sortino ratio is excess returns per unit downside risk
Sortino ratio is the excess returns per unit of total risk
Sortino ratio and Sharpe ratio both measures the same excess returns
 WRONG ANSWER
CORRECT ANSWER:

Sortino ratio is excess returns per unit downside risk

Explanation:

When we calculate portfolio’s return in excess of the risk-free return and divide the
excess return by the portfolio’s standard deviation, this risk adjusted return is called
Sharpe ratio.

For computing Sortino Ratio, portfolio’s return in excess of the risk-free return is
divided by the portfolio’s semi-standard deviation. Thus, Sortino Ratio adjusts
portfolio’s excess return to the downside risk.

Like Sharpe and other risk adjusted return ratio, higher level of Sortino Ratio indicates
superior performance.

Q 22. Which type of compensation is not embedded in the nominal risk free rate?
Compensation for liquidity
Compensation for time lapsation
Compensation for postponing consumption
Compensation for inflation

WRONG ANSWER
CORRECT ANSWER:

Compensation for liquidity

Explanation:

Investment is the commitment of rupee for a period of time to earn :

a) pure time value of money – for investors postpone their current consumption

b) compensation for expected inflation during the period of investment for the change
in the general price levels and
 c) risk premium for the uncertainty of future payments

Q 23. The fund which is established to facilitate and organize the investment of the
retirement funds contributed by the employees and employers is known as ______ .
Public Provident Fund
Pension Fund
Retirement Fund
Mutual Fund

WRONG ANSWER
CORRECT ANSWER:

Pension Fund

Explanation:

Pension Funds: A fund established to facilitate and organize the investment of the
retirement funds contributed by the employees and employers.

The pension fund is a common asset pool meant to generate stable growth over the
long term, and provides a retirement income for the employees.

Q 24. Identify the TRUE statement with respect to P/E Ratio (Price Earning Ratio).
P/E Ratio is the market determined earnings of a company
P/E Ratio is the market determined price of a company’s equity
P/E Ratio is the market perceived earnings growth rate of a company
P/E Ratio is the market’s willing investment for every 1 rupee of earnings of the
company

CORRECT ANSWER

Explanation:

A stock's P/E tells us how much investor is willing to pay per rupee of earnings.

In other words, a P/E ratio of 10 suggests that investors in the stock are willing to pay
Rs. 10 for every Re. 1 of earnings that the company generates.
Q 25. ______ as a factor is recognized by RBI Act 1934 to derive the value of a derivative.
Interest Rate
Inflation Rate
 Index of industrial production
GDP Growth rate

WRONG ANSWER
CORRECT ANSWER:

Interest Rate

Explanation:

The term derivative has also been defined in section 45U(a) of the RBI act 1934 as
follows: An instrument, to be settled at a future date, whose value is derived from
change in interest rate, foreign exchange rate, credit rating or credit index, price of
securities (also called “underlying”), or a combination of more than one of them and
includes interest rate swaps, forward rate agreements, foreign currency swaps,
foreign currency-rupee swaps, foreign currency options, foreign currency-rupee
options or such other instruments as may be specified by RBI from time to time.

Q 26. Which of these is NOT contained in the Investment policy statement ?

Financial Regulations
Investment roadmap
Investors risk appetite
Investment constraints

WRONG ANSWER
CORRECT ANSWER:

Financial Regulations

Explanation:

Development of Investment Policy Statement (IPS) is the key step in the process of
portfolio management. IPS is the road map that guides the investment process.

Either investors or their advisors draft the IPS specifying their investment objectives,
goals, constraints, preferences and risks they are willing to take. All investment
decision are based on IPS considering investors’ goal and objectives, risk appetite
etc..

Q 27. A net amount of Rs 10,000 has to be paid to an investor as interest. The TDS (Tax
Deducted at Source) is 10%. Calculate how much should be set aside for the
 payment of interest?
Rs. 12,111.12
Rs. 10,000
Rs. 11,111.11
Rs. 9000

WRONG ANSWER
CORRECT ANSWER:

Rs. 11,111.11

Explanation:

The formula to get Net from Gross after tax is -

Net = Gross – (Gross X Tax)

[Let Gross = G]

[Tax is 10% = 10/100 = 0.1}

Net amount is Rs 10000

10000 = G – (G x 0.1)

10000 = G – 0.1 G

[ 1G - 0.1G = .9G]

10000 = .9G

G = 10000/.9 = 11,111.11

Q 28. Identify the CORRECT statement with respect to Foreign Currency Convertible
bonds (FCCB).
FCCBs are equity shares convertible into bonds
In FCCBs, the payment of interest and principal is in domestic currency
FCCBs are foreign currency denominated equity certificates issued by firms
FCCBs are foreign currency denominated debt certificates issued by firms

CORRECT ANSWER
 Explanation:

FCCBs are foreign currency (usually dollar) denominated debt raised by companies in
international markets but which have the option of converting into equity shares of the
company before they mature.

