Test Objectives-NISM Series-XXI-B: Portfolio Managers Certification Examination
1. Investments Landscape 1.1.Define Investment 1.2.Distinction between Investment and Speculation 1.3.Know the objectives of Investments 1.4.Estimating the required rate of return 1.4.1.Concept of Nominal rate of return, Real Risk free rate and Expected Inflation 1.4.2.Concept of Risk Premium 1.4.3.Understand the various types of risks • Business Risk • Financial Risk • Liquidity Risk • Exchange rate Risk • Political Risk • Geopolitical Risk • Regulatory Risk 1.4.4.Understand the relationship between risk and return 1.5.Know the types of Investments and their role and characteristics 1.5.1. Equity 1.5.2. Fixed Income Securities 1.5.3. Commodities 1.5.4. Real Estates 1.5.5. Structured products 1.5.6. Distressed Securities 1.5.7. Other Investment Opportunities 1.6. Know the channels for making investments 1.6.1. Direct investments • Understanding the role of Registered Investment Advisers (RIAs) 1.6.2. Investments through managed portfolios • Mutual Funds • Alternative Investment Funds • Portfolio Managers • Collective Investment Schemes
2. Introduction to Securities Markets 2.1. Define the term Security and understand the basics of Securities Markets 2.2. Understand the structure of securities markets with a discussion on primary and secondary markets 2.2.1. Primary market: Explain various ways to issue Securities – Initial Public Offer, Follow on Public Offer, Private Placement, Qualified Institutional Placements, Preferential issue, Rights and Bonus issue, Onshore and offshore offerings, Offer for Sale, Employee Stock Ownership Plan. FCCBs, ADR / GDR, Concept of Anchor Investors in IPO and Pre-IPO placement. 2.2.2. Secondary market: Over-the-counter Market and Exchange Traded Markets, Trading, Clearing and Settlement and Risk Management 2.3. Know the various market participants and their activities 2.3.1. Market Infrastructure Institutions and other Intermediaries: Stock Exchanges, Depositories, Depository Participant, Trading Member/Stock Brokers, Authorized Person, Custodians, Clearing Corporation, Clearing Banks, Merchant Bankers and Underwriters 2.3.2. Institutional participants: Foreign Portfolio Investors, P-Note Participants, Mutual Funds, Insurance Companies, Pension Funds, Venture Capital Funds, Private Equity Firms, Hedge Funds, Alternative Investment Funds, Investment Advisers, EPFO, NPS, Family Offices, Corporate Treasuries 2.3.3. Retail participants
3. Investing in Stocks 3.1. Understand the Equity as an investment 3.2. Know the Diversification of risk through equity instruments – Cross sectional versus time series 3.3. Discuss the types of Risks of equity investments 3.3.1. Market risk 3.3.2. Sector specific risk 3.3.3. Company specific risk 3.3.4. Liquidity risk 3.4. Understand the Overview of Equity Market 3.5. Know the Equity research and stock selection 3.5.1. Fundamental Analysis • Top Down approach versus Bottom up Approach • Buy side research versus Sell Side Research 3.5.2. Stock Analysis process • Economy Analysis • Industry/Sector Analysis • Company Analysis 3.5.3. Fundamentals Driven model-Estimation of Intrinsic Value • Discounted Cash Flow Model • Other fundamental driven models 3.5.4. Market driven Model – Relative Valuation • Price to Earnings (P/E) Ratio • Price to Book value (P/B) Ratio • Price to Sales (P/S) Ratio • Price Earning to Growth (PEG) Ratio • Economic Value Added (EVA) and Market Value Added (MVA) • Earning Before Interest and Tax (EBIT)/EV and EV/EBITDA Ratio • Enterprise Value (EV)/Sales (S) Ratio • Industry/sector specific valuation metrices 3.5.5. Combining relative valuation and discounted cash flow models 3.6. Understand the Technical Analysis 3.6.1. Assumptions of technical analysis 3.6.2. Technical versus Fundamental Analysis 3.6.3. Advantages of technical Analysis 3.6.4. Technical Rules and Indicators 3.6.5. Fixed income securities and Technical analysis 3.7 Understanding corporate governance
4. Investing in Fixed Income Securities 4.1. Understand the Overview of Fixed Income Securities 4.2. Know the Bond Characteristics 4.2.1. Bonds with Options 4.3. Discuss the Determinants of bond safety 4.4. Understand the Analysis and Valuation of Bonds 4.4.1. Bond Pricing 4.4.2. Bond Yield Measures • Couple Yield • Current Yield • Yield to Maturity • Yield to call/put 4.5. Know the Measuring price volatility for bonds 4.5.1. Interest rate risk 4.6 Determining duration
