Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 1.
The SEBI Fraudulent and Unfair Trade Practices Regulations prohibit a person
to, directly or indirectly _________ securities in a fraudulent manner.
Buy
Sell
Deal
All of the above

CORRECT ANSWER
Explanation:

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Market) Regulations prohibit a person to, directly or indirectly buy, sell or deal in
securities in a fraudulent manner.

Q 2.
Which of the following schemes have the features like 1) Continuous sale and
purchase of units at NAV or NAV related prices, 2) Investor can enter and exit
the scheme any time during the life of a fund, 3) The scheme does not have
specific time frame.
Interval scheme
Open ended scheme
Close ended scheme
All of the above

CORRECT ANSWER
Explanation:

Open-ended funds allow the investors to enter or exit at any time, after the NFO. The
scheme does not have a maturity. Investors can buy additional units in the scheme any
time after the scheme opens for on-going transactions. Prospective investors can also
buy units. At any time, the existing investors can redeem their investments, that is, they
can sell the units back to the scheme to get their money back.

Close-ended funds have a fixed maturity.

Interval funds combine features of both open-ended and close-ended schemes. They are
largely close-ended but become open-ended at pre-specified intervals

Q 3.
The counterparty risk in a futures contract is mitigated primarily through
__________.
The functions of the clearing corporation
Collateralisation by one of the parties to the contract
Settlement on gross basis between two parties

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 1 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

The limits on positions and trading volumes

CORRECT ANSWER
Explanation:

The trades executed on the exchange are settled through a clearing corporation, which
acts as a counterparty and guarantees the settlement of the trades to both buyers and
sellers.

The clearing corporation provides full novation of contracts between buyers and sellers,
which means it acts as buyer to every seller and seller to every buyer. As a result, the
operational risk of the transaction is substantially reduced to a trading investor.

Q 4.
_________ is the central, national agency responsible for receiving,
processing, analysing and disseminating information relating to suspect
financial transactions to enforcement agencies.
SEBI
FIU-IND
CBI
RBI

CORRECT ANSWER
Explanation:

Financial Intelligence Unit - India (FIU-IND) is the central, national agency responsible for
receiving, processing, analysing and disseminating information relating to suspect
financial transactions to enforcement agencies and foreign FIUs.

The portfolio manager is required to report any suspicious transaction within 7 working
days to FIU.

Q 5.
The feature that allows the issuing firms to retire the bonds before the
maturity by paying a prescribed price is called _______.
Convertibility
Redemption
Callability (call option)
Putability (put option)

CORRECT ANSWER
Explanation:

A callable bond gives the issuer right to redeem all or part of the outstanding bonds
before the specified maturity date. Callable bonds are advantageous to the issuer of the
security. In other words, callable bonds present investors with a higher level of
reinvestment risk than non-callable bonds.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 2 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

The issuer will call the bond before its maturity only when the interest rates for similar
bonds fall in market. The investor will receive the face value of the bond before the
maturity.

Q 6.
An _________ is a broad outlay of the type of securities and permissible
instruments to be invested in by the portfolio manager for the customer,
taking into account factors specific to clients and securities.
Investment statement
Investment approach
Investment profile
Investment objectives

CORRECT ANSWER
Explanation:

The agreement between the portfolio manager and the client includes the investment
approach. An investment approach is a broad outlay of the type of securities and
permissible instruments to be invested in by the portfolio manager for the customer,
taking into account factors specific to clients and securities.

Q 7.
________ industries rise and fall and very closely follow the general economic
activity in comparison to other industries.
Financial
Cyclical
Consumer staples
Defensive

CORRECT ANSWER
Explanation:

A cyclical industry is a type of industry that is sensitive to the business cycle, such that
revenues generally are higher in periods of economic prosperity and expansion and are
lower in periods of economic downturn and contraction.

