NISM Series X-B flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Advisory Process Sequence

The ordered steps an adviser follows with every client: establish the relationship, gather data, analyse needs and risk, prepare the plan, implement, and review periodically.

Discretionary Portfolio Management

A service in which the client grants the adviser written authority to buy and sell within an agreed mandate without seeking consent for each individual transaction.

Non-Discretionary Advisory

An arrangement in which the adviser recommends investments but the client must approve and execute each transaction, retaining final decision-making authority.

Suitability Assessment

The evaluation of whether a recommended product fits the client's risk profile, time horizon, liquidity needs, and existing portfolio. Unsuitable products must not be recommended.

Know Your Client

The obligation to collect and document a client's financial position, goals, experience, and risk profile before giving any investment advice.

Advisory Review Trigger

An event prompting reassessment of the advice, such as a change in the client's circumstances, a goal change, a significant market event, or a scheduled review date.

Risk Tolerance

The client's willingness to accept investment risk and volatility, reflecting attitude and psychology rather than financial ability to absorb losses.

Risk Capacity

The client's financial ability to bear losses without jeopardising essential goals, driven by income stability, assets, liabilities, and time horizon.

Risk Profile Categories

Standard classifications from conservative through moderate, balanced, and growth to aggressive, each mapping to a target asset allocation range.

Time Horizon Rule

Short horizons under three years favour liquid, low-volatility debt; long horizons of seven years or more can absorb higher equity volatility.

Portfolio-Level Suitability

The rule that suitability is judged on the whole portfolio's risk, so a risky product may be acceptable if total portfolio risk stays within the profile.

Concentration Risk

Excessive exposure to a single security, sector, or issuer; it must be flagged and the client's informed consent documented if retained.

Re-Profiling Trigger

A material change in the client's life or finances, such as job loss, inheritance, retirement, or marriage, requiring the risk profile to be reassessed.

Goal Quantification

Converting a client goal into a specific target amount and target date, adjusted for inflation, so the required saving can be calculated.

Emergency Fund Rule

Hold three to six months of essential expenses in liquid, low-volatility instruments before committing money to long-term investment goals.

Asset Allocation

The split of a portfolio among asset classes such as equity, debt, and cash; it explains most of the long-run variability in returns.

Diversification

Spreading investments across asset classes, sectors, and issuers to reduce unsystematic risk; systematic market risk cannot be diversified away.

Rebalancing

Restoring a portfolio to its target asset allocation after market drift, done on a fixed calendar schedule or when a deviation threshold is breached.

Inflation Adjustment

Inflating a future goal amount to its projected cost at the assumed inflation rate before calculating the required saving; ignoring it understates the funding need.

Asset Location

Placing tax-inefficient income assets in tax-advantaged accounts and tax-efficient growth assets in taxable accounts, subject to applicable tax rules.

Open-Ended Fund

A fund that issues and redeems units at net asset value on an ongoing basis, with no fixed corpus or fixed maturity date.

Closed-Ended Fund

A fund with a fixed corpus and a defined maturity or lock-in period, whose units are not continuously issued or redeemed at net asset value.

Direct Versus Regular Plan

A direct mutual fund plan has a lower expense ratio because no distributor commission is paid; a regular plan includes that commission in its expenses.

Interest Rate and Bond Prices

Bond prices move inversely to interest rates, and longer duration means greater price sensitivity to a given change in rates.

CAGR

Compound annual growth rate, calculated as (ending value divided by beginning value) raised to the power of one over the number of years, minus one.

Total Return

A performance measure combining capital appreciation with reinvested income, allowing fair comparison of funds with different distribution policies.

Benchmark Comparison

Evaluating a portfolio against an appropriate market index and against peer funds with similar mandates, rather than against unrelated asset classes.

Fiduciary Duty

The obligation to act in the client's best interest, place client interests ahead of the adviser's own, and disclose all actual and potential conflicts.

Fee Disclosure

The requirement to give clients clear information on advisory fees, commissions, and other charges, including indirect and third-party payments.

Client Asset Segregation

Holding client money and securities separately from the adviser's own assets, with records maintained for all client funds and transactions.

Record Retention

Keeping client agreements, risk profiles, advice records, and transaction documents for the regulator's prescribed period and producing them on request.

Fair Advertising Rule

Marketing material must be fair, accurate, and not misleading, and past performance must never be presented as a guarantee of future results.

Client Confidentiality

Client information may be used only for the purpose it was collected, unless disclosure is required by law or authorised by the client.