Q I-

________ phase is the stage when investors in their early-to-middle earning years attempt to accumulate assets to satisfy near-term needs, e.g., children’s
education or down payment on a home.
Consolidation
Accumulation
Spending
Gifting 0 Un Attempted

CORRECT ANSWER:

Accumulation

Explanation:

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 to liabilities. Investments are fewer and typically non-diversified. Goals may include children's education, a 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.
Q 2.

The objective of the SEBI (Prohibition of Insider Trading) Regulations is to prohibit insider from __________ on matters relating to insider trading.
Counselling
Dealing
Communicating
All of the above

0 Un Attempted

CORRECTANSWER:

All of the above

Explanation:

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on behalf of any other person, deal in securities of a company listed on any stock exchange [when in possession of] any unpublished price
sensitive information; or (ii) communicate or counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price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.
Q 3.

Sharpe’s performance measure divides the portfolio’s risk premium by the ________
Standard deviation of the rate of return
Risk free rate
Variance of the rate of return
Slope of the fund's characteristic line

0 Un Attempted

CORRECT ANSWER:

Standard deviation of the rate of return

Explanation:

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.

The Sharpe ratio is a measure of relative performance. It enables investors 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.
Q 4.
The settlement price for determining daily mark-to-market margins for a futures contract is _____
the average of the high, low and closing prices
the last traded price
the weighted average price of last 30 minutes of trading
the average of the last 60 minutes of trading

0 Un Attempted

CORRECT ANSWER:

the weighted average price of last 30 minutes of trading

Explanation:
One of the important features of futures contracts is that gains and losses are settled on each trading day. This exercise is called Mark-to-Market settlement.

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.
Q 5. The minimum investment required for PMS investment is
Rs. 5 Lacs
Rs. 25 Lacs
Rs. 50 Lacs
Rs. 1 Crore

0 Un Attempted

CORRECTANSWER:

Rs. 50 Lacs

Explanation:
The minimum investment required for PMS investment is Rs. 50 lacs
Q 6.
Which of the following is essential for the public issue of a debt security?
The debt instruments must be credit rated
The debt instruments should have a minimum coupon specified
The debt issue size should be greater than Rs. 5000 Crs
The debt issuer must stand as guarantor for the payment of principal and interest

0 Un Attempted

CORRECTANSWER:

The debt instruments must be credit rated

Explanation:

In India, as far as public issue of debt is concerned, regulations by the SEBI and Reserve Bank of India make it mandatory for the issuers to obtain a credit rating.

Default risk can be assessed by tracking the credit rating of an investment. Credit rating agencies assign credit ratings after carrying out a detailed analysis of the issuer’s financial ability to
honour the payments on time.
Q 7.
Commission received from business forms part of income from _____ .
Capital Gains
Salary
Business and profession
Other sources

0 Un Attempted

CORRECTANSWER:

Business and profession

Explanation:

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 brokers, stock brokers, insurance agencies,
etc.

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".
Q 8.
The types of securities purchased by the fund, depends on ________ .
decisions of SEBI about the fund the investment objectives of the fund decisions of RBI about the fund
decisions of the fund advisors

0 Un Attempted

CORRECTANSWER: the investment objectives of the fund

Explanation:
Every mutual fund scheme will have an investment objective which will be clearly stated in the Offer Documents.

The fund manager has to invest the funds in securities as per the investment objective.
Q 9.
Future value of the investment is influenced by _______
Time period
Rate of return
Both of the above
None of the above

0 Un Attempted

CORRECTANSWER:

Both of the above

Explanation:
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.

The future value formula is FV=PV(1+i)n

Where PV is the present value, ‘I’ is the interest rate (rate of return) and ‘n’ is the number of years (time period)
Q
10.
Mr. Suresh is a PMS distributor and he is marketing Portfolio Management Services to a potential investor. From the options given below, choose which action
should Mr. Suresh take?
Convince the investor that his firm has the best investment solutions
Keeping in mind the investors interest, a risk profiling should should be done
Offer the investor some rebates on the investment alternatives his firm has to offer
All of the above

0 Un Attempted

CORRECTANSWER:

Keeping in mind the investors interest, a risk profiling should should be done

Explanation:

