Q 1. Which of the following is a step in the portfolio management process?

Study current financial and economic conditions

Develop a policy statement
Construct the portfolio
All of the above

WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

Portfolio management process involves a set of integrated activities undertaken in a

logical, orderly and consistent manner to create and maintain optimum portfolio. All of
the above are steps in this process.

Q 2. Which of the following is the requirement for granting the certificate of registration
under Portfolio Managers Regulations 2020?
The applicant has the necessary infrastructure like adequate office space, equipment
and the manpower to effectively discharge the activities of a portfolio manager
The applicant is a body corporate
The applicant has appointed a compliance officer
All of the above

WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

All the above are requirements for granting the certificate of registration under
Portfolio Managers Regulations.
Q 3. Which of the following entities can invest in PMS?
Hindu Undivided Family
Individuals
Non-resident Indians (as per the RBI guidelines)
All of the above
 WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

All of the above can invest in PMS.

The following entities can invest in PMS: • Individuals • Non-resident Indians (as per
the RBI guidelines) • Hindu Undivided Family • Proprietorship firms • Association of
person • Partnership Firms • Limited liability Partnership • Trust • Body Corporate.

Q 4. Typical putability (put option) feature of a bond _________.

Gives the holder the right, under certain circumstances to sell the bond back to the
issuer
Gives the bond holders the option to convert the bond into another security, typically
the common stock of the firm issuing the convertible bonds
Allows the issuing firms to retire the bonds before the maturity by paying a prescribed
price
Allows the investor to redeem the bond

CORRECT ANSWER

Explanation:

A put provision gives the bondholders right to sell the bond back to the issuer at a
predetermined price on specified dates. Putable bonds are beneficial for the
bondholder by guaranteeing a pre-specified selling price at the redemption dates.
Q 5. Government securities carry practically no risk of________ and, hence are called
risk-free or gilt-edged instruments.
Liquidity
Tradability
Negotiability
Default

WRONG ANSWER
CORRECT ANSWER:

Default
 Explanation:

G-Secs ie. Government Securities carry practically no risk of default as they are
guaranteed by the Government of the country and, hence, are called risk-free gilt-
edged instruments.

Q 6. _______ ratio compares the price of the stock to the earning it generates.
P/B Ratio
Price/sales ratio
Price/Cash flow ratio
P/E ratio

WRONG ANSWER
CORRECT ANSWER:

P/E ratio

Explanation:

The most common stock valuation measure used by analysts is the price to earnings
ratio, or P/E.

For computing this ratio, the stock price is divided by the Earning Per Share (EPS)
figure.

Q 7. ________ was inserted in the Income Tax Act, 1961 to provide a ‘safe harbour’ to
overseas funds availing fund management services from India based managers
Section 11 C
Section 42
Section 9 A
Section 12 D

WRONG ANSWER
CORRECT ANSWER:

Section 9 A
 Explanation:

In the Union Budget 2015- 16, the Finance Minister announced amendments in the
Income Tax Act, 1961. These changes were aimed at developing and promoting fund
management industry in India. Section 9A was inserted in the Income Tax Act, 1961 to
provide a ‘safe harbour’ to overseas funds availing fund management services from
India based managers, provided the fund and the manager comply with the
requirements specified in the section.

Section 9A of the Income-tax Act, 1961 provides that in case an eligible investment
fund, established or incorporated or registered outside India, collects funds from its
members and invests in India then such fund shall not be deemed to have a business
connection nor will be regarded as resident in India just because fund management
activity is carried out through a eligible fund manager located in India.

Q 8. Under relative valuation techniques, value of a stock is estimated based upon its
current price relative to variables considered to be significant in valuation, such as
__________.
Cash Flow
Book Value
Earnings
All of the above

WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

Relative valuation is conducted by identifying comparable firms and then obtaining

market values of equity of these firms. These values are then converted into
standardized values which are in form of multiples, with respect to any chosen metric
of the company’s financials, such as earnings, cash flow, book values or sales.

These multiples are then applied to the respective financials of the target company for
valuation.
Q 9. In India, the Central Government issues __________.
Dated Securities
Treasury bills
Both of the above
Certificate of deposit
 WRONG ANSWER
CORRECT ANSWER:

Both of the above

Explanation:

In India, the Central Government issues both, treasury bills and bonds or dated
securities while the State Governments issue only bonds or dated securities.

