Q 1. A client has deposited an amount with a portfolio manager.

The portfolio
manager has decided to invest some amount in Mutual Funds units through
a direct plan and has charged a Distribution Fee to the client. Is this correct
as per SEBI's Do's and Don'ts for Portfolio Managers?
Yes, this is correct as it is could be as per the agreement between client and
the portfolio manager
Yes, this is correct as it is a fund management related charges
No, this is not correct as portfolio managers cannot invest in units of mutual
funds
No, this is not correct as charging a distribution fee is not permitted as per
SEBI (Portfolio Managers) Regulations.

WRONG ANSWER
CORRECT ANSWER:

No, this is not correct as charging a distribution fee is not permitted as per SEBI (Portfolio
Managers) Regulations.

Explanation:

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

The portfolio manager while investing in units of mutual funds through direct
plan shall not charge any kind of distribution related fees to the client.

Q 2. Various business information is asked for in the application for registration

as Portfolio Manager. Identify the INCORRECT statement in this respect.
The application form asks for the various forecasting models used for
investment research
The application form asks for the database facilities for research
The application form asks for the accounting systems followed
The application form asks for the grievance redressal mechanism used

WRONG ANSWER
CORRECT ANSWER:

The application form asks for the various forecasting models used for investment research

Explanation:
 To act as a portfolio manager, obtaining certificate of registration from SEBI
under the Portfolio Managers Regulations is a mandatory requirement. The
Application form asks for various information and the information required
under ‘Business Information’ includes :

1. Describe Accounting system followed for Portfolio Management

Services.
2. Details of grievance redressal and dispute resolution mechanism to be
followed by the Portfolio Manager
3. Indicate various research and database facilities provided

It does not ask for – ‘Various forecasting models adopted for investment
research’

Q 3. The ___________ characteristic of an asset provides a good basis for

selection of various asset classes.
Risk-Return Profile
Time to Maturity
Yield
Price of the asset

WRONG ANSWER
CORRECT ANSWER:

Risk-Return Profile

Explanation:

Investors’ objectives are identified in relation to risk-return. Investors may

state their investment objectives in terms of desired return. They need to bear
in mind that risk and return have typically positive relationship. Higher the
risk, higher the return.

Asset allocation decision is a very important investment decision. ‘Investment

Policy Statement’ forms the basis for strategic asset allocation which is
essentially an interaction between investors risk-return requirements and
expected investments’ return.

Q 4. A CALL OPTION is said to be Out of the Money (OTM) when the market
price is ______ .
 higher than strike price
equal to strike price
equal to OTC price
lower than strike price

WRONG ANSWER
CORRECT ANSWER:

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 5. Which income of a Non-Resident Indian id NOT TAXED in India?

Income which is received in India
Income which is accrued in India
Income which is deemed to be accrued in India
Income which is arising outside India

WRONG ANSWER
CORRECT ANSWER:

Income which is arising outside India

Explanation:

In case of a non-resident assessee being an individual, HUF, firm, company or

other person, following incomes shall be taxable in India:

a) Income received or is deemed to be received in India by such person in the

previous year; and
 b) Income accrues or arises or is deemed to accrue or arise to such person in
India during such year.

Thus, if the income is arising outside India, it will not be taxable in India.

Q 6. An investors portfolio has a Beta of -1.4 (Negative 1.4). If the market

portfolio gives a 10 percent return, the investors portfolio returns will be
_____ .
The investors portfolio returns will increase by 14%
The investors portfolio returns will decrease by 14%
The investors portfolio returns will increase by 40%
The investors portfolio returns will decrease by 40%

WRONG ANSWER
CORRECT ANSWER:

The investors portfolio returns will decrease by 14%

Explanation:

A negative Beta correlation would mean an investment that moves in the

opposite direction from the stock market.

Here the Portfolio Beta is -1.4 and the Market is up by 10%

-1.4 x 10%

= -1.4 x .1

= - 0.14

In percentage terms - 0.14 x 100 = -14 %

Q 7. The disclosures which are made by a Portfolio Manager to the regulators are
________ .
Directional
Optional
Mandatory
 Voluntary

CORRECT ANSWER

Explanation:

Portfolio managers are required to make mandatory disclosure to regulatory

bodies under various acts and regulation.

This includes disclosures to SEBI and Financial Intelligence Unit – India.