Cyclical industries are attractive investments during the early stages of an economic
recovery. During the phase of recovery, consumer durable sectors such as producers of
cars, personal computers, refrigerators, tractors etc. become attractive investments.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 3 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 8.
The agreement between the portfolio manager and the client should include
which of the following?
investment approach, areas of investment and restrictions, if any, imposed by the
client with regard to the investment in a particular company or industry
period of the contract and provision of early termination, if any
the investment objectives and the services to be provided
All of the above

CORRECT ANSWER
Explanation:

All of the above are included in the agreement.

Q 9.
The SEBI (Mutual Funds) Regulations came in the year _______ .
1994
1996
1964
2000

CORRECT ANSWER
Explanation:

The SEBI (Mutual Funds) Regulations came in the year 1996.

Q 10.
________ portfolio manager manages the funds in accordance with the
directions of the client.
Discretionary
Non-discretionary
Advisory
All of the above

CORRECT ANSWER
Explanation:

Non-discretionary portfolio manager manages the funds in accordance with the directions
of the client. The portfolio manager does not exercise his/her discretion for the buy or sell
decisions.

(Discretionary portfolio manager individually and independently manages the funds of

each investor as per the contract.)

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 4 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 11.
While making an application for a portfolio manager, financial information has
to be submitted for which of the three years?
Current and the next two years
Preceding two years and the current year
Preceding 3 years
Succeeding three years

CORRECT ANSWER
Explanation:

Iformation has to be submitted for the Capital Structure : Paid-up capital & Free Reserves
for Year prior to the preceding year of current year, Preceding year, Current Year.

Q 12.
A reputed portfolio manager has deployed funds of a client with a corporate.
The corporate has promised that convertible bonds will be issued against
these funds. Is this transaction in order?
This is NOT in order as no physical delivery of the security has been made and
this is not permitted
This is NOT in order as this amounts to lending of the client's funds and this is not
permitted
This is in order as this style of investment is routine and approved
This is in order as eventually bonds will be issued to the PMS

CORRECT ANSWER
Explanation:

As per SEBI's Do’s and Don’ts for the portfolio managers -

The portfolio manager shall not deploy the clients' funds in bill discounting, badla
financing or for the purpose of lending or placement with corporate or non-corporate
bodies.

Q 13.
The time period restriction for a contra trade by a Designated Person of a
company is ______ .
One month
Three months
Six Months
Nine months

CORRECT ANSWER

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 5 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Explanation:

The SEBI (Prohibition of Insider Trading) Regulations code of conduct shall specify the
period, which in any event shall not be less than six months, within which a designated
person who is a connected person of the listed company and is permitted to trade in the
securities of such listed company, shall not execute a contra trade.

Q 14.
_______ is the threshold limit for the suspicious transactions for which record
needs to be kept as per the Money Laundering Act.
Rs. 5 Lakhs
Rs. 10 Lakhs
Rs. 25 Lakhs
Rs. 1 Crore

CORRECT ANSWER
Explanation:

As per Prevention of Money Laundering Act, 2002, a suspicious transaction includes : All
cash transactions of the value of more than Rs. 10 lakh or its equivalent in foreign
currency.

Q 15.
Define the relationship between the prices of a bond and its yield.
Its always positive
Its always inverse
Its positive when interest rates are falling
Its positive when interest rates are rising

CORRECT ANSWER
Explanation:

If market interest rate levels rise, the price of a bond falls. Conversely, if the market
interest rates decline, the price of the bond rises.

In other words, the yield of a bond is inversely related to its price

Q 16.
A PMS has changed its main office address. This should be informed to
______ . A. Financial Intelligence Unit – India (FIU) B. SEBI C. Clients

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 6 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Only A and B
Only B and C
Only A and C
All A, B and C

CORRECT ANSWER
Explanation:

The change in office address has to be informed to SEBI and the clients.

Its not to be informed to FIU as only suspicious transaction with respect to money
laundering etc. have to be reported to FIU.