As per the SEBI Code of conduct for PMS Distributors - The PMS Distributor should consider investors interest, risk profiling and suitability to their financial needs while marketing Portfolio
Management Services.
Q
11.
An auditor was auditing the books of a PMS firm. While auditing it did not find any records which supported the recommendations made by the PMS firm. Is this
acceptable or not?
It is NOT acceptable as the central vigilance needs to cross verify the recommendations for any cause of money laundering
It is NOT acceptable as it is required as per the SEBI (Portfolio Managers) Regulations 2020
YES, it is acceptable as it is not required to be kept by a Discretionary Portfolio Manager
YES, it is acceptable as it is related to a recommendation and not actual execution of the transaction

0 Un Attempted

CORRECTANSWER:

It is NOT acceptable as it is required as per the SEBI (Portfolio Managers) Regulations 2020

Explanation:

As per SEBI (Portfolio managers) Regulations 2020 : Every portfolio manager shall keep and maintain records in support of every investment transaction or recommendation which will
indicate the data, facts and opinion leading to the investment decision.
Q
12.
Debts funds have ______
Default risk
Interest rate risk
Both of the above None of the above

0 Un Attempted

CORRECTANSWER:

Both of the above

Explanation:
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 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
Q 13.
Which of these aspect is NOT included in the agreement between the portfolio manager and the client ?
The period of the PMS contract
The provisions related to early termination of the PMS contract
The procedure of settling the clients account
The various portfolio schemes which are managed by the portfolio manager

0 Un Attempted

CORRECTANSWER:

The various portfolio schemes which are managed by the portfolio manager

Explanation:
The agreement between the portfolio manager and the client includes various clauses like -

1. Period of the contract and provision of early termination, if any

2. Procedure of settling client's account including form of repayment on maturity or early termination of contract etc.

(The other schemes managed by the portfolio manager do not form a part of these clauses)
Q 14.

A new category of ’resident’ has been introduced in clause (1A) of Section 6 of Income Tax Act with effect from Assessment Year 2021-22. What is it?
Extra-Ordinarily Resident
Not- Ordinarily Resident
Deemed resident
Ordinarily resident

0 Un Attempted

CORRECTANSWER:

Deemed resident

Explanation:

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(1 A), an Indian citizen is deemed as resident
in India irrespective of his stay in 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.
Q 15.

______ need not be furnished to the client by a portfolio manager.

The salary payable to the principal officer
Risks foreseen related to client’s investment
Details of commission paid to the distributor
Beneficial interest, dividend etc. received on the client’s fund

0 Un Attempted

CORRECTANSWER:

The salary payable to the principal officer

Explanation:

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

1. Beneficial interest received during that period in the form of interest, dividend, bonus shares, rights shares, etc;
2 Details of risk foreseen by the portfolio manager and the risk relating to the securities recommended by the portfolio manager for investment or disinvestment;
3. Details of commission paid to distributor(s) for the particular client etc.

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

Q 16.

A Government Bond will generally NOT have which type of risk?

Purchasing Power Risk
Interest Rate Risk
Market Risk
Default Risk

0 Un Attempted

CORRECTANSWER:

Default Risk

Explanation:

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 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.
Q 17.

Identify which of these is not an example of an unique preferences of the investor?

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

0 Un Attempted

CORRECTANSWER:

Desired Risk to Return Ratio

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

Sometimes investors have idiosyncratic concerns. They may have personal, social, ethical, cultural, emotional and preferences beliefs.

For example an investor, may not want her money to be invested in the stocks of companies selling environmentally harmful products or Non-veg products etc.
Q 18.

Mr. Suresh wants to invest in long term corporate bonds as they are giving higher returns. However his portfolio manager is of a strong belief that inflation and
interest rates will be on a rise for the next 2-3 years. Which of these is/are valid arguments to convince Mr. Suresh not to invest in long term corporate bonds?
Due to rising inflation: the profitability of corporates may be negatively affected leading to corporate default
The bond prices and market interest rates are inversely related
Both of the above
None of the above 0 Un Attempted

CORRECTANSWER:

Both of the above

Explanation:

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.

Also inflation can affect profitability. Inflation impacts different industries differently. There are industries, which are able to pass on the increase in the costs of products to their 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.
Q 19.

______ is not related to Commodity Derivates Exchanges in India

MCX
ICEX
CCIL
NCDEX

0 Un Attempted

CORRECTANSWER:

CCIL

Explanation:

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 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.

_________ is the entity which holds the funds and securities of large clients such as banks.
Portfolio Manager
Q 20.
Custodian
Depository
Fund Manager
0 Un Attempted

CORRECT ANSWER:

Custodian

Explanation:

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, insurance companies, and foreign portfolio
investors.

