Sr No.

Question Option A Option B Option C Option D Correct Answer Solution

Default risk is the risk of an economic loss from the failure of counterparty to
fulfil its contractual obligation.
In other words, default risk arises when the issuer of the bond (ie. the
1 A Government Bond will generally NOT have which type of risk? Purchasing Power Risk Interest rate risk Market Risk Default Risk D
borrower of money) does not repay the amount on maturity. Generally the
Government does not default so this
risk is not present in Government bonds.

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

Sometimes investors have idiosyncratic concerns. They may have personal,
Emotional
Selection of securities as per Desired Risk to Return social, ethical, cultural, emotional and preferences beliefs.
2 Identify which of these is not an example of an unique preferences of the investor? attachment to an Ethical choices B
religious principles Ratio For example an investor, may not want her money to be invested in the
industry
stocks of companies selling environmentally harmful products or Non-veg
products etc.

Bond prices and the interest rates have inverse relationship.

Bond prices are sensitive to changes in interest rates. As market rates of
interest increase the market values of the bond portfolios decrease and vice
versa.
Mr. Suresh wants to invest in long term corporate bonds as they are giving higher returns. Due to rising inflation, the
The bond prices and Also inflation can affect profitability. Inflation impacts different industries
However his portfolio manager is of a strong belief that inflation and interest rates will be profitability of corporates may
3 market interest rates Both of the above None of the above C differently. There are industries, which are able to pass on the increase in
on a rise for the next 2-3 years. Which of these is/are valid arguments to convince Mr. be negatively affected leading
are inversely related the costs of products to their
Suresh not to invest in long term corporate bonds? to corporate default
consumers by increasing prices. Their revenue and profits may remain
unaffected by inflation. However, there are industries that are not able to
charge the increased costs of
production to their consumers. Their profitability suffers due to inflation.

Multi Commodity Exchange of India Limited (MCX), National Commodity &

Derivatives Exchange Limited (NCDEX), Indian Commodity Exchange
Limited (ICEX) are some of the
commodity exchanges in which commodity derivatives are currently traded in
4 ___________ is not related to Commodity Derivates Exchanges in India. MCX ICEX CCIL NCDEX C
India.
Clearing Corporation of India Ltd (CCIL) which was set to provide clearing
and settlement for transactions in Government securities, foreign exchange
and money markets in the country. It is not linked to commodity markets.

The portfolio manager shall take adequate steps for redressal of grievances
Which of these information about client grievances needs to be posted to the regulator? of the investors within one month of the date of the receipt of the complaint
A. Nature of complaints and keep SEBI informed about
5 Only A and B Only B and C Only A and C All A, B and C D
B. Number of complaints the number, nature and other particulars of the complaints received.
C. Any other particulars if required This is one of the conditions of obtaining certification of registration under
regulations.

Portfolio needs to be continuously monitored and periodically rebalanced.

The need for rebalancing arises due to price changes in portfolio holdings.
Due to change in Over time, asset classes produce different returns that can change the
Due to change in
6 When does the need for re-balancing of a portfolio arise? Due to change in asset weights Risk-Return All of the above D portfolio's asset allocation. To keep the portfolio's original risk-and-return
asset prices
characteristics characteristics, the portfolio may require rebalancing. Portfolio may also
require re-balancing due to changes in investor's goals and objectives, risk
tolerance etc..

Currently there are 5 KYC Registration Agencies in India viz. -

1. CAMS Investor Services Pvt. Ltd.
NSDL Database CAMS Investor 2. NSDL Database Management Limited
7 Identify the entity which is currently NOT a KYC Registration Agency? CDSL Ventures Limited HDFC Ventures Itd D
Management Limited Services Pvt. Ltd 3. Karvy Data Management Services
4. Dotex International Limited
5. CDSL Ventures Limited

Portfolio Managers can be evaluated on the basis of their investment

8 ____________ is/are significant metrics of measuring portfolio manager's performance. Investment returns Investment risk profile Investment style All of the above D philosophy, investment approach, investment process, strategies, styles and
past performance compared against a benchmark or managers' universe.

The following entities can invest in PMS:

The PMS firm • Individuals. • Non-resident Indians (as per the RBI guidelines). • Hindu
The PMS firm should The PMS firm should
should inquire and Undivided Family • Proprietorship firms. • Association of person • Partnership
The PMS firm should inform the consider the promoter ask the promoter to
Mr. Gupta is a promoter of a yet to be registered company. He wants PMS services for know in what Firms • Limited liability Partnership. • Trust Body Corporate
9 promoter that he is ineligible for as an individual and revisit after the C
his company and wants to invest Rs. 3 crores. What should the PMS firm do? capacity does the An unregistered company is not a body corporate. Since the promoter is
PMS services take him as an registration of the
promoter wants to seeking PMS for a unregistered company, the PMS firm will ask the
individual client company is done
invest the fund promoter to revisit them once the
registration is complete.

In exchange traded world, the clearing corporation, gives settlement

guarantee of trades to the counterparties (all buyers and sellers). This
exposes the clearing corporation to the risk of default by the buyers and
The risk of default on obligations arising out of trading is controlled by the exchange by Restricting types of Imposing circuit
10 Blocking high value trades Imposing margins C sellers.
_____________. investors filters
To handle this risk, the clearing corporation charges various kinds of
margins, most prominent among these margins are Initial or upfront margin
and mark to market (MTM) margins.
Higher the risk, higher the return - Eg. Equities are high risk investments buy
Linear the risk Linear Higher the risk Lower Lower the risk can fetch extremely good returns. On the other hand - Lower the risks, lower
11 Generally, the relationship between Risk and Return is _____________. Higher the risk higher the return A
the return the return higher the return the returns- Eg. Bank FDs in nationalised banks are very safe but give a very
low interest returns.

Following capital assets are treated as short-term capital asset if they are
held for not more than 24 months immediately preceding the date of transfer:
The sale of which of these securities will result in short term capital gain if they are held a) Unlisted shares of a company (equity shares or preferences shares);
12 Unlisted Shares Listed Shares Listed Bonds Units of UTI A
for more than 12 months but less than 24 months. b) An immovable property, being land or building or both.
If they are held for more than 24 months immediately preceding the date of
transfer, they are termed as long-term assets.

The PMS agreement The PMS agreement

Identify the INCORRECT statement with respect to premature withdrawal of funds by a A lock-in period can be imposed should include terms should include the All of the above are 'A lock-in period can be imposed on the client' is incorrect. Portfolio
13 A
client. on the client for early withdrawal of details of withdrawal incorrect managers cannot impose a lockin on the investment of their clients.
funds by the client fees

As per Bailard, Biehl & Kaiser (BB&K) model, the five types of investors are -
the adventurer, the celebrity, the Individualist, the guardian and the straight-
arrow investor.
Anxious and Well balanced Anxious and careful There are always people who are so well balanced that they cannot be
14 What is the characteristics of a Straight Arrow investor? Confident and careful investor C
impetuous investor investor investor placed in any specific quadrant, so they fall near the centre; this investor is
called a Straight-Arrow investors. On average, this group of investors is a
relatively balanced composite of each of the other four investor types, and by
implication a group willing to be exposed to medium risk.

The face value of the bond is Rs 1000 and its being sold at Rs. 1000. So the
bond is being sold at par. Since the bond is sold at par, the YTM of the bond
What is the YTM of a 10% Coupon Bond of face value of Rs 1000 and which is currently is equal to the coupon value of the bond. If the bond would've traded at
15 10% 10.3% 10.15% 9.75% A
being sold at Rs. 1000 and which has a balance maturity period of 3 years? premium/discount, the YTM would've been lesser/more than the coupon
rate.
So the YTM will be 10%
Day count convention refers to the method used for arriving at the holding
to arrive at holding period (number of days) of a bond to calculate the accrued interest. As the
to count the number of coupons to count the days from to count the days
16 'Day Count Convention' is a method ________. period to calculate D use of different day count conventions can result in different accrued interest
in a semi-annual coupon bond issue to maturity between two trades
accrued interest amounts, it is appropriate that all the participants in the market follow a
uniform day count convention.
The Total Expense Ratio for open ended equity oriented schemes is based
on the quantum of assets of that scheme.
17 The lowest Expense Ratio threshold for open ended equity oriented schemes is _______. 1.05% 0.66% 1.75% 0.10% A For eg. On the first Rs 500 crores of daily net assets, it is 2.25%, next Rs
250 crore, its 2% and so on. As the assets increase, the minimum is 1.05%
of the net assets.

Accumulation Phase: During this phase, net worth is typically small relative
to liabilities. Investments are fewer and typically non-diversified. Goals may
There is
As compared to include children's education, a
supplemental income The investor has
18 Which feature can be typically related to Accumulation Phase of an investor? Less period of time left to retire networth, the liabilities B house, and if possible, investments for future financial independence.
from accumulated sufficient assets
are higher Since the individual has a very long time horizon and a potentially growing
assets
income stream, she can undertake more high-return, high-risk capital gain-
oriented investments.
Mutual Fund is Mutual Fund is Mutual fund is a vehicle (in the form of a "Trust") to mobilize money from
19 What type of an organisation is a Mutual Fund? Mutual Fund is an Advisory Mutual Fund is Trust Special Purpose Depository and B investors, to invest in different markets and securities, in line with stated
Vehicle (SPV) Custodian investment objectives
Buy-side Analysts work for money managers like mutual funds, hedge funds,
Buy-Side Analyst
Buy-Side Analyst sell Buy-Side Analyst buy pension funds or portfolio managers that purchase and sell securities for
Buy-Side Analyst provide buy securities for
20 What do the Buy-Side Analyst do? securities on behalf of securities on behalf D their own investment accounts.
advisory services to clients their own
their clients of their client These analysts generate investment recommendations for their internal
investment accounts
consumption viz. use by the fund managers within organization.

From 2015, it is mandatory for an Indian financial institution to maintain and

report the information pertaining to Foreign Account Tax Compliance Act
(FATCA)/Common Reporting
From 2015, all Indians and NRIs have to submit an additional declaration to register for FITCA Standards (CRS) reportable accounts.
21 FTKA FETCA FATCA D
PMS services. What is the name of this declaration? In light of the above, it is mandatory for an Indian financial institution to
obtain FATCA and CRS self-declaration from all investors (existing and new)
to comply with the above Income
Tax Rules read with CBDT guidelines.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution

Sometimes market based indices may not meet the criteria of a good
benchmark, given the portfolio manager's investment strategies and style.
Such situation demands for appropriate
Benchmark index, Sectoral index of the customized benchmark.
Peer group
Mr. lyer is a portfolio manager and he is unable to find a comparable benchmark index for A customised benchmark closest in asset dominant sector in When the portfolio managers follow a certain type of investment strategy and
22 comparison can be A
portfolio analysis. In such a case, he should follow which of these approaches? should be created allocation should be the portfolio should style, they create an investment universe reflecting the same to focus their
done
considered be considered research activities. The portfolio managers then select the most attractive
securities from the investment universe. Such investment universes can act
as benchmarks for portfolio evaluation when market- based indices are not
found to be valid.

The Global Investment Performance Standards (GIPS) provide the

investment community with a set of ethical standards for investment
management firms to follow when presenting their performance results to
potential clients.
No, its not true as
Yes, it is true if they As per GIPS Advertising Guidelines - All advertisements that include a claim
As per GIPS Advertisement guidelines, the leverage and use of derivatives have to be Yes, it is true if there is material GIPS does not
are only used for of compliance must include the following:
23 mandatorily disclosed in an advertisement by a Portfolio Manager. Is this statement true impact on returns due to their mention about A
efficient portfolio 'The description of the use and extent of leverage and derivatives, if leverage
and why? usage derivatives and
management or derivatives are used as an active part of the investment strategy (i.e., not
leverage
merely for efficient portfolio management) of the composite. Where leverage/
derivatives do not have a material effect on returns, no disclosure is
required'.

The portfolio manager shall furnish periodically a Performance report to the

client, as agreed in the contract, and such report shall contain among other
The Dividend Pay-
details -
Number of securities out ratio of the Composition of
24 Which of these is NOT included in the performance reports given to the investors? Cash balance C The composition and the value of the portfolio, description of securities and
held in the portfolio companies held in portfolio
goods, number of securities, value of each security held in the portfolio, units
the portfolio
of goods, value of goods,
cash balance and aggregate value of the portfolio as on the date of report.

A benchmark is generally an index against which a PMS performance is

measured.
It can be a readily recognised index like Nifty50 or can be combination of
The benchmark can The benchmark can
The benchmark can be a readily benchmarks.
25 Identify the true statement(s) with respect to a benchmark for a composite. be a customised be a combination of All of the above D
recognised benchmark Sometimes market based indices may not meet the above criteria of a good
benchmark benchmarks
benchmark, given the portfolio manager's investment strategies and style.
Such situation demands for
appropriate customised benchmark.

The relationship between yield to maturity and coupon rate of bond may be
stated as follows:
If the market price of a If the market price of If the market price of
If the market price of a bond is • When the market price of the bond is less than the face value, i.e., the
bond is higher than the a bond is lower than a bond is lower than
lower than the face value, it's bond sells at a discount, YTM > coupon yield.
26 Identify the TRUE statement with respect to market price of a bond and YTM. face value, it's YTM is the face value, it's the face value, it's C
YTM is equal than the coupon • When the market price of the bond is more than its face value, i.e., the
greater than the YTM is greater than YTM is lesser than
rate bond sells at a premium, YTM < coupon yield.
coupon rate the coupon rate the coupon rate
• When the market price of the bond is equal to its face value, i.e., the bond
sells at par, YTM = coupon yield.