Q 10. ________ represent ownership in a company that entitles its holders to participate in
its profits and the right to vote on the company’s affairs.
Equity Shares
Commercial Papers
Bonds
All of the above

CORRECT ANSWER

Explanation:

Equity Shares represent ownership in a company that entitles its holders a share in
profits and the right to vote on the company’s affairs. Equity shareholders are residual
owners of firm’s profit after other contractual claims on the firm are satisfied and have
the ultimate control over how the firm is operated.

Equity Shareholders are residual claim holders. Investments in equity shares reward
investors in two ways: dividend and capital appreciation.
Q 11. Which of these expense can be included under Operating Expenses?
Courier Charges
Audit fees
Fee for Portfolio manager’s services
Brokerage charges

CORRECT ANSWER

Explanation:

Operating expenses that can be charged to PMS - Charges in connection with day to
day operations like courier expenses, stamp duty, document franking charges, notary
charges, service tax, other statutory levies, postal and telephone expenses, opening
 of bank, trading and demat accounts and any other out of pocket expenses incurred
by the portfolio manager, on behalf of the client.

Q 12. Which of these document is mandatory for investment in PMS as per SEBI
(Portfolio Managers) Regulations?
Aadhar Card
PAN Card
Savings Bank Passbook
Passport

WRONG ANSWER
CORRECT ANSWER:

PAN Card

Explanation:

The KYC process also requires verification of the PAN card. It is mandatory for all
investors who wish to invest in PMS to complete KYC formalities.

Q 13. Which of these risks are NOT related to the risk factors that are to be revealed as
part of the disclosure document given to the client?
The risks arising due to the investment approach of PMS
The business risks of the group companies of the PMS
The risks arising due to Non-Diversification
Market Risks

WRONG ANSWER
CORRECT ANSWER:

The business risks of the group companies of the PMS

Explanation:

The disclosure document contains details with respect to –

1. Risk arising from the investment approach, investment objective, investment

strategy and asset allocation
 2. Risk arising out of non-diversification, if any

3. Statement to the effect that securities investments are subject to market risks etc

(Details of business risk of group companies is not required to be mentioned in

disclosure document)
Q 14. Mr. Karan is an investor and he has a good amount of surplus in his saving bank
account. What can you make out from this statement?
It is the income of Mr. Karan
It is the future expenses of Mr. Karan
It may be the savings of Mr. Karan
It is an investment of Mr. Karan

WRONG ANSWER
CORRECT ANSWER:

It may be the savings of Mr. Karan

Explanation:

Savings is basically the difference between money earned and money spent. The
money in the savings account is the savings of the investor. It cannot be called an
investment as investment is the process of making the savings work to generate
return – eg. Investing in a Mutual fund etc.

It is common to use the terms Savings and Investment interchangeably. However, they
are not one and the same. Saving is just the difference between money earned and
money spent. Investment is the current commitment of savings with an expectation of
receiving a higher amount of committed savings. Investment involves some specific
time period. It is the process of making the savings work to generate return.

Q 15. How is the Net Worth of an individual investor calculated?

Financial assets - Financial liabilities
Tangible assets - Tangible liabilities
All Assets - All Liabilities
All Assets - Current Liabilities

WRONG ANSWER
CORRECT ANSWER:

All Assets - All Liabilities

 Explanation:

For calculating net worth, all the assets the investor owns, i.e. the house, the car, the
investments in stocks, bonds & mutual fund, balance in the saving accounts etc. are
to be recorded at the estimated market value. Then all the liabilities need to be
subtracted from the assets . Liabilities may include the outstanding car loan amount,
credit card loans, home etc.,. The difference between the value of assets and the
liability is Net worth.
Q 16. What is the fixed amount that is paid at regular intervals till the maturity of a bond
known as ?
Principal
Coupon
Interest
Installment

WRONG ANSWER
CORRECT ANSWER:

Coupon

Explanation:

Bonds create fixed financial obligations on the issuers, so they are referred as fixed
income securities.