Besides safeguarding securities, a custodian also settles transactions in these securities and keeps track of corporate actions on behalf of its clients.

The contributions made by unitholders into a scheme of a mutual fund are ______ .
Invested in the name of the investor according to his/her preference
Pooled along with others contributions to the scheme and are invested in financial securities as per the investment objective Deposited with a bank who will be the Trustee
and these are used for fund management activities
Pooled and given as loans to various companies as equity contributions and debt contributions 0 Un Attempted
Q 21.

CORRECT ANSWER:

Pooled along with others contributions to the scheme and are invested in financial securities as per the investment objective

Explanation:
A mutual fund is authorised by regulations to pool funds from investors and invest the funds on their behalf.

Mutual fund pools the money contributed by investors to a scheme and invests them in a portfolio of securities. The investments made by the fund belong to the investors, who will share the
profits or losses made and the costs incurred in proportion to their investment.
Q 22.
Debt instruments with ’C' credit rating are considered to have ______ .
very high risk of default regarding timely servicing of financial obligations have moderate risk of default regarding
timely servicing of financial obligations adequate degree of safety regarding timely servicing of financial obligations
highest degree of safety regarding timely servicing of financial obligations

0 Un Attempted

CORRECT ANSWER:

very high risk of default regarding timely servicing of financial obligations

Explanation:

Instruments with 'C* rating are considered to have very high risk of default regarding timely servicing of financial obligations.
Q 23.

A debt security has been assigned a credit rating of BBB. This means that this security is_______
Adequately safe
Moderately safe
Adequately risky
Moderately risky

0 Un Attempted

CORRECTANSWER:

Moderately safe

Explanation:
BBB - Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

Identify the TRUE statement with respect to the 'Psychographic Analysis' of investors? A. As per Bailard, Biehl and Kaiser (BB&K) model, an investor broadly
belongs to one of the five types of investor categories B. Due to extraneous factors, an investor can sometime display behaviours other than his normal type
Only A is true
Only B is true
Both A and B are true
Neither A nor B is true

0 Un Attempted
Q 24.

CORRECTANSWER:

Both A and B are true

Explanation:
Psychographic analysis of investor recognizes investors as normal human beings who are susceptible to biased or irrational behaviour due to extraneous factors.

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.

By which way will the residential status of an individual be determined as per the Income Tax Act from the assessment year 2021-22?
Based on the period of stay in India
Based on citizenship
Based on the total income from Indian sources
All of the above 0 Un Attempted

CORRECT ANSWER:

All of the above

Explanation:

Previously, the residential status of an Individual was determined on the basis of his period of stay in India.

However, with effect from Assessment Year 2021-22, the residential status of an Individual is determined on basis of his citizenship, period of stay in India and total income from Indian
sources.
Q 25.
Identify which of these is a big challenge in the creation of a customized benchmark?
The cost of maintenance of the benchmark is high
It is difficult to track the performance of the benchmark
It is difficult to find comparable securities
It is difficult to decide the weights of the securities

0 Un Attempted

CORRECT ANSWER:
The cost of maintenance of the benchmark is high

Explanation:

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
customized benchmark.

The advantage of such benchmarks is that they meet the requirement of 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.

Why does SEBI seek some business information as part of the application for registration for Portfolio Managers? A. It is to understand if the portfolio manager
has the infrastructure in place to deliver good quality of PMS B. It is to understand the integrity of third party service providers like stock brokers which are
contracted by the portfolio managers
Only A
Only B
Both A and B
Neither A nor B
Q 26.

0 Un Attempted

CORRECTANSWER:

Both A and B

Explanation:

SEBI seeks some business information before registration of a Portfolio Manager which includes :

1. Facilities and infrastructure for making decision on portfolio investment

2. Provide list of approved share brokers through whom orders shall be placed, involved for Portfolio Management activities and state whether any of them were suspended/had defaulted
with any Stock Exchange authority.
Q 27.

Mr. Goel own a house worth Rs 1 crore and has financial assets worth Rs. 40 Lakhs. He also has an outstanding home loan of Rs 20 Lakhs and an outstanding car
loan of Rs 3 Lakhs. Calculate the estimated Net Worth of Mr. Goel.
Rs. 1.17 crore
Rs. 1.20 crore
Rs. 1.40 crore
Rs. 1.63 crore 0 Un Attempted

CORRECTANSWER:

Rs. 1.17 crore

Explanation:

For calculating net worth, all the assets the investor owns, i.e. the house, the car, the investments in stocks, bonds & mutual fund, balance in the saving accounts, value of the jewels owned
and the value of all other financial assets and real assets are to be recorded at the estimated market value.