Systematic risk is defined as risk due to common risk factors, like interest
rates, currency exchange rates, commodities prices. It is linked to supply
and demand in various
27 The risk of fluctuations in currency exchange rates is a __________. Unsystematic risk Systematic risk Downside risk Physiological risk B marketplaces.
All investments get affected by these common risk factors directly or
indirectly. Systematic risks cannot be diversified away, though it can be
hedged.
Risk is usually understood as "exposure to a danger or hazard". In
investment, risk is defined as the possibility that the actual earnings could be
28 When we mention the term 'Risk' in investments, what actually are we referring to? Certainty of Timing Certainty of Amount Both of the above None of the above B
different from what is expected to be earned. In more technical terms, the
dispersion around the average expected return is defined as risk.
It is the payback Duration of a bond is a measure of the time taken to recover the initial
It is the payback
lt is the payback period to repay period to repay the investment in present value terms. In simplest form, duration refers to the
29 What is 'Duration of a Bond'? period to repay the A
the purchasing price of the bond redemption value of payback period of a bond to break even, i.e., the time taken for a bond to
face value of the bond
the bond repay its own purchase price.
Stock price decisions reflect expectations for future economic activity. If
The stock prices of
The stock prices of inadequate rains are expected, it will mean lower sowing of crops which
The stock prices of fertilizer fertilizer
What is the likely impact on the stock prices of fertilizer manufacturing companies if it is fertilizer manufacturing means low demand for fertilisers.
30 manufacturing companies may manufacturing B
expected that there will be poor monsoon in the current year? companies may Due to low demand of fertilisers, the sales and profits of fertilisers
increase companies may be
decrease manufacturing companies would be lower thus affecting share price
unaffected
negatively.
In Finance Act 2020, Indian Government has reversed the taxation of
lts not taxable as the Its taxable as it is
A foreign company has paid dividend in India to a Non-resident in India. Inform if this lts not taxable as it is a foreign Its taxable as it is dividend and the Dividend Distribution Tax was abolished and dividend has
31 individual is a non- paid by a foreign D
dividend taxable in India? company paid in India been made taxable in the hands of shareholders. Hence, Non-resident has
resident company
to pay tax on dividend in India.
Companies issuing equity shares can be classified on the basis of size-
32 In which asset class can one find categories like Small Cap, Large Cap and Mid Cap? Hybrids Equities Bills Bonds B measured by way of their market capitalization as ultra large cap, large cap,
mid-cap, small cap, micro-cap etc.
The Coupon yield is the coupon payment as a percentage of the face value.
Coupon yield = Coupon Payment / Face Value
Calculate the coupon yield of bond which pays a coupon of Rs 14. The face value is Rs.
33 14% 12.96% 11.84% 8% A 14/100 = 0.14 x 100 = 14%
100 and the market price is Rs. 108.
(Coupon yield is different from Current yield. Current yield = (Annual coupon
rate / Current market price of the bond) *100%
Mr. Abdul can invest
Mr. Abdul is a citizen of Bangladesh. He wants to invest Rs. 1 crore in an Indian PMS. Is Mr. Abdul can invest only if his only if his grand Only Indian citizens, Persons of Indian Origin (PIO) and Non Resident
34 Both of the above None of the above D
he eligible to invest ? wife is an Indian citizen parents were citizens Indians (NRIs) can invest in PMS in India.
of India
Steps in Portfolio Management Process are:
Construction of a 1. Development of policy statement for the portfolio
Look at the current and future Develop a policy Target a customer to
35 Identify which of these is NOT one of the four steps in the portfolio management process? portfolio of C 2. Study of current financial conditions and forecast future trends
financial condition statement sell the PMS
securities 3. Construction of portfolio
4. Performance measurement & evaluation

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

Savers and accumulate funds to address short-term goals, whereas investors have
A saver can never be an Every investor is a Every saver is an investors are always longer-term goals, such as building
36 Identify the TRUE statement -- B
investor saver investor two different sets of retirement corpus or funding children's college education expenses.
people Those who save funds have the choice of investing. Hence, every investor is
a saver but not vice versa.

As per the SEBI Code of conduct for portfolio manager: 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
He should disclose the wealth He should disclose his He should disclose He should disclose or non-real time, unless a disclosure of his long or short position in the said
What should a portfolio manager disclose when he is offering investment advice in public
37 and investment details of his investment position in his entire portfolio of his fixed deposits in B security has been made, while rendering such advice.
domain?
family members the security in advice investment various banks 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.

The Global Investment Performance Standards (GIPS) provide the

Global Investment
Global Investment Performance Global Investors Global Investment investment community with a set of ethical standards for investment
38 The full form of GIPS is _________. Performance A
Standards Portfolio Services Portfolio Standards management firms to follow when presenting their performance results to
Services
potential clients.
On the basis of provider of the services, PMS can be classified as:
Which of the following Portfolio Management Service (PMS) is NOT classified based on Brokerage House 1. PMS by Asset management companies (AMC)
39 AMC PMS Boutique PMS SME PMS D
provider of the services? PMS 2. PMS by Brokerage houses
3. Boutique (independent) PMS houses

An Industry Life Cycle consists of 4 phases - Introduction, Growth, Maturity

and Decline
In the Maturity Maturity Phase: This is generally the longest phase in the life cycle of the
In the Maturity Phase, the In the Maturity Phase, Maturity Phase is the
Phase there is no industry. During this stage, growth rate in the industry normally matches with
40 Which of these is a characteristics of the 'Maturity Phase' of an industry life cycle? growth of the industry matches the profit margins are shortest phase in the A
strong competition the economy's growth rate.
the economy's growth the highest life cycle of industry
pressure Firms in the industry differ from one another given their cost structure and
ability to control costs. Competition is high during this stage reducing the
profit margin to normal levels.
Mutual fund raise A mutual fund cannot invest directly in real estate or physical properties.
According to the definition of Mutual fund as per SEBI(Mutual Fund) Regulations -1996, Mutual fund invests in real Mutual fund is a
41 Mutual fund sells unit money through A A Real Estate Fund can comprise of investments either directly in real estate
which of these is NOT a feature of a Mutual Fund? estate trust
various schemes companies or in Real Estate Investment Trusts.
The asset allocation The asset allocation
The asset allocation
The asset allocation decision decision is isolated decision considers
decision influences the The first step in selecting the portfolio manager is to draft the investment
involves arriving at the from the basic the risk return
42 Identify the FALSE statement with respect to asset allocation decision. long run performance C policy statement and determine the asset allocation. Therefore, the asset
proportions of investments into portfolio characteristics of
of the portfolio allocation decision is an integral part of portfolio management process.
various types of investments management various investment
investments
process avenues

The life cycle of investing can be broken into phases: the accumulation,
consolidation, spending, and gifting phases.
Accumulation Phase: During this phase, net worth is typically small relative
__________ phase is the stage when investors in their early-to-middle earning years to liabilities. Investments are fewer and typically non-diversified. Goals may
43 attempt to accumulate assets to satisfy near-term needs, e.g., children's education or Consolidation Accumulation Spending Gifting B include children's education, a
down payment on a home. house, and if possible, investments for future financial independence. Since
the individual has a very long time horizon and a potentially growing income
stream, he/she can undertake more high-return, high-risk capital gain-
oriented investments.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution

As per the SEBI (Prohibition of Insider Trading) Regulations:

No insider shall (i) either on his own behalf or on behalf of any other person,
deal in securities of a company listed on any stock exchange [when in
The objective of the SEBI (Prohibition of Insider Trading) Regulations is to prohibit insider possession of] any unpublished
44 Counselling Dealing Communicating All of the above D
from _____________ on matters relating to insider trading. price sensitive information; or (ii) communicate or counsel or procure directly
or indirectly any unpublished price sensitive information to any person who
while in possession of such
unpublished price sensitive information shall not deal in securities.

One way to 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.
Sharpe's performance measure divides the portfolio's risk premium by the Standard deviation of the rate of Variance of the rate Slope of the fund's The Sharpe ratio is a measure of relative performance. It enables investors
45 Risk free rate A
_________________. return of return characteristic line to compare across investment opportunities. Higher the Sharpe ratio, better
is the portfolio's risk adjusted performance. A fund with a higher Sharpe ratio
in relation to another is preferable as it indicates that the fund has generated
return for every unit of risk.

One of the important features of futures contracts is that gains and losses
the weighted the average of the are settled on each trading day. This exercise is called Mark-to-Market
The settlement price for determining daily mark-to-market margins for a futures contract is the average of the high, low and
46 the last traded price average price of last last 60 minutes of C settlement.
________________. closing prices
30 minutes of trading trading The settlement price for determining daily mark-to-market margins for a
futures contract is the weighted average price of last 30 minutes of trading.
Offer the investor
Keeping in mind the
Mr. Suresh is a PMS distributor and he is marketing Portfolio Management Services to a Convince the investor that his some rebates on the As per the SEBI Code of conduct for PMS Distributors - The PMS Distributor
investors interest, a
47 potential investor. From the options given below, choose which action should Mr. Suresh firm has the best investment investment All of the above B should consider investor's interest, risk profiling and suitability to their
risk profiling should
take? solutions alternatives his firm financial needs while marketing Portfolio Management Services.
should be done
has to offer

YES, it is
lt is NOT acceptable YES, it is acceptable acceptable as it is
It is NOT acceptable as the As per SEBI (Portfolio managers) Regulations 2020: Every portfolio manager
as it is required as per as it is not required related to a
An auditor was auditing the books of a PMS firm. While auditing it did not find any records central vigilance needs to cross shall keep and maintain records in support of every investment transaction
48 the SEBI (Portfolio to be kept by a recommendation B
which supported the recommendations made by the PMS firm. Is this acceptable or not? verify the recommendations for or recommendation which will
Managers) Discretionary and not actual
any cause of money laundering indicate the data, facts and opinion leading to the investment decision.
Regulations 2020 Portfolio Manager execution of the
transaction

Investing in debt funds carries various types of risk. These risks include
Credit risk (Default Risk), Interest rate risk, Inflation risk, reinvestment risk
etc.
Credit Risk (Default Risk): The chances that a borrower might not repay the
49 Debts funds have ________. Default risk Interest rate risk Both of the above None of the above C interest or principle on the committed date is considered as credit risk or
default risk.
Interest rate risk: Market price of the bond and interest rates carry opposite
relationship. Whenever interest rates in the market go up, the market prices
of bond come down

The agreement between the portfolio manager and the client includes
various clauses like -
The various portfolio
The provisions related The procedure of 1. Period of the contract and provision of early termination, if any
Which of these aspect is NOT included in the agreement between the portfolio manager schemes which are
50 The period of the PMS contract to early termination of settling the clients D 2. Procedure of settling client's account including form of repayment on
and the client ? managed by the
the PMS contract account maturity or early termination of contract etc.
portfolio manager
(The other schemes managed by the portfolio manager do not form a part of
these clauses)

An assessee can be categorized into following residential status during the

previous year: a) Resident in India b) Non-Resident in India
A new category of 'deemed resident' has been introduced in clause (1A) of
Section 6 with effect from Assessment Year 2021-22. As per Section 6(1A),
A new category of 'resident' has been introduced in clause (1A) of Section 6 of Income Not- Ordinarily
51 Extra-Ordinarily Resident Deemed resident Ordinarily resident C an Indian citizen is deemed as resident in India irrespective of his stay in
Tax Act with effect from Assessment Year 2021-22. What is it? Resident
India if his total income, excluding income from foreign sources, exceeds Rs.
15 lakhs during the previous year and he is not liable to tax in
any other country or territory by reason of his domicile or residence or any
other criteria of similar nature.

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,
Beneficial interest,
Details of dividend, bonus shares, rights shares, etc;
The salary payable to the Risks foreseen related dividend etc.
52 _________ need not be furnished to the client by a portfolio manager. commission paid to A 2. Details of risk foreseen by the portfolio manager and the risk relating to
principal officer to client's investment received on the
the distributor the securities recommended by the portfolio manager for investment or
client's fund
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.

A Custodian is an entity that is vested with the responsibility of holding funds

and securities of its large clients, typically institutions such as banks,
_________ is the entity which holds the funds and securities of large clients such as insurance companies, and foreign
53 Portfolio Manager Custodian Depository Fund Manager B
banks. portfolio investors.
Besides safeguarding securities, a custodian also settles transactions in
these securities and keeps track of corporate actions on behalf of its clients.

A mutual fund is authorised by regulations to pool funds from investors and

Pooled along with Deposited with a
Pooled and given as invest the funds on their behalf.
others contributions to bank who will be the
Invested in the name of the loans to various Mutual fund pools the money contributed by investors to a scheme and
the scheme and are Trustee and these
54 The contributions made by unitholders into a scheme of a mutual fund are __________. investor according to his/her companies as equity B invests them in a portfolio of securities. The investments made by the fund
invested in financial are used for fund
preference contributions and belong to the investors, who will
securities as per the management
debt contributions share the profits or losses made and the costs incurred in proportion to their
investment objective activities
investment.
have moderate risk of adequate degree of highest degree of
very high risk of default
default regarding safety regarding safety regarding Instruments with 'C' rating are considered to have very high risk of default
55 Debt instruments with 'C' credit rating are considered to have _______________. regarding timely servicing of A
timely servicing of timely servicing of timely servicing of regarding timely servicing of financial obligations.
financial obligations
financial obligations financial obligations financial obligations
BBB - Instruments with this rating are considered to have moderate degree
A debt security has been assigned a credit rating of BBB. This means that this security is
56 Adequately safe Moderately safe Adequately risky Moderately risky B of safety regarding timely servicing of financial obligations. Such instruments
_____________.
carry moderate credit risk.
Psychographic analysis of investor recognizes investors as normal human
Identify the TRUE statement with respect to the 'Psychographic Analysis' of investors?
beings who are susceptible to biased or irrational behaviour due to
A. As per Bailard, Biehl and Kaiser (BB&K) model, an investor broadly belongs to one of
Both A and B are Neither A nor B is extraneous factors.
57 the five types of investor categories Only A is true Only B is true C
true true As per Bailard, Biehl & Kaiser (BB&K) model, the five types of investors are -
B. Due to extraneous factors, an investor can sometime display behaviours other than his
the adventurer, the celebrity, the Individualist, the guardian and the straight-
normal type
arrow investor.
Previously, the residential status of an Individual was determined on the
Based on the total basis of his period of stay in India.
By which way will the residential status of an individual be determined as per the Income Based on the period of stay in
58 Based on citizenship income from Indian All of the above D However, with effect from Assessment Year 2021-22, the residential status
Tax Act from the assessment year 2021-22? India
sources of an Individual is determined on basis of his citizenship, period of stay in
India and total income from Indian sources.