The issuer of a bond agrees to 1) pay a fixed amount of interest (known as coupon)
periodically and 2) repay the fixed amount of principal (known as face value) at the
date of maturity.

Q 17. Who appoints the Compliance Officer in a PMS firm?

The Portfolio Manager
SEBI
Both SEBI and the Portfolio Manager in consultation

CORRECT ANSWER

Explanation:

As per SEBI rules - Every Portfolio Manager shall appoint a compliance officer who
shall be responsible for monitoring the compliance of the Act, rules and regulations,
notifications, guidelines, instructions etc., issued by SEBI or the Central Government
 and for redressal of investors' grievances. The compliance officer shall immediately
and independently report to SEBI any non- compliance observed.
Q 18. _________ is one of the statutory cost to the investor while engaging PMS.
Registrars fees
Auditors fees
Brokerage charges
Notary charges

WRONG ANSWER
CORRECT ANSWER:

Notary charges

Explanation:

Statutory Charges means any charge imposed by state or federal government

legislation.

Notary fees are payable to the notary public at a local court / Sub-registrar office to get
a deed / documents notarised.

Q 19. While doing the due diligence for selecting a portfolio manager, an investor should
be careful and not fall in which of these traps?
If a portfolio manager is continuously beating the benchmark then this is a adequate
indicator of the investment strategy
The best indicator of a portfolio managers future performance is the past performance
Both of the above
None of the above

WRONG ANSWER
CORRECT ANSWER:

Both of the above

Explanation:

Past performance or beating the bench mark should not be the only criteria as
selecting a portfolio manager is a complex process. It involve analysing lot more than
just returns. Investors are expected to carry out a detailed due diligence process
before selecting their portfolio managers. Due diligence involves thorough
 quantitative and qualitative analysis of the portfolio manager’s reputation, key
personnel and operations.

Investors should understand the investment process, investment strategies, investing

styles to appreciate how the investment returns are generated and gauge the
likelihood of the performance persisting in future for the given investment process.

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.

Q 20. Which among these is NOT a valid classification of a portfolio management service
provider ?
Commodity PMS
Forex PMS
Equity PMS
Fixed income PMS

WRONG ANSWER
CORRECT ANSWER:

Forex PMS

Explanation:

Portfolio management services can be classified on the basis of product class such
as –

1. Equity based PMS 2. Fixed Income based PMS 3. Commodity PMS 4. Mutual Fund
PMS 5. Multi Asset based PMS

There is no product class such as Forex PMS.

Q 21. Ms. Seema is a eligible fund manager and she has a disagreement with an overseas
fund regarding parking of investible funds. According to the overseas fund, they are
not allowed to park their funds in scheduled Indian commercial banks. Can you
guide them.
The overseas fund is allowed to park their funds in Indian scheduled commercial
banks with a permission from SEBI on a case to case basis
The overseas fund is NOT allowed to park their funds in Indian scheduled commercial
banks as per Chapter II A guidelines of SEBI
The overseas fund is allowed to park their funds in Indian scheduled commercial
 banks, however they would be deemed to have a business connection with India, under
section 9A of Income Tax Act, 1961
The overseas fund is allowed to park their funds in Indian scheduled commercial
banks if they do not want to invest in Indian markets

WRONG ANSWER
CORRECT ANSWER:

The overseas fund is allowed to park their funds in Indian scheduled commercial banks if
they do not want to invest in Indian markets

Explanation:

As per SEBI (Portfolio Managers) Regulations - Obligation and Responsibilities of

Eligible Fund Managers : An eligible fund manager shall be required to keep the funds
of eligible investment funds in scheduled commercial banks - Provided the
requirement of compliance with this sub-regulation would not arise in case an eligible
investment fund does not intend to invest in Indian securities.
Q 22. As per Chapter V of SEBI (Intermediaries) Regulations, 2008, the period for which
a portfolio manager would be prohibited from taking any new assignment (in case of
default) is ______ .
Minimum 2 years
Minimum 5 years
Minimum 7.5 years
Unspecified

WRONG ANSWER
CORRECT ANSWER:

Unspecified

Explanation:

As per Chapter V the SEBI (Intermediaries) Regulations, 2008 - action in case of

default:

 Prohibiting the portfolio manager to take up any new assignment or contract or

launch a new scheme for the period specified in the order

(The period of suspension will be mentioned in the SEBI order)

Q 23. On what does the Risk and Return of a portfolio depend upon?
A. It depends upon the covariance of return of each pair of securities in the portfolio
B. It depends upon the proportion of investment in each constituent security
 Only A
Only B
Both A and B
Neither A nor B

WRONG ANSWER
CORRECT ANSWER:

Both A and B

Explanation:

The returns from a portfolio and its risks depends on various factors. The proportion
of investment in various securities and the covariance of return of each pair are two
important factors.