Q 17.
A reputed PMS firm has 5 group companies. Identify which among the
following is the best practice about disclosing these to the client.
The PMS firm has to disclose about the group companies only if there is a conflict
of interest
The PMS firm need not disclose about the group companies
The PMS firm has to disclose about the group companies
The PMS firm need not disclose about the group companies as they are not above
10 in number

CORRECT ANSWER
Explanation:

If the portfolio manager has group companies, a disclosure of conflict of interest related
to services offered by group companies of the portfolio manager if any, has to be
mentioned in the disclosure document.

Q 18.
Which of the following institutions can issue bonds in India ?
Financial Insstitutions
Banks
Corporates
All of the above

CORRECT ANSWER
Explanation:

In India, the fixed income market is classified on the basis of the entities issuing fixed
income securities. Fixed income securities are issued by legal entities such as the Central
and State Governments, Public Bodies, Banks and Institutions, statutory corporations
and other corporate bodies.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 7 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 19.
The price of ABC Ltd. equity shares has reached its resistance line. As per
technical analysis, this is a good time to ______ .
Buy the shares of ABC Ltd.
Sell the shares of ABC Ltd.
Hold the shares of ABC Ltd.

CORRECT ANSWER
Explanation:

Technical analysis integrates these three elements into price charts - points of support
and resistance in charts and price trends.

If a stock price is moving closer to an established resistance level, a holder of the stock
can benefit by selling the share and booking profits at this stage since the prices are
likely to retract once it is close to the resistance level.

Q 20.
Identify the TRUE statement with respect to an investor seeking to engage a
portfolio manager.
There is no need for an investor to understand anything about investing styles
An investor should pay attention to the major provisions of the investment contract
An investor has to depend on the distributors advice on the choice of a portfolio
manager
An investor only has to place trust in the portfolio managers approach to investing

CORRECT ANSWER
Explanation:

Portfolio Managers can be evaluated on the basis of their investment philosophy,

investment approach, investment process, strategies, styles and past performance
compared against a benchmark or managers’ universe. Attention can also be paid to the
major provisions in the contract with the portfolio managers.

Q 21.
Identify the TRUE statement -
Sharpe ratio when multiplied by the downside Risk is called Sortiona ratio
Sortino ratio is excess returns per unit downside risk
Sortino ratio is the excess returns per unit of total risk

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 8 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Sortino ratio and Sharpe ratio both measures the same excess returns

CORRECT ANSWER
Explanation:

When we 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.

For computing Sortino Ratio, portfolio’s return in excess of the risk-free return is divided
by the portfolio’s semi-standard deviation. Thus, Sortino Ratio adjusts portfolio’s excess
return to the downside risk.

Like Sharpe and other risk adjusted return ratio, higher level of Sortino Ratio indicates
superior performance.

Q 22.
Which type of compensation is not embedded in the nominal risk free rate?
Compensation for liquidity
Compensation for time lapsation
Compensation for postponing consumption
Compensation for inflation

CORRECT ANSWER
Explanation:

Investment is the commitment of rupee for a period of time to earn :

a) pure time value of money – for investors postpone their current consumption

b) compensation for expected inflation during the period of investment for the change in
the general price levels and

c) risk premium for the uncertainty of future payments

Q 23.
The fund which is established to facilitate and organize the investment of the
retirement funds contributed by the employees and employers is known as
______ .
Public Provident Fund
Pension Fund
Retirement Fund
Mutual Fund

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 9 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

CORRECT ANSWER
Explanation:

Pension Funds: A fund established to facilitate and organize the investment of the
retirement funds contributed by the employees and employers.

The pension fund is a common asset pool meant to generate stable growth over the long
term, and provides a retirement income for the employees.

Q 24.
Identify the TRUE statement with respect to P/E Ratio (Price Earning Ratio).
P/E Ratio is the market determined earnings of a company
P/E Ratio is the market determined price of a company’s equity
P/E Ratio is the market perceived earnings growth rate of a company
P/E Ratio is the market’s willing investment for every 1 rupee of earnings of the
company

CORRECT ANSWER
Explanation:

A stock's P/E tells us how much investor is willing to pay per rupee of earnings.