Sometimes market based indices may not meet the criteria of a good
benchmark, given the portfolio manager's investment strategies and style.
Such situation demands for appropriate
It is difficult to track the lt is difficult to find It is difficult to
The cost of maintenance of the customized benchmark.
59 Identify which of these is a big challenge in the creation of a customized benchmark? performance of the comparable decide the weights A
benchmark is high The advantage of such benchmarks is that they meet the requirement of
benchmark securities of the securities
valid benchmarks. The disadvantage is that the costs of construction and
maintenance of these benchmarks would be much higher than the fee paid
for using market-based indices.

SEBI seeks some business information before registration of a Portfolio

Why does SEBI seek some business information as part of the application for registration
Manager which includes:
for Portfolio Managers?
1. Facilities and infrastructure for making decision on portfolio investment
A. It is to understand if the portfolio manager has the infrastructure in place to deliver
60 Only A Only B Both A and B Neither A nor B C 2. Provide list of approved share brokers through whom orders shall be
good quality of PMS
placed, involved for Portfolio Management activities and state whether any of
B. It is to understand the integrity of third party service providers like stock brokers which
them were suspended/had
are contracted by the portfolio managers
defaulted with any Stock Exchange authority.

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
Mr. Goel own a house worth Rs 1 crore and has financial assets worth Rs. 40 Lakhs. He include the outstanding car loan amount, credit card loans, home loan and
61 also has an outstanding home loan of Rs 20 Lakhs and an outstanding car loan of Rs 3 Rs. 1.17 crore Rs. 1.20 crore Rs. 1.40 crore Rs. 1.63 crore A any other amount he owes like
Lakhs. Calculate the estimated Net Worth of Mr. Goel. 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

Open interest is commonly associated with the futures and options markets.
Open interest is the total number of outstanding derivative contracts that
have not been settled.
Open Interest is the number of Open Interest is the Open Interest is the Open Interest is the
Open interest is a measure of market activity. However, it is to be noted that
derivative contracts that are not interest quoted shown number of successful number of derivative
62 Identify the true statement with respect to 'Open Interest'. A it is not trading volume. Open interest is a measure of the flow of money into
settled by the end of a particular by traders on a public trades during a contracts which are
a futures or options market.
day screen particular day booked by traders
Increasing open interest represents new or additional money coming into the
market while decreasing open interest indicates money flowing out of the
market.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution

SEBI can ask portfolio manager to disclose any information as and when
required including the following: -
the networth of (a) particulars regarding the management of a portfolio; (b) any change in
the names of investors changes in
client's whose the information or particulars previously furnished, which have a bearing on
63 A Portfolio Manager might not provide to SEBI, ____________. the details of portfolio managed whose portfolio's they registration C
portfolio's they the certificate granted to him; (c) the names of the clients whose portfolio it
manage certification
manage has managed; (d) particulars relating to the net worth requirement of the
portfolio manager as specified in regulation 9 of Portfolio Managers
Regulation 2020.

A company has gone public buy there is a shortfall of 20,000 shares to complete the The PMS distributor The PMS distributor As mentioned in the question, the company has just gone public and has
The PMS distributor should
minimum subscription rule. A client of a PMS distributor wants to invest in these shares should lend his own should pay on the invited subscription. It has still not listed its shares.
64 arrange for a bank loan to None of the above D
but does not have funds to buy the complete 20,000 shares. Identify what should the money to cover the client's behalf to As per SEBI rules a portfolio manager generally cannot invest in unlisted
finance the shortfall
PMS distributor do? shortfall cover the shortfall securities.
A person who buys a put option is of a bearish view and a person who sells
The price of a put option is of bullish or neutral view.
The price of underlying The price of
Ms. Harshita has taken a short position in a 'Put Option'. This means that she believes The price of underlying will go underlying will not A person who has sold a put option (ie. gone short) receives the premium
65 will not go below strike underlying will not go B
that ___________________. below strike price go below current and will retain the premium amount as long as the price remains above the
price above strike price
market price strike price. Even if the price is at par with the strike price, he will gain to the
extent of premium received.

Spending Phase: This is the period when living expenses are covered not
from earned income but from accumulated assets such as investments and
retirement corpus.
Investors in the ______________ phase should not approach a PMS firm which is
66 Accumulation Gifting Spending Consolidation C Because of the heavy reliance on investments in this phase and the
famous for generating high growth for the wealth of investors?
unlikelihood of going back to work, the focus is on stability in investment
portfolio. Preference will be on investment that generate dividend, interest,
and rental income.

Day count convention refers to the method used for arriving at the holding
period (number of days) of a bond to calculate the accrued interest. As the
use of different day count
conventions can result in different accrued interest amounts, it is appropriate
67 An appropriate day count convention used in the Bond markets is _________. Actual/365 Actual/360 30/365 30/360 D that all the participants in the market follow a uniform day count convention.
For example, the conventions followed in Indian market for bonds is 30/360,
which means that irrespective of the actual number of days in a month, the
number of days in a month is
taken as 30 and the number of days in a year is taken as 360.

Correlation measures the strength and direction of relationship between two

68 Value of correlation ranges from _________. 1 to infinity 0 to 1 0 to 10 -1 to +1 D variables. Correlation coefficient vary in the range -1 to +1.
A value of +1 (-1) indicates a perfect positive (negative) relationship.
Funds can be managed in two styles ie - Actively or Passively.
Actively managed funds are funds where the fund manager has the flexibility
On the background of On the investment On the fund to choose the investment portfolio, within the broad parameters of the
69 On what parameter is the classification of Active and Passive funds based on? On the structure of fund D
the fund manager universe management style investment objective of the scheme.
Passive funds invest on the basis of a specified index; whose performance it
seeks to track.
The Compliance
As per SEBI rules - 'The applicant, its director or partner, principal officer,
The principal officer of Mr. Officer of Mr. Mistry
Mr. Mistry has been granted a certificate as a registered Portfolio Manager by SEBI. What Mr. Mistry has a net compliance officer or the employee should not at any time been convicted for
70 Mistry has acquired a CFA has been recently C
can lead to cancellation / suspension of his registration with SEBI in the next 12 months? worth of Rs. 5 crore any offence involving moral turpitude or has been found guilty of any
charter only recently charged for an
economic offence'
economic offence

Sector specific risk is due to factors that affect the performance of

businesses in a particular sector. Adverse immigration norms affecting the
Due to changes in immigration laws in the USA, there was a fall in the IT sectors stocks. IT/Software industry is one such example.
71 Market Risk Economy Risk Business Sector Risk Speculative Risk C
What type of risk is this? 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.
Only the following entities can invest in PMS:
Accept the offer by
The offer has to be rejected as • Individuals. • Non-resident Indians (as per the RBI guidelines) • Hindu
A Micro Finance Self Help Group wanted to invest Rs. 1.5 crore in a PMS. Should the creating a trust and
72 a Self Help group is not eligible A Undivided Family • Proprietorship firms. Association of person • Partnership
PMS accept or reject the offer? include the PMS as
to invest in a PMS Firms • Limited liability Partnership • Trust • Body Corporate
the main trustee
A Self help group is not authorized to invest in PMS.

The funds or securities can be withdrawn or taken back by the client before
The terms of the maturity of the contract. However, the terms of premature withdrawal
A client will not be able to A client has the power withdrawal has to be would be as per the agreement
73 Identify the true statement with respect to withdrawal of funds by the client from a PMS. prematurely withdraw funds to withdraw the funds included in the PMS C between the client and the portfolio manager.
from a PMS anytime from a PMS agreement itself by It should also include the withdrawal fees in terms of percentage as well as
the client the amount. Portfolio managers cannot impose a lockin on the investment of
their clients.

As per the SEBI Don'ts for the portfolio managers -

a transaction done
an investment which The portfolio manager shall not while dealing with clients' funds indulge in
a transaction which is entered a transaction which is even though there
As per the SEBI list of Don'ts for a Portfolio Management Service, a Speculative is based on an option speculative transactions i.e., it shall not enter into any transaction for
74 even though there is no in a contrarian position are no sufficient A
Transaction is ________________. depending on future purchase or sale of any security which is periodically or ultimately settled
physical delivery of the security of the market funds to settle this
price movements otherwise than by actual delivery or transfer of security except the
transaction
transactions in derivatives.

For computation of long-term capital gains, the assessee has to compute

indexed cost of acquisition. The Indexed Cost of acquisition shall be
Cost of Inflation calculated in a two-step process. The first
Cost of Inflation Index
Index of the year of step is to calculate the cost of acquisition of capital asset. In the second
of the year of transfer Cost of Inflation
Cost of Inflation Index of the transfer of asset / step, such cost of acquisition is multiplied with the Cost Inflation Index (CII)
of asset / Cost of Index of the year of
How is the Cost of Acquisition adjusted by indexation in the computation of Long term year of transfer / Cost of Cost of Inflation of the year in which capital asset is
75 Inflation Index of the acquisition / Cost of C
capital gains? Inflation Index in the year 2001- Index of the year of transferred and divided by CII of the year in which asset is first held by the
year of acquisition or Inflation Index of the
2002 acquisition or 2001- assessee or Cll of 2001-02, whichever is later.
2001-2002 whichever year of transfer
2002 whichever is Indexed Cost of Acquisition = Cost of Acquisition X CII of the year in which
is earlier
later asset is transferred /CII of the year in which asset is first held by assessee or
Cll of 2001-02, whichever is
later.

The Indian primary market in corporate debt is basically a private placement

market with most of the corporate bond issues being privately placed among
OTC - Over The the wholesale investors i.e. the banks, financial institutions, mutual funds,
76 Identify the primary mode by which Corporate Bonds are raised in India? Private Placement Auction Public Issue A
Counter large corporate & other large investors. This
situation has restricted the retail participation in the bond market. The share
of retail investors in corporate bond market is very small.
The portfolio manager who contravenes any of the provisions of the SEBI
Under which Chapter of SEBI (Intermediaries) Regulations 2008, can action be taken
Act, rules or regulations shall be liable including the action under Chapter V
77 against defaulting portfolio managers? Chapter I Chapter IV Chapter V Chapter III C
of the SEBI (Intermediaries)
Regulations, 2008.
Net asset value (NAV) represents a fund's per share market value. NAV is
A mutual fund has to provide various disclosures which give details of its portfolios. Which calculated by dividing the total value of all the cash and securities in a fund's
Scheme wise
78 of these disclosure does not provide any information where the mutual fund scheme has Fund Fact Sheet Portfolio disclosure NAV disclosure D portfolio, minus any liabilities, by the number of outstanding shares.
dashboard
invested? The NAV is calculated and disclosed every working day. However it does not
include the details as to where the mutual fund scheme has invested

The PMS firm should

The PMS firm should As per the SEBI Do's and Don'ts for a portfolio manager: The portfolio
The PMS firm should borrow for charge the client The PMS firm
use the common pool manager shall not borrow funds or securities on behalf of the client. It cannot
A PMS firm has suddenly found that there is a shortage of working capital funds. From short term from a commercial under PMS fees and should borrow from
79 of client's funds in a D pledge the client's securities etc.
the options given below, which will be most acceptable? bank by pledging the securities reduce the a commercial bank
scheduled commercial So the best option to meet any shortfall of funds for its working capital
of the client distributions to be for short term
bank requirements is to borrow from a commercial bank using its own sources.
made to the client

The agreement between the portfolio manager and the client include the
following:
The contract should The contract should 1. Procedure of settling client's account including form of repayment on
The contract should include the include the industries include the form of maturity or early termination of contract
80 What should be included in the contract with the client on portfolio management? All of the above D
provisions of early termination restricted for repayment on 2. Investment approach, areas of investment and restrictions, if any,
investment maturity imposed by the client with regard to the investment in a particular company
or industry
3. Period of the contract and provision of early termination, if any etc.
The SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
The SEBI Fraudulent and Unfair Trade Practices Regulations prohibit a person to, directly
81 Buy Sell Deal All of the above D Securities Market) Regulations prohibit a person to, directly or indirectly buy,
or indirectly ___________ securities in a fraudulent manner.
sell or deal in securities in a fraudulent manner.
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
Which of the following schemes have the features like 1) Continuous sale and purchase
existing investors can redeem their investments, that is, they can sell the
82 of units at NAV or NAV related prices, 2) Investor can enter and exit the scheme any time Interval scheme Open ended scheme Close ended scheme All of the above B
units back to the scheme to get their money back.
during the life of a fund, 3) The scheme does not have specific time frame.
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
The trades executed on the exchange are settled through a clearing
corporation, which acts as a counterparty and guarantees the settlement of
Collateralisation by Settlement on gross The limits on the trades to both buyers and sellers. The clearing corporation provides full
The functions of the clearing
83 The counterparty risk in a futures contract is mitigated primarily through __________. one of the parties to basis between two positions and A novation of contracts between buyers and sellers, which means it acts as
corporation
the contract parties trading volumes 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.