(Covariance is a statistical measure of how one investment moves in relation to

another)
Q 24. What type of action can be taken by SEBI in case of default by a portfolio manager?
A. It can prohibit the portfolio manager from launching a new scheme
B. It can issue a warning to the portfolio manager
C. It can suspend the certificate of registration of the portfolio manager
Both A and B
Both B and C
Both A and C
All A, B and C

WRONG ANSWER
CORRECT ANSWER:

All A, B and C

Explanation:

The portfolio manager who contravenes any of the provisions of the SEBI Act, rules or
regulations shall be liable including the action under Chapter V of the SEBI
(Intermediaries) Regulations, 2008.

Chapter V the Securities and Exchange Board of India (Intermediaries) Regulations,

2008 includes the following actions in case of default:
 1) suspension of certificate of registration for a specified period; 2) cancellation of
certificate of registration; 3) prohibiting the portfolio manager to take up any new
assignment or contract or launch a new scheme for the period specified in the order;
4) debarring a principal officer of the portfolio manager from being employed or
associated with any registered intermediary or other registered person for the period
specified in the order; 5) debarring a branch or an office of the portfolio from carrying
out activities for the specified period; 6) warning the portfolio manager.

Q 25. A client has suffered a loss which is greater than the value of assets with a PMS.
How is the client protected in such a case?
In case of a non-discretionary portfolio manager the client will be completely
protected
If the agreement contains a limited liability clause then the client is protected in case
of discretionary portfolio manager
Both of the above are true
None of the above is true

WRONG ANSWER
CORRECT ANSWER:

If the agreement contains a limited liability clause then the client is protected in case of
discretionary portfolio manager

Explanation:

The agreement between the Portfolio manager and the client includes various clauses
and one of them is -

'In case of a discretionary portfolio manager; a condition that the liability of a client
shall not exceed his investment with the portfolio manager'.

(The discretionary portfolio manager individually and independently manages the

funds of each investor whereas the non-discretionary portfolio manager manages the
funds in accordance with the directions of the investors)
Q 26. When will the Portfolio Manager appoint a Custidian?
When it is offering fund management services to a Foreign Portfolio Investor
When it is offering advisory services to a domestic investor
When it is offering advisory services to a Foreign Portfolio Investor

CORRECT ANSWER

Explanation:
 When a Portfolio Manager is providing only advisory services, it will not appoint a
Custodian. When it is providing fund management services, to domestic or foreign
clients, it has to appoint a Custodian.
Q 27. The Asset Allocation decision explains _______ .
A significant percentage of variability of broadly diversified portfolios
A larger percentage of variation in Single fund Returns
Both of the above
None of the above

WRONG ANSWER
CORRECT ANSWER:

Both of the above

Explanation:

As per the findings by Ibbotson, Roger G., and Paul D. Kaplan (2000), suggesting that
a portfolio’s investment policy is an important contributor to return variability.

Across all portfolios, asset allocation decision explains an average of 40 percent of

the variation in fund returns. For a single fund, asset allocation explain 90 percent of
the fund’s variation in returns over time.

Q 28. Which type of equity can be offered to investors in the Accumulation Phase?
Zero Beta Equity
Low Beta Equity
High Beta Equity
Equity with Beta = 1

WRONG ANSWER
CORRECT ANSWER:

High Beta Equity

Explanation:

Accumulation Phase: In this phase, the individual has a very long time horizon and a
potentially growing income stream, so he can undertake more high-return, high-risk
 capital gain-oriented investments. Therefore the investor can invest in high beta
equity.