In other words, a P/E ratio of 10 suggests that investors in the stock are willing to pay Rs.
10 for every Re. 1 of earnings that the company generates.

Q 25.
______ as a factor is recognized by RBI Act 1934 to derive the value of a
derivative.
Interest Rate
Inflation Rate
Index of industrial production
GDP Growth rate

CORRECT ANSWER
Explanation:

The term derivative has also been defined in section 45U(a) of the RBI act 1934 as follows:
An instrument, to be settled at a future date, whose value is derived from change in
interest rate, foreign exchange rate, credit rating or credit index, price of securities (also
called “underlying”), or a combination of more than one of them and includes interest rate
swaps, forward rate agreements, foreign currency swaps, foreign currency-rupee swaps,
foreign currency options, foreign currency-rupee options or such other instruments as
may be specified by RBI from time to time.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 10 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 26.
Which of these is NOT contained in the Investment policy statement ?
Financial Regulations
Investment roadmap
Investors risk appetite
Investment constraints

CORRECT ANSWER
Explanation:

Development of Investment Policy Statement (IPS) is the key step in the process of
portfolio management. IPS is the road map that guides the investment process.

Either investors or their advisors draft the IPS specifying their investment objectives,
goals, constraints, preferences and risks they are willing to take. All investment decision
are based on IPS considering investors’ goal and objectives, risk appetite etc..

Q 27.
A net amount of Rs 10,000 has to be paid to an investor as interest. The TDS
(Tax Deducted at Source) is 10%. Calculate how much should be set aside for
the payment of interest?
Rs. 12,111.12
Rs. 10,000
Rs. 11,111.11
Rs. 9000

CORRECT ANSWER
Explanation:

The formula to get Net from Gross after tax is -

Net = Gross – (Gross X Tax)

[Let Gross = G]

[Tax is 10% = 10/100 = 0.1}

Net amount is Rs 10000

10000 = G – (G x 0.1)

10000 = G – 0.1 G

[ 1G - 0.1G = .9G]

10000 = .9G

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 11 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

G = 10000/.9 = 11,111.11

Q 28.
Identify the CORRECT statement with respect to Foreign Currency Convertible
bonds (FCCB).
FCCBs are equity shares convertible into bonds
In FCCBs, the payment of interest and principal is in domestic currency
FCCBs are foreign currency denominated equity certificates issued by firms
FCCBs are foreign currency denominated debt certificates issued by firms

CORRECT ANSWER
Explanation:

FCCBs are foreign currency (usually dollar) denominated debt raised by companies in
international markets but which have the option of converting into equity shares of the
company before they mature.

The payment of interest and repayment of principal is in foreign currency.

Q 29.
As per which regulations is the KYC compliance been made mandatory?
RBI Act 1934
SEBI (Portfolio managers) Regulations 1996
SEBI(Portfolio managers) Regulations 2020
Prevention of Money Laundering Act 2002

CORRECT ANSWER
Explanation:

The ‘Know Your Customer (KYC)’ process has to be undergone by all investors of PMS in
compliance with the regulations of the Prevention of Money Laundering Act, 2002.

In order to ensure that illegal funds are not routed into Indian markets, the government
has promulgated the Prevention of Money Laundering Act (PMLA).

Q 30.
Ms. Preeti invested in the US and she earned 18% on that US investment. If the
US Dollar depreciates during this investment period then the return in INR
terms will be _______ .
More than 18%

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 12 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Less than 18%

Remain at 18%
None of the above

CORRECT ANSWER
Explanation:

Lets take an example to understand this : - USD depreciating against INR means the value
of USD falls against INR. Say from Rs 75 to Rs 74.

When Ms. Preeti invetsed in USD, she invested at USDINR rate of 75 but when she sold
and converted into Indian rupees, it will be at Rs 74. So she gets a lower return.