Financial Intelligence Unit - India (FIU-IND) is the central, national agency

responsible for receiving, processing, analysing and disseminating
___________ is the central, national agency responsible for receiving, processing,
information relating to suspect financial
84 analysing and disseminating information relating to suspect financial transactions to SEBI FIU-IND CBI RBI B
transactions to enforcement agencies and foreign FIUS.
enforcement agencies.
The portfolio manager is required to report any suspicious transaction within
7 working days to FIU.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution

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
The feature that allows the issuing firms to retire the bonds before the maturity by paving Callability (call Putability (put
85 Convertibility Redemption C with a higher level of reinvestment risk than non-callable bonds.
a prescribed price is called __________. option) option)
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.
The bank account containing the funds of the clients in PMS firm is maintained by The bank account containing the funds of the clients in PMS firm is
86 The Trustees The PMS firm SEBI The Client B
_____________ maintained by the PMS firm.
People earn money and spend money. They pass through various phases in
When an individual faces shortfall of money, his/her immediate effective response is to Increase his/her their life cycle. During some phases, they earn more money than they spend.
87 Reduce his/her expenses Borrow Invest B
___________. income In other phases, they earn less than they spend.
Therefore, sometimes they have to borrow money to meet the shortfall.
The client may appoint a chartered accountant to audit the books and
The ________ has the power to appoint an auditor to conduct annual audits of records of accounts of the portfolio manager relating to his transactions and the
88 Compliance Officer RBI Client SEBI C
their transactions with a PMS firm. portfolio manager shall co-operate with such chartered accountant in course
of the audit.
No, he cannot go
Yes, he can go ahead with the deal
Yes, he can go ahead with the ahead with the deal because it will be
Yes, he can go ahead
Mr. Avinash is a portfolio manager and is planning to sell securities but he is not sure deal because it is for the because by the time deemed a Selling securities for which the ownership is not proved will be considered as
89 with the deal because D
about the ownership or existence of the securities. Should he go ahead with the deal? company to prove the security's of the completion of fraudulent a fraudulent activity.
his intentions are good
authenticity the transaction he transaction as per
will have clarity SEBI's Prevention of
fraudulent practices
Consolidation Phase: The consolidation or mid-to-late-career stage of the
typical life cycle is characterized by the period when income exceeds
expenses. As a result, this stage is
characterized by the consolidation of investment portfolio
Gifting and Gifting and Spending Phase: This is the period when living expenses are covered not
Market experts are predicting a high volatility period for the next 2-3 years to come. Accumulating and Consolidation Consolidation and
90 Consolidation Accumulating B from earned income but from accumulated assets such as investments and
Investors in which of following phases should be alert and consider rebalancing? phases Spending phases
phases phases retirement corpus. Because of the heavy reliance on investments in this
phase and the unlikelihood of going back to work, the focus is on stability in
investment portfolio
So in these two phases, it is important to preserve the capital and not invest
in volatile investments.

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

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
___________ industries rise and fall and very closely follow the general economic activity contraction.
92 Financial Cyclical Consumer staples Defensive B
in comparison to other industries. 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.

investment approach, areas of

the investment
investment and restrictions, if period of the contract
The agreement between the portfolio manager and the client should include which of the objectives and the
93 any, imposed by the client with and provision of early All of the above D All the above are included in the agreement.
following? services to be
regard to the investment in a termination, if any
provided
particular company or industry
94 The SEBI (Mutual Funds) Regulations came in the year _________. 1994 1996 1964 2000 B The SEBI (Mutual Funds) Regulations came in the year 1996.
Non-discretionary portfolio manager manages the funds in accordance with
the directions of the client. The portfolio manager does not exercise his/her
___________ portfolio manager manages the funds in accordance with the directions of
95 Discretionary Non-discretionary Advisory All of the above B discretion for the buy or sell decisions.
the client.
(Discretionary portfolio manager individually an independently manages the
funds of each investor as per the contract.)
Information has to be submitted for the Capital Structure: Paid-up capital &
While making an application for a portfolio manager, financial information has to be Preceding two years Succeeding three
96 Current and the next two years Preceding 3 years B Free Reserves for Year prior to the preceding year of current year,
submitted for which of the three years? and the current year years
Preceding year, Current Year.
Market price of a bond and the volatility is a function of four factors:
While calculating the price volatility in a bond, which of the following information is NOT Coupon rate of the Required rate of Face value of the
97 Maturity period of a bond C (1) Face value of the bond; (2) Coupon rate of the bond; (3) Maturity period i.
required? bond return by the investor bond
e. no. of years to maturity and (4) Prevailing market interest rate.
As per Global Investment Performance Standards (GIPS) Advertisement
Guidelines: All advertisements that include a claim of compliance must
include the following
Appropriate
Five years of Annual composite Currency used to -The appropriate composite benchmark total return for the same periods for
98 Which of these form a part of the GIPS advertising guidelines? composite All of these D
performance returns express performance which the composite return is presented.
benchmark
-The currency used to express performance
- 5 years of annual composite performance returns (or since composite
inception if inception is less than 5 years) etc.

As per SEBI's Portfolio Managers Regulations, 2020 "discretionary portfolio

manager" means a portfolio manager who under a contract relating to
A Discretionary portfolio management, exercises or may exercise, any degree of discretion
A Discretionary portfolio A Discretionary A Discretionary
portfolio manager is as to the investment of funds or management of the portfolio of securities of
manager is one who exercises portfolio manager is portfolio manager is
one who is free to the client, as the case may be.
99 Who is a 'Discretionary portfolio manager'? any degree of discretion relating one who acts one who is entitled to A
take any decision In other words, discretionary portfolio manager individually and
to investment of funds of the according to the make discretionary
regarding the wealth independently manages the funds of each investor as per the contract. This
client directions of the client expenditure
of the investor 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.

A convenient way to analyse the financial position of the investor is by

constructing personal financial statements. This helps in organizing financial
The financial assets of The regular income The regular income
The financial assets of the data in a systematic way.
Which of these financial indicators indicate that an investor has the ability to invest the investor are of the investor is of the investor is
100 investor are greater than regular C One has to calculate whether the person's present income exceeds
periodically? greater than financial greater than greater than
income spending and by how much amount. This is the amount which would be
liabilities expenses financial liabilities
available periodically for investment
Purposes.

As per SEBI rules - Every Portfolio Manager shall appoint a compliance

officer who shall be responsible for monitoring the compliance of the Act,
Both SEBI and the
rules and regulations, notifications, guidelines, instructions etc., issued by
101 Who appoints the Compliance Officer in a PMS firm? The Portfolio Manager SEBI Portfolio Manager in A
SEBI or the Central Government and for redressal of investors' grievances.
consultation
The compliance officer shall immediately and independently report to SEBI
any non-compliance observed.
Statutory Charges means any charge imposed by state or federal
government legislation.
102 ____________ is one of the statutory cost to the investor while engaging PMS. Registrars fees Auditors fees Brokerage charges Notary charges D
Notary fees are payable to the notary public at a local court / Sub-registrar
office to get a deed / documents notarised.

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
If a portfolio manager is
The best indicator of a quantitative and qualitative analysis of the portfolio manager's reputation,
continuously beating the
While doing the due diligence for selecting a portfolio manager, an investor should be portfolio managers key personnel and operations.
103 benchmark then this is a Both of the above None of the above C
careful and not fall in which of these traps? future performance is Investors should understand the investment process, investment strategies,
adequate indicator of the
the past performance investing styles to appreciate how the investment returns are generated and
investment strategy
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.

Portfolio management services can be classified on the basis of product

class such as -
Which among these is NOT a valid classification of a portfolio management service
104 Commodity PMS Forex PMS Equity PMS Fixed income PMS B 1. Equity based PMS 2. Fixed Income based PMS 3. Commodity PMS 4.
provider?
Mutual Fund PMS 5. Multi Asset based PMS
There is no product class such as Forex PMS.

The overseas fund is

allowed to park their
The overseas fund
funds in Indian
The overseas fund is is allowed to park As per SEBI (Portfolio Managers) Regulations - Obligation and
The overseas fund is allowed to scheduled
NOT allowed to park their funds in Indian Responsibilities of Eligible Fund Managers: An eligible fund manager shall
Ms. Seema is a eligible fund manager and she has a disagreement with an overseas fund park their funds in Indian commercial banks,
their funds in Indian scheduled be required to keep the funds of eligible investment funds in scheduled
105 regarding parking of investible funds. According to the overseas fund, they are not scheduled commercial banks however they would D
scheduled commercial commercial banks if commercial banks - Provided the requirement of compliance with this sub-
allowed to park their funds in scheduled Indian commercial banks. Can you guide them. with a permission from SEBI on be deemed to have a
banks as per Chapter they do not want to regulation would not arise in case an eligible investment fund does not
a case to case basis business connection
IIA guidelines of SEBI invest in Indian intend to invest in Indian securities.
with India, under
markets
section 9A of Income
Tax Act, 1961

When it is offering
When it is offering fund When it is offering When a Portfolio Manager is providing only advisory services, it will not
advisory services to
106 When will the Portfolio Manager appoint a Custodian? management services to a advisory services to a A appoint a Custodian. When it is providing fund management services, to
a Foreign Portfolio
Foreign Portfolio Investor domestic investor domestic or foreign clients, it has to appoint a Custodian.
Investor
Sr No. Question Option A Option B Option C Option D Correct Answer Solution
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
A significant percentage of A larger percentage of
return variability.
107 The Asset Allocation decision explains _____________. variability of broadly diversified variation in Single fund Both of the above None of the above C
Across all portfolios, asset allocation decision explains an average of 40
portfolios Returns
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.

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
108 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 C 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.

The Reporting Entity

A PMS client is unable to meet the specified requirements with respect to a transaction in The Reporting Entity The Reporting Entity Where the client fails to fulfil the specified requirements with respect to a
The Reporting Entity can stop can only record the
109 accordance with the Prevention of Money Laundering Act (PMLA). In such a case what can only report to can attach the A transaction under the Prevention of Money Laundering Act (PMLA), the
the transaction transaction and
can the Reporting Entity do? SEBI property of the client reporting entity shall not allow the specified transaction to be carried out.
report
Portfolio beta equals the weighted-average of the beta of all the individual
Proportions of stocks in a portfolio.
Values of chosen index on Prices of all individual
110 Which of these value(s) will be required for calculating Portfolio Beta? investment in All of the above D To calculate beta of individual stocks one will need the return of that stock as
matching dates stocks in the portfolio
individual stocks compared to the return of the market.
Thus all the above inputs will be required for calculation of portfolio beta.
This is NOT in order
This is NOT in order as no This is in order as This is in order as As per SEBI's Do's and Don'ts for the portfolio managers -
A reputed portfolio manager has deploved funds of a client with a corporate. The as this amounts to
physical delivery of the security this style of eventually bonds The portfolio manager shall not deploy the clients' funds in bill discounting,
111 corporate has promised that convertible bonds will be issued against these funds. Is this lending of the client's B
has been made and this is not investment is routine will be issued to the badla financing or for the purpose of lending or placement with corporate or
transaction in order? funds and this is not
permitted and approved PMS non-corporate bodies.
permitted
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,
The time period restriction for a contra trade by a Designated Person of a company is
112 One month Three months Six Months Nine Months C 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.
As per Prevention of Money Laundering Act, 2002, a suspicious transaction
___________ is the threshold limit for the suspicious transactions for which record needs
113 Rs. 5 Lakhs Rs. 10 Lakhs Rs. 25 Lakhs Rs. 1 Crore B includes: All cash transactions of the value of more than Rs. 10 lakh or its
to be kept as per the Money Laundering Act.
equivalent in foreign currency.
Bonds create fixed financial obligations on the issuers, so they are referred
as fixed income securities.
What is the fixed amount that is paid at regular intervals till the maturity of a bond known
114 Principal Coupon Interest Installment B The issuer of a bond agrees to 1) pay a fixed amount of interest (known as
as ?
coupon) periodically and 2) repay the fixed amount of principal (known as
face value) at the date of maturity.

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
What type of strategy is a company following if it is positioning it self as an unique one in producer, and hence the cost leader in its industry. Cost advantages vary
115 Black swan Differentiation Blue ocean Cost leadership B
the industry? 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.

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
116 _________ is not like a traditional bond. Zero coupon bond Convertible bond Corporate bond Government bond B
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.
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.
Which valuation metric is appropriate to value a firm belonging to a industry which thrives Price / Book Value Price / Current
117 Price Earnings Ratio Price / Sales Ratio C In case of companies not earning profits yet, or companies in high volume -
on high volume and low margin model? Ratio Assets Ratio
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.

Discretionary portfolio manager individually and independently manages the

funds of each investor as per the contract. This could be based on an
The industry sector
Market timing for The investment existing investment approach or strategy which the portfolio manager is
In a discretionary PMS, a client cannot impose which of the following condition / The type of securities in which in which
118 buying/selling the approach B offering or can be customized based on client's requirement.
restriction? investment can be made investments cannot
securities The clients requirement can include the type of investment approach,
be made
sectors/ industries in which not to invest etc. but the client cannot specify the
market timing to buy/sell.