Beta relates the return of a stock or a portfolio to the return on market index. It reflects
the sensitivity of the fund’s return to fluctuations in the market index. A beta that is
greater than one means that the portfolio or stock is more volatile than the benchmark
index, while a beta of less than one means that the security is less volatile than the
index.

Q 29. What type of strategy is a company following if it is positioning it self as an unique

one in the industry?
Black swan
Differentiation
Blue ocean
Cost leadership

WRONG ANSWER
CORRECT ANSWER:

Differentiation

Explanation:

Michael Porter suggests two major competitive strategies of companies : Cost

Leadership and Differentiation.

Cost Leadership: Under this strategy the firm seeks to be the low-cost producer, and
hence the cost leader in its industry. Cost advantages vary from industry to industry.

Differentiation Strategy: Under this strategy, the firm positions itself as unique in the
industry. Again the possibilities of differentiation differ from industry to industry.

Q 30. ________ is not like a traditional bond.

Zero coupon bond
Convertible bond
Corporate bond
Government bond

WRONG ANSWER
CORRECT ANSWER:
 Convertible bond

Explanation:

A convertible bond is not like a normal interest paying/adjusting bond.

A convertible bond is a combination of a plain vanilla bond plus an embedded equity

call option. It gives the bondholder the right to exchange the bond for a specified
number of common shares of the issuing company.

Q 31. Which valuation metric is appropriate to value a firm belonging to a industry which
thrives on high volume and low margin model?
Price Earnings Ratio
Price / Book Value Ratio
Price / Sales Ratio
Price / Current Assets Ratio

WRONG ANSWER
CORRECT ANSWER:

Price / Sales Ratio

Explanation:

The Price-to-sales (P/S) ratio is calculated by taking a company's market capitalization

and divide it by the company's total sales.

In case of companies not earning profits yet, or companies in high volume - low
margin businesses instead of earning based ratios, investors can look at the P/S ratio
to determine whether the stock is undervalued or overvalued.
Q 32. In a discretionary PMS, a client cannot impose which of the following condition /
restriction?
The type of securities in which investment can be made
Market timing for buying/selling the securities
The investment approach
The industry sector in which investments cannot be made

WRONG ANSWER
CORRECT ANSWER:
 Market timing for buying/selling the securities

Explanation:

Discretionary portfolio manager individually and independently manages the funds of

each investor as per the contract. This could be based on an existing investment
approach or strategy which the portfolio manager is offering or can be customized
based on client’s requirement.

The clients requirement can include the type of investment approach, sectors/
industries in which not to invest etc. but the client cannot specify the market timing to
buy/sell.

Q 33. Identify the true statement(s) -

Performance Attribution Analysis is the correct way to decide the amount of
performance fee that can be charged by a portfolio manager
Performance Attribution Analysis identifies whether a portfolio has outperformed the
benchmark or it has not outperformed the benchmark in terms of risk-return metrics
Both of the above
None of the above

WRONG ANSWER
CORRECT ANSWER:

Performance Attribution Analysis identifies whether a portfolio has outperformed the

benchmark or it has not outperformed the benchmark in terms of risk-return metrics

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 34. An investor has deposited Rs 50 lakhs with a fund manager. Out of this, only Rs. 35
lakhs was invested and this earned Rs. 3,40,000. How much return did the investor
effectively earn?
9.71%
8.33%
 6.8%
5.7%

WRONG ANSWER
CORRECT ANSWER:

6.8%

Explanation:

The investor has deposited Rs 50 lakhs. So the effective return has to be calculated on
the total amount deposited

Return on Investment = Net Return on Investment / Cost of Investment ?×100%?

= 3,40,000 / 50,00,000 x 100%

= 6.8%

Q 35. Identify the INCORRECT statement with respect to Currency Risk.

Currency risk can increase the realized return on a foreign investment
Currency risk can decrease the realized returns on a foreign investment
Currency risk is covered by the returns generated on foreign investments
Currency risk arises due to unpredictability in exchange rate

WRONG ANSWER
CORRECT ANSWER:

Currency risk is covered by the returns generated on foreign investments

Explanation:

The fluctuations in currency values can either enhance or reduce the returns
associated with foreign investments. This is called currency risk. This risk arises due
to the unpredictability in exchange rates.