Q 8. ___________ is a permissible deduction out of income from interest as per

Income Tax Act.
Brokerage which is paid to buy the securities
Premium which is paid to buy the securities
The interest paid on the loan taken to buy the securities
Discount when the bonds are redeemed

WRONG ANSWER
CORRECT ANSWER:

The interest paid on the loan taken to buy the securities

Explanation:

As per Income Tax Act :

The interest paid on loans taken to acquire shares is to be treated as a period

cost and consequently as a deductible expense.

Q 9. A ___________ is a trust that pools the savings of a number of investors who

share a common financial goal.
Bank
Custodian
Mutual Fund
Depository

CORRECT ANSWER
 Explanation:

Mutual fund is a vehicle (in the form of a “trust”) to mobilize money from
investors, to invest in different markets and securities, in line with stated
investment objectives.

SEBI (Mutual Fund) Regulations, 1996 define “mutual fund” as “a fund

established in the form of a trust to raise monies through the sale of units to
the public or a section of the public under one or more schemes for investing
in securities including money market instruments or gold or gold-related
instruments or real estate assets.”

Q __________ marked the beginning of PMS when SEBI issued SEBI (Portfolio
10. Managers) Regulations.
January 1999
January 2010
January 1993
January 2020

WRONG ANSWER
CORRECT ANSWER:

January 1993

Explanation:

January 1993, marked the beginning of Portfolio Management Service when

SEBI issued Securities and Exchange Board of India (Portfolio Managers)
Regulations, 1993. These were one of the first few regulations issued by the
regulators.

Q ________ was inserted in the Income Tax Act, 1961 to provide a ‘safe
11. 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 Which of the following is essential for the public issue of a debt security?
12.
The debt instruments must be credit rated
The debt instruments should have a minimum coupon specified
The debt issue size should be greater than Rs. 5000 Crs
The debt issuer must stand as guarantor for the payment of principal and
interest

WRONG ANSWER
CORRECT ANSWER:

The debt instruments must be credit rated

Explanation:

In India, as far as public issue of debt is concerned, regulations by the SEBI

and Reserve Bank of India make it mandatory for the issuers to obtain a credit
rating.

Default risk can be assessed by tracking the credit rating of an investment.

 Credit rating agencies assign credit ratings after carrying out a detailed
analysis of the issuer’s financial ability to honour the payments on time.

Q Financial assets are generically classified into two broad categories -

13.
Equity & gold
Debt & Equity
Bonds and deposits
Real estate & gold

CORRECT ANSWER

Explanation:

Broadly, investments can be classified into financial or non-financial

investments. Non-financial investments include real estate, gold, commodities
etc. Financial Investments are exchange of cash flows for a period of time.

Financial instruments are essentially claims on future cash flows. On the basis
of claims on the cash flows, there are two generic types of financial
instruments—debt and equity.

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

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

15.
1994
1996
1964
2000

WRONG ANSWER
CORRECT ANSWER:

1996

Explanation:

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

Q Which of the following is considered to be an investment objective?

16.
Current income
Capital preservation
Capital appreciation
All of the above

WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

Investment objectives refer to the financial goals that investors aim to achieve
when investing their money. The main investment objectives include:

Current Income: Many investors seek regular income from their investments,
 such as through dividends or interest payments.

Capital Preservation: This objective focuses on protecting the principal

amount of the investment from losses.

Capital Appreciation: This objective aims to increase the value of the

investment over time, generating capital gains.

Q Under what circumstances are portfolio managers permitted to conduct off-

17. market transfers?
To meet settlement obligations and margin calls
To conduct trades for speculation
For investments in assets outside SEBI's regulatory scope
To enable free transfers between client portfolios

CORRECT ANSWER

Explanation:

Off-market transfers by Portfolio Managers are restricted under SEBI

regulations. They are only allowed under specific circumstances, such as:

 Settlement of trades
 Meeting margin requirements with exchanges or clearing corporations

Off-market transfers by portfolio managers are typically permitted for specific

operational purposes, such as meeting settlement obligations or margin
requirements. These transfers are conducted in a regulated manner and are
not meant for speculative trading, free transfers between clients, or investing
in non-SEBI-regulated assets.

Q What are the key responsibilities of an investment manager in an

18. Infrastructure Investment Trust (InvIT)?
Handles asset acquisition and management
Serve as the trustee for the Infrastructure Investment Trust
Acts as the InvIT's distributor
Offers financial backing exclusively, excluding asset management

WRONG ANSWER
CORRECT ANSWER:
 Handles asset acquisition and management

Explanation:

In Infrastructure Investment Trusts (InvITs), the Investment Manager plays a

crucial role in:

Acquiring Infrastructure Assets - Identifies and evaluates assets for inclusion

in the InvIT portfolio.