The payment of interest and repayment of principal is in foreign currency.

Q 29. As per which regulations is the KYC compliance been made mandatory?
RBI Act 1934
SEBI (Portfolio managers) Regulations 1996
SEBI(Portfolio managers) Regulations 2020
Prevention of Money Laundering Act 2002

CORRECT ANSWER

Explanation:

The ‘Know Your Customer (KYC)’ process has to be undergone by all investors of
PMS in compliance with the regulations of the Prevention of Money Laundering Act,
2002.

In order to ensure that illegal funds are not routed into Indian markets, the
government has promulgated the Prevention of Money Laundering Act (PMLA).

Q 30. Ms. Preeti invested in the US and she earned 18% on that US investment. If the US
Dollar depreciates during this investment period then the return in INR terms will
be _______ .
More than 18%
Less than 18%
Remain at 18%
None of the above

WRONG ANSWER
CORRECT ANSWER:

Less than 18%

Explanation:
 Lets take an example to understand this : - USD depreciating against INR means the
value of USD falls against INR. Say from Rs 75 to Rs 74.

When Ms. Preeti invetsed in USD, she invested at USDINR rate of 75 but when she
sold and converted into Indian rupees, it will be at Rs 74. So she gets a lower return.

Q 31. Identify the statement which is NOT true regarding the organization of Portfolio
Manager?
The legal existence of a Portfolio Manager should be separate from its promoters
A Micro credit institution under co-operative societies act cannot be a Portfolio
Manager
A one person company can also be a Portfolio Manager
A Portfolio Manager is to be promoted by a Scheduled commercial bank

CORRECT ANSWER

Explanation:

Organizational structure of PMS in India :

A portfolio manager is a body corporate who, pursuant to a contract or arrangement with a

client, advises or directs or undertakes on behalf of the client, the management or
administration of a portfolio of securities or the funds of the client.

A body corporate means any entity that has its separate legal existence apart from the persons
forming it. It can be a one person company. It cannot be a co-operative society registered under
any law relating to co-operative societies.

It’s not necessary that it should be promoted only by a scheduled commercial bank.

Q 32. What type of disciplinary action can be taken as per the SEBI (Prohibition of
Insider Trading) Regulations?
Wage freeze
Recovery
Suspension
All of the above

CORRECT ANSWER

Explanation:
 As per SEBI (Prohibition of Insider Trading) Regulations 2015, Clause 12 (B) - Without
prejudice to the power of the Board under the Act, the code of conduct shall stipulate
the sanctions and disciplinary actions, including wage freeze, suspension, recovery,
clawback etc., that may be imposed, by the intermediary or fiduciary required to
formulate a code of conduct under sub-regulation (1) and sub-regulation (2) of
regulation 9, for the contravention of the code of conduct.

Any amount collected under this clause shall be remitted to SEBI for credit to the
Investor Protection and Education Fund administered by SEBI under the SEBI Act.
Q 33. The currency pair of ________ does not have futures or options trading on Indian
stock exchanges.
JPY-INR
USD-INR
Chinese Yuan – INR
EUR-INR

WRONG ANSWER
CORRECT ANSWER:

Chinese Yuan – INR

Explanation:

In India, Currency Derivatives are available on four currency pairs viz. US Dollars
(USD-INR), Euro (EUR-INR), Great Britain Pound (GBP-INR) and Japanese Yen (JPY-
INR).

Q 34. Mr. Mehta's initial contribution is Rs. 2 crores which then rises to Rs. 2 crores 30
lakhs in the first year. Therefore, a performance fee will be payable on Rs. 30 lakhs.
Is this statement True or False?
True
False

WRONG ANSWER
CORRECT ANSWER:

True

Explanation:
 High Water Mark is the highest value that the portfolio/account has reached. The
portfolio manager charges performance based fee only on increase in portfolio value
in excess of the previously achieved high water mark.

Q 35. Identify the INCORRECT statement with respect to Unsystematic risk.

Unsystematic risk is diversifiable risk
Unsystematic risk is sector specific risk
Unsystematic risk is unavoidable risk
Unsystematic risk is expected to be nil in a portfolio investment

WRONG ANSWER
CORRECT ANSWER:

Unsystematic risk is unavoidable risk

Explanation:

Risks due to sector specific/company specific factors is referred as unsystematic

risks. For eg. A company suffering huge losses due to fire in its factory.

Unsystematic risk is also known as a diversifiable risk since it can be eliminated by

sufficiently diversifying a portfolio.

These risks are avoidable by not investing only in a particular sector or company buy
by having a diversified large portfolio.