Then all the liabilities need to be subtracted from the assets . Liabilities may include the outstanding car loan amount, credit card loans, home loan and any other amount he owes like the
personal loan, education loan etc.,. The difference between the value of assets and the liability is net worth.

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

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

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

Artivafp Wind
Q 28.
w<;
Identify the true statement with respect to ’Open Interest'.
Open Interest is the number of derivative contracts that are not settled by the end of a particular day
Open Interest is the interest quoted shown by traders on a public screen
Open Interest is the number of successful trades during a particular day
Open Interest is the number of derivative contracts which are booked by traders

0 Un Attempted

CORRECT ANSWER:

Open Interest is the number of derivative contracts that are not settled by the end of a particular day

Explanation:

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 a measure of market activity. However, it is to be noted that it is not trading volume. Open interest is a measure of the flow of money into a futures or options market.
Increasing open interest represents new or additional money coming into the market while decreasing open interest indicates money flowing out of the market.
Q 29.
While calculating the price volatility in a bond, which of the following information is NOT required?
Maturity period of a bond
Coupon rate of the bond
Required rate of return by the investor
Face value of the bond

0 Un Attempted

CORRECTANSWER:

Required rate of return by the investor

Explanation:
Market price of a bond and the volatility is a function of four factors:

(1) Face value of the bond; (2) Coupon rate of the bond; (3) Maturity period i.e. no. of years to maturity and (4) Prevailing market interest rate.
Q 30.
Which of these form a part of the GIPS advertising guidelines?
Five years of Annual composite performance returns
Currency used to express performance
Appropriate composite benchmark
All of these

0 Un Attempted

CORRECTANSWER:

All of these

Explanation:
As per Global Investment Performance Standards (GIPS) Advertisement Guidelines : All advertisements that include a claim of compliance must include the following

- The appropriate composite benchmark total return for the same periods for which the composite return is presented.

- 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.
Q 31.

Who is a ’Discretionary portfolio manager'?

A Discretionary portfolio manager is one who exercises any degree of discretion relating to investment of funds of the client
A Discretionary portfolio manager is one who acts according to the directions of the client
A Discretionary portfolio manager is one who is entitled to make discretionary expenditure
A Discretionary portfolio manager is one who is free to take any decision regarding the wealth of the investor

0 Un Attempted

CORRECT ANSWER:

A Discretionary portfolio manager is one who exercises any degree of discretion relating to investment of funds of the client

Explanation:

As per SEBI’s Portfolio Managers Regulations, 2020 “discretionary portfolio manager” means a portfolio manager who under a contract relating to portfolio management, exercises or may
exercise, any degree of discretion as to the investment of funds or management of the portfolio of securities of the client, as the case may be.

In other words, discretionary portfolio manager individually and independently manages the funds of each investor as per the contract. This could be based on an existing investment approach
or strategy which the portfolio manager is offering or can be customized based on client’s requirement.
Q 32.

Which of these financial indicators indicate that an investor has the ability to invest periodically?
The financial assets of the investor are greater than regular income
The financial assets of the investor are greater than financial liabilities
The regular income of the investor is greater than expenses
The regular income of the investor is greater than financial liabilities

0 Un Attempted

CORRECT ANSWER:

The regular income of the investor is greater than expenses

Explanation:

A convenient way to analyse the financial position of the investor is by constructing personal financial statements. This helps in organizing financial data in a systematic way.

One has to calculate whether the person’s present income exceeds spending and by how much amount. This is the amount which would be available periodically for investment purposes.
Q 33.

A PMS client is unable to meet the specified requirements with respect to a transaction in accordance with the Prevention of Money Laundering Act (PMLA). In
such a case what can the Reporting Entity do?
The Reporting Entity can stop the transaction
The Reporting Entity can only report to SEBI
The Reporting Entity can only record the transaction and report
The Reporting Entity can attach the property of the client 0 Un Attempted

CORRECTANSWER:

The Reporting Entity can stop the transaction

Explanation:

Where the client fails to fulfil the specified requirements with respect to a transaction under the Prevention of Money Laundering Act (PMLA), the reporting entity shall not allow the specified
transaction to be carried out.
Q 34.

