NISM Series XXI-B: Portfolio Managers Cert. Mock Test (Set 4)

The increasing open interest represents new or additional money coming into the market. Open interest refers to the total number of outstanding contracts in the market. As it rises, it indicates growing market participation and suggests the influx of new capital or interest in the financial instruments being traded.

In the case of Portfolio Management Services (PMS), the minimum amount required for investment is Rs. 50 lakhs. This minimum investment threshold is set by regulatory guidelines for PMS offerings in India.

Tacking error is the standard deviation of the difference between the portfolio and its target benchmark portfolio total return. It measures the volatility of the active return, indicating how much the portfolio deviates from its benchmark and provides insight into the effectiveness of the portfolio management strategy.

The stock exchange becomes the counterparty to both the buyer and seller of a futures contract through a clearing house. The clearing house plays a crucial role in ensuring the integrity and settlement of futures contracts by acting as an intermediary and managing the financial obligations of the parties involved.

SEBI (Securities and Exchange Board of India) portfolio managers regulations mandate managers to disclose the details of all the above: a) Beneficial interest received, b) Expenses incurred in managing the portfolio, c) Details of commission paid to the distributor. This transparency ensures that investors are informed about key aspects related to their investment and the management of their portfolios.

In a cost leadership strategy, the firm seeks to be the low-cost producer and hence the cost leader in its industry. This strategy focuses on achieving the lowest production costs in the industry, allowing the firm to offer competitive prices and potentially gain a larger market share.

In a material financial relationship, one person is considered to have such a relationship if they are a recipient of any kind of payment by way of a loan from a designated person during the immediately preceding twelve months, equivalent to at least 25% of the annual income of such designated person. This percentage threshold helps define the significance of the financial connection in regulatory contexts.

Psychographic analysis of investor behavior bridges the gap between standard finance and behavioral finance. Psychographic analysis involves studying the psychological and lifestyle factors that influence an investor’s decisions, blending traditional financial models with insights from behavioral finance to gain a more comprehensive understanding of market behavior.

Impact cost is the percentage price movement caused by a particular order size from the average of the best bid and offer price. It measures the liquidity and market impact of executing a trade, helping investors assess the cost associated with their transactions.

During the accumulation phase, the investor may undertake high-risk oriented investments. This phase typically involves a longer investment horizon, allowing investors to potentially benefit from the higher returns associated with riskier assets as they aim to accumulate wealth over time.

Family Offices are investment management firms catering to ultra-high net worth households, providing them with customized investment management solutions. These offices offer a range of financial services, including investment management, estate planning, and wealth preservation, tailored to the specific needs of high-net-worth families.

Soft underwriting is the commitment given once the pricing is determined. In financial contexts, soft underwriting refers to a commitment made by underwriters to buy securities at a particular price before the formal issuance or offering process is completed. This commitment is contingent on the final pricing of the securities.

In a swap contract, two parties agree to a specified exchange of cash flows on a future date. Swap contracts involve the exchange of financial instruments or cash flows between the parties over a predetermined period, helping them manage risks or achieve specific financial objectives.

Leptokurtic distributions have data values that are either around the mean or substantially deviate away from the mean. In other words, leptokurtic distributions have fatter tails and a more peaked or pronounced central peak compared to a normal distribution.

Tax rates applicable to Category III Alternative Investment Funds (AIF) are further determined by the source and nature of income, such as capital gains. The tax treatment for gains or losses in Category III AIFs is often specific to the type of income generated from investments. In the context of capital gains, the tax rates and rules may vary based on the holding period and nature of the assets.

Skewness is the risk measure used to ascertain the extent to which a distribution is not symmetrical across the mean. It quantifies the degree and direction of asymmetry in a probability distribution. Positive skewness indicates a distribution with a tail on the right side, while negative skewness suggests a tail on the left side.

The term “Redemption” states the period during which investors can redeem their money back from the fund. It outlines the provisions and conditions for investors to withdraw their investments from the fund.

On the date of entering into a futures contract, the futures price at which a Category III AIF enters into the contract and the number of contracts entered into are taken into account for the purpose of computing Total Exposure. Total Exposure is a key metric used to assess the risk exposure of the AIF in the derivatives market.

Key Terms of the Category III AIF/Fund scheme include Fund Tenure, Target Corpus, Investor Reporting mechanism, and Dates of First Close and Final Close. These terms are critical elements that define the structure, duration, and reporting aspects of the fund.

Portfolio Assessment of investment risks revolutionized the basket of assets available for investment. It involves evaluating and selecting a diverse mix of assets to optimize returns while managing risks. This approach, known as modern portfolio theory, was a significant advancement in investment strategy.

During the accumulation phase, the net worth is typically small relative to liabilities. In this phase, individuals are often in the early stages of building wealth, and their net worth (assets minus liabilities) is usually lower compared to later stages when assets accumulate and liabilities decrease.

Non-Resident Indians (NRIs) are allowed to hold joint demat accounts with other NRIs or residents. The regulations and permissions for joint demat accounts may vary, so individuals should check with their depository participant or financial institution for specific details.

The P/BV (Price-to-Book Value) ratio is an indication of how much shareholders are paying for the net assets of a company. It compares the market price of a stock to its book value, reflecting the market’s valuation of the company’s net assets. The formula for P/BV ratio is Market Price per Share / Book Value per Share.

An Options contract gives its buyers the right, but not an obligation, to buy or sell the underlying asset on or before a stated date. It provides flexibility for the holder to decide whether to exercise the option, depending on market conditions and their investment strategy.

Except for the one that provides only the advisory services, every portfolio manager shall appoint a custodian in respect of securities managed or administered by it. This ensures proper custody and safekeeping of securities for clients, especially in the case of discretionary and non-discretionary portfolio management services.