Performance
Attribution Analysis
The underlying theme behind various attribution analysis approaches is to
Performance Attribution identifies whether a
dissect the return into majorly two components: Return driven by the
Analysis is the correct way to portfolio has
benchmark and the Differential return.
119 Identify the true statement(s) - decide the amount of outperformed the Both of the above None of the above B
And then identifying and quantifying the sources of differential return to
performance fee that can be benchmark or it has
primarily establish whether it was driven by skill of the portfolio manager or
charged by a portfolio manager not outperformed the
some random factors
benchmark in terms of
risk-return metrics

The investor has deposited Rs 50 lakhs. So the effective return has to be

calculated on the total amount deposited
An investor has deposited Rs 50 lakhs with a fund manager. Out of this, only Rs. 35 lakhs
Return on Investment = Net Return on Investment / Cost of Investment
120 was invested and this earned Rs. 3,40,000. How much return did the 9.71% 8.33% 6.80% 5.70% C
×100%
investor effectively earn?
= 3,40,000 / 50,00,000 x 100%
= 6.8%
As per Chapter V the SEBI (Intermediaries) Regulations, 2008 - action in
As per Chapter V of SEBI (Intermediaries) Regulations, 2008, the period for which a case of default:
121 portfolio manager would be prohibited from taking any new assignment (in case of Minimum 2 years Minimum 5 years Minimum 7.5 years Unspecified D • Prohibiting the portfolio manager to take up any new assignment or
default) is _________. contract or launch a new scheme for the period specified in the order
(The period of suspension will be mentioned in the SEBI order)
The returns from a portfolio and its risks depends on various factors. The
On what does the Risk and Return of a portfolio depend upon? proportion of investment in various securities and the covariance of return of
122 A. It depends upon the covariance of return of each pair of securities in the portfolio Only A Only B Both A and B Neither A nor B C each pair are two important factors.
B. It depends upon the proportion of investment in each constituent security (Covariance is a statistical measure of how one investment moves in relation
to another)

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:
What type of action can be taken by SEBI in case of default by a portfolio manager? 1) suspension of certificate of registration for a specified period; 2)
A. It can prohibit the portfolio manager from launching a new scheme cancellation of certificate of registration; 3) prohibiting the portfolio manager
123 Both A and B Both B and C Both A and C All A, B and C D
B. It can issue a warning to the portfolio manager to take up any new assignment or contract or launch a new scheme for the
C. It can suspend the certificate of registration of the portfolio manager 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.

The agreement between the Portfolio manager and the client includes
If the agreement various clauses and one of them is -
contains a limited 'In case of a discretionary portfolio manager; a condition that the liability of a
In case of a non-discretionary
A client has suffered a loss which is greater than the value of assets with a PMS. How is liability clause then the Both of the above None of the above client shall not exceed his investment with the portfolio manager'.
124 portfolio manager the client will B
the client protected in such a case? client is protected in are true is true (The discretionary portfolio manager individually and independently
be completely protected
case of discretionary manages the funds of each investor whereas the non-discretionary portfolio
portfolio manager manager manages the funds in accordance with the directions of the
investors)
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,
Engaging afford to engage such professional management. Large investment corpus
There are several benefits of economies of scale for a mutual fund. Which of these is Providing all required Negotiating better Costs on investment
125 professional A leads to various other economies of scale.
NOT a benefit of economies of scale for a mutual fund? information terms with brokers research
managers 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.

As per Capital Asset Pricing Model (CAPM), the required return on a security
or portfolio is computed as:
Required return = Rf + ẞ (Rm - Rf)
A company's market beta is 1.25 and the risk free rate is 6 percent. What is the estimated Rf = Risk free return, ẞ = Beta of the security/portfolio, (Rm - Rf): Market risk
126 equity return as per CAPM if the market risk premium in the country is 9 17.25% 9% 21% 23.50% A premium
Percent ? Substituting, we get
Required return = 6 + 1.25 (9)
= 6 + 11.25
= 17.25%

Government Agencies / Statutory Bodies and Public Sector Undertakings

127 What are the bonds known as which are issued by Government Agencies? Government Bonds Public Sector Bonds Agency Bonds Public Securities B issue Public Sector Bonds.
(Central or State Governments issue Government bonds)
Some of the conditions mentioned in Section 9A of the Income Tax Act are
For which category / categories of FPIs is Section 9A of the Income Tax Act 1961 NOT not applicable to an investment fund set up by the Government or the
128 Category | FPIs only Category II FPIs only Both of the above None of the above A
applicable? Central Bank of a foreign State or a sovereign fund or Category I FPI
registered under SEBI (FPI) Regulations, 2019.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution
A Portfolio Manager A Portfolio Manager A Portfolio Manager
A Portfolio Manager will not
will not deduct his fees will not charge any will not charge any As provided in Regulation 22 (11) of the PMS Regulations, no upfront fees
charge any fees first and then
129 What does 'Up front' mean under the PMS regulations? before he distributes amount of fees at beginning D shall be charged by the Portfolio Managers, either directly or indirectly, to the
calculate the total return
the benefits to the performance fee as before providing any clients.
generated on the fund
client wished service to client

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.
Blue chips in the Measurability of
130 _____________ is the top most attribute while choosing a comparable benchmark index. Number of securities Investment approach B It is a standard or point of reference. It is a collection of investment
index performance
opportunities or securities or risk factors which represent the investment
characteristics and investment approach of the portfolio being evaluated
against it.

A PMS Client can earn:

• Income from dividend on shares and units of mutual funds
Capital gains from sale Capital gains from • Income from interest on Fixed Income Securities
131 Which of these incomes will NOT be earned by a PMS client? Interest income Dividend income B
of business sale of 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.
Providing for When a person has low income, then there are some goals which will have a
An investor has a limited and low means of income. Which of these goals should he give Buying a house for his own Buying a health Buying a Multi Utility
132 children higher C low priority. There are goals that are not particularly painful if they are not
a low priority? residence insurance Vehicle
education achieved. These could range from buying a farm house to a luxury car.

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
It relates to
Clause 12(B) of Schedule III of SEBI (Portfolio Managers) Regulations relate to lt relates to Speculative and lt relates to Insider It relates to accessible media, whether real-time or non-real time, unless a disclosure of
133 Institutional trading D
_______________. Risk trading trading Proprietary trading his long or short position in the said security has been made, while rendering
by foreign institutions
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

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
Mr. Soham is a fund manager and he has invested the funds in two stocks A and B in the
1.74 The beta of Stock A is 1.2 and stock B is 0.6
134 ratio 6: 4 respectively. The beta of stock A is 1.2 and the beta of stock B 0.96 0.42 1.09 B
Portfolio Beta = (0.6 X 1.2) + (0.4 X 0.6)
is 0.6. Calculate the Portfolio Beta.
= 0.72 + 0.24
= 0.96
lts positive when lts positive when If market interest rate levels rise, the price of a bond falls. Conversely, if the
135 Define the relationship between the prices of a bond and its yield. lts always positive lts always inverse interest rates are interest rates are B market interest rates decline, the price of the bond rises.
falling rising In other words, the yield of a bond is inversely related to its price
A PMS has changed its main office address. This should be informed to A. Financial
The change in office address has to be informed to SEBI and the clients.
Intelligence Unit - India (FIU)
136 Only A and B Only B and C Only A and C All A, B and C B Its not to be informed to FIU as only suspicious transaction with respect to
B. SEBI
money laundering etc. have to be reported to FIU.
C. Clients
The PMS firm need
not disclose about
The PMS firm has to disclose The PMS firm need The PMS firm has to If the portfolio manager has group companies, a disclosure of conflict of
A reputed PMS firm has 5 group companies. Identify which among the following is the the group
137 about the group companies only not disclose about the disclose about the A interest related to services offered by group companies of the portfolio
best practice about disclosing these to the client. companies as they
if there is a conflict of interest group companies group companies manager if any, has to be mentioned in the disclosure document.
are not above 10 in
number
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
138 Which of the following institutions can issue bonds in India ? Financial Insstitutions Banks Corporates All of the above D
entities such as the Central and State Governments, Public Bodies, Banks
and Institutions, statutory corporations and other corporate bodies.

Technical analysis integrates these three elements into price charts - points
of support and resistance in charts and price trends.
The price of ABC Ltd. equity shares has reached its resistance line. As per technical Sell the shares of ABC Hold the shares of
139 Buy the shares of ABC Ltd. B If a stock price is moving closer to an established resistance level, a holder
analysis, this is a good time to ________. Ltd. ABC Ltd.
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.

An investor has to An investor only has Portfolio Managers can be evaluated on the basis of their investment
An investor should pay
There is no need for an investor depend on the to place trust in the philosophy, investment approach, investment process, strategies, styles and
Identify the TRUE statement with respect to an investor seeking to engage a portfolio attention to the major
140 to understand anything about distributors advice on portfolio managers B past performance compared against a benchmark or managers' universe.
manager. provisions of the
investing styles the choice of a approach to Attention can also be paid to the major provisions in the contract with the
investment contract
portfolio manager investing portfolio managers.

The 'Know Your Customer (KYC)' process has to be undergone by all

investors of PMS in compliance with the regulations of the Prevention of
SEBI (Portfolio SEBI(Portfolio Prevention of
Money Laundering Act, 2002.
141 As per which regulations is the KYC compliance been made mandatory? RBI Act 1934 managers) managers) Money Laundering D
In order to ensure that illegal funds are not routed into Indian markets, the
Regulations 1996 Regulations 2020 Act 2002
government has promulgated the Prevention of Money Laundering Act
(PMLA).
Lets take an example to understand this: - USD depreciating against INR
Ms. Preeti invested in the US and she earned 18% on that US investment. If the US means the value of USD falls against INR. Say from Rs 75 to Rs 74.
142 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 B 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.

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
A Micro credit
A Portfolio Manager client, the management or
The legal existence of a institution under co- A one person
is to be promoted by administration of a portfolio of securities or the funds of the client.
143 Identify the statement which is NOT true regarding the organization of Portfolio Manager? Portfolio Manager should be operative societies act company can also be D
a Scheduled A body corporate means any entity that has its separate legal existence
separate from its promoters cannot be a Portfolio a Portfolio Manager
commercial bank apart from the persons forming it. It can be a one person company. It cannot
Manager
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.

Body corporate broadly means a corporate entity which has a legal

A body corporate existence. A body corporate means any entity that has its separate legal
A body corporate
A body corporate should be an existence apart from the persons forming it.
A body corporate should have should be listed on
144 Identify the distinguishing feature of a body corporate? should have issued independent legal C It enjoys a completely different legal status apart from its members.
minimum 10 shareholders a recognised stock
equity shares entity separate from In simple terms, the term body corporate includes a private company, public
exchange
its owners company, one persona company, small company, Limited Liability
Partnerships, foreign company etc.

As per technical analysis - There are three essential elements in

understanding price behaviour:
Time span is an A good volume 1. The history of past prices provides indications of the underlying trend and
145 Identify which of these is an essential element of Technical Analysis? Price follows a pattern indication of Trend indicates strength in All of the above D its direction. 2. The volume of trading that accompanies price movements
sustenance Trend 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.

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
Sortino ratio and adjusted return is called Sharpe ratio.
Sharpe ratio when multiplied by Sortino ratio is excess Sortino ratio is the
Sharpe ratio both For computing Sortino Ratio, portfolio's return in excess of the risk-free
146 Identify the TRUE statement - the downside Risk is called returns per unit excess returns per B
measures the same return is divided by the portfolio's semi-standard deviation. Thus, Sortino
Sortiona ratio downside risk unit of total risk
excess returns 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.

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

a) pure time value of money - for investors postpone their current
Compensation for
Compensation for time Compensation for consumption
147 Which type of compensation is not embedded in the nominal risk free rate? Compensation for liquidity postponing A
lapsation inflation b) compensation for expected inflation during the period of investment for the
consumption
change in the general price levels and
c) risk premium for the uncertainty of future payments

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.
148 _________ can be a day count convention in the Fixed Income markets of the world. Actual/Actual Actual/365 Actual/360 All of the above D 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.

Before SEBI issues the certificate of registration to a PMS, it has to ensure that the Before issuing a certificate of registration, the regulator will ensure whether -
applicant has appointed: In addition to the Principal Officer and Compliance Officer, the PMS
A. Compliance Officer applicant has in its employment at least one person who has a graduation
149 B. Principal Officer All A, B and C Only A and B Only B and C Only A and C B from a university or an institution recognized by the Central Government or
C. Atleast five person who are graduate from a university recognized by Central or State any State Government or a foreign university; and an experience of at least
government and has atleast 2 years experience in securities market two years in related activities in the securities market including in a portfolio
related activities manager, stock broker, investment advisor or as a fund manager.
Currency risk can Currency risk is Currency risk arises The fluctuations in currency values can either enhance or reduce the returns
Currency risk can increase the
decrease the realized covered by the due to associated with foreign investments. This is called currency risk. This risk
150 Identify the INCORRECT statement with respect to Currency Risk. realized return on a foreign C
returns on a foreign returns generated on unpredictability in arises due to the unpredictability in exchange rates.
investment
investment foreign investments exchange rate Returns on foreign investments can never be covered by currency risk.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution
There are two types of cost in rebalancing - transaction cost and tax cost.
Securities Transaction costs is the time and money costs like research cost, brokerage
151 __________ is not considered a part of Rebalancing cost. Stamp duty levied Brokerage cost Transaction Tax PMS fees payable D etc., for buying and selling securities. Tax costs include the Securities
(STT) transaction tax, Stamp duty etc.
PMS fees is not a part of Rebalancing Cost.
Pension Funds: A fund established to facilitate and organize the investment
The fund which is established to facilitate and organize the investment of the retirement of the retirement funds contributed by the employees and employers.
152 Public Provident Fund Pension Fund Retirement Fund Mutual Fund B
funds contributed by the employees and employers is known as ____________. 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.
P/E Ratio is the
P/E Ratio is the P/E Ratio is the A stock's P/E tells us how much investor is willing to pay per rupee of
P/E Ratio is the market market's willing
market determined market perceived earnings.
153 Identify the TRUE statement with respect to P/E Ratio (Price Earning Ratio). determined earnings of a investment for every D
price of a company's earnings growth rate In other words, a P/E ratio of 10 suggests that investors in the stock are
company 1 rupee of earnings
equity of a company willing to pay Rs. 10 for every Re. 1 of earnings that the company generates.
of the company

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
____________ as a factor is recognized by RBI Act 1934 to derive the value of a Index of industrial
154 Interest Rate Inflation Rate GDP Growth rate A (also called "underlying"), or a combination of more than one of them and
derivative. production
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.