Managing Investments - Ensures the assets generate stable cash flows and
maximize investor returns.

Overseeing Operations - Manages day-to-day operations, maintenance, and

revenue generation of the infrastructure assets.

Compliance & Reporting - Ensures regulatory compliance as per SEBI InvIT

Regulations and reports performance to investors.

Q Correlation is a vital statistical tool in portfolio management because it

19. reflects which factor?
The potential appreciation of the investment's value
The extent to which risk can be diversified
The investment's anticipated liquidity
Expected profitability of the investment

WRONG ANSWER
CORRECT ANSWER:

The extent to which risk can be diversified

Explanation:

Correlation measures the degree to which two assets move in relation to each
other. In portfolio management, it is a key metric because:

- Low or negative correlation between assets enhances diversification,

reducing overall portfolio risk.

- High correlation means assets tend to move together, limiting diversification

 benefits.

Q What are the implications of a PMS portfolio's value dropping below its
20. previous high watermark?
The PMS manager must liquidate all holdings
Performance fees will not be charged unless the portfolio surpasses it's
previous high water mark
The PMS manager can still charge performance fees
Investors incur additional fees to cover the decline

CORRECT ANSWER

Explanation:

In Portfolio Management Services, the high watermark (HWM) ensures that

performance fees are only charged on NEW PROFITS. If the portfolio’s value
declines after reaching a new high watermark, the portfolio manager cannot
charge performance fees until the portfolio surpasses its previous HWM.

Q What is the effect of rising inflation when the nominal interest rate stays the
21. same?
There is an increase in the real rate of return
There is an increase in the required rate of return
There is a decline in the real rate of return
There is a reduction in the risk premium

CORRECT ANSWER

Explanation:

The real rate of return is the nominal rate of return adjusted for inflation. It is
calculated as:

Real Rate of Return = Nominal Rate of Return − Inflation Rate

If inflation increases while the nominal rate remains constant, the real rate of
return decreases because inflation erodes the purchasing power of the
returns.
 For example - If the nominal rate is 8% and inflation increases from 3% to 5%,
the real rate of return decreases from 5% (8% - 3%) to 3% (8% - 5%).

Q The primary source of income for Equity ReITs is ________ .

22.
Interest received on real estate loans it has given
Brokerage received by broking in real estate assets
Rent received on the commercial real estate properties it owns
Capital gains from stock market by trading in real estate stocks

CORRECT ANSWER

Explanation:

Equity Real Estate Investment Trusts (Equity REITs) primarily own and
manage income-generating real estate properties such as office buildings,
malls, apartments, and industrial spaces. Their core business model is to
collect rent from tenants.

Q What financial condition demonstrates an investor's capacity for regular

23. investments?
When the regular income is greater than financial liabilities
When the financial assets are greater than regular income
When the financial assets are greater than financial liabilities
When the regular income is greater than expenses

WRONG ANSWER
CORRECT ANSWER:

When the regular income is greater than expenses

Explanation:

Financial assets greater than regular income : Not necessarily relevant. Having
more assets than income does not indicate a steady cash flow for periodic
investments.

Financial assets greater than financial liabilities : This indicates financial

 stability but does not directly relate to periodic investment capability.

Regular income greater than financial liabilities : This indicates the ability to
cover liabilities but does not necessarily mean extra funds for investing
regularly.

Regular income greater than expenses : This means the investor has surplus
income (disposable income), which can be invested periodically.

Q A portfolio manager cannot _________ .

24.
Collect fees from investors for fund management
Handle investor investments in a discretionary role
Execute security transactions within investor-set parameters
Manage client funds independently in a non discretionary role

WRONG ANSWER
CORRECT ANSWER:

Manage client funds independently in a non discretionary role

Explanation:

In a Non-Discretionary PMS, the Portfolio Manager can only suggest

investment opportunities, but the client must approve every transaction before
execution.

Since independently managing funds means making decisions without client

approval, this is not allowed under the Non-Discretionary PMS model.

Q How is the intrinsic value of a bond determined?