5. Derivatives 5.1. Define Derivatives 5.2. Know the types of derivative products 5.2.1 Forwards 5.2.2 Futures 5.2.3 Options 5.2.4 Swaps 5.3. Discuss the Structure of derivative markets 5.3.1. OTC 5.3.2. Exchange Traded Markets 5.4. Know the Purpose of Derivatives 5.5. Understand the concept of commodity, currency future and options 5.6. Understand the underlying concepts in derivatives • Zero Sum Game • Settlement Mechanism • Arbitrage • Margining Process • Open Interest
6. Mutual Funds 6.1. Understand the Concept and Role of Mutual Fund 6.2. Know the Benefits of investing through mutual funds 6.3. Discuss the Legal Structure of Mutual Fund in India 6.4. Understand the Working of mutual funds 6.5. Know the Types of Mutual fund products 6.6. Understand the Processes of investing in mutual funds 6.6.1. Systematic transaction 6.7. Discuss the Legal and Regulatory Framework – Key SEBI Regulation 6.8. Understand the Fact Sheet – Scheme Related Information 6.8.1. Reading mutual fund information 6.9. Understand the concept of Net Asset Value, Total Expense Ratio, Pricing of Units 6.10. Understand the Mutual Fund Scheme Performance 6.11. Know the Key performance measures
7. Role of Portfolio Managers 7.1. Understand the Overview of portfolio managers in India 7.2. Know the Types of portfolio management services 7.2.1. Discretionary services 7.2.2. Non-discretionary services 7.2.3. Advisory services 7.3. Discuss the Organisational structure of PMS in India 7.4. Understand the Registration requirements of a Portfolio Manager 7.5. Know the Responsibilities of a Portfolio Manager 7.6. Discuss the Administration of investor’s portfolio 7.6.1. Defining the universe of securities for the purpose of investments 7.6.2. Circumstances leading to pre-mature withdrawal of funds 7.6.3. Do’s and don’ts for the portfolio managers 7.6.4. Appointment of custodian 7.6.5. Maintenance of records 7.6.6. Accounts and audit 7.6.7. Appointment of compliance officer
8. Operational Aspects of Portfolio Managers 8.1. Know the entities which can invest in PMS 8.2. Discuss the Disclosures to the prospective clients 8.2.1. Best Practices for the disclosures – Global Investment Performance Standards (GIPS) 8.3. Know the process of on-boarding of clients 8.3.1. Content of agreement between the portfolio manager and investor 8.4. Know the Direct On-boarding in PMS 8.4.1. Process Flow 8.4.2. Joint Holder in PMS 8.5. Know the Liability in case of Default 8.6. Discuss the Redressal of Investors grievances 8.7. Discuss the Disclosures to the regulator 8.7.1. Disclosures to SEBI 8.7.2. Disclosures to Financial Intelligence Unit – India 8.8. Know the Costs, expenses and fees of investing in PMS 8.8.1. High watermark principle 8.8.2. Hurdle Rate
9. Portfolio Management Process 9.1. Understand the Importance of Asset allocation decision 9.2. Understanding correlation across asset classes and securities 9.3. Know the Steps in Portfolio Management Process 9.3.1. Investment Policy Statement, IPS 9.3.2. Need for IPS 9.3.3. Constituents of IPS 9.3.4. Investment Objectives 9.3.5. Investment Constraints • Liquidity constraint • Regulatory constraint • Tax Constraint • Exposures limits to different sectors, Entities and Asset Classes • Unique needs and preferences 9.3.6. Assessments of needs and requirements of investor 9.3.7. Analyzing the financial position of investor 9.3.8. Psychographic analysis of investor 9.3.9. Life cycle analysis of investor 9.3.10. Forecasting risk and return of various asset classes 9.3.11. Bench-marking the client’s portfolio • Performance Benchmarking 9.4. Know the Asset allocation decision 9.5. Discuss the Strategic versus Tactical Asset Allocation 9.5.1. Importance of Asset Allocation decision – empirical support 9.6. Understand the Re-balancing of Portfolio 9.6.1 Benefits and difficulties of re-balancing
10. Taxation 10.1. Discuss the Taxation of investors 10.1.1. Residential status 10.1.2. Place of Effective Management 10.1.3. Scope of total income 10.1.4. Characterization of Income 10.2. Know the Taxation of various streams of income 10.2.1. Capital Gains 10.2.2. Dividend income 10.2.3. Interest income 10.2.4. Business income 10.2.5. Entitlement of benefit under Double Tax Avoidance Agreement (DTAA) 10.3. Understand the Section 9A of Income Tax Act