Q 31.
Identify the statement which is NOT true regarding the organization of
Portfolio Manager?
The legal existence of a Portfolio Manager should be separate from its promoters
A Micro credit institution under co-operative societies act cannot be a Portfolio
Manager
A one person company can also be a Portfolio Manager
A Portfolio Manager is to be promoted by a Scheduled commercial bank

CORRECT ANSWER
Explanation:

Organizational structure of PMS in India :

A portfolio manager is a body corporate who, pursuant to a contract or arrangement with

a client, advises or directs or undertakes on behalf of the client, the management or
administration of a portfolio of securities or the funds of the client.

A body corporate means any entity that has its separate legal existence apart from the
persons forming it. It can be a one person company. It cannot be a co-operative society
registered under any law relating to co-operative societies.

It’s not necessary that it should be promoted only by a scheduled commercial bank.

Q 32.
What type of disciplinary action can be taken as per the SEBI (Prohibition of
Insider Trading) Regulations?
Wage freeze
Recovery
Suspension
All of the above

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 13 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

CORRECT ANSWER
Explanation:

As per SEBI (Prohibition of Insider Trading) Regulations 2015, Clause 12 (B) - Without
prejudice to the power of the Board under the Act, the code of conduct shall stipulate the
sanctions and disciplinary actions, including wage freeze, suspension, recovery,
clawback etc., that may be imposed, by the intermediary or fiduciary required to formulate
a code of conduct under sub-regulation (1) and sub-regulation (2) of regulation 9, for the
contravention of the code of conduct.

Any amount collected under this clause shall be remitted to SEBI for credit to the Investor
Protection and Education Fund administered by SEBI under the SEBI Act.

Q 33.
The currency pair of ________ does not have futures or options trading on
Indian stock exchanges.
JPY-INR
USD-INR
Chinese Yuan – INR
EUR-INR

CORRECT ANSWER
Explanation:

In India, Currency Derivatives are available on four currency pairs viz. US Dollars (USD-
INR), Euro (EUR-INR), Great Britain Pound (GBP-INR) and Japanese Yen (JPY-INR).

Q 34.
Mr. Mehta's initial contribution is Rs. 2 crores which then rises to Rs. 2 crores
30 lakhs in the first year. Therefore, a performance fee will be payable on Rs.
30 lakhs. Is this statement True or False?
True
False

CORRECT ANSWER
Explanation:

High Water Mark is the highest value that the portfolio/account has reached. The portfolio
manager charges performance based fee only on increase in portfolio value in excess of
the previously achieved high water mark.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 14 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 35. Identify the INCORRECT statement with respect to Unsystematic risk.

Unsystematic risk is diversifiable risk
Unsystematic risk is sector specific risk
Unsystematic risk is unavoidable risk
Unsystematic risk is expected to be nil in a portfolio investment

CORRECT ANSWER
Explanation:

Risks due to sector specific/company specific factors is referred as unsystematic risks.

For eg. A company suffering huge losses due to fire in its factory.

Unsystematic risk is also known as a diversifiable risk since it can be eliminated by

sufficiently diversifying a portfolio.

These risks are avoidable by not investing only in a particular sector or company buy by
having a diversified large portfolio.

Q 36.
Identify which of these statement(s) is / are true with respect to Unlisted equity
investments.
Unlisted equity is relatively illiquid
Pricing of Unlisted equity is sporadic
Pricing of Unlisted equity includes a discount for illiquidity
All of the above

CORRECT ANSWER
Explanation:

Pricing of investment in unlisted space is not continuous. It is performed at regular

intervals or when the need for the same arises for buying or selling. Since these
investments do not trade in stock exchange, they are relatively less liquid in comparison
to listed investments. Hence, investors may demand an extra compensation for the same
called “illiquidity risk premium”. Buying and selling of unlisted investments takes longer
time compared to the listed investments.