25.
The sum of all interest payments paid by the bond
The lump sum payment at the bond's maturity
The current worth of all future bond payments, discounted by the required
rate of return
The current trading price of the bond

WRONG ANSWER
CORRECT ANSWER:
 The current worth of all future bond payments, discounted by the required rate of return

Explanation:

The intrinsic value of a bond is the theoretical fair value of the bond,
calculated as the present value of all future cash flows it is expected to
generate. These cash flows include:

1. Coupon Payments: Regular interest payments made by the bond issuer.

2. Face Value: The principal amount repaid at maturity.

The present value is calculated by discounting these future cash flows at the
bond's required rate of return (or yield to maturity), which reflects the time
value of money and the risk associated with the bond.

Q What is the fundamental meaning of the investment principle 'Risk leads to

26. return'?
The sole focus of investors should be on achieving high returns, irrespective
of risk levels
The potential for higher returns is directly linked to an increased level of risk
Investors should never engage in investments with significant risk
Risk levels are determined by the returns generated from an investment

WRONG ANSWER
CORRECT ANSWER:

The potential for higher returns is directly linked to an increased level of risk

Explanation:

The principle "Risk leads to return" implies that higher levels of risk are
generally associated with the potential for higher returns. In other words, if an
investor is willing to take on more risk (through volatile or uncertain
investments), they have the potential to earn higher returns over time.

This principle emphasizes the trade-off between risk and reward, meaning that
to achieve higher returns, one must be willing to accept a higher level of risk.
Q What statement is true with respect to the Sharpe and Treynor ratios in the
27. context of a well-diversified portfolio?
Sharpe and Treynor ratios tend to produce similar rankings for well-
diversified portfolios
Sharpe ratio incorporates only systematic risk
Treynor ratio does not incorporate the risk-free rate
Sharpe ratio is consistently higher than the Treynor ratio

WRONG ANSWER
CORRECT ANSWER:

Sharpe and Treynor ratios tend to produce similar rankings for well-diversified portfolios

Explanation:

For a well-diversified portfolio, systematic risk dominates because

diversification eliminates most unsystematic risk. Both Sharpe and Treynor
ratios measure risk-adjusted returns, and they tend to give similar results for
diversified portfolios.

Q After a five-year investment period, a client wishes to withdraw his funds

28. from a PMS firm. What exit fees, if any, can the portfolio manager apply?
0.5%
1%
3%
NIL

WRONG ANSWER
CORRECT ANSWER:

NIL

Explanation:

As per SEBI Circular, in case client portfolio is redeemed in part or full, the exit
load charged shall be as under:
 a) In the first year of investment, maximum of 3% of the amount redeemed.

b) In the second year of investment, maximum of 2% of the amount redeemed.

c) In the third year of investment, maximum of 1% of the amount redeemed.

d) After a period of three years from the date of investment, no exit load.

Q Among the following options, which one does not belong to the four key
29. stages of portfolio management?
Evaluating existing and anticipated financial landscapes
Creating an investment policy document
Creating a Portfolio
Finding a buyer for the portfolio

WRONG ANSWER
CORRECT ANSWER:

Finding a buyer for the portfolio

Explanation:

"Finding a buyer for the portfolio" is not part of the portfolio management
process because portfolio management focuses on managing investments,
not selling them to customers.

Q The risk of return for a portfolio investment is determined by which factors?

30. A) The investment proportions of its individual securities
B) The return covariance between each pair of securities within the portfolio
Only A
Only B
Both A and B
Neither A nor B

WRONG ANSWER
CORRECT ANSWER:
 Both A and B

Explanation:

The risk of return of a portfolio investment depends on both:

A. The investment proportions of its individual securities : The weight of each

security in the portfolio directly affects the overall risk.

B. The return covariance between each pair of securities within the portfolio : The
correlation between the returns of different securities determines how they
move in relation to each other, which impacts portfolio risk.

Q Is a registered partnership firm with Rs. 50 Lacs eligible to invest in a PMS,

31. and if so, under what conditions?
The firm is eligible, and its investment amount meets the PMS requirements
The firm is eligible, however it will to pay Rs 1 lac more as PMS fees
Partnership firms are prohibited from PMS investments
The firm is ineligible; non-individual PMS investment requires a minimum of
Rs. 1 crore

CORRECT ANSWER

Explanation:

According to SEBI regulations, the minimum investment amount for Portfolio

Management Services (PMS) is generally Rs. 50 lakhs for all investors,
including non-individual entities like partnership firms.

Therefore, a registered partnership firm with Rs. 50 lakhs is eligible to invest in

a PMS.