11. Regulatory, Governance and Ethical Aspects of Portfolio Managers 11.1. Understand the Prevention of Money Laundering Act, 2002 11.2. Understand the SEBI (Prohibition of Insider Trading) Regulation 2015 11.3. Understand the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 11.4. Understand the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 11.5. Know the best practices for portfolio managers 11.5.1 Research objectivity 11.5.2 Soft dollar practices 11.6. Investor Charter for Portfolio Management Services
12. Introduction to Indices 12.1. Understand what is an Index 12.2. Know the Uses of Indices 12.3. Discuss the Factors differentiating the indices 12.3.1 Price weighted index 12.3.2 Value weighted index 12.3.3 Equal weighted index 12.3.4 Fundamental weighted and factor-based index 12.4. Know How indices are created – Index Methodologies 12.5. Discuss the Stock market indices 12.5.1. Broad based indices 12.5.2. Market capitalization-based indices 12.5.3. Style indices 12.5.4. Capitalization and style indices 12.5.5. Sectoral index 12.5.6. Total Return Index 12.5.7. Dollar denominated index 12.5.8. Global Equity Indices 12.5.9. MSCI Indices for India 12.6. Discuss the Bond market indices 12.6.1. Government Securities Index 12.6.2. Corporate Bond Index 12.6.3. High Yield Bond Index 12.6.4. Global Bond Index 12.6.5. Total Return Index 12.7. Discuss the Stock-Bond (Composite) Indices
13. Concept of Informational Efficiency 13.1. Distinction between Informational efficiency and Operational Efficiency 13.2. Understand Efficient Capital markets and random walk theory 13.2.1. Weak-form of efficiency 13.2.2. Semi-strong-form of efficiency 13.2.3. Strong-form of efficiency 13.3. Know the Tests and Results of Efficient Market Hypotheses 13.4. Market Anomalies 13.4.1. The Calendar (January) Anomaly 13.4.2. The Size Anomaly 13.4.3. The Value Anomaly 13.5. Discuss the Implication of market efficiency on Valuation and Portfolio Management 13.5.1. Market Efficiency and Technical Analysis 13.5.2. Market Efficiency and Fundamental Analysis 13.5.3. Internal contradiction in the concept of efficiency 13.5.4. Market Efficiency and the rise of index fund
14. Behavioral Finance 14.1. Distinction between Behavioral Finance and Standard Finance 14.2. Discuss how individuals make decision? 14.2.1. Bounded Rationality 14.2.2. Prospect Theory 14.3. Understand the Categorization of Biases 14.3.1. Emotional Biases • Loss aversion Bias • Stereo Typing Bias • Overconfidence Bias • Endowment Bias • Status Quo Bias 14.3.2. Cognitive errors • Mental accounting • Framing • Anchoring 14.4. Discuss Fusion Investing 14.5. Understand behavioural finance and market anomalies 14.5.1. Market Anomalies 14.5.2. Bubbles and crashes
15. Introduction to Modern Portfolio Theory 15.1. Discuss the Framework for constructing portfolios – Modern Portfolio Theory 15.2. Know the Assumptions of the theory 15.3. Definition of risk averse investors, Risk Seeking Investors and Risk Neutral Investors 15.4. Calculation of expected rate of return for individual security 15.5. Calculation of Variance of return for individual security 15.6. Calculation of expected rate of return for a portfolio 15.7. Calculation of Variance of return for a portfolio • Calculating risk for two securities Portfolio • Calculating risk for three securities Portfolio 15.8. Understand the graphical presentation of portfolio risk/return of two securities 15.9. Understand the concept of Efficiency Frontier 15.10. Know the Portfolio Optimization process 15.11. Discuss Estimation issues
16. Introduction to Capital Market Theory 16.1. Introduction to Capital Market Theory 16.2. Understand the Assumptions of Capital Market Theory and the implications of relaxing these assumptions 16.3. Discuss the Capital Market line 16.4. Know the Diversification of risk and market portfolio 16.5. Know the Types of risk – Market and Non-market risk 16.6. Understand the Capital Asset Pricing Model, CAPM 16.7. Discuss the Security Market Line 16.8. Understand the concept of Market Portfolio 16.8.1. Time variability of market risk 16.9. Know the Empirical test of CAPM 16.10. Understand the Multi factor models of risk and return
17. Risk 17.1. Definition of Risk 17.2. Understand the Process of risk management 17.3. Know the Different kinds of risk 17.3.1. Market Risk 17.3.2. Non-market risk 17.3.3. Liquidity Risk 17.3.4. Operational Risk 17.3.5. Regulatory Risk 17.3.6. Legal Risk 17.3.7. Geo-Political Risk 17.3.8. Currency risk 17.3.9. Country Risk 17.3.10. Concentration Risk 17.3.11. Pandemic Risk 17.4. Understand the Measuring Risk 17.4.1. Measuring market risk 17.4.2. VAR 17.4.3. Stress testing 17.4.4. Measuring liquidity risk 17.4.5. Measuring credit risk 17.5. Understand the Managing Risk 17.5.1. Managing market risk 17.5.2. Managing non-market risk 17.5.3. Managing Risk that cannot be managed