Which of these value(s) will be required for calculating Portfolio Beta?

Values of chosen index on matching dates
Prices of all individual stocks in the portfolio
Proportions of investment in individual stocks
All of the above

0 Un Attempted

CORRECTANSWER:

All of the above

Explanation:
Portfolio beta equals the weighted-average of the beta of all the individual stocks in a portfolio.

To calculate beta of individual stocks one will need the return of that stock as compared to the return of the market.

Thus all the above inputs will be required for calculation of portfolio beta.
Q 35.
A Portfolio Manager might not provide to SEBI, ___________ .
the details of portfolio managed
the names of investors whose portfolio's they manage
the networth of client's whose portfolio's they manage
changes in registration certification

0 Un Attempted

CORRECTANSWER:

the networth of client's whose portfolio's they manage

Explanation:

SEBI can ask portfolio manager to disclose any information as and when required including the following: -

(a) particulars regarding the management of a portfolio; (b) any change in the information or particulars previously furnished, which have a bearing on the certificate granted to him; (c) the
names of the clients whose portfolio it has managed; (d) particulars relating to the net worth requirement of the portfolio manager as specified in regulation 9 of Portfolio Managers Regulation
2020.
Q 36.

A company has gone public buy there is a shortfall of 20,000 shares to complete the minimum subscription rule. A client of a PMS distributor wants to invest in
these shares but does not have funds to buy the complete 20,000 shares. Identify what should the PMS distributor do?
The PMS distributor should arrange for a bank loan to finance the shortfall
The PMS distributor should lend his own money to cover the shortfall
The PMS distributor should pay on the client's behalf to cover the shortfall
None of the above 0 Un Attempted

CORRECTANSWER:

None of the above

Explanation:
As mentioned in the question, the company has just gone public and has invited subscription. It has still not listed its shares.

As per SEBI rules, a portfolio manager generally cannot invest in unlisted securities.

Ms. Harshita has taken a short position in a ‘Put Option’. This means that she believes that ________
The price of underlying will go below strike price
Q 37.

The price of underlying will not go below strike price

The price of underlying will not go above strike price
The price of underlying will not go below current market price

0 Un Attempted

CORRECTANSWER:

The price of underlying will not go below strike price

Explanation:
A person who buys a put option is of a bearish view and a person who sells a put option is of bullish or neutral view.

A person who has sold a put option (ie. gone short) receives the premium and will retain the premium amount as long as the price remains above the strike price. Even if the price is at par with
the strike price, he will gain to the extent of premium received.

Investors in the ________ phase should not approach a PMS firm which is famous for generating high growth for the wealth of investors?
Accumulation
Q 38.

Gifting
Spending
Consolidation

0 Un Attempted

CORRECTANSWER:

Spending

Explanation:

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.

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. Preference will be on investment that
generate dividend, interest, and rental income.

An appropriate day count convention used in the Bond markets is _____

Actual/365
Q 39.

Actual/360
30/365
30/360 0 Un Attempted

CORRECTANSWER: 30/360

Explanation:

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 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.
Q 40.
Value of correlation ranges from _______
1 to infinity
Oto 1
Oto 10
-1 to +1

0 Un Attempted

CORRECT ANSWER:

-1 to +1

Explanation:
Correlation measures the strength and direction of relationship between two variables. Correlation coefficient vary in the range -1 to +1.

A value of+1 (-1) indicates a perfect positive (negative) relationship.

Q 41.
On what parameter is the classification of Active and Passive funds based on?
On the structure of fund
On the background of the fund manager
On the investment universe
On the fund management style

0 Un Attempted

CORRECTANSWER:

On the fund management style

Explanation:
Funds can be managed in two styles ie - Actively or Passively.

Actively managed funds are funds where the fund manager has the flexibility to choose the investment portfolio, within the broad parameters of the investment objective of the scheme.

Passive funds invest on the basis of a specified index; whose performance it seeks to track.
Q 42.
The bank account containing the funds of the clients in PMS firm is maintained by _
The Trustees
The PMS firm
SEBI
The Client

0 Un Attempted

CORRECTANSWER:

The PMS firm

Explanation:

The bank account containing the funds of the clients in PMS firm is maintained by the PMS firm.
Q 43.

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

0 Un Attempted

CORRECTANSWER:

Business Sector Risk

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

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

A Micro Finance Self Help Group wanted to invest Rs. 1.5 crore in a PMS. Should the PMS accept or reject the offer?
The offer has to be rejected as a Self Help group is not eligible to invest in a PMS
Q 44.