Q 37.
The nominal risk-free rate of return protects the investors from inflation risk.
Comment on this statement.
Yes, it definitely protects
No, it definitely does not protects
Yes, it probably protects
Can' say

CORRECT ANSWER
Explanation:

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 15 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

The nominal risk-free rate of return is the rate of return, an investor is certain of receiving
on the due date. Investor is certain of the amount as well as the timing of the return.
Hence, it is the risk-free rate of return.

As can be seen, it ignores the potential change in the purchasing power of rupee due to
inflation. There is no guarantee that rupee will have the same purchasing power a year
from now that it has today.

Q 38.
Identify the distinguishing feature of a body corporate?
A body corporate should have minimum 10 shareholders
A body corporate should have issued equity shares
A body corporate should be an independent legal entity separate from its owners
A body corporate should be listed on a recognised stock exchange

CORRECT ANSWER
Explanation:

Body corporate broadly means a corporate entity which has a legal existence. A body
corporate means any entity that has its separate legal existence apart from the persons
forming it. It enjoys a completely different legal status apart from its members.

In simple terms, the term body corporate includes a private company, public company,
one persona company, small company, Limited Liability Partnerships, foreign company
etc.

Q 39.
Identify which of these is an essential element of Technical Analysis?
Prices follow a pattern
Time span is an indication of Trend sustenance
A good volume indicates strength in Trend
All of the above

CORRECT ANSWER
Explanation:

As per technical analysis - There are three essential elements in understanding price
behaviour:

1. The history of past prices provides indications of the underlying trend and its direction.
2. The volume of trading that accompanies price movements provides important inputs
on the underlying strength of the trend. 3. The time span over which price and volume are
observed factors in the impact of long term factors that influence prices over a period of
time.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 16 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 40.
Identify the true statement with respect to registration of a Portfolio
Management Service.
The Principal officer is required to have a valid degree from any discipline
If the applicant is from United States of America, then the networth requirement is
relaxed
The principal officer should have experience of at least five years in related
activities in the securities market
PMS registration and approval can now be done online

CORRECT ANSWER
Explanation:

Before issuing a certificate of PMS registration, the regulator will ensure whether:

The principal officer of the applicant has -

a) a professional qualification in finance, law, accountancy or business management from

a university or an institution recognized by the Central Government or any State
Government or a foreign university or a CFA charter from the CFA institute;

b) experience of at least five years in related activities in the securities market including
in a portfolio manager, stock broker, investment advisor, research analyst or as a fund
manager; and

c) the relevant NISM certification as specified by SEBI from time to time

Q 41.
Identify which of these is not a cost of investing in a PMS?
Franking charges
Brokerage charges
Listing Fee
Registrar Fee

CORRECT ANSWER
Explanation:

Some of the charges charged to a PMS client include - Brokerage and transaction costs,
Registrar and Transfer agent fee, charges payable for outsourced professional services
like franking charges and notarizations, etc. incurred on behalf of the client by the
portfolio manager.

(Listing fee is paid by a company to the stock exchange to get its share listed for trading
on the stock exchange).

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 17 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 42.
The application for registering as a Portfolio Management Service has to be
made in _______ of SEBI Portfolio Managers regulations.
Form A of Schedule II
Form B of Schedule I
Form A of Schedule I
Form B of Schedule III

CORRECT ANSWER
Explanation:

To act as a portfolio manager, obtaining certificate of registration from SEBI under the
Portfolio Managers Regulations is a mandatory requirement.

The application needs to be made in Form A of Schedule I.

Q 43.
It is correct that the 'long term correlation pattern between two asset classes
does not change over times'? A. Yes, the statement is correct as their
cashflow patterns do not change B. No, the statement is incorrect as the
macroeconomic factors and investor preference change
Only A is correct
Only B is correct
Both A and B are correct
Neither A nor B are correct

CORRECT ANSWER
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.