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.
Investors risk Investment
155 Which of these is NOT contained in the Investment policy statement? Financial Regulations Investment roadmap A Either investors or their advisors draft the IPS specifying their investment
appetite constraints
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..

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}
A net amount of Rs 10,000 has to be paid to an investor as interest. The TDS (Tax
Net amount is Rs 10000
156 Deducted at Source) is 10%. Calculate how much should be set aside for the payment of Rs. 12,111.12 Rs. 10,000 Rs. 11,111.11 Rs. 9000 C
10000 = G (G x 0.1)
interest?
10000 = G-0.1 G
[1G-0.1G = .9G]
10000 = .9G
G = 10000/.9 = 11,111.11

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
What type of disciplinary action can be taken as per the SEBI (Prohibition of Insider intermediary or fiduciary required to formulate a code of conduct under sub-
157 Wage Freeze Recovery Suspension All of the above D
Trading) Regulations? 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.

In India, Currency Derivatives are available on four currency pairs viz. US

The currency pair of ____________ does not have futures or options trading on Indian
158 JPY-INR USD-INR Chinese Yuan-INR EUR-INR C Dollars (USD-INR), Euro (EUR-INR), Great Britain Pound (GBP-INR) and
stock exchanges.
Japanese Yen (JPY-INR).

Mr. Mehta's initial contribution is Rs. 2 crores which then rises to Rs. 2 crores 30 lakhs in High Water Mark is the highest value that the portfolio/ account has reached.
159 the first year. Therefore, a performance fee will be payable on Rs. 30 lakhs. Is this TRUE FALSE A The portfolio manager charges performance based fee only on increase in
statement True or False? portfolio value in excess of the previously achieved high water mark.

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
Unsystematic risk is
Unsystematic risk is factory.
Unsystematic risk is Unsystematic risk is expected to be nil in
160 Identify the INCORRECT statement with respect to Unsystematic risk. unavoidable risk C Unsystematic risk is also known as a diversifiable risk since it can be
diversifiable risk sector specific risk a portfolio
eliminated by sufficiently diversifying a portfolio.
investment
These risks are avoidable by not investing only in a particular sector or
company buy by having a diversified large portfolio.

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.
Pricing of Unlisted Since these investments do not trade in stock exchange, they are relatively
Identify which of these statement(s) is / are true with respect to Unlisted equity Unlisted equity is relatively Pricing of Unlisted
161 equity includes a All of the above D less liquid in comparison to listed investments. Hence, investors may
investments. illiquid equity is sporadic
discount for illiquidity 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.

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.
The nominal rate of return protect the investors from inflation risk. Comment on this No, it definitely does Yes, it probably
162 Yes, it definitely protects Can't say B As can be seen, it ignores the potential change in the purchasing power of
statement. not protects protects
rupee due to inflation. There is no guarantee that rupee will have the same
purchasing power a year from now
that it has today.

FCCBs are foreign FCCBs are foreign

In FCCBs, the FCCBs are foreign currency (usually dollar) denominated debt raised by
currency currency
Identify the CORRECT statement with respect to Foreign Currency Convertible bonds FCCBs are equity shares payment of interest companies in international markets but which have the option of converting
163 denominated equity denominated debt D
(FCCB). convertible into bonds and principal is in into equity shares of the company before they mature.
certificates issued by certificates issued
domestic currency The payment of interest and repayment of principal is in foreign currency.
firms by firms

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

whether:
The principal officer of the applicant has -
The principal officer a) a professional qualification in finance, law, accountancy or business
lf the applicant is from
should have management from a university or an institution recognized by the Central
The Principal officer is required United States of PMS registration
experience of at least Government or any State Government or a foreign university or a CFA
164 Identify the true statement with respect to registration of a Portfolio Management Service. to have a valid degree from any America, then the and approval can C
five years in related charter from the CFA institute;
discipline networth requirement now be done online
activities in the b) experience of at least five years in related activities in the securities
is relaxed
securities market 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

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,
165 Identify which of these is not a cost of investing in a PMS? Franking charges Brokerage charges Listing fee Registrar fee C
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).
To act as a portfolio manager, obtaining certificate of registration from SEBI
The application for registering as a Portfolio Management Service has to be made in Form B of Schedule
166 Form A of Schedule II Form B of Schedule I Form A of Schedule I A under the Portfolio Managers Regulations is a mandatory requirement.
___________ of SEBI Portfolio Managers regulations. III
The application needs to be made in Form A of Schedule I.
It is correct that the 'long term correlation pattern between two asset classes does not Correlation measures the strength and direction of relationship between two
change over times'? A. Yes, the statement is correct as their cashflow patterns do not variables. Correlations among asset class returns can and do change over
Both A and B are Neither A nor B are
167 change Only A is correct Only B is correct B time and in different economic situations. Asset return correlation in future
correct correct
B. No, the statement is incorrect as the macroeconomic factors and investor preference may also differ from those observed in the past because of changing
change economic and market regimes.

Profit sharing/performance related fees are usually charged by portfolio

The performance fee
The performance fee is charged managers upon exceeding a hurdle rate or benchmark as specified in the
is charged only when
Identify the CORRECT statement with respect to the charge of performance fee by the when the portfolio value agreement.
168 the rate of return on a Both of the above None of the above C
portfolio manager. exceeds the previous high High Water Mark is the highest value that the portfolio/account has reached.
portfolio exceeds a
water mark The portfolio manager charges performance based fee on increase in
'hurdle rate'
portfolio value in excess of the previously achieved high water mark.

Portfolio management services are regulated by SEBI under Portfolio

Manager Regulations.
As per SEBI regulations, _________ is the minimum limit value of funds or securities that As per the rules - The portfolio manager is required to accept minimum Rs.
169 Rs. 25 Lakhs Rs. 50 Lakhs Rs. 1 crore Rs. 1.5 crore B
can be accepted from a client by a PMS 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.
Portfolio management process involves a set of integrated activities
Study current financial and Develop a policy Construct the
170 Which of the following is a step in the portfolio management process? All of the above D undertaken in a logical, orderly and consistent manner to create and
economic conditions statement portfolio
maintain optimum portfolio. All of the above are steps in this process.
The applicant has the
necessary infrastructure like
The applicant has
Which of the following is the requirement for granting the certificate of registration under adequate office space, The applicant is a All the above are requirements for granting the certificate of registration
171 appointed a All of the above D
Portfolio Managers Regulations 2020? equipment and the manpower body corporate under Portfolio Managers Regulations.
compliance officer
to effectively discharge the
activities of a portfolio manager
The following persons/entities can invest in PMS: - Individuals - Non-resident
Non-resident Indians
Indians (as per the RBI guidelines) - Hindu Undivided Family - Proprietorship
172 Which of the following persons/entities can invest in PMS? Hindu Undivided Family Individuals (as per the RBI All of the above D
firms. - Association of person
guidelines)
- Partnership Firms - Limited liability Partnership. - Trust - Body Corporate.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution
Gives the bond
holders the option to Allows the issuing
Gives the holder the right, under convert the bond into A put provision gives the bondholders right to sell the bond back to the
firms to retire the
certain circumstances to sell the another security, Allows the investor issuer at a predetermined price on specified dates. Putable bonds are
173 Typical putability (put option) feature of a bond ____________. bonds before the A
bond back to the issuer typically the common to redeem the bond beneficial for the bondholder by
maturity by paying a
stock of the firm guaranteeing a pre-specified selling price at the redemption dates.
prescribed price
issuing the convertible
bonds
G-Secs ie. Government Securities carry practically no risk of default as they
Government securities carry practically no risk of _____________ and, hence are called
174 Liquidity Tradability Negotiability Default D are guaranteed by the Government of the country and, hence, are called
risk-free or gilt-edged instruments.
risk-free gilt-edged instruments.
The most common stock valuation measure used by analysts is the price to
earnings ratio, or P/E.
175 __________ 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 D
For computing this ratio, the stock price is divided by the Earning Per Share
(EPS) figure.
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
__________ was inserted in the Income Tax Act, 1961 to provide a 'safe harbour' to
176 Section 11 C Section 42 Section 9 A Section 12 D C section.
overseas funds availing fund management services from India based managers.
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.

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
Under relative valuation techniques, value of a stock is estimated based upon its current
177 Cash Flow Book Value Earnings All of the above D respect to any chosen metric of the company's financials, such as earnings,
price relative to variables considered to be significant in valuation, such as ___________.
cash flow, book values or sales.
These multiples are then applied to the respective financials of the target
company for valuation.
In India, the Central Government issues both, treasury bills and bonds or
178 In India, the Central Government issues _____________. Dated Securities Treasury bills Both of the above Certificate of deposit C dated securities while the State Governments issue only bonds or dated
securities.
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
________ represent ownership in a company that entitles its holders to participate in its
179 Equity Shares Commercial Papers Bonds All of the above A claims on the firm are satisfied and have the ultimate control over how the
profits and the right to vote on the company's affairs.
firm is operated.
Equity Shareholders are residual claim holders. Investments in equity shares
reward investors in two ways: dividend and capital appreciation.

Operating expenses that can be charged to PMS - Charges in connection

with day to day operations like courier expenses, stamp duty, document
Fee for Portfolio franking charges, notary charges, service tax, other statutory levies, postal
180 Which of these expense can be included under Operating Expenses? Courier Charges Audit fees Brokerage charges A
manager's services 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.
Savings Bank
Which of these document is mandatory for investment in PMS as per SEBI (Portfolio The KYC process also requires verification of the PAN card. It is mandatory
181 Aadhar Card PAN Card Passbook Passport B
Managers) Regulations? for all investors who wish to invest in PMS to complete KYC formalities.

The disclosure document contains details with respect to -

1. Risk arising from the investment approach, investment objective,
investment strategy and asset allocation
The business risks of
Which of these risks are NOT related to the risk factors that are to be revealed as part of The risks arising due to the The risks arising due 2. Risk arising out of non-diversification, if any
182 the group companies Market Risks B
the disclosure document given to the client? investment approach of PMS to Non-Diversification 3. Statement to the effect that securities investments are subject to market
of the PMS
risks etc
(Details of business risk of group companies is not required to be mentioned
in disclosure document)

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.
Mr. Karan is an investor and he has a good amount of surplus in his saving bank account. lt is the future lt may be the savings It is an investment It is common to use the terms Savings and Investment interchangeably.
183 lt is the income of Mr. Karan C
What can you make out from this statement? expenses of Mr. Karan of Mr. Karan of Mr. Karan 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.

When an already listed company makes either a fresh issue of securities to

the public or an offer for sale (OFS) to the public, it is called a further public
offer or FPO.
184 Offer for sale (OFS) is method of share sale for _________. listed companies unlisted companies startups All of the above A
An Offer for Sale is a form of share sale where the shares offered in an IPO
or FPO are not fresh shares issued by the company, but an offer by existing
shareholders to sell shares that have already been allotted to them.
The process of Concerned with the Asset allocation is the process of deciding how to distribute an investor's
Concerned with the relationship Concerned with
185 Asset allocation is _________. dividing funds into risk associated with C wealth into different asset classes like equity, debt etc. for investment
among investments' returns returns variability
asset classes different assets purposes.
Derivatives traded on
Rupee denominated credit a recognised stock Domestic Mutual
186 A foreign portfolio investor can invest in the following securities? All of the above D A foreign portfolio investor can invest in all of the above.
enhanced bonds exchange Fund Schemes

While the primary market is used by issuers for raising fresh capital from the
Provide information about public Provide a platform for Provide liquidity for investors through issue of securities, the secondary market provides liquidity
187 Which of the following is the function of the secondary markets? All of the above D
companies making public issues securities issued to these instruments. It also provides a platform for making public issues and
also provides information about public companies on its website.
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
Financial assets - Financial Tangible assets - All Assets - All All Assets - Current accounts etc. are to be recorded at the estimated market value. Then all the
188 How is the Net Worth of an individual investor calculated? C
liabilities Tangible liabilities Liabilities Liabilities 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.

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)
Yes, when it is required for Yes, when it is for Yes, when it is for for settlement of the clients' own trades; (b) for providing margin/ collateral
189 Is it correct for the PMS to execute Off-Market transactions in the clients account? providing margin for client's own dealing in unlisted settlement of client's All of the above D for clients' own positions; (c) for dealing in unlisted securities in accordance
positions securities own trades 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.