Q 36. Identify which of these statement(s) is / are true with respect to Unlisted equity
investments.
Unlisted equity is relatively illiquid
Pricing of Unlisted equity is sporadic
Pricing of Unlisted equity includes a discount for illiquidity
All of the above

CORRECT ANSWER

Explanation:

Pricing of investment in unlisted space is not continuous. It is performed at regular

intervals or when the need for the same arises for buying or selling. Since these
investments do not trade in stock exchange, they are relatively less liquid in
 comparison to listed investments. Hence, investors may demand an extra
compensation for the same called “illiquidity risk premium”. Buying and selling of
unlisted investments takes longer time compared to the listed investments.
Q 37. The nominal rate of return protect the investors from inflation risk. Comment on
this statement.
Yes, it definitely protects
No, it definitely does not protects
Yes, it probably protects
Can' say

WRONG ANSWER
CORRECT ANSWER:

No, it definitely does not protects

Explanation:

The nominal risk-free rate of return is the rate of return, an investor is certain of
receiving on the due date. Investor is certain of the amount as well as the timing of the
return. Hence, it is the risk-free rate of return.

As can be seen, it ignores the potential change in the purchasing power of rupee due
to inflation. There is no guarantee that rupee will have the same purchasing power a
year from now that it has today.

Q 38. Identify the distinguishing feature of a body corporate?

A body corporate should have minimum 10 shareholders
A body corporate should have issued equity shares
A body corporate should be an independent legal entity separate from its owners
A body corporate should be listed on a recognised stock exchange

WRONG ANSWER
CORRECT ANSWER:

A body corporate should be an independent legal entity separate from its owners

Explanation:

Body corporate broadly means a corporate entity which has a legal existence. A body
corporate means any entity that has its separate legal existence apart from the
 persons forming it. It enjoys a completely different legal status apart from its
members.

In simple terms, the term body corporate includes a private company, public
company, one persona company, small company, Limited Liability Partnerships,
foreign company etc.

Q 39. Identify which of these is an essential element of Technical Analysis?

Prices follow a pattern
Time span is an indication of Trend sustenance
A good volume indicates strength in Trend
All of the above

CORRECT ANSWER

Explanation:

As per technical analysis - There are three essential elements in understanding price
behaviour:

1. The history of past prices provides indications of the underlying trend and its
direction. 2. The volume of trading that accompanies price movements provides
important inputs on the underlying strength of the trend. 3. The time span over which
price and volume are observed factors in the impact of long term factors that
influence prices over a period of time.

Q 40. Identify the true statement with respect to registration of a Portfolio Management
Service.
The Principal officer is required to have a valid degree from any discipline
If the applicant is from United States of America, then the networth requirement is
relaxed
The principal officer should have experience of at least five years in related activities
in the securities market
PMS registration and approval can now be done online

WRONG ANSWER
CORRECT ANSWER:

The principal officer should have experience of at least five years in related activities in
the securities market
 Explanation:

Before issuing a certificate of PMS registration, the regulator will ensure whether:

The principal officer of the applicant has -

a) a professional qualification in finance, law, accountancy or business management

from a university or an institution recognized by the Central Government or any State
Government or a foreign university or a CFA charter from the CFA institute;

b) experience of at least five years in related activities in the securities market

including in a portfolio manager, stock broker, investment advisor, research analyst or
as a fund manager; and

c) the relevant NISM certification as specified by SEBI from time to time

Q 41. Identify which of these is not a cost of investing in a PMS?

Franking charges
Brokerage charges
Listing Fee
Registrar Fee

WRONG ANSWER
CORRECT ANSWER:

Listing Fee

Explanation:

Some of the charges charged to a PMS client include - Brokerage and transaction
costs, Registrar and Transfer agent fee, charges payable for outsourced professional
services like franking charges and notarizations, etc. incurred on behalf of the client
by the portfolio manager.

(Listing fee is paid by a company to the stock exchange to get its share listed for
trading on the stock exchange).
Q 42. The application for registering as a Portfolio Management Service has to be made in
_______ of SEBI Portfolio Managers regulations.
Form A of Schedule II
Form B of Schedule I
Form A of Schedule I
Form B of Schedule III
 WRONG ANSWER
CORRECT ANSWER:

Form A of Schedule I

Explanation:

To act as a portfolio manager, obtaining certificate of registration from SEBI under the
Portfolio Managers Regulations is a mandatory requirement.

The application needs to be made in Form A of Schedule I.