18. Equity Portfolio Management Strategies 18.1. Know the Passive management strategies 18.1.1. Buy and hold 18.1.2. Indexing 18.1.3. Distinguish between Buy and Hold and Indexing 18.1.4. Indexing portfolio construction techniques • Full replication • Sampling 18.2. Know the Active management strategies 18.2.1. Market timing 18.2.2. Sector rotation 18.3. Understand the fundamental law of active management 18.3.1. Information coefficient 18.3.2. Breadth of analysis 18.4. Discuss the Active versus passive management 18.4.1. Role of indices in driving passive flows 18.4.2. Choices of index 18.4.3. Re-balancing of indices and fund flow implication 18.5. Understand the Smart Beta management strategies 18.5.1. Enhanced indexing 18.6. Know the Factor-based portfolios 18.6.1. Macro-economic factor driven portfolio 18.6.2. Fundamental factor driven portfolio 18.6.3. Model driven portfolio 18.7. Discuss the Momentum Investing 18.8. Discuss the Investment Management Styles 18.8.1. Growth Investment Style • Screens for identifying growth stocks 18.8.2. Value Investment Style • Screens for identifying value stocks 18.8.3. Blended Investment Style 18.9. Understand the Socially responsible investing/ethical investing 18.10. Discuss Core and satellite investment management approach 18.11. Understand the concept of Alpha beta Separation 18.12. Discuss the Constructing Equity portfolios with derivative securities 18.13. Know the Protecting portfolios with Put options 18.14. Discuss the Global Active Strategy 18.14.1. Global market for equities • Benefits and costs of globally diversified portfolios 18.14.2. Emerging markets equities versus developed market equities 18.14.3. Market capitalization versus GDP 18.14.4. Home (Familiarity) Bias 18.14.5. Implications of rise of Index Funds on cost of portfolio management, investor returns and implications for Active Management
19. Fixed Income Portfolio Management Strategies 19.1. Introduction to Fixed Income Instruments 19.2. Know the Passive management strategies 19.2.1. Buy and hold strategy 19.2.2. Bond index funds 19.2.3. Immunization 19.3. Know the Active Management Strategies 19.3.1. Interest Rate driven Strategy 19.3.2. Credit Analysis 19.4. Discuss Global Fixed Income Strategy 19.4.1 Risks in Global Investment 19.5. Understand the Constructing bond portfolios with derivative securities 19.6. Discuss the Protecting portfolios with derivatives
20. Performance measurement and evaluation of Portfolio Managers 20.1. Discuss Parameters to define performance – risk and return 20.2. Know the Rate of return measures 20.2.1. Holding Period Return 20.2.2. Time-weighted versus Money weighted rate of return 20.2.3. Arithmetic mean return versus geometric mean return 20.2.4. Gross return versus net return 20.2.5. Pre-tax versus post tax return 20.2.6. CAGR 20.2.7. Annualizing return 20.2.8. Cash drag adjusted return 20.2.9. Alpha and Beta return 20.2.10. Portfolio Return 20.3. Understand the Risk measures 20.3.1. Total risk and downside risk 20.3.2. Portfolio risk versus individual risk 20.3.3. Systematic risk and unsystematic risk 20.3.4. Tracking error 20.4. Understand the Risk adjusted return measures 20.4.1. Sharpe Ratio 20.4.2. Treynor Ratio 20.4.3. Sortino Ratio 20.4.4. Information Ratio 20.4.5. Modigliani and Modigliani Ratio (M2) 20.5. Understand the Performance Evaluation: Benchmarking and peer group analysis 20.5.1. Characteristics of Indices for benchmarking 20.5.2. Customized benchmark 20.5.3. Managers’ universe analysis 20.6. Understand the Performance attribution analysis 20.6.1. Assets and Sector Allocation 20.6.2. Selection 20.6.3. Local currency versus foreign currency denominated investment return 20.7. Understand the Performance reporting to the Investor 20.8. Understand the Valuation of Securities by Portfolio Managers 20.9. Discuss the Due Diligence and Portfolio Manager selection 20.10. Global Investment Performance Standards 20.11. GIPS Advertisement Guidelines
21. Portfolio Rebalancing 21.1 Understand the Need for rebalancing 21.2 Know the Cost and difficulties of rebalancing 21.3 Discuss the Periodicity of rebalancing 21.3.1 Time versus threshold-based rebalancing 21.4 Understand the Buy and Hold Strategy 21.5 Discuss Constant Mix Strategy 21.6 Understand Constant Proportion Portfolio Insurance