Returns on foreign investments can never be covered by currency risk.

Q 36. ______ is not considered a part of Rebalancing cost.

Stamp duty levied
 Brokerage cost
Securities Transaction Tax (STT)
PMS fees payable

WRONG ANSWER
CORRECT ANSWER:

PMS fees payable

Explanation:

There are two types of cost in rebalancing – transaction cost and tax cost. Transaction
costs is the time and money costs like research cost, brokerage etc., for buying and
selling securities. Tax costs include the Securities transaction tax, Stamp duty etc.

PMS fees is not a part of Rebalancing Cost.

Q 37. Which of these incomes will NOT be earned by a PMS client?
Interest income
Capital gains from sale of business
Dividend income
Capital gains from sale of securities

WRONG ANSWER
CORRECT ANSWER:

Capital gains from sale of business

Explanation:

A PMS Client can earn:

• Income from dividend on shares and units of mutual funds

• Income from interest on Fixed Income Securities

• Short-term and/or long-term capital gains on sale of Securities

• Business Income from purchase and sale of Securities if gains are categorized as
business income.
Q 38. An investor has a limited and low means of income. Which of these goals should he
give a low priority?
Buying a house for his own residence
Buying a health insurance
Buying a Multi Utility Vehicle
Providing for children higher education

WRONG ANSWER
CORRECT ANSWER:

Buying a Multi Utility Vehicle

Explanation:

When a person has low income, then there are some goals which will have a low
priority. There are goals that are not particularly painful if they are not achieved. These
could range from buying a farm house to a luxury car.

Q 39. Clause 12(B) of Schedule III of SEBI (Portfolio Managers) Regulations relate to
______ .
It relates to Speculative and Risk trading
It relates to Insider trading
It relates to Institutional trading by foreign institutions
It relates to Proprietary trading

WRONG ANSWER
CORRECT ANSWER:

It relates to Proprietary trading

Explanation:

The Code of conduct for the portfolio manager is specified in the Schedule III of the
SEBI PMS Regulation.

Clause 12 (A) and 12(B) state that -

12. (A) A portfolio manager or any of its employees shall not render, directly or
indirectly any investment advice about any security in the publicly accessible media,
 whether real-time or non-real time, unless a disclosure of his long or short position in
the said security has been made, while rendering such advice.

(B) In case an employee of the portfolio manager is rendering such advice, he shall
also disclose the interest of his dependent family members and the employer
including their long or short position in the said security, while rendering such advice
Q 40. There are several benefits of economies of scale for a mutual fund. Which of these is
NOT a benefit of economies of scale for a mutual fund?
Providing all required information
Negotiating better terms with brokers
Costs on investment research
Engaging professional managers

CORRECT ANSWER

Explanation:

Pooling of large sums of money from many investors makes it possible for the mutual
fund to engage professional managers for managing investments. Individual investors
with small amounts to invest cannot, by themselves, afford to engage such
professional management. Large investment corpus leads to various other economies
of scale.

For instance, costs related to investment research and office space gets spread
across investors. Further, the higher transaction volume makes it possible to
negotiate better terms with brokers, bankers and other service providers.

Q 41. A company's market beta is 1.25 and the risk free rate is 6 percent. What is the
estimated equity return as per CAPM if the market risk premium in the country is 9
percent ?
17.25%
9%
21%
23.5%

CORRECT ANSWER

Explanation:

As per Capital Asset Pricing Model (CAPM) , the required return on a security or
portfolio is computed as:

Required return = Rf + β (Rm – Rf)

 Rf = Risk free return, β = Beta of the security/portfolio , (Rm – Rf) : Market risk
premium

Substituting, we get

Required return = 6 + 1.25 (9)

= 6 + 11.25

= 17.25%

Q 42. What are the bonds known as which are issued by Government Agencies?
Government Bonds
Public Sector Bonds
Agency Bonds
Public Securities

WRONG ANSWER
CORRECT ANSWER:

Public Sector Bonds

Explanation:

Government Agencies / Statutory Bodies and Public Sector Undertakings issue Public
Sector Bonds.

