NISM Series XXI-A flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Minimum investment in PMS
- SEBI mandates that each client must invest at least ₹50 lakh in a portfolio management service, ensuring high-net-worth participation and risk awareness.
- Discretionary PMS
- A service where the portfolio manager makes investment decisions without obtaining client consent for each trade, acting within the agreed investment objective.
- Non-discretionary PMS
- The portfolio manager must obtain client approval before executing each transaction; the client retains decision-making control over individual trades.
- Advisory PMS
- The portfolio manager provides investment advice but does not execute trades; the client is responsible for implementing the recommendations.
- High-water mark
- The highest portfolio value (net of fees) previously achieved, used as a baseline for charging performance fees to avoid charging twice on the same profits.
- Performance fee
- A fee charged as a percentage of profits above a high-water mark or benchmark, typically 10-20%, aligning manager incentives with client returns.
- Net worth requirement for PMS
- A SEBI-registered portfolio manager must maintain net worth of ₹5 crore, or ₹2.5 crore if also a depository participant, ensuring financial stability.
- Principal officer
- A key personnel of a portfolio manager responsible for overall management and compliance with SEBI regulations, requiring relevant experience and qualification.
- Custodian in PMS
- An optional SEBI-registered entity appointed to safekeep client securities, providing independent verification and reducing risk of misappropriation.
- Demat account requirement
- Both client and portfolio manager must maintain demat accounts for holding securities in electronic form; physical securities are not accepted in PMS.
- Distributor certification
- PMS distributors must hold NISM Series XXI-A certification and comply with SEBI/AMFI registration requirements to legally solicit clients.
- Commission disclosure
- Portfolio managers must disclose to clients all commissions paid to distributors, including upfront and trail fees, in the PMS agreement and statements.
- Trail fee
- A recurring commission paid to distributors, typically 0.5-1% per annum of assets under management, for ongoing client servicing and relationship management.
- Upfront commission
- A one-time fee paid to distributors at the time of client onboarding, subject to disclosure and often capped by agreement or regulation.
- KYC in PMS
- Know Your Customer process mandatory for all clients, involving identity verification, address proof, and risk profiling before account opening.
- Risk profiling
- A questionnaire-based assessment to determine a client's risk tolerance, investment horizon, and suitability for different PMS strategies.
- PMS agreement
- A legal contract between client and portfolio manager outlining investment objectives, fees, risk factors, and rights and obligations of both parties.
- Monthly portfolio statement
- A report sent to clients within 10 days of month-end, detailing holdings, transactions, and performance, as mandated by SEBI.
- Quarterly performance report
- A report providing performance review against benchmark, fee details, and portfolio changes, required to be sent to clients every quarter.
- Grievance redressal mechanism
- A formal process for clients to lodge complaints, with escalation to SEBI SCORES if unresolved within 30 days, ensuring investor protection.
- Advertising restrictions
- SEBI prohibits misleading claims, guaranteed returns, and unsubstantiated performance in PMS marketing materials; past performance must include disclaimers.
- Record retention period
- Portfolio managers must maintain client records, agreements, and transaction documents for at least 5 years, or 8 years if related to disputes.
- Time-weighted return
- A method of calculating investment performance that eliminates the effect of cash flows, required by SEBI for reporting PMS returns.
- Money-weighted return
- A return measure reflecting the impact of cash inflows and outflows, may be shown to clients but must be labelled distinctly from TWRR.
- Benchmark disclosure
- The PMS agreement must specify a benchmark index (e.g., Nifty 50) for performance comparison, ensuring transparency and accountability.
- Fee accrual
- Management fees are accrued daily on assets under management; performance fees accrue only when portfolio exceeds high-water mark, often crystallized monthly.
- Withdrawal notice period
- Clients must provide advance notice (typically 7-30 days) to withdraw funds from PMS, as per agreement, to allow orderly liquidation of securities.
- Portfolio transfer
- Clients can transfer securities to another PMS or demat account; the manager must facilitate within 7 working days of a valid request.
- Risk management policy
- A documented framework including concentration limits, stop-loss triggers, and liquidity assessment, mandatory for portfolio managers to control risks.
- Segregation of client assets
- SEBI mandates that client funds and securities be kept separate from the portfolio manager's own assets and from other clients' assets.
- SEBI inspection
- Periodic examination of portfolio managers by SEBI to ensure compliance; failure can lead to penalties or cancellation of registration.
- Valuation of unlisted securities
- Must be fair-valued using methods approved by the portfolio manager's valuation committee, disclosed to clients, and reviewed periodically.