Accept the offer by creating a trust and include the PMS as the main trustee

0 Un Attempted

CORRECTANSWER:

The offer has to be rejected as a Self Help group is not eligible to invest in a PMS

Explanation:
Only the following entities can invest in PMS :

Individuals • Non-resident Indians (as per the RBI guidelines) • Hindu Undivided Family • Proprietorship firms • Association of person • Partnership Firms • Limited liability Partnership • Trust •
Body Corporate

A Self help group is not authorized to invest in PMS.

Identify the true statement with respect to withdrawal of funds by the client from a PMS.
A client will not be able to prematurely withdraw funds from a PMS
A client has the power to withdraw the funds anytime from a PMS
The terms of withdrawal has to be included in the PMS agreement itself by the client
Q 45.

0 Un Attempted

CORRECTANSWER:

The terms of withdrawal has to be included in the PMS agreement itself by the client

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

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

As per the SEBI list of Don'ts for a Portfolio Management Service, a Speculative Transaction is ______
a transaction which is entered even though there is no physical delivery of the security a transaction which is in a contrarian position of the market an investment which is
based on an option depending on future price movements a transaction done even though there are no sufficient funds to settle this transaction

0 Un Attempted
Q 46.

CORRECTANSWER:

a transaction which is entered even though there is no physical delivery of the security

Explanation:
As per the SEBI Don’ts for the portfolio managers -

The portfolio manager shall not while dealing with clients’ funds indulge in speculative transactions i.e., it shall not enter into any transaction for purchase or sale of any security which is
periodically or ultimately settled otherwise than by actual delivery or transfer of security except the transactions in derivatives.

How is the Cost of Acquisition adjusted by indexation in the computation of Long term capital gains?
Cost of Inflation Index of the year of transfer / Cost of Inflation Index in the year 2001-2002
Cost of Inflation Index of the year of transfer of asset / Cost of Inflation Index of the year of acquisition or 2001 -2002 whichever is earlier
Cost of Inflation Index of the year of transfer of asset / Cost of Inflation Index of the year of acquisition or 2001 -2002 whichever is later
Cost of Inflation Index of the year of acquisition / Cost of Inflation Index of the year of transfer

0 Un Attempted
Q 47.
CORRECT ANSWER:
Cost of Inflation Index of the year of transfer of asset / Cost of Inflation Index of the year of acquisition or 2001-2002 whichever is later

Explanation:

For computation of long-term capital gains, the assessee has to compute indexed cost of acquisition. The Indexed Cost of acquisition shall be calculated in a two-step process. The first step is
to calculate the cost of acquisition of capital asset. In the second step, such cost of acquisition is multiplied with the Cost Inflation Index (Cll) of the year in which capital asset is transferred and
divided by Cll of the year in which asset is first held by the assessee or Cll of 2001- 02, whichever is later.

Indexed Cost of Acquisition = Cost of Acquisition X Cll of the year in which asset is transferred /Cll of the year in which asset is first held by assessee or Cll of 2001-02, whichever is later.

A PMS firm has suddenly found that there is a shortage of working capital funds. From the options given below, which will be most acceptable?
The PMS firm should borrow for short term from a commercial bank by pledging the securities of the client
The PMS firm should use the common pool of client’s funds in a scheduled commercial bank
The PMS firm should charge the client under PMS fees and reduce the distributions to be made to the client
The PMS firm should borrow from a commercial bank for short term 0 Un Attempted
Q 48.

CORRECTANSWER:

The PMS firm should borrow from a commercial bank for short term

Explanation:
As per the SEBI Do’s and Don’ts for a portfolio manager: The portfolio manager shall not borrow funds or securities on behalf of the client. It cannot pledge the client’s securities etc.

So the best option to meet any shortfall of funds for its working capital requirements is to borrow from a commercial bank using its own sources.
Q 49.
What should be included in the contract with the client on portfolio management?
The contract should include the provisions of early termination
The contract should include the industries restricted for investment
The contract should include the form of repayment on maturity
All of the above

0 Un Attempted

CORRECT ANSWER:

All of the above

Explanation:
The agreement between the portfolio manager and the client include the following :

1. Procedure of settling client's account including form of repayment on maturity or early termination of contract

2. Investment approach, areas of investment and restrictions, if any, 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.