Q 44.
Identify the CORRECT statement with respect to the charge of performance
fee by the portfolio manager.
The performance fee is charged when the portfolio value exceeds the previous
high water mark
The performance fee is charged only when the rate of return on a portfolio
exceeds a ‘hurdle rate’
Both of the above
None of the above

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 18 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

CORRECT ANSWER
Explanation:

Profit sharing/performance related fees are usually charged by portfolio managers upon
exceeding a hurdle rate or benchmark as specified in the agreement.

High Water Mark is the highest value that the portfolio/account has reached. The portfolio
manager charges performance based fee on increase in portfolio value in excess of the
previously achieved high water mark.

Q 45.
Identify the TRUE statement with respect to Bonds.
The Face value of a bond and its Market value are always same
There cannot be embedded options in bonds
Some type of bonds need not be repaid
All bonds create a ownership right in a company

CORRECT ANSWER
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.

Q 46.
The prime motto of portfolio attribution analysis is ___________ .
To find out the differential return generated due to the skill of the portfolio manager
To find out to what extent individual firms contribute to portfolio returns
To find out to what extent sectoral returns contribute to portfolio returns

CORRECT ANSWER
Explanation:

The underlying theme behind various attribution analysis approaches is to dissect the
return into majorly two components: return driven by the benchmark and the differential
return.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 19 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

And then identifying and quantifying the sources of differential return to primarily
establish whether it was driven by skill of the portfolio manager or some random factors.

Q 47.
Before SEBI issues the certificate of registration to a PMS, it has to ensure
that the applicant has appointed : A. Compliance Officer B. Principal Officer C.
Atleast one person who is graduate from a university etc. recognized by
Central or State Government and has atleast 2 years experience in securities
market related activities
Only A and B are correct
Only B and C are correct
Only A and C are correct
All A, B and C are correct

CORRECT ANSWER
Explanation:

Before issuing a certificate of registration, the regulator will ensure whether -

In addition to the Principal Officer and Compliance Officer, the PMS applicant has in its
employment at least one person who has a graduation from a university or an institution
recognized by the Central Government or any State Government or a foreign university;
and an experience of at least two years in related activities in the securities market
including in a portfolio manager, stock broker, investment advisor or as a fund manager.

Q 48.
When is a Call Option said to be Out of the Money (OTM)?
When the Market price is lower than strike price
When the Market price is equal to OTC price
When the Market price is equal to strike price
When the Market price is higher than strike price

CORRECT ANSWER
Explanation:

Out of the money option is one with strike price worse than the spot / market price for the
holder of option. In other words, this option would give the holder a negative cash flow if
it were exercised immediately.

A call option is said to be OTM, when spot price is lower than strike price. And a put
option is said to be OTM when spot price is higher than strike price.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 20 of 21
Welcome to Pass4Sure 14/08/23, 11:43 AM

Q 49.
An investor wants to invest for some near term goals and he does not have
much tolerance for variation. In this case the investment universe should be
restricted to _____ .
Dividend paying blue chip shares
Top rated long duration fixed income securities
Government Bills
Mid and Small cap funds

CORRECT ANSWER
Explanation:

Near-Term High Priority Goals have a high emotional priority which the investor wishes to
achieve within just a few years at most.

As a result, investment vehicles for these goals tend to be either cash equivalents or
fixed-income instruments with maturity dates that match the goal date like Government
Bills.

Q 50.
As per SEBI regulations, ______ is the minimum limit value of funds or
securities that can be accepted from a client by a PMS
Rs. 25 Lakhs
Rs. 50 Lakhs
Rs. 1 crore
Rs. 1.5 crore

CORRECT ANSWER
Explanation:

Portfolio management services are regulated by SEBI under Portfolio Manager

Regulations.

As per the rules - The portfolio manager is required to accept minimum Rs. 50 lakhs or
securities having a minimum worth of Rs. 50 lakhs from the client while opening the
account for the purpose of rendering portfolio management service to the client.

Out of 50 questions 50 are correct.

https://pass4sure.in/mocktest_attempt.aspx?id=1646 Page 21 of 21