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
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
- 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. Discuss the Due Diligence and Portfolio Manager selection
20.9. Global Investment Performance Standards
20.10. 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