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.
The quality of the The quantity of the
(Maintenance margin is the minimum amount that must be maintained at any
190 _________ of a Futures Contract is not decided on the date of entry into the contract. The maintenance margin The discounting rate asset to be asset to be B
given time in your account while trading in futures)
exchanged exchanged
(The discount rate is the interest rate used to determine the present value of
future cash flows in a discounted cash flow analysis.)
An individual is treated as resident in India if he stays in India for:
For a person to be qualified as a NRI, he must have stayed outside India for more than (a) 182 days or more during the relevant previous year; or
191 150 182 365 280 B
days in a previous financial year. (b) 60 days or more (but less than 182 days) during the relevant previous
year and for 365 days or more in the last 4 years.
All of the above can invest in PMS. The following
entities can invest in PMS: ⚫Individuals. ⚫Non-resident Indians (as per the
192 Which of following entity is NOT eligible to invest into PMS? Association of person Partnership Firms Proprietorship firms None of the above D RBI guidelines). ⚫Hindu Undivided Family Proprietorship firms.
⚫Association of person ⚫ Partnership Firms ⚫ Limited liability
Partnership. ⚫Trust⚫ Body Corporate

The returns from most of the investment opportunities (apart from

Government bonds) do not have certainty of the amount and the timing of
cashflows. Further, the uncertainty of
receiving the future cashflows vary amongst investments. In such cases,
If there is an uncertainty with respect to the future payment, the investor would require
Both Alpha and Risk investors would require compensation for the uncertainty associated with
193 return more than the nominal required rate of return. The additional component is called Alpha Risk free rate of return Risk premium C
free rate of return future cashflows.
____________.
This additional compensation over the nominal risk-free rate is called risk
premium. If the investors perceive higher risk (more uncertainty with respect
to the future payment), they
would demand higher risk premium.

calculates average differential evaluates portfolio If one wish to determine whether or not an observed alpha is due to skill or
adjusts portfolio risk compares portfolio
return per unit of variability of performance on the chance, we can compute information (appraisal) ratio.
194 Portfolio performance measure of "Information Ratio" ______________. to match benchmark returns to expected A
differential return basis of return per unit It calculates average differential return per unit of variability of differential
risk returns under CAPM
of risk return.
Arbitrage is the process to identify price differential in two markets and
indulge in trades that reduce such differences in price and profit from it. Such
Spot and futures Futures and options
195 Arbitrage opportunities can exist between _____________. Two futures prices All of the above D arbitrage opportunities can exist
prices prices
between the spot and future prices, between two future prices of different
expiry, between futures and option prices etc.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution
The Treynor measure adjusts excess return for systematic risk. It is
computed by dividing a portfolio's excess return, by its beta.
The measure of performance which divides the portfolio's risk premium by the portfolio's
196 Jensen measure Treynor measure Sharpe measure Fama measure B As Treynor ratio indicates return per unit of systematic risk. Hence it is a
beta is the ___________.
useful measure of performance if an investor wishes to evaluate a portfolio in
combination with other actively managed portfolios.

Regulatory constraints:
Generally individual investors do not have many regulatory constraints. But if
there are any, they need to be followed. Regulations can also constraint the
investment choices available to the investors. For example, as per the
Reserve Bank of India's notification, Liberalised Remittance Scheme (LRS),
Access to information which is an Indian resident individua can only invest up to 149 $250,000 overseas per
Investment in
197 What is/are the regulatory constraints for investors resident in India? unavailable to the general Both of the above None of the above C year.34 Indian resident individual investors cannot make investments greater
overseas markets
public than the amount specified by the regulator.
Another example is the sale or purchase of securities on the basis of
information that is not publicly known. Usually people who have access to
such information are insiders of the
company and they are prohibited from trading on the basis of insider
information.

Anchor investor means a qualified institutional buyer who makes an

application for a value of ten crore rupees or more in a public issue made
As per SEBI Regulations, what is the application amount of a QIB which will give them the
198 Rs. 10 lakhs Rs. 1 crore Rs. 5 crores Rs. 10 crores D through the book building process in
status of Anchor Investor?
accordance with Securities and Exchange Board of India (Issue of Capital
and Disclosure Requirements) Regulations.

Duration of a bond is a measure of the time taken to recover the initial

investment in present value terms. In simplest form, duration refers to the
Calculate the duration of a zero coupon bond which has a balance term to maturity of four payback period of a bond to break even, i.e., the time taken for a bond to
199 Two years Four Years Eight Years Six Years B
years. repay its own purchase price.
Because zero coupon bonds make no coupon payments, a zero coupon
bond's duration will be equal to its maturity.

The consolidation or mid-to-late-career phase of the typical life cycle is

characterized by the period when income exceeds expenses. As a result,
this stage is characterized by the consolidation of investment portfolio.
What type of investment objective should be pursued by an investor during the
200 Tax Planning Capital preservation Regular income Capital Appreciation B
Consolidation phase? At this time, while the time horizon to retirement is still relatively long (15 or
20 years), investors may start looking for capital preservation. High capital
gain investments are balanced with some lower-risk assets.

Portfolio rebalancing involves a simple trade-off: the cost of rebalancing

versus the cost of not rebalancing. While deciding the frequency of
Equity Research rebalancing, the trade-off between the cost of doing it and not doing it is to
Bid Ask spreads and Transaction costs
201 __________ costs influence the Portfolio Rebalancing decisions. Taxes and General Expenses costs and C be arrived at.
Taxes and Taxes
Transaction costs There are two types of cost-transaction cost and tax cost. Transaction costs
is the time and money costs like research cost, brokerage etc., for buying
and selling securities.

The INR value of the investment depends on two factors -

Ms. Shobha has invested Rs 10 lakhs in USA when the USD/INR rate was Rs. 74.25 per 1. The USD/INR exchange rate
USD. After about six months, the USD/INR rate has changed to Rs. 71.25 2. The appreciation/depreciation in the value of the security / asset invested
per USD. In this scenario, the new INR value of the investment - Normally, if the Rupee appreciates against Dollar (Rs 74.25 to Rs 71.25 as
202 Only A Only B Both A and B Neither A nor B A
A. Will depend on the change in the value of investment in USA and its value in US in the above question) the value of investments will decrease in Rupee
Dollars terms. But if the value of the security
B. Will surely decrease as INR has appreciated has increased in the US, then the exchange rate loss will be recovered by
the price rise.

203 The minimum investment required for PMS investment is __________. Rs. 5 Lacs Rs. 25 Lacs Rs. 50 Lacs Rs. 1 Crore C The minimum investment required for PMS investment is Rs. 50 lacs.

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
The debt issuer
The debt instruments credit rating.
The debt issue size must stand as
The debt instruments must be should have a
204 Which of the following is essential for the public issue of a debt security? should be greater guarantor for the A
credit rated minimum coupon Default risk can be assessed by tracking the credit rating of an investment.
than Rs. 5000 Crs payment of principal
specified Credit rating agencies assign credit ratings after carrying out a detailed
and interest
analysis of the issuer's financial
ability to honour the payments on time.

Commission income refers to fees earned by brokers and agents in making

a sale or closing a deal. It is the primary revenue account of real estate
Business and brokers, stock brokers, insurance agencies, etc.
205 Commission received from business forms part of income from_______ Capital Gains Salary Other sources C
profession If a person is engaged in the commission business, then the income from
commission business shall be offered to tax under the head "Income from
business and profession".
Every mutual fund scheme will have an investment objective which will be
decisions of SEBI about the the investment decisions of RBI decisions of the clearly stated in the Offer Documents.
206 The types of securities purchased by the fund, depends on ________ B
fund objectives of the fund about the fund fund advisors The fund manager has to invest the funds in securities as per the investment
objective.

An important document to understand the safety aspects of the bond is its

Indenture. It is the legal agreement between the firm issuing the bond and
An Indenture is a An Indenture is the
An Indenture is a the bondholders, providing the
An Indenture is a special kind of legal agreement power of SEBI to
207 With respect to a Bond, what is an Indenture? clause of indemnity in C specific terms of the debt agreement. All the features of the bond i.e. its par
high value bond describing the write off the liability
a bond value, coupon rate, maturity period, periodicity of coupon payments,
features of a bond on a bond
collateral for the bond, seniority of the payments will be set forth in the
indenture.

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
There cannot be All bonds create a interest at a fixed date for perpetuity.
The face value of a bond and its Some type of bonds
208 Identify the TRUE statement with respect to Bonds. embedded options in ownership right in a C While the principal amount in such bonds is never really due for repayment,
market value are always same need not be repaid
bonds company 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.

The underlying theme behind various attribution analysis approaches is to

To find out to what To find out to what dissect the return into majorly two components: return driven by the
To find out the differential return
extent individual firms extent sectoral benchmark and the differential return.
209 The prime motto of portfolio attribution analysis is ______________. generated due to the skill of the A
contribute to portfolio returns contribute to And then identifying and quantifying the sources of differential return to
portfolio manager
returns portfolio returns primarily establish whether it was driven by skill of the portfolio manager or
some random factors.

Before SEBI issues the certificate of registration to a PMS, it has to ensure that the Before issuing a certificate of registration, the regulator will ensure whether -
applicant has appointed: In addition to the Principal Officer and Compliance Officer, the PMS
A. Compliance Officer applicant has in its employment at least one person who has a graduation
Only A and B are correct Only B and C are Only A and C are All A, B and C are
210 B. Principal Officer D from a university or an institution recognized by the Central Government or
correct correct correct
C. Atleast one person who is graduate from a university etc. Recognized by Central or any State Government or a foreign university; and an experience of at least
State Government and has atleast 2 years experience in securities market related two years in related activities in the securities market including in a portfolio
activities manager, stock broker, investment advisor or as a fund manager.

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
When the Market When the Market
When the Market price is lower When the Market price holder a negative cash flow if it were exercised immediately.
211 When is a Call Option said to be Out of the Money (OTM)? price is equal to price is higher than A
than strike price is equal to OTC price A call option is said to be OTM. when spot price is lower than strike price.
strike price strike price
And a put option is said to be OTM when spot price is higher than strike
price.
Near-Term High Priority Goals have a high emotional priority which the
An investor wants to invest for some near term goals and he does not have much Top rated long investor wishes to achieve within just a few years at most.
Dividend paying blue chip Mid and Small cap
212 tolerance for variation. In this case the investment universe should be restricted to duration fixed income Government Bills C As a result, investment vehicles for these goals tend to be either cash
shares funds
__________. securities equivalents or fixed-income instruments with maturity dates that match the
goal date like Government Bills.
As per SEBI Portfolio Managers regulations - The portfolio manager shall
The threshold frequency of performance reporting required by the portfolio managers as
213 5 months 4 months 3 months 2 months C furnish periodically a report to the client, as agreed in the contract, but not
per SEBI (Portfolio managers) regulations is _________.
exceeding a period of three months and as and when required by the client.
Performance fee
The client does not have to pay Fee payable by the Any charges payable for outsourced professional services like fund
Each service type wise charged by Portfolio
Identify the INCORRECT statement with respect to fees paid by the client to the portfolio fees for services which are client is agreed upon accounting, taxation, auditing, and any legal services, franking charges and
214 fee payable is agreed manager is A
manager. outsourced by the portfolio in the initial notarizations, etc. incurred on behalf of the client by the portfolio manager is
upon completely
manager agreement payable by the client.
negotiable

Every portfolio manager shall keep and maintain the following books of
accounts, records and documents namely: -
Financial statements (a) a copy of balance sheet at the end of each accounting period; (b) a copy
Profit and Loss of companies in Auditor's report of of the profit and loss account for each accounting period; (c) a copy of the
215 A PMS firm need not keep which of these records? Balance sheet of the firm C
Account of the firm which the PMS has the firm auditor's report on the accounts for each accounting period; (d) a statement
invested of financial position and; (e) records in support of every investment
transaction or recommendation which will indicate the data, facts and opinion
leading to the investment decision.

In an Appraisal Ratio, the numerator represents the fund manager's ability to

use his skill and information to generate a portfolio return that differs from
the benchmark.
False - Appraisal
The denominator measures the amount of residual (unsystematic) risk that
216 An Appraisal Ratio makes use of Tracking error - State whether True or False? True - as a denominator True as a numerator Ratio does not use A
the investor incurred in pursuit of those excess returns. The numerator is
Tracking error
often referred to as the active return on the portfolio whereas denominator is
referred to as the active risk. The point to be noted is that active risk is
nothing but tracking error of the portfolio.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution

The formula to get Net from Gross after tax is -

Net Gross - (Gross X Tax)
[Let Gross = G]
A net amount of Rs 25,000 has to be paid as interest to an investor. The TDS (Tax [Tax is 10% = 10/100 = 0.1}
217 Deducted at Source) is 10%. Calculate how much should be set aside for the payment of Rs. 27500 Rs. 22500 Rs. 27777.77 Rs. 28444.44 C Net amount is Rs 25000
interest? 25000 G (G x 0.1)
25000 G -0.1 G
[1G -0.1G = .9G]
25000 = .9G G = 25000 / 0.9 = 27777.77

People invest to achieve goals. Investment objectives can be defined as

investors' goals expressed in terms of risk, return and liquidity preferences.
The return objective may be simplified as follows:
1. Capital Preservation means minimizing or avoiding the chances of erosion
in the principal amount of investment.
________ cannot be an objective for investment.
218 Capital Rationing Capital Appreciation Capital Preservation Current Income A 2. Capital Appreciation is an appropriate investment objective for those who
want their portfolio value to grow over a period of time and are prepared to
take risks.
3. Current Income is an investment objective pursued when investor wants
her portfolio to generate income at regular interval by way of dividend,
interest, rental income rather than appreciation in the value of the portfolio.

Fundamental analysis is the process of determining intrinsic value for the

stock. These values depend on underlying economic factors such as future
earnings or cash flows, interest rates, and risk variables. By examining these
219 Fundamental Analysis is the process of determining ___________ for the stock. Intrinsic value Face value Market value Book value A
factors, intrinsic value of the stock is determined. Investor
should buy the stock if its market price is below intrinsic value and do not
buy, or sell, if the market price is above the intrinsic value.
Cash management team works as an interface between the banks and the
Its the interface
fund management team-they ensure that money received in the bank when
between banks and
220 What is the Cash Management team of a mutual fund responsible for? Fund accounting Taxation compliance AMC finances C investors purchase units are passed on to the fund managers for further
fund management
investment in securities and the investors get the redemption proceeds when
team
they submit the redemption request.

Systematic risk is defined as risk due to common risk factors, like interest
rates, exchange rates, commodities prices. It is linked to supply and demand
in various marketplaces. All
investments get affected by these common risk factors directly or indirectly.
All types of stock
221 Beta is used to measure ________. Unsystematic risk Systematic risk Total risk B Systematic risks cannot be diversified away, though it can be hedged.
market risks
Systematic risk is measured by Beta. 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.

Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund
Asset Management
222 __________ are the beneficiaries of a Mutual Fund trust. Unit holders Sponsors Trustees A trust, are the investors (unit holders) who invest in various schemes of the
Company (AMC)
mutual fund.
The amount which will be received in future on an investment made today
depends on the time period of investment and also the rate of return.
Future value of the investment is influenced by ______________.
223 Time period Rate of return Both of the above None of the above C The future value formula is FV=PV(1+i)"
Where PV is the present value, 'I' is the interest rate (rate of return) and 'n' is
the number of years (time period)

The Time weighted rate of return (TWRR) is the same as geometric return.
The money-weighted rate of return (MWRR) is a measure of the
The Money Weighted rate of The Time Weighted
performance of an investment. The MWRR is calculated by finding the rate
Identify the TRUE statement with respect to 'Returns'. return is equivalent to rate of return is
224 Both of the above None of the above B of return that will set the present values (PV) of all cash flows equal to the
Annualized Holding period equivalent to
value of the initial investment.
return Geometric Mean
The MWRR is equivalent to the Internal Rate of Return (IRR). MWRR can be
compared with the TWR, which removes the effects of cash in- and outflows.
Disclosure SEBI has identified certain provisions of the PMS Regulations which would
Submissions of required Compliance under
Identify which provision of portfolio managers regulations is not applicable for eligible fund requirements Audit of overseas not be applicable to Eligible Fund Managers pertaining to their activities as
225 declarations to provide services section 9A of the D
managers? towords eligible fund fund manager to Eligible
to eligible investment funds income Tax Act
investment funds Investment Funds and one of them is - 'Audit of overseas fund'.
Identify the true statement(s) - 1. Debt funds usually give a limited return depending on the interest rates
A. While evaluating a scheme, the expenses ratio is more significant for debt mutual fund etc. Equity funds tend to give a higher return. So a high expense ratio in a
226 schemes than equity mutual fund schemes. Only A Only B Both A and B Neither A nor B C debt fund will have a much bigger impact on the returns of the debt fund.
B. While investing in a short term debt mutual fund, one must verify the credit quality of 2. One must check the credit quality of the portfolio while investing in any
the portfolio debt fund - be it long term or short term.

When market conditions favour one asset class over other, the portfolio
manager may temporarily shift money from one asset class to another to
Rebalancing should be exploit discrepancy in market with a
Assign more weight Reduce weight in
A Portfolio Manager believes that the equity market is over priced and can correct shortly. He should adopt a wait and done depending on view to earn returns.
227 to equity till the time equity before the D
What action should he take? watch strategy the investor So, if a portfolio manager believes that the stock market is overvalued and is
market corrects market corrects
psychology up for a correction, then he may reduce the proportion of the portfolio that is
allocated to equities and
increase the proportion allocated to debt.

As per SEBI Code of conduct for PMS Distributors – The PMS Distributor
Ms. Kavita should inform the Ms. Kavita should Ms. Kavita is
Ms. Kavita should should provide full and latest information about investment approaches and
Ms. Kavita is a PMS Distributor. Her client wants some explanations on the way the clients that in real life, the express her inability to expected to explain
228 refer the client to the D also highlight the assumptions made in performance calculations, risk
performance projections are made. What should she do? projections never come true and explain as it is a and should take all
Portfolio Manager assessments, performance projections etc., if any, for such investment
hence they can be ignored complex subject efforts to explain it
approaches.

Development of Investment Policy Statement (IPS) is the key step in the

Investment policy Investment policy process of portfolio management. IPS is the road map that guides the
Investment policy statement is a statement is an offer statement is a blank investment process. Either investors or
document which needs periodic document prepared by form provided by their advisors draft the IPS specifying their investment objectives, goals,
229 Identify the TRUE statement with respect to Investment Policy statement. All of the above A
updates as per the investors the portfolio manager SEBI which needs to constraints, preferences and risks they are willing to take.
requirements to attract and guide be filled up by the All investment decision are based on IPS considering investors' goal and
the investors investors objectives, risk appetite etc.. Since investors requirement's change over a
period time, IPS also needs to be updated and revised periodically.
The Companies Act has provided an extensive definition of the term body
230 Which section of Companies Act 2013 defines a body corporate? Section 2 (14) Section 1 (12) Section 7 (11) Section 2 (11) D corporate. The term "body corporate" is defined in Section 2(11) of the
Companies Act, 2013.
As per SEBI Act - The portfolio manager shall take adequate steps for
Mr. Amit has a grievance with the portfolio manager and he submits the same on 1st 1st December of the
1st October of the 16th September of redressal of grievances of the investors within one month of the date of the
231 September. The portfolio manager has to redress this grievance before 1st November of the same year same year
same year
the same year
B
receipt of the complaint and keep SEBI informed about the number, nature
__________________ .
and other particulars of the complaints received.

Forward contract is an agreement made directly between two parties to buy

or sell an asset on a specific date in the future, at the terms decided today. A
party to the contract may
default on his obligation if there is incentive to default.
Which of these contracts have an inherent risk of default as the parties to the transaction
232 A Futures Contract A Forward Contract An Options Contract All of the above B For eg. A and B enter into a bilateral agreement, where A will purchase 100
may fail to pay the agreed amount or deliver the commodity on maturity of the contract?
kg of rice at Rs.20 per kg from B after 6 months. After 6 months, if price of
rice is Rs.30 in the market then B may forego his obligation to deliver 100 kg
of rice at Rs.20 to A. Similarly, if price of rice falls to Rs.15 then A may
purchase from the market at a lower price, instead of honouring the contract.

Liquidity risk is measured by impact cost. The impact cost is the percentage
price movement caused by a particular order size (let's say an order size of
Rs.1 lakh) from the average of
Percentage price movement the best bid and offer price in the order book snapshot.
233 With respect to equity markets, what does Impact Cost mean? caused by a particular order Liquidity risk measure Risk in illiquid stocks All of the above D The impact cost is calculated for both-the buy and the sell side. Less liquid
size stocks are more thinly traded, and a single large trade can move their prices
considerably. Such stocks
have high impact costs. A lower market impact implies the stock is more
liquid.

If regular income is the investment objective, funds will be invested in asset

classes generating periodical income like dividend paying stocks, interest
The investment objective of Mr. Sundar is to have a regular income. He approaches a paying bond or/and rent paying realty.
Dividend paying equity Small and Mid cap
234 PMS firm for this purpose. Among the given four choices, which will be the preferred New IPO's Zero coupon bonds B (If the investment objective is capital appreciation, then investments need to
shares equity shares
choice of the portfolio manager? be high return investments (like equity). If capital preservation is the primary
investment objective, asset allocation will be tilted towards safe bonds and
debt securities)

When an issuer makes an issue of securities to a select group of persons

An unlisted company is inviting subscription of securities from a select group of persons. and which is neither a rights issue nor a public issue, it is called private
Preferential Issue
235 This issue is neither a public issue nor a rights issue. Such an issue is called as a Private Placement Private Equity Debenture Issue A placement. This is primarily a
Convertible
__________. wholesale issue of securities to institutional investors. It could be in the form
of a Qualified Institutional Placement (QIP) or a preferential allotment.
Investors' objectives are identified in relation to risk-return-liquidity. Investors
may state their investment objectives in terms of desired return in absolute
236 Which of the following is considered to be an investment objective? Current income Capital preservation Capital appreciation All of the above D
or relative sense. Generally, investors invest for preservation of capital,
regular income and capital appreciation.

Portfolio management process involves a set of integrated activities

undertaken in a logical, orderly and consistent manner to create and
maintain optimum portfolio.
Statement of cash Investment Policy
237 The first step in the investment process is the development of _________. Financial statement Objective statement D The first step in the process of portfolio management is development of
needs statement
policy statement for the portfolio. It is a road map that identifies investors risk
appetite and defines investment.
objectives, goals and investment constraints.
January 1993, marked the beginning of Portfolio Management Service when
________ marked the beginning of PMS when SEBI issued SEBI (Portfolio Managers) January 2010 SEBI issued Securities and Exchange Board of India (Portfolio Managers)
238 Jan-99 Jan-93 Jan-20 C
Regulations. Regulations, 1993. These were one of the first few regulations issued by the
regulators.
Sr No. Question Option A Option B Option C Option D Correct Answer Solution
Except for the portfolio manager who provides only the advisory services,
every portfolio manager shall appoint a custodian in respect of securities
Except for the one that provides only the ______________ every portfolio manager shall Non-discretionary discretionary managed or administered by it.
239 advisory services None of the above A
appoint a custodian in respect of securities managed or administered by it. services services Details of custodian like its Name, Address, SEBI Registration No., Date of
Appointment need to be furnished in the application for obtaining registration
to the regulator.

For the purpose of determining as to whether an applicant or the

intermediary is a 'fit and proper person' the Board may take account of any
consideration as it deems fit, including but not limited to the following criteria
in relation to the applicant or the intermediary, the principal officer and the
Which of these is NOT considered by SEBI to decide the eligibility of a person as per the
240 Integrity in character Financial solvency Conviction orders Office of profit held D key management persons by whatever name called -
Declaration of Fit and Proper person?
(a) integrity, reputation and character; (b) absence of convictions and
restraint orders; (c) competence including financial solvency and networth;
(d) absence of categorization as a wilful defaulter.
Office of profit held is not a criteria.

As per SEBI's Regulations on Fee and Charges, what is the 'High-Watermark' for a PMS
scheme? High Water Mark is the highest value that the portfolio/ account has reached.
241 A. High Watermark is the highest value of portfolio account has reached Only A Only B Both A and B Neither A nor B C The portfolio manager charges performance based fee only on increase in
B. High Watermark is the threshold of portfolio value beyond which the performance portfolio value in excess of the previously achieved high water mark.
based fees can be charged by the portfolio manager

NRIs have to be KYC compliant in order to make investments in India. The

Identify the additional documents which have to be collected for KYC of Non-Resident following is the additional documentation, apart from proof of identity, proof
investors. of address and PAN card, for NRIs and PIOs:
242 A. Certified true copy of birth certificate Only A and B Only B and C Only A and C All A, B and C B • Certified True Copy of Passport • Certified True Copy of the Overseas
B. Certified true copy of the Overseas address address • Permanent address • A certified true copy of the PIO Card (for
C. Certified true copy of passport PIOS). • In case of Merchant Navy NRIs, Mariner's declaration or certified
copy of CDC (Continuous Discharge Certificate) is to be submitted.
Securities form of
243 Investment in antiques is an example of __________. Intangible Investment Alternate Investment Real Investment B Collectibles like paintings, art, antiques etc. are an alternative investment.
Investment

As per SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating

to Securities Market) Regulations, 2003:
Dealing in securities shall be deemed to be a manipulative, fraudulent or an
Inducing a person for
unfair trade practice if it involves
Entering into a trade in Selling or pledging of dealing in securities Inducing any person
Identify the FALSE statement. Dealing in securities shall be deemed to be a manipulative 1. inducing any person to subscribe to an issue of the securities for
244 securities without the intention securities in physical for artificially inflating to subscribe to an B
or fraudulent if it involves ___________. fraudulently securing the minimum subscription to such issue of securities
of performing it or dematerialized form or depressing the issue of shares
2. inducing any person for dealing in any securities for artificially inflating,
prices in securities
depressing, maintaining or causing fluctuation in the price of securities
.3. entering into a transaction in securities without intention of performing it
or without intention of change of ownership of such security

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

Unsystematic risks. These risks can be diversified away
Systematic risk is defined as risk due to common risk factors, like interest
Speculative risks
245 Risks due to sector specific/company specific factors is referred as ___________. Systematic risks Unsystematic risks Total risks B rates, exchange rates, commodities prices. It is linked to supply and demand
in various marketplaces. All
investments get affected by these common risk factors directly or indirectly.
Systematic risks cannot be diversified away, though it can be hedged.
As per the Prevention of Money Laundering Act, 2002, all record of all cash
Record of transactions to be maintained under the Prevention of Money Laundering Act
246 Rs.5 lakh Rs. 10 lakh Rs. 25 lakh Rs. 1 crore B transactions of the value of more than Rs. 10 lakh or its equivalent in foreign
includes Cash transactions of the value of more than ________.
currency have to be maintained.

Up to Assessment Year 2020-21, domestic companies and mutual funds

were liable to pay Dividend Distribution Tax (DDT) on the dividend.
Therefore, shareholders or unit- holders were exempt from paying tax on the
dividend income.
Up to Assessment Year _____________, domestic companies and mutual funds were After the abolition of dividend distribution tax by the Finance Act, 2020 with
247 2021-22 2019-20 2020-21 2018-19 C
liable to pay Dividend Distribution Tax (DDT) on the dividend. effect from Assessment Year 2021-22, if a company, mutual fund or
business trust distributes dividend to its shareholders or unitholders then
such dividend income is taxable in the hands of such shareholders or
unitholders. The taxability of dividend and tax rate thereon shall depend
upon the residential status of the shareholders and quantum of income.

In technical analysis, there are numerous trading rules and indicators. There
are indicators of overall market momentum, used to make aggregate market
Bollinger-Band decisions. There are trading
248 Which of the following is an example of trading rules and indicators? Moving averages Trend-line analysis All of the above D
Analysis rules and indicators to be applied for individual securities.
Some of the popular ones are: • Trend-line analysis. • Moving averages •
Bollinger-Band Analysis

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.
A __________ is a trust that pools the savings of a number of investors who share a SEBI (Mutual Fund) Regulations, 1996 define "mutual fund" as "a fund
249 Bank Custodian Mutual Fund Depository C
common financial goal. 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."
Is not considered in Squaring off the trade means that the same quantity of security has been
Is not guaranteed by the Is cancelled by the Does not require
250 A trade that is squared-off during the day _________. calculating trading D purchased and sold during the day.
exchange exchange delivery of shares
volumes As the position is squared off, no delivery of the security is required.