Q Mr. Amit has a grievance with the portfolio manager and he submits the
32. same on 1st September. The portfolio manager has to redress this grievance
before _______ .
1st November of the same year
1st October of the same year
1st December of the same year
 16th September of the same year

WRONG ANSWER
CORRECT ANSWER:

1st October of the same year

Explanation:

As per SEBI Act - The portfolio manager shall take adequate steps for
redressal of grievances of the investors within one month of the date of the
receipt of the complaint and keep SEBI informed about the number, nature and
other particulars of the complaints received.

Q Which of these is NOT included in the performance reports given to the

33. investors?
Cash balance
Number of securities held in the portfolio
The Dividend Pay-out ratio of the companies held in the portfolio
Composition of portfolio

WRONG ANSWER
CORRECT ANSWER:

The Dividend Pay-out ratio of the companies held in the portfolio

Explanation:

The portfolio manager shall furnish periodically a Performance report to the

client, as agreed in the contract, and such report shall contain among other
details -

The composition and the value of the portfolio, description of securities and
goods, number of securities, value of each security held in the portfolio, units
of goods, value of goods, cash balance and aggregate value of the portfolio as
on the date of report.

Q Due to changes in immigration laws in the USA, there was a fall in the IT
34. sectors stocks. What type of risk is this?
Market Risk
Economy Risk
Business Sector Risk
Speculative Risk

WRONG ANSWER
CORRECT ANSWER:

Business Sector Risk

Explanation:

Sector specific risk is due to factors that affect the performance of businesses
in a particular sector. Adverse immigration norms affecting the IT/Software
industry is one such example.

Businesses belonging to other sectors do not get affected by them. This risk
can be diversified away by investing into other shares of businesses in
different sectors.

Q Identify the TRUE statement - -

35.
A saver can never be an investor
Every investor is a saver
Every saver is an investor
Savers and investors are always two different sets of people

WRONG ANSWER
CORRECT ANSWER:

Every investor is a saver

Explanation:

The objectives of savers and investors are different. Savers tend to

accumulate funds to address short-term goals, whereas investors have longer-
term goals, such as building retirement corpus or funding children's college
education expenses.
 Those who save funds have the choice of investing. Hence, every investor is a
saver but not vice versa.

Q The fund which is established to facilitate and organize the investment of the
36. 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 ______ as a factor is recognized by RBI Act 1934 to derive the value of a

37. 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 _________ is one of the statutory cost to the investor while engaging PMS.
38.
Registrars fees
Auditors fees
Brokerage charges
Notary charges

WRONG ANSWER
CORRECT ANSWER:

Brokerage charges

Explanation:

Brokerage charges: These are statutory costs because they are incurred
during the buying and selling of securities, which is a core function of a
Portfolio Management Service (PMS). Regulations require these transactions
to be executed through registered brokers, who charge brokerage.

Registrar fees, auditors fees, and notary charges are not typically considered
direct, statutory costs that a PMS investor bears. While these fees may exist in
the broader financial context, they are not a direct, unavoidable cost that every
PMS investor will pay.

Q Identify the true statement with respect to withdrawal of funds by the client
39. from a PMS.
A client will not be able to prematurely withdraw funds from a PMS
A client has the power to withdraw the funds anytime from a PMS
 The terms of withdrawal has to be included in the PMS agreement itself by
the client

CORRECT ANSWER

Explanation:

The funds or securities can be withdrawn or taken back by the client before
the maturity of the contract. However, the terms of premature withdrawal
would be as per the agreement between the client and the portfolio manager.

It should also include the withdrawal fees in terms of percentage as well as the
amount. Portfolio managers cannot impose a lockin on the investment of their
clients.

Q Mr. Goel own a house worth Rs 1 crore and has financial assets worth Rs. 40
40. Lakhs. He also has an outstanding home loan of Rs 20 Lakhs and an
outstanding car loan of Rs 3 Lakhs. Calculate the estimated Net Worth of
Mr. Goel.
Rs. 1.17 crore
Rs. 1.20 crore
Rs. 1.40 crore
Rs. 1.63 crore

CORRECT ANSWER

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, value of the jewels owned and the value of all other financial assets
and real assets 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 loan and any
other amount he owes like the personal loan, education loan etc.,. The
difference between the value of assets and the liability is net worth.