(Central or State Governments issue Government bonds)

Q 43. For which category / categories of FPIs is Section 9A of the Income Tax Act 1961
NOT applicable?
Category I FPIs only
Category II FPIs only
Both of the above
None of the above

CORRECT ANSWER

Explanation:

Some of the conditions mentioned in Section 9A of the Income Tax Act are not
applicable to an investment fund set up by the Government or the Central Bank of a
 foreign State or a sovereign fund or Category I FPI registered under SEBI (FPI)
Regulations, 2019.

Q 44. What does ‘Up front’ mean under the PMS regulations?
A Portfolio Manager will not charge any fees first and then calculate the total return
generated on the fund
A Portfolio Manager will not deduct his fees before he distributes the benefits to the
client
A Portfolio Manager will not charge any amount of performance fee as wished
A Portfolio Manager will not charge any fees at beginning before providing any
service to client

WRONG ANSWER
CORRECT ANSWER:

A Portfolio Manager will not charge any fees at beginning before providing any service
to client

Explanation:

As provided in Regulation 22 (11) of the PMS Regulations, no upfront fees shall be

charged by the Portfolio Managers, either directly or indirectly, to the clients.

Q 45. _______ is the top most attribute while choosing a comparable benchmark index.
Number of securities
Investment approach
Blue chips in the index
Measurability of performance

WRONG ANSWER
CORRECT ANSWER:

Investment approach

Explanation:

GIPS(Global Investment Performance Standards)- defines Benchmark as an

independent rate of return (or hurdle rate), forming an objective test of the effective
implementation of investment strategy.
 It is a standard or point of reference. It is a collection of investment opportunities or
securities or risk factors which represent the investment characteristics and
investment approach of the portfolio being evaluated against it.

Q 46. _______ can be a day count convention in the Fixed Income markets of the world.
Actual/Actual
Actual/365
Actual/360
All of the above

WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

In the money market the day count convention followed is actual/365, which means
that the actual number of days in a month is taken for number of days (numerator)
whereas the number of days in a year is taken as 365 days.

Hence, in the case of T-Bills, which are essentially money market instruments, money
market convention is followed. In some countries, participants use actual/actual, some
countries use actual/360 while some use 30/actual.

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 five person who are graduate from a university recognized by Central or
State government and has atleast 2 years experience in securities market related
activities
All A, B and C
Only A and B
Only B and C
Only A and C

WRONG ANSWER
CORRECT ANSWER:

Only A and B
 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. Mr. Soham is a fund manager and he has invested the funds in two stocks A and B
in the ratio 6 : 4 respectively. The beta of stock A is 1.2 and the beta of stock B is 0.6.
Calculate the Portfolio Beta.
1.74
0.96
0.42
1.09

WRONG ANSWER
CORRECT ANSWER:

0.96

Explanation:

The funds have been invested in the ratio of 6 : 4 in stocks A and B. So the share of
stock A is 60% ie. 0.6 and stock B is 40% ie. 0.4

The beta of Stock A is 1.2 and stock B is 0.6

Portfolio Beta = (0.6 X 1.2) + (0.4 X 0.6)

= 0.72 + 0.24

= 0.96
Q 49. Is it correct for the PMS to execute Off-Market transactions in the clients account?
Yes, when it is required for providing margin for client’s own positions
Yes, when it is for dealing in unlisted securities
Yes, when it is for settlement of client’s own trades
All of the above
 WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

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

The portfolio manager shall not execute off market transfers in client’s account
except: (a) for settlement of the clients’ own trades; (b) for providing margin/ collateral
for clients’ own positions; (c) for dealing in unlisted securities in accordance with the
regulations; (d) with specific consent of the client for each transaction; (e) for any
other reason specified by SEBI from time to time.

Q 50. ________ of a Futures Contract is not decided on the date of entry into the contract.
The maintenance margin
The discounting rate
The quality of the asset to be exchanged
The quantity of the asset to be exchanged

WRONG ANSWER
CORRECT ANSWER:

The discounting rate

Explanation:

In a futures contract the quality, the quantity, the margins, the time etc are all decided
in advance. There is no discounting rate in futures contract.

(Maintenance margin is the minimum amount that must be maintained at any given
time in your account while trading in futures)

(The discount rate is the interest rate used to determine the present value of future
cash flows in a discounted cash flow analysis.)