NISM Series XXI-A Portfolio Management Services (PMS) Distributors – Free Demo

Explanation:

The Coupon yield is the coupon payment as a percentage of the face value.

Coupon yield = Coupon Payment / Face Value

14/100 = 0.14 x 100 = 14%

(Coupon yield is different from Current yield. Current yield = (Annual coupon rate / Current market price of the bond) x 100%

Explanation:

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

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

Explanation:

Secondary markets provide liquidity for securities issued, offer a platform for trading already issued securities, and provide valuable information about public companies through market prices.

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.

Explanation:

The compensation for postponement of consumption refers to the return an individual expects for deferring consumption now and investing the funds for future use. The Real Risk Free rate represents the return on an investment with no risk of loss and no inflation. It serves as a baseline return that investors expect to earn on their investments, adjusting for the time value of money and inflation. Therefore, it is the appropriate measure of compensation for postponing consumption.

Explanation:

The present value of cash flows is calculated by discounting each cash flow at a rate known as the yield to maturity. Yield to maturity represents the total return an investor would receive by holding a bond until its maturity date, considering both the coupon payments and any capital gains or losses if the bond is purchased at a premium or discount. It reflects the investor’s required rate of return on the bond investment, incorporating factors such as the bond’s coupon rate, its current market price, and the time remaining until maturity. Therefore, it is the appropriate discount rate used in present value calculations for bond cash flows.

Explanation:

1. Place of control and management: The residential status of a Hindu Undivided Family (HUF) depends on the place where its control and management are situated. If the control and management are located in India, the HUF is considered a resident in India for tax purposes.

2. Residential status of its manager: Additionally, the residential status of the manager or karta of the HUF also plays a significant role. If the manager is a resident in India, the HUF is considered a resident in India.

Therefore, both factors – the place of control and management and the residential status of the manager – determine the residential status of a Hindu Undivided Family.

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)

Explanation:

Market risk in equity investment refers to the risk associated with the fluctuations in the market prices of securities. These fluctuations are influenced by various factors such as economic conditions, investor sentiments, geopolitical events, and market dynamics created by different participants such as investors, traders, institutions, and regulators. Therefore, market risk arises due to the unpredictable nature of these price movements driven by the interactions of various players in the market.

Explanation:

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 interest at a fixed date for perpetuity.

While the principal amount in such bonds is never really due for repayment, 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.

Explanation:

Buy-side Analysts work for money managers like mutual funds, hedge funds, pension funds or portfolio managers that purchase and sell securities for their own investment accounts.

These analysts generate investment recommendations for their internal consumption viz. use by the fund managers within organization.

Explanation:

Portfolio managers are typically not allowed to leverage the portfolio of their clients for investment in derivatives. Leveraging involves borrowing funds to amplify the potential returns of an investment, which also increases the risk. Using leverage in derivatives trading can magnify losses and expose clients’ portfolios to significant risk. Therefore, in most cases, portfolio managers are prohibited from leveraging their clients’ portfolios for derivative investments to ensure prudent risk management and protect the interests of the clients.

Explanation:

Customized benchmarks are tailored to reflect the specific investment objectives and constraints of a particular portfolio. While they may not necessarily have low maintenance costs or low costs of construction, their primary advantage lies in their ability to meet the requirements of being valid benchmarks. Valid benchmarks accurately reflect the performance of the portfolio against its investment objectives and constraints, providing a meaningful basis for evaluating the portfolio’s performance.

Explanation:

Straight-arrow investors are typically those who seek moderate and stable returns while avoiding excessive risk. They are not inclined towards high-risk strategies nor are they completely risk-averse like zero-risk investors. Instead, they are willing to accept a moderate level of risk in pursuit of their investment objectives. Therefore, by implication, straight-arrow investors are willing to be exposed to medium risk.

Explanation:

All the above are requirements for granting the certificate of registration under Portfolio Managers Regulations.

Explanation:

Explanation:

When the interest rate increases, the discounting factor used to find out the present value of future cash flows also increases. This is because higher interest rates imply higher opportunity costs of capital, meaning that cash flows received in the future are worth less in present value terms. Therefore, as the interest rate increases, the discounting factor also increases, leading to a lower present value of future cash flows.

Explanation:

All of the given options – capital preservation, capital appreciation, and current income – are primary investment objectives that investors can pursue.

Explanation:

Correlation measures the strength and direction of relationship between two variables. Correlations among asset class returns can and do change over time and in different economic situations. Asset return correlation in future may also differ from those observed in the past because of changing economic and market regimes.

Explanation:

All of the mentioned options – PE ratio, Sharpe ratio, and expense ratio – are included in fund factsheets to provide investors with essential information about the portfolio’s characteristics and performance.