Q 43. It is correct that the 'long term correlation pattern between two asset classes does
not change over times'?
A. Yes, the statement is correct as their cashflow patterns do not change
B. No, the statement is incorrect as the macroeconomic factors and investor
preference change
Only A is correct
Only B is correct
Both A and B are correct
Neither A nor B are correct

WRONG ANSWER
CORRECT ANSWER:

Only B is correct

Explanation:

Correlation measures the strength and direction of relationship between two

variables. Correlations among asset class returns can and do change over time and
in different economic situations. Asset return correlation in future may also differ from
those observed in the past because of changing economic and market regimes.
Q 44. Identify the CORRECT statement with respect to the charge of performance fee by
the portfolio manager.
The performance fee is charged when the portfolio value exceeds the previous high
water mark
The performance fee is charged only when the rate of return on a portfolio exceeds a
‘hurdle rate’
 Both of the above
None of the above

WRONG ANSWER
CORRECT ANSWER:

Both of the above

Explanation:

Profit sharing/performance related fees are usually charged by portfolio managers

upon exceeding a hurdle rate or benchmark as specified in the agreement.

High Water Mark is the highest value that the portfolio/account has reached. The
portfolio manager charges performance based fee on increase in portfolio value in
excess of the previously achieved high water mark.

Q 45. Identify the TRUE statement with respect to Bonds.

The Face value of a bond and its Market value are always same
There cannot be embedded options in bonds
Some type of bonds need not be repaid
All bonds create a ownership right in a company

WRONG ANSWER
CORRECT ANSWER:

Some type of bonds need not be repaid

Explanation:

Perpetual bonds have no maturity date.

Perpetual bonds are fund-raising instruments that do not carry any maturity date as
bonds usually do. Instead, they offer to pay their buyers a coupon or interest at a fixed
date for perpetuity.

While the principal amount in such bonds is never really due for repayment, issuers
do attach a call option. So, at the end of a specific term, say five or 10 years from the
issue date, the issuers can buy back the bonds from the investors. Investors can also
use the secondary market as a means of exit in the case of traded perpetual bonds.
Q 46. The prime motto of portfolio attribution analysis is ___________ .
To find out the differential return generated due to the skill of the portfolio manager
To find out to what extent individual firms contribute to portfolio returns
To find out to what extent sectoral returns contribute to portfolio returns

WRONG ANSWER
CORRECT ANSWER:

To find out the differential return generated due to the skill of the portfolio manager

Explanation:

The underlying theme behind various attribution analysis approaches is to dissect the
return into majorly two components: return driven by the benchmark and the
differential return.

And then identifying and quantifying the sources of differential return to primarily
establish whether it was driven by skill of the portfolio manager or some random
factors.

Q 47. Before SEBI issues the certificate of registration to a PMS, it has to ensure that the
applicant has appointed :
A. Compliance Officer
B. Principal Officer
C. Atleast one person who is graduate from a university etc. recognized by Central
or State Government and has atleast 2 years experience in securities market related
activities
Only A and B are correct
Only B and C are correct
Only A and C are correct
All A, B and C are correct

CORRECT ANSWER

Explanation:

Before issuing a certificate of registration, the regulator will ensure whether -

In addition to the Principal Officer and Compliance Officer, the PMS applicant has in
its employment at least one person who has a graduation from a university or an
 institution recognized by the Central Government or any State Government or a
foreign university; and an experience of at least two years in related activities in the
securities market including in a portfolio manager, stock broker, investment advisor
or as a fund manager.

Q 48. When is a Call Option said to be Out of the Money (OTM)?

When the Market price is lower than strike price
When the Market price is equal to OTC price
When the Market price is equal to strike price
When the Market price is higher than strike price

WRONG ANSWER
CORRECT ANSWER:

When the Market price is lower than strike price

Explanation:

Out of the money option is one with strike price worse than the spot / market price for
the holder of option. In other words, this option would give the holder a negative cash
flow if it were exercised immediately.

A call option is said to be OTM, when spot price is lower than strike price. And a put
option is said to be OTM when spot price is higher than strike price.

Q 49. An investor wants to invest for some near term goals and he does not have much
tolerance for variation. In this case the investment universe should be restricted to
_____ .
Dividend paying blue chip shares
Top rated long duration fixed income securities
Government Bills
Mid and Small cap funds

WRONG ANSWER
CORRECT ANSWER:

Government Bills

Explanation:
 Near-Term High Priority Goals have a high emotional priority which the investor
wishes to achieve within just a few years at most.

As a result, investment vehicles for these goals tend to be either cash equivalents or
fixed-income instruments with maturity dates that match the goal date like
Government Bills.
Q 50. As per SEBI regulations, ______ is the minimum limit value of funds or securities
that can be accepted from a client by a PMS
Rs. 25 Lakhs
Rs. 50 Lakhs
Rs. 1 crore
Rs. 1.5 crore

WRONG ANSWER
CORRECT ANSWER:

Rs. 50 Lakhs

Explanation:

Portfolio management services are regulated by SEBI under Portfolio Manager

Regulations.

As per the rules - The portfolio manager is required to accept minimum Rs. 50 lakhs or
securities having a minimum worth of Rs. 50 lakhs from the client while opening the
account for the purpose of rendering portfolio management service to the client.