Test Objectives-NISM Series-XXI-B: Portfolio Managers Certification Examination

  1. 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
  1. 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
  2. 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
  3. 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
  4. 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
  5. 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
  6. 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
  7. 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
  8. 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
  9. 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
  10. 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
  11. 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
  12. 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
  13. 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
  14. 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
  15. 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
  16. 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
  17. 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
  18. 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
  19. 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
  20. 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