In the above question the assets are 1 crore (House) and Rs. 40 Lakhs (Other
financial Assets) = Rs 1.40 crore

Liabilities are : Outstanding home loan (Rs 20 lakhs) and car loan (Rs 3 lakhs)
= Rs 23 lakh

Networth = 1.40 crore Less Rs 23 Lakhs = Rs 1.17 crore

Q _______ need not be furnished to the client by a portfolio manager.
41.
The salary payable to the principal officer
Risks foreseen related to client’s investment
Details of commission paid to the distributor
Beneficial interest, dividend etc. received on the client’s fund

WRONG ANSWER
CORRECT ANSWER:

The salary payable to the principal officer

Explanation:

As per SEBI rules, the portfolio manager shall furnish periodically a report to
the client which will include :

1. Beneficial interest received during that period in the form of interest,

dividend, bonus shares, rights shares, etc;
2. Details of risk foreseen by the portfolio manager and the risk relating to
the securities recommended by the portfolio manager for investment or
disinvestment;
3. Details of commission paid to distributor(s) for the particular client etc.

There is no rule for disclosing the salary paid to Principal officer.

Q The nominal risk-free rate of return protects the investors from inflation
42. 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 When does the need for re-balancing of a portfolio arise ?

43.
Due to change in asset weights
Due to change in asset prices
Due to change in Risk-Return characteristics
All of the above

WRONG ANSWER
CORRECT ANSWER:

All of the above

Explanation:

Portfolio needs to be continuously monitored and periodically rebalanced.

The need for rebalancing arises due to price changes in portfolio holdings.
Over time, asset classes produce different returns that can change the
portfolio's asset allocation. To keep the portfolio's original risk-and-return
characteristics, the portfolio may require rebalancing. Portfolio may also
require re-balancing due to changes in investor’s goals and objectives, risk
tolerance etc..

Q Why does SEBI seek some business information as part of the application for
44. registration for Portfolio Managers?
A. It is to understand if the portfolio manager has the infrastructure in place
to deliver good quality of PMS
B. It is to understand the integrity of third party service providers like stock
brokers which are contracted by the portfolio managers
Only A
 Only B
Both A and B
Neither A nor B

CORRECT ANSWER

Explanation:

SEBI seeks some business information before registration of a Portfolio

Manager which includes :

1. Facilities and infrastructure for making decision on portfolio investment

2. Provide list of approved share brokers through whom orders shall be

placed, involved for Portfolio Management activities and state whether any of
them were suspended/had defaulted with any Stock Exchange authority.

Q Identify which of these is not an example of an unique preferences of the

45. investor?
Selection of securities as per religious principles
Desired Risk to Return Ratio
Emotional attachment to an industry
Ethical choices

WRONG ANSWER
CORRECT ANSWER:

Desired Risk to Return Ratio

Explanation:

Desired Risk to Return Ratio is a normal preference / demand of an investor.

Sometimes investors have idiosyncratic concerns. They may have personal,

social, ethical, cultural, emotional and preferences beliefs.

For example an investor, may not want her money to be invested in the stocks
of companies selling environmentally harmful products or Non-veg products
etc.
Q The prime motto of portfolio attribution analysis is ___________ .
46.
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

CORRECT ANSWER

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 Is it correct for the PMS to execute Off-Market transactions in the clients

47. 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

CORRECT ANSWER

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 Identify the INCORRECT statement with respect to Currency Risk.

48.
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.

Currency risk is not automatically covered by the returns on foreign

investments. Investors may use hedging strategies (e.g., currency derivatives)
to mitigate this risk, but foreign investment returns alone do not inherently
cover currency fluctuations.

Q A net amount of Rs 25,000 has to be paid as interest to an investor. The TDS

49. (Tax Deducted at Source) is 10%. Calculate how much should be set aside
for the payment of interest?
Rs. 27500
Rs. 22500
Rs. 27777.77
Rs. 28444.44

CORRECT ANSWER

Explanation:

To calculate the gross interest amount that needs to be set aside (before
deducting TDS), you can use this formula:

Net Amount = Gross Amount × (1−TDS Rate)

 Given : Net Amount = ?25,000 and TDS Rate = 10% = 0.10

Therefore :

25000 = Gross Amount × (1 − 0.10) = Gross Amount × 0.90

Gross Amount = 25000? / 0.90 = Rs. 27,777.77

Q Before SEBI issues the certificate of registration to a PMS, it has to ensure

50. that the applicant has appointed :
A. Compliance Officer
B. Principal Officer
C. At least five persons 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.